dcin 102013
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Digital Cinema Destinations Investor PresentationTRANSCRIPT
A Peek Into The Future of Theatrical Exhibition
NASDAQ: DCIN
www.digiplexdest.com
Forward-Looking Statements
Certain statements and estimates in this presentation are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements about: expected benefits from the conversion to digital cinema; and the Company’s ability to successfully pursue its strategies. These forward-looking statements are not guarantees of future performance. They are based on management's expectations that involve a number of business risks and uncertainties, including the risks set forth under the heading “Risk Factors” in our 10-K for the year ended June 30, 2013, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Any estimates or other forward-looking statements provided in this presentation speak only as of the date they were made, and, except to the extent required by law, we undertake no obligation to update or review any estimate and/or forward-looking statement because of new information, future events or other factors.
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Investment Highlights
Growth Story: Fastest growing public company in the theater exhibition space
Revenues have grown 3.7x year over year
Potential for significant multiple expansion as company grows in size and liquidity improves
Strong Acquisition Pipeline: Favorable M&A landscape in the theater exhibition industry provides wealth of opportunities
Management has relationships, dialogues, and business history with a vast number of theater owners / prospective acquisition candidates
Content Play: Emphasis on alternative content provides innovative strategy to drive incremental growth and improve capacity utilization
Focused on acquiring proprietary content that can drive customers to theaters at non-peak times
Strong Management Team: Executive team of industry veterans provides outsized experience and knowledge base relative to company size
Pioneers in the digital cinema industry (Clearview / Cinedigm legacy)
Most of the current management team has worked together for over a decade at previous enterprises
Strategic Alliances: Digiplex has meaningful relationships with key industry players, providing material credibility at an early growth stage
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Industry Overview
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Sources: Box Office Mojo, Box Office Magazine
U.S. Annual Box Office Performance (billions $US)
VCR Internet
DVD
Commercial Penetration of New Media Forms “Competing” With Box Office:
Cable
5% Box Office CAGR* (1970-2011)
2012 $10.8 2012 broke all-time domestic box record
set in 2009 by ~$240 million, for a total of $10.8 billion
Stable industry with consistent pricing power, despite technological advances
Inexpensive out-of-home entertainment option typically resilient to economic pressures
Average ticket price has grown from $5.66 in 2001 to $7.96 in 2012
Long-Term Industry Box Office Success and Stability
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Cinema Has Performed Well Over Decades
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
$11
$12
Film Remains the Most Popular and Affordable Out-of-Home Entertainment
Cinemas
Theme Parks
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$50
$100
$150
$200
$250
$300
$350
- 200 400 600 800 1,000 1,200 1,400
Ave
rage
Co
st
Popularity (Attendance)
Source: MPAA – Theatrical Market Statistics, 2012
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Corporate Strategy
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Strategic Overview
Acquisition Plan: Opportunistically expand Digiplex ’s national footprint by identifying and acquiring solid performing theaters in accretive transactions at reasonable cash flow multiples (approx. 4.5x – 6x, including initial CapEx)
Improve the Theater-Going Experience: Further enhance acquired theaters with additional investments in digital technology and focus on customer enjoyment
Increase Utilization: Drive theater-level utilization rates with proprietary and alternative programming to attract targeted niche customers to events at off-peak times
Long-term Goals:
100 theaters/1,000 screens in 75/100 top DMAs
Become a media company: As the platform grows, Digiplex will be increasingly focused on pushing proprietary content through its platform and to other non-owned affiliates
Goal of alternative content reaching 20% of total revenue at high margins, with minimal risk
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Screen Acquisition Landscape
Disciplined Approach
Price: ~4.5x-6x Theater-Level Cash Flow
Includes initial CapEx and cost of improvements
Location: methodical targeting of free zones in top-100 DMAs
Focus on creating media distribution network better tailored to local tastes
Early stage of roll-up allows us to be more opportunistic than our competition geographically
Approximately 40,000 Screens Domestically
~ 20,000 Owned by Top 4 Exhibitors
(AMC, Regal, Cinemark, Carmike)
~8,000 Regional Circuits
~12,000 Disaggregated Independents
Our Opportunity:
We believe that there is a substantial number of theaters within this subset of screens that are ripe for acquisition. We seek acquisition candidates that fit the following:
• Cash Flow Positive • High Quality Assets • Located in Top 100 DMA • Owners Seeking Exit Opportunity
Favorable Industry Trends
Industry has a significant number of smaller-scale regional and “Mom n’ Pop” theatre owners
Ongoing digital conversion of domestic screen base requires significant investment on behalf of owners to stay relevant; often exceeding capital access
These factors have produced significant opportunities in the acquisition pipeline
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Current Footprint:
19 Theaters / 184 Screens
Located in six states (AZ, CA, CT, NJ, OH, PA)
15 of Digiplex’s 19 locations are in top 30 DMAs
100% digital screen base (including 35-40% 3D capable)
Long-Term Goal: Grow to become a national circuit featuring 100 theaters / 1,000 screens in 75 of the
Top 100 DMAs
Added 165 screens since the Company’s IPO in April 2012
Additional Positives:
Joint Venture with Start Media provides acquisition vehicle / capital
The size of DCIN’s footprint allows for better acquisition opportunities (smaller theaters at preferred pricing / purchase multiples)
Digiplex Footprint Overview
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Digiplex Acquisition History
Theatre Location State Acquisition Date # Theaters # Screens
Transaction
Value ($MM)
TTV /
TLCF
TTV/
Screen
Rialto Westfield New Jersey 6
Cranford Cranford New Jersey 5
Acquisition 1 31-Dec-10 2 11 $1.8 ND $163,636
Bloomfield 8 Bloomfield Connecticut 8
Acquisition 2 17-Feb-11 1 8 $0.1 1.0x $12,500
Cinema Center of Bloomburg Bloomsburg Pennslyvania 11
Cinema Center of Camp Hill Camp Hill Pennslyvania 12
Cinema Center of Fairground Mall Reading Pennslyvania 10
Cinema Center of Selinsgrove Selinsgrove Pennslyvania 12
Cinema Center of Williamsport Williamsport Pennslyvania 9
Acquisition 3 20-Apr-12 5 54 $13.9 4.8x $257,407
Lisbon Theater Lisbon Connecticut 12
Acquisition 4 29-Sep-12 1 12 $6.6 6.0x $550,000
Surprise Point 14 Surprise Arizona 14
Apple Valley Apple Valley California 14
Mission Marketplace Oceanside California 13
Temecula Tower Temecula California 10
Poway Poway California 10
Mission Valley San Diego California 7
River Village Bonsall California 6
Acquisition 5 11-Dec-12 7 74 $12.8 5.0x $172,973
Sparta Sparta New Jersey 3
Acquisition 6 1-Jan-13 1 3 ND ND ND
Solon Solon Ohio 16
Acquisition 7 1-Feb-13 1 16 ND ND ND
Torrington Torrington Connecticut 6
Acquisition 8 19-Jul-13 1 6 $0.6 ND $105,751
Mean 9.6 4.2x $210,378
Median 10.0 4.9x $168,305
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Strategy: Schedule wide range of alternative programming, building awareness and attendance gains through active targeted marketing and comprehensive social media customer engagement initiatives
Long-term goal: Generate 20% of total box receipts from alternative content, improving attendance metrics at ~50% higher ticket price…replacing underperforming Hollywood titles on screen
Progress Update: Continuing to introduce DCIN’s alternative programming, targeted marketing platform, and active, low-cost social-based outreach strategies that were successfully implemented in its first 3 locations to its newly acquired facilities
Alternative programming as a % of total fiscal Q4’13 admissions revenues averaged ~3% at locations owned for more than one year (6% in Q3 ‘13 – less contribution from Hollywood content)
Improve Utilization: Alternative Programming
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Procure Content Schedule Programming Market Events
A diverse range of programming that appeals to wide array of audiences
Ideally Mon.-Thurs., when average cinemas operate at <10% capacity
Digital content allows for timely and targeted schedule and content optimization
Create awareness/interest through DCIN’s consumer engagement initiatives: customer targeting, relationship building, fostering a two-way dialog with guests
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Sample Content and Event Grosses
Day of the Week Event Offered
Event Gross that Day
Highest Grossing Movie that Day
Lowest Grossing Movie that Day
Event Ticket Price (1 adult)
Monday Opera Encore: Die Walkure $453 $250 $0 $12.50
Movie Classic: Star Trek 25th Anniversary $911 $284 $169 $12.50
Opera Encore: Wagner’s Dream $389 $360 $0 $12.50
Tuesday Ballet: Nutcracker Live $1,345 $125 $0 $20.00
Concert: Rolling Stones Live in 1978 $672 $90 $9 $12.50
Ballet: Le Corsaire $566 $125 $0 $15.00
Wednesday Broadway: West Side Story $2,425 $73 $56 $12.50
Broadway: Love Never Dies $1,422 $108 $0 $12.50
Opera: La Traviata $1,340 $93 $0 $20.00
Thursday Movie Classic: Singin’ in the Rain $2,603 $608 $48 $12.50
Art Show: Leonardo Live $1,592 $272 $20 $12.50
Movie Classic: Singin’ in the Rain $955 $235 $28 $12.50
Saturday Opera Live: Don Giovanni $7,073 $530 $21 $25.00
Opera Live: La Traviata $3,850 $1,169 $48 $12.50
Sports: Mayweather vs. Ortiz $1,817 $2,037 $44 $18.00
Sunday Opera Live: Phantom of the Opera $1,104 $282 $28 $18.00
Ballet: Le Corsaire $976 $309 $8 $15.00
Los Angeles Philharmonic $479 $309 $8 $18.00
Averages: $783.31 $497.05 $76.41 $15.01
Improve Utilization: Alternative Programming Successes
Alternative programming consistently outperforming lowest (and often highest) grossing movies…at higher prices
0%
5%
10%
15%
20%
25%
30%
Mon Tues Wed Thurs Fri Sat Sun
Weekly Box Office Contribution (Historical) Goal for Alternative Content
Source: BoxOfficeMojo.com, 2012 daily domestic box office data
Conceptual Overview: Alternative Content to Drive Utilization
Long-Term Goal: Achieve 20% Box Office Contribution from Alternative Content
High Margin / Low Risk
Benefits of Alternative Content:
Drive incremental weekday attendance
Smooth out the daily demand curve
Generate attractive admission premiums
Longer-term downstream revenue opportunities
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DigiNext Value-Creation Opportunity
Unique, specialty content joint venture with Nehst Studios featuring a curated series of documentaries and indie features (hand-selected from world’s leading film festivals) shown on Digiplex circuit and at friendly, non-competing theaters
Forged unique alternative content distribution alliance with cinema advertising giant potential platform of 14,000+ Screenvision theater network auditoriums across the US
DCIN receives 50% of all net downstream/ancillary revenues including DVD, digital downloads and international broadcast rights
Additional features and unique benefits of DigiNext: Opportunity for innovative live Q&A between audience and cast members Affordable pricing ($7.00 per ticket, or $6.00 if 5-title subscription purchased) ‘Pay it Forward’ – a charitable program allowing Digiplex patrons to give back to their community ~Ten releases/year (excluding high-traffic ‘holidays’)
Using Digital Technology to Serve Diverse Audience
Leveraging digital technology in innovative ways to enhance entertainment options
Select DCIN theater locations have started presenting special engagements of major Hollywood movie releases with both Spanish and English sound tracks
Participating locations include, Apple Valley and San Diego, CA, and Reading, PA
DCIN plans to expand this entertainment option to include more locations and to feature Asian and other foreign language presentations in addition to Spanish
February 2013 March 2013 April 2013 August 2013 December 2013
Bud Mayo, Chairman and CEO (Board Member): Industry veteran with over two decades of experience. Previously, Bud founded and led both Cinedigm Digital Cinema Corp., the pioneer and leader in digital cinema, and Clearview Cinema Group, a top U.S. theater circuit. In recognition of his efforts within the industry, Bud received the distinct honor of being inducted into the film exhibition Hall of Fame at the industry's 2010 ShowEast conference.
Brian Pflug, CFO (Board Member): Former Controller at Clearview Cinemas and former SVP of Accounting and Finance at Cinedigm Digital Cinema Corp. Mr. Pflug has worked with Bud Mayo since 1998, when Brian was controller at Clearview Cinemas. The two then worked together at Cinedigm Digital Cinema Corp. where Brian rose to senior vice president of Accounting and Finance, his most recent position before Digiplex.
Chuck Goldwater, Senior Vice President (Board Member): Industry veteran with over two decades of experience. Former CEO of Digital Cinema Initiatives, the major studio consortium that set digital standards; and was the former Head of Cinedigm’s digital cinema unit. Chuck has held senior management positions at a number of leading theater exhibitors including USA Cinemas, National Amusements and Loews Theatres, and he served as President/CEO of Mann Theatres and President at Clearview Cinemas.
Jeff Butkovsky, Chief Technology Officer: Jeff has an extensive background in digital cinema and over 25 years in
technology management, software development and technology sales. He was Cinedigm Digital Cinema Corp.’s Senior Vice President and Chief Technology Officer from October 2000 to July 2010.
Experienced Management Team of Industry Pioneers
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Digiplex Corporate Officers
Case Study: Clearview Cinemas
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Sep. 1994: Co-founded by Bud Mayo with 4 theaters and 8 screens
Dec. 1994: Received equity from CMNY Capital and added 3 screens
1995: Acquired 3 theaters and 11 screens
May 1996: Received equity investment of $4.5M from MidMark Capital
1996: Acquired 9 theaters and 39 screens
Aug. 1997: IPO – Sold 1.15M shares for $9.2M gross
Jan. – Sep. 1998: Acquired 11 theaters and the right to operate one theater for a total of 54 screens
1997: Acquired 14 theaters with 79 screens, added 6 screens to acquired theaters and constructed a 5-screen theater
Dec. 1998: Sale to Cablevision (NYSE: CVC) for $160M, including New York City’s Ziegfeld Theatre
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS: The above information is presented solely for informational purposes, and no representation, warranty or guarantee is being made relative to the future performance of the Company or the trading price of its Class A common stock whatsoever.
Share Price Aug 21, 1997 (market open): $ 8.00
Sold for Share Price Dec 8, 1998 (on or about 12/8): $24.25
Hold Time (# of days): ~ 474
Return on Investment (approximate): 233%
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Clearview Cinemas Corporate Timeline
1995 1996 1997 1998
Bud Mayo co-founded Clearview with four theaters and sold the company to Cablevision four years later
Attractive exit price for IPO investors:
Carmike Cinemas Case Study
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Digital Cinema Destinations Share Price Relative to Screen Count
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Key Strategic Partnerships
Joint Venture Partner
•Up to $20MM in acquisition capital
On Screen Advertising Partner
•($0.17 per patron, ~50/50 split)
•Content through Fathom
Point-of-Sale Software
•Integrated with EMS and ERP
Negotiating Partner with Film Distributors
•Monthly flat fee for license fee negotiations
Exhibitor Management Services Platform
•EMS tracks ticketing, receipts, revenue, payments, scheduling
Specialty Content JV
•Provides documentaries and indie features
•Alternative Content Distributor
•14,000 screen network
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Start Media Joint Venture
Formation: December 10, 2012
Purpose: To acquire, refit and operate movie theaters
Start Media has committed to contribute up to $20 million.
Agreement:
JV is managed by a four person board of managers (equal representation)
As of June 30, 2013, Digiplex and Start Media owned 33% and 67% of the equity of JV, respectively
JV has a first right of refusal to acquire any theaters DCIN wishes to acquire, except for any theaters within a ten mile radius of existing Digiplex owned theaters. If JV does not exercise its right of first refusal, DCIN has the right to make the acquisition independently.
Agreement for ten years, optional renewal of terms in 2022
Progress Update:
Digiplex has contributed 961,393 shares of Class A common stock
Start Media has contributed approximately $10.3 million in cash to date
Capital contributions were used for the UltraStar acquisitions, the Torrington theater acquisition, and to fund anticipated capital expenditures for JV-owned theaters
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Financials
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(1) Theater level cash flow and Adjusted EBITDA are supplemental non-GAAP financial measures. These metrics as shown above are net of Start Media’s share of these items.
Selected Financials and Operating Metrics
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($ in thousands) 2013 2012 % ∆ 2013 2012 % ∆
Admission revenue 7,578 2,651 186% 21,305 4,738 350%
Concession revenue 3,301 1,032 220% 8,889 1,646 440%
Other 322 113 185% 990 287 245%
Total Revenue 11,201 3,796 195% 31,184 6,671 367%
Net Loss (1,209) (1,002) NM (5,256) (1,967) NM
Gross Margin Analysis
Box office less exhibition cost gross margin 47.3% 44.0% 8% 49.8% 49.6% 0%
Concession gross margin 82.0% 81.9% 0% 83.2% 82.1% 1%
Theatre level cash flow (1) 1,922 701 174% 5,633 1,251 350%
Adjusted EBITDA (1) 888 32 NM 2,366 (410) NM
Key Operating Metrics
Theaters 18 8 125% 18 8 125%
Average Screens 178 62 187% 130 30 333%
Total attendance (in thousands) 1,009 339 198% 2,852 570 400%
Average attendance per screen 5,667 5,506 3% 22,014 19,331 14%
Average admission per patron 7.92$ 7.82$ 1% 7.83$ 8.31$ (6%)
Average concessions sales per patron 3.45$ 3.04$ 13% 3.27$ 2.89$ 13%
Sales Total Per Patron 11.37$ 10.86$ 5% 11.10$ 11.20$ (1%)
Three Months Ended Twelve Months Ended
June 30, June 30,
Selected Financials and Operating Metrics
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Assets Liabilities and Equity
($ in thousands) 2013 2012 ($ in thousands) 2013 2012
Cash and Equivalents 3,607 2,037 Accounts payable 2,478 851
Accounts Receivable 697 238 Accrued expenses 3,964 1,088
Inventories 191 78 Payable to vendor for digital systems - 3,334
Deferred financing costs, current portion 357 - Notes payable, current portion 1,373 1,000
Prepaid expenses and other current assets 1,444 381 Capital lease, current portion 121 -
Total Current Assets 6,296 2,734 Earnout from theater acquisition 296 79
Deferred revenue 305 31
Property and equipment, net 29,171 15,432 Total Current Liabilities 8,537 6,383
Goodwill 3,156 980
Intangible Assets 6,186 4,114 Notes payable, long-term portion 8,615 -
Security deposit 205 3 Capital lease, net current portion 239 -
Deferred financing costs, long-term portion, net 1,225 - Unfavorable leasehold liability, long-term portion 159 190
Other Assets 9 14 Deferred rent expense 407 83
Total Assets 46,248 23,277 Deferred tax liability 199 39
Total Liabilities 18,156 6,695
Preferred stock - -
55 45
9 9
Additional paid in capital 25,816 19,285
Accumulated deficit (7,049) (2,757)
Total stockholder equity 18,831 16,582
Noncontrolling Interest 9,261 -
Total Equity 28,092 16,582
Class B Common Stock (900,000 shares authorized,
865,000 and 900,000 issued and outstanding as of June 30,
2013 and 2012)
Twelve Months Ended
June 30,
Class A Common Stock (20,000,000 shares authorized,
5,511,938 and 4,519,452 issued and outstanding as of June
30, 2013 and 2012)
June 30,
Twelve Months Ended
Digiplex Model Summary – “Cinema Reinvented”
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Cash flow positive theaters
Top DMAs
Pay reasonable cash flow multiples (including initial CapEx)
Convert analog systems
Integrate into DCIN digital platform
Add additional screens where feasible/profitable
Theaters to entertainment destinations
Innovative programming + social media = increased seat utilization (especially on slow weeknights)
ex: Sporting Events, Opera, Ballet
ACQUIRE
CONVERT & INVEST
TRANSFORM
Software systems provide flexibility/efficiency/lower expenses
Virtual print fees (VPF) benefit theater level cash flows, offsetting film rent
Participation on NCM national
pre-show ad network (19K+ screens)
Generating guaranteed per attendee minimum rate…or better
Attendance gains lead to enhanced concession revenues at attractive gross margins (>80%)
3D (36% of footprint is 3D compatible)
Alternative programming (~50%+ higher ticket prices)
Ad revenues of 17¢ per patron is NCM minimum guarantee
COST REDUCTIONS
PRE-SHOW ADVERTISING
INCREMENTAL REVENUES
Investment Highlights
Growth Story
Strong Acquisition Pipeline
Content Play
Strong Management Team
Strategic Alliances
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