Dcin 102013

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Digital Cinema Destinations Investor Presentation

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Dcin 102013

  1. 1. A Peek Into The Future of Theatrical Exhibition NASDAQ: DCIN www.digiplexdest.com
  2. 2. 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. 2
  3. 3. 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 3
  4. 4. Industry Overview 4
  5. 5. Long-Term Industry Box Office Success and Stability Cinema Has Performed Well Over Decades  2012 broke all-time domestic box record set in 2009 by ~$240 million, for a total of $10.8 billion U.S. Annual Box Office Performance (billions $US) 2012 $10.8 $12 $11 5% Box Office CAGR* (1970-2011) $10 $9  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 $8 $7 $6 $5 $4 $3 $2 $1 $0 Commercial Penetration of New Media Forms “Competing” With Box Office: Cable VCR Internet DVD Sources: Box Office Mojo, Box Office Magazine 5
  6. 6. Film Remains the Most Popular and Affordable Out-of-Home Entertainment $350 $300 Average Cost $250 $200 Theme Parks $150 $100 $50 Cinemas $- 200 400 600 800 1,000 Popularity (Attendance) 1,200 1,400 Source: MPAA – Theatrical Market Statistics, 2012 6
  7. 7. Corporate Strategy 7
  8. 8. 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 8
  9. 9. Screen Acquisition Landscape Favorable Industry Trends Approximately 40,000 Screens Domestically ~ 20,000 Owned by Top 4 Exhibitors (AMC, Regal, Cinemark, Carmike) ~8,000 Regional Circuits ~12,000 Disaggregated Independents  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 Disciplined Approach  Price: ~4.5x-6x Theater-Level Cash Flow 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  Includes initial CapEx and cost of improvements  Location: methodical targeting of free zones in top100 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 9
  10. 10. Digiplex Footprint Overview  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) 10
  11. 11. Digiplex Acquisition History Bloomsburg Camp Hill Reading Selinsgrove Williamsport Lisbon Theater Acquisition 4 Lisbon Surprise Point 14 Apple Valley Mission Marketplace Temecula Tower Poway Mission Valley River Village Acquisition 5 Surprise Apple Valley Oceanside Temecula Poway San Diego Bonsall Sparta Acquisition 6 Sparta Solon Acquisition 7 Solon Torrington Acquisition 8 Torrington ND $163,636 1 8 8 $0.1 1.0x $12,500 5 11 12 10 12 9 54 $13.9 4.8x $257,407 1 12 12 $6.6 6.0x $550,000 7 14 14 13 10 10 7 6 74 $12.8 5.0x $172,973 1 3 3 ND ND ND 1-Feb-13 Cinema Center of Bloomburg Cinema Center of Camp Hill Cinema Center of Fairground Mall Cinema Center of Selinsgrove Cinema Center of Williamsport Acquisition 3 $1.8 1-Jan-13 Bloomfield 2 6 5 11 1 16 16 ND ND ND 1 6 6 $0.6 ND $105,751 New Jersey New Jersey Bloomfield 8 Acquisition 2 TTV/ Screen 11-Dec-12 Westfield Cranford TTV / TLCF 29-Sep-12 Rialto Cranford Acquisition 1 Transaction Value ($MM) 20-Apr-12 State # Screens 17-Feb-11 Location # Theaters 31-Dec-10 Theatre Acquisition Date Connecticut Pennslyvania Pennslyvania Pennslyvania Pennslyvania Pennslyvania Connecticut Arizona California California California California California California New Jersey Ohio Connecticut 19-Jul-13 Mean 9.6 4.2x $210,378 Median 10.0 4.9x $168,305 11
  12. 12. Improve Utilization: Alternative Programming  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) Procure Content  A diverse range of programming that appeals to wide array of audiences Schedule Programming  Ideally Mon.-Thurs., when average cinemas operate at <10% capacity  Digital content allows for timely and targeted schedule and content optimization Market Events  Create awareness/interest through DCIN’s consumer engagement initiatives: customer targeting, relationship building, fostering a two-way dialog with guests 12
  13. 13. Improve Utilization: Alternative Programming Successes Sample Content and Event Grosses Alternative programming consistently outperforming lowest (and often highest) grossing movies…at higher prices Day of the Week Monday Event Offered Opera Encore: Die Walkure Movie Classic: Star Trek 25th Anniversary Opera Encore: Wagner’s Dream Event Gross that Day $453 $911 $389 Highest Grossing Movie that Day $250 $284 $360 Lowest Grossing Movie that Day $0 $169 $0 Event Ticket Price (1 adult) $12.50 $12.50 $12.50 Tuesday Ballet: Nutcracker Live Concert: Rolling Stones Live in 1978 Ballet: Le Corsaire $1,345 $672 $566 $125 $90 $125 $0 $9 $0 $20.00 $12.50 $15.00 Wednesday Broadway: West Side Story Broadway: Love Never Dies Opera: La Traviata $2,425 $1,422 $1,340 $73 $108 $93 $56 $0 $0 $12.50 $12.50 $20.00 Thursday Movie Classic: Singin’ in the Rain Art Show: Leonardo Live Movie Classic: Singin’ in the Rain $2,603 $1,592 $955 $608 $272 $235 $48 $20 $28 $12.50 $12.50 $12.50 Saturday Opera Live: Don Giovanni Opera Live: La Traviata Sports: Mayweather vs. Ortiz $7,073 $3,850 $1,817 $530 $1,169 $2,037 $21 $48 $44 $25.00 $12.50 $18.00 Sunday Opera Live: Phantom of the Opera Ballet: Le Corsaire Los Angeles Philharmonic $1,104 $976 $479 $282 $309 $309 $28 $8 $8 $18.00 $15.00 $18.00 $783.31 $497.05 $76.41 $15.01 Averages: 13
  14. 14. Conceptual Overview: Alternative Content to Drive Utilization Weekly Box Office Contribution (Historical) Goal for Alternative Content 30%  Long-Term Goal: Achieve 20% Box Office Contribution from Alternative Content  High Margin / Low Risk 25%  Benefits of Alternative Content: 20%  Drive incremental weekday attendance 15% 10%  Smooth out the daily demand curve 5%  Generate attractive admission premiums 0% Mon Tues Wed Thurs Fri Sat Sun Source: BoxOfficeMojo.com, 2012 daily domestic box office data  Longer-term downstream revenue opportunities 14
  15. 15. Using Digital Technology to Serve Diverse Audience  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’) February 2013 March 2013 April 2013 August 2013 December 2013  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 15
  16. 16. Experienced Management Team of Industry Pioneers Digiplex Corporate Officers  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. 16
  17. 17. Case Study: Clearview Cinemas  Bud Mayo co-founded Clearview with four theaters and sold the company to Cablevision four years later  Attractive exit price for IPO investors: 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% Clearview Cinemas Corporate Timeline 1995: Acquired 3 theaters and 11 screens 1994 Sep. 1994: Co-founded by Bud Mayo with 4 theaters and 8 screens 1995 Dec. 1994: Received equity from CMNY Capital and added 3 screens 1996: Acquired 9 theaters and 39 screens 1996 May 1996: Received equity investment of $4.5M from MidMark Capital 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 1997: Acquired 14 theaters with 79 screens, added 6 screens to acquired theaters and constructed a 5-screen theater 1998 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. 17
  18. 18. Carmike Cinemas Case Study Carmike Cinemas Digital Cinema Destinations Share Price Relative to Screen Count Share Price Relative to Screen Count DCIN Screen Count CKEC Screen Count DCIN Return CKEC Return 70.0% 200 70.0% 2600 60.0% 180 60.0% 2550 50.0% 160 50.0% 40.0% 140 40.0% 30.0% 120 30.0% 2500 2450 10.0% 80 2350 20.0% 2300 Screen Count 100 Share Price Return 20.0% Screen Count Share Price Return 2400 10.0% 2250 0.0% 60 0.0% 2200 -10.0% 40 -10.0% -20.0% 20 -20.0% 0 -30.0% Apr-12 -30.0% Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 2150 2100 2050 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 18
  19. 19. Key Strategic Partnerships Joint Venture Partner •Up to $20MM in acquisition capital •Alternative Content Distributor On Screen Advertising Partner •14,000 screen network •($0.17 per patron, ~50/50 split) •Content through Fathom Specialty Content JV Point-of-Sale Software •Integrated with EMS and ERP •Provides documentaries and indie features Exhibitor Management Services Platform Negotiating Partner with Film Distributors •EMS tracks ticketing, receipts, revenue, payments, scheduling •Monthly flat fee for license fee negotiations 19
  20. 20. 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 $10.3 million in cash to date  Capital contributions were used for the UltraStar acquisitions, the Torrington theater acquisition, and to fund anticipated capital expenditures for JV-owned theaters 20
  21. 21. Financials 21
  22. 22. Selected Financials and Operating Metrics ($ in thousands) Admission revenue Concession revenue Other Three Months Ended June 30, 2013 2012 Twelve Months Ended June 30, 2013 2012 %∆ %∆ 7,578 3,301 322 2,651 1,032 113 186% 220% 185% 21,305 8,889 990 4,738 1,646 287 350% 440% 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 Concession gross margin 47.3% 82.0% 44.0% 81.9% 8% 0% 49.8% 83.2% 49.6% 82.1% 0% 1% Theatre level cash flow (1) Adjusted EBITDA (1) 1,922 888 701 32 174% NM 5,633 2,366 1,251 (410) 350% NM Key Operating Metrics Theaters Average Screens Total attendance (in thousands) Average attendance per screen 18 178 1,009 5,667 8 62 339 5,506 125% 187% 198% 3% 18 130 2,852 22,014 8 30 570 19,331 125% 333% 400% 14% $ 7.92 $ 7.82 $ 3.45 $ 3.04 $ 11.37 $ 10.86 1% 13% 5% 8.31 2.89 11.20 (6%) 13% (1%) Average admission per patron Average concessions sales per patron Sales Total Per Patron $ $ $ 7.83 $ 3.27 $ 11.10 $ (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. 22
  23. 23. Selected Financials and Operating Metrics Assets ($ in thousands) Cash and Equivalents Accounts Receivable Inventories Deferred financing costs, current portion Prepaid expenses and other current assets Twelve Months Ended June 30, 2013 2012 Liabilities and Equity ($ in thousands) Property and equipment, net Goodwill Intangible Assets Security deposit Deferred financing costs, long-term portion, net Other Assets Total Assets 2,037 238 78 381 Accounts payable Accrued expenses Payable to vendor for digital systems Notes payable, current portion Capital lease, current portion 6,296 2,734 29,171 3,156 6,186 205 1,225 9 15,432 980 4,114 3 14 46,248 23,277 2,478 3,964 1,373 121 851 1,088 3,334 1,000 - Earnout from theater acquisition 296 79 Deferred revenue Total Current Assets 3,607 697 191 357 1,444 Twelve Months Ended June 30, 2013 2012 305 31 8,537 6,383 8,615 239 159 407 190 83 Total Current Liabilities Notes payable, long-term portion Capital lease, net current portion Unfavorable leasehold liability, long-term portion Deferred rent expense Deferred tax liability Total Liabilities Preferred stock 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) Class B Common Stock (900,000 shares authorized, 865,000 and 900,000 issued and outstanding as of June 30, 2013 and 2012) Additional paid in capital Accumulated deficit Total stockholder equity Noncontrolling Interest Total Equity 199 39 18,156 6,695 - - 55 45 9 9 25,816 (7,049) 19,285 (2,757) 18,831 16,582 9,261 - 28,092 16,582 23
  24. 24. Digiplex Model Summary – “Cinema Reinvented” TRANSFORM CONVERT & INVEST ACQUIRE  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 INCREMENTAL REVENUES PRE-SHOW ADVERTISING COST REDUCTIONS  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 24
  25. 25. Investment Highlights  Growth Story  Strong Acquisition Pipeline  Content Play  Strong Management Team  Strategic Alliances 25

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