What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-02 compared with 2020-08-03 · 243 added, 221 removed, 262 unchanged (64% of the section changed)

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These forward-looking statements involve risks and uncertainties.

Our actual results could differ materially from those indicated in these statements as a result of certain factors as more fully discussed under the heading “Risk Factors” below and in our annual report on Form 10-K for the Company’s fiscal year ended December 26, 2019 and as updated within our Form 10-Q filed with the SEC on May 5, 2020 the three months ended March 26, 2020.

Our actual results could differ materially from those indicated in these statements as a result of certain factors as more fully discussed under the heading “Risk Factors” below and in our annual report on Form 10-K for the Company’s fiscal year ended December 26, 2019 and as updated within our quarterly report on Form 10-Q filed with the SEC on May 5, 2020 for the quarter ended March 26, 2020.

Among other risks, we face significant risk and volatility related to the COVID-19 Pandemic as discussed in this report.

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We currently derive revenue principally from the sale of advertising to national, regional and local businesses in Noovie , our cinema advertising and entertainment pre-show seen on movie screens across the U.S.

Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed to address the COVID-19 Pandemic.

As of June 25, 2020 almost all of the theaters within our network remained closed.

We were unable to advertise in the theaters, and thus did not generate any in theater revenue, for the three months ended June 25, 2020 and will not for the duration of time that the theaters remain closed.

Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed to address the COVID-19 Pandemic and almost all of the theaters within our network remained closed until late August 2020.

On September 4, 2020 the Company resumed in-theater advertising and as of September 24, 2020, approximately two-thirds of the theaters within our network were open.

As of October 30, approximately 53% of theaters within our network are open.

Refer to the “Recent Developments” section below for further information regarding the impact of and the Company's response to the COVID-19 Pandemic.

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In Regal and Cinemark and 14 of our network affiliates' theaters, Noovie now includes advertising inventory after the advertised showtime consisting of (1) the lights down segment that runs for five minutes after the advertised showtime with trailer lighting and (2) the 30- or 60-second Platinum Spot (together, the “Post-Showtime Inventory”).

As of June 25, 2020 , theaters presenting the new Noovie format with Post-Showtime Inventory made up approximately 58% of our network based upon 2019 attendance.

As of September 24, 2020, theaters presenting the new Noovie format with Post-Showtime Inventory made up approximately 58% of our network based upon 2019 attendance.

All other NCM network theater circuits, which make up the remaining 42% of our network, present the Classic Noovie pre-show, which ends approximately at the advertised movie showtime when the movie trailers begin.

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In addition, we sell online and mobile advertising through our Cinema Accelerator and across our suite of Noovie digital properties, including Noovie.com , Noovie Shuffle , Name That Movie, Noovie Arcade and Fantasy Movie League in order to reach entertainment audiences beyond the theater.

As of June 25, 2020 , approximately 4.2 million moviegoers have downloaded our mobile apps.

These downloads and the acquisition of second party data have resulted in first- and second-party data sets of over 146 million as of June 25, 2020 .

We have long-term ESAs (approximately 19.3 weighted average years remaining based on 2019 attendance) with the founding members and multi-year agreements with our network affiliates, which expire at various dates between September 2020 and July 2031.

The weighted average remaining term (based on 2019 attendance) of the ESAs and the network affiliate agreements is 16.8 years as of June 25, 2020 .

As of September 24, 2020, approximately 4.2 million moviegoers have downloaded our mobile apps.

These downloads and the acquisition of second party data have resulted in first- and second-party data sets of over 146 million as of September 24, 2020.

We have long-term ESAs (approximately 19.0 weighted average years remaining based on 2019 attendance) with the founding members and multi-year agreements with our network affiliates, which expire at various dates between January 2021 and July 2031.

The weighted average remaining term (based on 2019 attendance) of the ESAs and the network affiliate agreements is 16.5 years as of September 24, 2020.

The ESAs and network affiliate agreements grant NCM LLC exclusive rights in their theaters to sell advertising, subject to limited exceptions.

Our Noovie pre-show and LEN programming are distributed predominantly via satellite through our proprietary DCN.

Approximately 99% of the aggregate founding member and network affiliate theater attendance is generated by theaters connected to our DCN (the remaining screens receive advertisements on USB drives) and 100% of the Noovie pre-show is projected on digital projectors (96% digital cinema projectors and 4% LCD projectors) as of June 25, 2020 .

Management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business, determine how we are performing versus our internal goals and targets, and against the performance of our competitors and other benchmarks in the marketplace in which we operate.

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We also monitor free cash flow, the dividend coverage ratio, financial leverage ratio (net debt divided by Adjusted OIBDA plus integration payments and other encumbered theater payments), cash balances and revolving credit facility availability to ensure financial debt covenant compliance and that there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our Board of Directors.

Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors” below and in our Form 10-K filed with the SEC on February 20, 2020 for our fiscal year ended December 26, 2019 and as updated within our Form 10-Q filed with the SEC on May 5, 2020 the three months ended March 26, 2020.

Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors” below and in our annual report on Form 10-K filed with the SEC on February 20, 2020 for our fiscal year ended December 26, 2019 and as updated within our quarterly report on Form 10-Q filed with the SEC on May 5, 2020 for the quarter ended March 26, 2020.

Recent Developments

COVID-19 — Following the World Health Organization’s declaration of the COVID-19 virus as a pandemic, the United States’ government and other state and local governments issued precautionary restrictions on travel, public gatherings and other events and issued social distancing guidelines.

Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed to address this pandemic.

As of June 25, 2020, almost all of the theaters within our network remained closed.

Major motion picture releases expected to occur during the temporary closure period were delayed until later in 2020 or 2021 or have been released directly to alternative delivery methods bypassing the theater entirely.

The results of the three and six months ended June 25, 2020 were significantly impacted by these temporary closures as theater attendance was less than expected beginning in March, as the public was told to practice social distancing, and then when theaters were closed following stay at home orders.

As of the date of this filing, the COVID-19 virus continues to spread in certain areas of the United States, and there can be no assurance when theaters within our network return to normal operations.

These developments will be referred to as the “COVID-19 Pandemic.”

We are unable to advertise in the theaters, and thus we have not and will not generate any in theater revenue, for the duration of time that the theaters are closed.

Our theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and/or revenue, and therefore, were not and will not be incurred for the duration that the theaters are closed.

Beginning in mid-March 2020, each of our founding members and all of our network affiliates announced that their theaters would be temporarily closed and almost all of the theaters within our network remained closed until late August 2020.

The Company generated no in-theater advertising revenue for the approximate six months that the theaters were closed.

Major motion picture releases expected to occur during the temporary closure period were delayed until late 2020 or into 2021 or have been released directly to alternative delivery methods bypassing the theater entirely.

On September 4, 2020 the Company resumed advertising within the theaters that were open in our network;

however in-theater advertising revenue continues to be adversely impacted as attendance at the reopened theaters has been less than normal given COVID-19 restrictions around patron capacity limitations and a continued lack of new major motion picture releases.

As of September 24, 2020, approximately two-thirds of the theaters within our network had reopened.

The results of the three and nine months ended September 24, 2020 were significantly impacted by the COVID-19 Pandemic.

In October 2020, Regal announced the re-closure of its theaters in the United States and as of the date of this filing, approximately 53% of theaters within our network are open.

Many of the open theaters are operating at reduced hours and offering a limited number of movie showtimes and attendance at open theaters has not reached historical levels.

As of the filing date, the COVID-19 virus continues to spread in the United States, and there can be no assurance when theaters within our network will return to normal operations, that the theaters that have reopened will remain open or that patrons will return to the theaters at historical levels.

The Company's ability to advertise has been and will continue to be limited due to the portion of our network that remains closed or has re-closed, reduced movie schedules and patron capacities at many network theaters and the timing and frequency of major motion picture releases as compared to prior years due to the COVID-19 Pandemic.

Our theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and/or in-theater advertising revenue, and therefore, were not incurred for the duration of time that the theaters were closed and attendance-based fees will be reduced for the period of time that attendance is lower than historical levels.

Even though our ability to generate in-theater advertising revenue will be negatively impacted by government mandated capacity restrictions and the limited new content currently available, we are still required to pay these screen-based fees when theaters are open, which may be reduced for months where screens are in use for only part of the month.

We have been working to preserve cash and ensure sufficient liquidity to endure the impacts of the COVID-19 Pandemic, even if prolonged.

Among other measures, we have:

Temporarily furloughed approximately 30% of our staff and temporarily reduced the pay of the remaining employees by up to 50%, which in aggregate reduced our compensation expense by 50% (“Temporary Salary and Wage Reductions”);

During the temporary theater closures, when we were not running advertising, we temporarily furloughed approximately 30% of our staff and temporarily reduced the pay of the remaining employees by up to 50%, which in aggregate reduced our compensation expense by 50% (“Temporary Salary and Wage Reductions”).

In response to the reopening of a portion of our network, we brought back most of our staff from furlough by September 24, 2020 and lifted some of the Temporary Salary and Wage Reductions.

All full-time employees are still at salary reductions of up to 20%, although the Company expects to restore all salaries for full-time employees over its next two quarters.

In November 2020, given the limited attendance levels and expected delay in new movie releases, we re-implemented a combination of temporary furloughs, permanent layoffs and further salary reductions.

In total, we have permanently reduced our total headcount by approximately 20% from pre-COVID-19 Pandemic headcount levels.

Since the start of the COVID-19 Pandemic, we have also taken the following cash preservation actions that the Company anticipates continuing until the Company’s operations normalize:

• Continued some of the temporary reductions in cash compensation of employees by up to 20%;

• Temporarily reduced cash compensation of the Company's Board of Directors by 20%;

Suspended non-essential operating expenditures, including marketing, research, employee travel and consulting services;

Implemented a hiring freeze;

• Suspended certain non-essential operating expenditures, including marketing, research, employee travel and consulting services;

• Implemented a hiring freeze on non-essential positions;

• Temporarily suspended the 401K employee match program;

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• Strategically worked with our landlords, vendors, and other business partners to manage, defer, and/or abate certain costs during the disruptions caused by the COVID-19 Pandemic;

Decreased our quarterly dividend to $0.07 per share beginning in the second quarter of 2020 from $0.19 per share in the fourth quarter of 2019.

When compared to the fourth quarter of 2019 this results in quarterly cash savings of $9.3 million for NCM, Inc.;

• Decreased our quarterly dividend to $0.07 per share beginning in the first quarter of 2020 from $0.19 per share in the fourth quarter of 2019.

When compared to the fourth quarter of 2019 this results in quarterly cash savings of $9.3 million and year to date cash savings of $27.9 million for NCM, Inc.;

• Introduced an active cash management process, which, among other things, requires CEO approval of all outgoing payments.

As of the date of this filing, almost all of the theaters in our network remain closed.

Given the capacity restrictions we expect to be in place for most of the theaters within our network upon reopening, the Company expects its network attendance to increase gradually, and thus, expects to remove the temporary cash preservation measures outlined above as the Company's operations normalize and in consideration of the Company's liquidity needs.

The Company's ability to resume advertising is dependent upon the reopening of the theaters, the release of major motion pictures to the theaters, and the attendance of theater

The Company's ability to normalize operations is dependent upon the reopening of the remaining theaters within our network, the release of major motion pictures to the theaters, and the attendance of theater patrons.

However, there can be no assurance that theater patrons will return to movie theaters or the overall attendance will return to levels comparable to those prior to the COVID-19 Pandemic.

In March 2020, we drew down an additional $110.0 million on our revolving credit facility increasing our cash and marketable securities balance to $215.3 million as of March 26, 2020 ($132.2 million at NCM LLC).

Further, as of March 26, 2020, we had approximately $112.3 million of trade accounts receivable outstanding from customers, of which we have collected approximately $89.7 million as of June 25, 2020, increasing our cash and marketable securities balance to $249.9 million as of June 25, 2020 ($168.1 million at NCM LLC) and decreasing our trade accounts receivable outstanding to $25.3 million.

Further, as of March 26, 2020, we had approximately $112.3 million of trade accounts receivable outstanding from customers, of which we have collected approximately $103.3 million as of September 24, 2020, increasing our cash and marketable securities balance to $220.7 million as of September 24, 2020 ($157.4 million at NCM LLC) and decreasing our trade accounts receivable outstanding, net of the allowance for doubtful accounts, to $9.0 million.

The $157.4 million of cash at NCM LLC will be used to fund operations during the period of expected reduced cash flows.

Cash at NCM, Inc.

cannot be used to fund operations at NCM LLC and is held for future payment of dividends to NCM, Inc.

is held for future payment of dividends to NCM, Inc.

shareholders, income tax payments, income tax receivable payments to NCM LLC’s founding members and other obligations.

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for its services provided under the management services agreement during the period of the automatic waiver.

On March 21, 2020, a Treasury Department Notice postponed the original due date for the Company's U.S.

federal income tax return to July 15, 2020 from April 15, 2020.

The Company made the TRA payments to the founding members on July 15, 2020 totaling $12.8 million and expect to pay $1.4 million in the fourth quarter of 2020.

Management is currently actively pursuing with its administrative agent an additional amendment to its Senior Secured Credit Facility to obtain a waiver to its financial covenants.

Management expects the amendment to be approved during the next several months, however, there can be no assurance that the Company will be successful in obtaining the amendment.

On March 27, 2020, the U.S.

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• Deferral of the payment of the 6.2% FICA portion of Company's payroll taxes beginning on the enactment date through December 31, 2020 until the end of 2021 for one-half of the tax and the remaining half to the end of 2022.

The Company deferred $0.4 million in qualifying payments in the second quarter of 2020;

The Company deferred $0.4 million and $0.4 million in qualifying payments in the second and third quarter of 2020, respectively;

• A refundable Employee Retention Payroll Tax Credit for the Company's portion of the 6.2% FICA payroll tax for certain qualifying employees from March 13, 2020 through December 31, 2020.

The Company will continue to monitor the provisions of the CARES Act and associated regulations and any other government action and intends to seek available potential benefits that would positively impact the Company.

We believe that the exhibition industry has historically fared well during recessions, and we remain optimistic, though cannot guarantee, that our founding members and network affiliates will rebound and attendance figures will benefit from pent-up social demand as state and local restrictions or other social distancing orders subside and people seek togetherness with a return to normalcy.

However, the ultimate significance of the COVID-19 Pandemic, including the extent of the adverse impact on our financial and operational results, will be dictated by the currently unknowable duration and the effect on the overall economy and the advertising market and of responsive governmental regulations, including state and local restrictions or other social distancing orders and resulting business closures which are recurring in certain areas and could recur on multiple occasions after the initial reopening causing subsequent closure periods.

Our business also could be significantly affected should the disruptions caused by the COVID-19 Pandemic lead to changes in consumer behavior (such as what the movie audience’s willingness to return to the movie theaters and the impacts of social distancing, facemask requirements and other measures on the movie going experience), which we believe will be temporary, or further reductions or impacts to the customary theatrical release window.

We believe that the exhibition industry has historically fared well during periods of economic stress, and we remain optimistic, though cannot guarantee, that our founding members and network affiliates will rebound and attendance figures will benefit from pent-up social demand as state and local restrictions or other social distancing orders subside and people seek togetherness with a return to normalcy.

However, the ultimate significance of the COVID-19 Pandemic, including the extent of the adverse impact on our financial and operational results, will be dictated by the currently unknowable duration of the pandemic, the effect of the pandemic on the overall economy and the advertising market and responsive governmental regulations, including mandated business closures which could recur after the initial reopening causing subsequent closure periods, social distancing guidelines, theater capacity restrictions, shifting movie slates, voluntary theater closures and the level of theater attendance.

Our business also could be significantly affected should the disruptions caused by the COVID-19 Pandemic lead to changes in consumer behavior (such as the movie audience’s willingness to return to the movie theaters and the impacts of social distancing, facemask requirements and other measures on the movie going experience), or further reductions or impacts to the customary theatrical release window.

The COVID-19 Pandemic also makes it more challenging for management to estimate the future performance of our business, particularly over the near to medium term.

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Our Operating Data —The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data):

Q2 2020 to Q2 2019

YTD 2020 to YTD 2019

Q3 2020 Q3 2019 YTD 2020 YTD 2019 Q3 2020 to Q3 2019 YTD 2020 to YTD 2019

Revenue $ 6.0 $ 110.5 $ 74.7 $ 297.6 (94.6) % (74.9) %

Operating expenses:

Advertising 8.1 44.3 50.5 130.8 (81.7) % (61.4) %

Network, administrative and unallocated costs 19.2 26.2 64.4 78.2 (26.7) % (17.6) %

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Net (loss) income attributable to NCM, Inc.

$ (12.7) $ 9.2 $ (30.2) $ 17.0 (238.0) % (277.6) %

Net (loss) income per NCM, Inc.

basic share $ (0.16) $ 0.12 $ (0.39) $ 0.22 (233.3) % (277.3) %

Net (loss) income per NCM, Inc.

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5.2 163.4 125.8 497.4 (96.8) % (74.7) %

NM = Not Meaningful

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(1) Represents the total attendance within our advertising network, excluding screens and attendance associated with certain AMC Carmike, AMC Rave and Cinemark Rave theaters that were part of another cinema advertising network for certain periods presented.

Refer to Note 4 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document.

The attendance for the second quarter of 2020 relates to a small number of affiliate theaters that reopened throughout May and June of 2020.

Given the minimal amount of attendance, the Company did not advertise in these theaters during the second quarter of 2020.

Non-GAAP Financial Measures

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A limitation of these measures, however, is that they exclude depreciation and amortization of intangibles recorded for network theater screen leases, which represent a proxy for the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company’s business.

addition, Adjusted OIBDA has the limitation of not reflecting the effect of the Company’s share-based payment costs, impairments of long-lived assets or costs associated with the resignation of the Company’s former Chief Executive Officer.

In addition, Adjusted OIBDA has the limitation of not reflecting the effect of the Company’s share-based payment costs, impairments of long-lived assets or costs associated with the resignation of the Company’s former Chief Executive Officer.

Adjusted OIBDA should not be regarded as an alternative to operating income, net income or as an indicator of operating performance, nor should it be considered in isolation of, or as a substitute for, financial measures prepared in accordance with GAAP.

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The following table reconciles operating income to Adjusted OIBDA for the periods presented (dollars in millions):

Q3 2020 Q3 2019 YTD 2020 YTD 2019

Operating (loss) income $ (21.3) $ 40.0 $ (40.2) $ 88.6

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Amortization of intangibles recorded for network theater screen

leases 6.2 6.8 18.4 20.7

Share-based compensation costs (1)

0.8 1.4 1.1 4.3

Impairment of long-lived assets (2)

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(2) The impairments of long-lived assets primarily relate to the write-off of certain internally developed software.

Chief Executive Officer transition costs represents costs associated with the search for a new Company CEO during the first six months of 2019.

Our Network —The change in the number of screens in our network by the founding members and network affiliates during the six months ended June 25, 2020 was as follows.

(3) Chief Executive Officer transition costs represents costs associated with the search for a new Company CEO during the beginning of 2019.

Our Network —The change in the number of screens in our network by the founding members and network affiliates during the nine months ended September 24, 2020 was as follows.

Number of screens

Founding Members

Network Affiliates

Founding Members Network Affiliates Total

Balance as of December 26, 2019 16,880 4,328 21,208

Lost affiliates, net of new affiliates (1)

Openings, net of closures (2)

Balance as of June 25, 2020

— (183) (183)

Represents the loss of two of our affiliates that did not renew their contracts as of the end of the first quarter of 2020 resulting in a reduction of 185 affiliate screens to our network, offset by the addition of two new affiliates which added 10 new screens to our network during the six months ended June 25, 2020 .

Closures, net of openings (2)

(128) (199) (327)

Balance as of September 24, 2020 16,752 3,946 20,698

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(1) Represents the loss of three of our affiliates that did not renew their contracts as of the end of the first nine months of 2020 resulting in a reduction of 193 affiliate screens to our network, offset by the addition of two new affiliates which added 10 new screens to our network during the nine months ended September 24, 2020.

(2) Excludes the temporary theater closures in response to the COVID-19 Pandemic.

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Basis of Presentation

The results of operations data for the three months ended June 25, 2020 ( second quarter of 2020 ) and June 27, 2019 ( second quarter of 2019) and the six months ended June 25, 2020 and June 27, 2019 was derived from the unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc.

The results of operations data for the three months ended September 24, 2020 (third quarter of 2020) and September 26, 2019 (third quarter of 2019) and the nine months ended September 24, 2020 and September 26, 2019 was derived from the unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc.

and should be read in conjunction with the notes thereto.

Results of Operations

Second Quarter of 2020 and Second Quarter of 2019

Total revenue decreased 96.4% , from $ 110.2 million for the second quarter of 2019 to $ 4.0 million for the second quarter of 2020 .

Third Quarter of 2020 and Third Quarter of 2019

Total revenue decreased 94.6%, from $110.5 million for the third quarter of 2019 to $6.0 million for the third quarter of 2020.

The following is a summary of revenue by category (in millions):

Q2 2020 to Q2 2019

$ Change % Change

Q3 2020 Q3 2019 Q3 2020 to Q3 2019 Q3 2020 to Q3 2019

National and regional advertising revenue $ 3.5 $ 86.4 $ (82.9) (95.9) %

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Total revenue $ 6.0 $ 110.5 $ (104.5) (94.6) %

The Company did not include revenue per attendee data for the second quarter of 2020 given the minimal amount of attendance and revenue as the metrics were not meaningful.

The following table shows data on theater attendance and revenue per attendee for the nine months ended September 24, 2020 and September 26, 2019:

Three Months Ended % Change

Q3 2019 Q3 2020 to Q3 2019

National and regional advertising revenue per attendee $ 0.673 $ 0.529 27.2 %

Local advertising revenue per attendee $ 0.442 $ 0.103 329.1 %

Total advertising revenue (excluding founding

member beverage revenue) per attendee $ 1.115 $ 0.632 76.4 %

Total advertising revenue per attendee $ 1.154 $ 0.676 70.7 %

Total theater attendance (in millions) (1)

5.2 163.4 (96.8) %

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National and regional advertising revenue.

The $ 82.6 million, or 98.0% , decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising during the second quarter of 2020.

The national and regional advertising revenue recognized in the second quarter of 2020 was primarily related to revenue associated with our digital service offerings.

The $82.9 million, or 95.9%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic preventing the Company from performing in-theater advertising for over three-fourths of the third quarter of 2020.

The national and regional advertising revenue recognized in the third quarter of 2020 was primarily related to revenue associated with our digital service offerings and onscreen revenue during the last three weeks of the quarter when some of the theaters within our network that had reopened.

Local advertising revenue.

The $ 15.4 million, or 87.0% , decrease in local advertising revenue was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising during the second quarter of 2020.

The local advertising revenue recognized in the second quarter of 2020 was primarily related to revenue associated with our digital service offerings.

The $14.5 million, or 86.3%, decrease in local advertising revenue was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and preventing the Company from performing in-theater advertising for over three-fourths of the third quarter of 2020.

The local advertising revenue recognized in the third quarter of 2020 was primarily related to revenue associated with our digital service offerings.

Founding member beverage revenue.

The $ 8.2 million, or 100.0% , decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus there not being any attendees upon which beverage revenue is based.

The $7.1 million, or 97.3%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a 96.9% decrease in founding member attendance for the third quarter of 2020, compared to the third quarter of 2019.

The decrease in founding member attendance was due to the temporary theater closure described above related to the COVID-19 Pandemic.

Operating expenses.

Total operating expenses decreased $ 44.7 million, or 61.7% , from $ 72.5 million for the second quarter of 2019 to $ 27.8 million for the second quarter of 2020 .

The following table shows the changes in operating expense for the second quarter of 2020 (in millions):

Q2 2020 to Q2 2019

Total operating expenses decreased $43.2 million, or 61.3%, from $70.5 million for the third quarter of 2019 to $27.3 million for the third quarter of 2020.

The following table shows the changes in operating expense for the third quarter of 2020 (in millions):

$ Change % Change

Q3 2020 Q3 2019 Q3 2020 to Q3 2019 Q3 2020 to Q3 2019

Advertising operating costs $ 1.1 $ 9.6 $ (8.5) (88.5) %

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Administrative and other costs 5.8 10.4 (4.6) (44.2) %

Impairment of long-lived assets

Depreciation expense 3.1 3.4 (0.3) (8.8) %

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Total operating expenses

$ 27.3 $ 70.5 $ (43.2) (61.3) %

Advertising operating costs.

Advertising operating costs decreased $ 8.8 million, or 88.9% , from $ 9.9 million for the second quarter of 2019 to $ 1.1 million for the second quarter of 2020 .

The decrease was due to an $8.3 million decrease in advertising affiliate payments due to the temporary closure of almost all the affiliate theaters within our network in response to the COVID-19 Pandemic and a $0.4 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Advertising operating costs decreased $8.5 million, or 88.5%, from $9.6 million for the third quarter of 2019 to $1.1 million for the third quarter of 2020.

The decrease was due to a $7.8 million decrease in advertising affiliate expense due to the limited attendance at affiliate theaters during the third quarter of 2020 due to the COVID-19 Pandemic and the corresponding lower revenue.

The decrease was also due to a $0.5 million decrease in personnel primarily related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Network costs.

Network costs decreased $ 1.8 million, or 52.9% , from $ 3.4 million for the second quarter of 2019 to $ 1.6 million for the second quarter of 2020 .

The decrease was primarily related to a $1.3 million decrease in personnel

related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a $0.3 million decrease in maintenance expenses related to our Digital Content Network due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

Network costs decreased $1.4 million, or 43.8%, from $3.2 million for the third quarter of 2019 to $1.8 million for the third quarter of 2020.

The decrease was primarily related to a $1.0 million decrease in personnel expenses primarily related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a $0.2 million decrease in maintenance expenses related to our Digital Content Network due to the temporary closure of almost all the theaters within our network for the majority of the third quarter of 2020 in response to the COVID-19 Pandemic.

Theater access fees and revenue share—founding members.

Theater access fees and revenue share decreased $ 21.6 million, or 100.0% , from $ 21.6 million in the second quarter of 2019 to $ 0.0 million in the second quarter of 2020 .

The decrease was due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

The Company did not owe the founding members any theater access fees as the theaters were not displaying the Company's pre-show and the Company did not have access to the theaters.

Theater access fees and revenue share decreased $18.3 million, or 91.0%, from $20.1 million in the third quarter of 2019 to $1.8 million in the third quarter of 2020.

The decrease was due to the temporary closure of almost all the founding member theaters in response to the COVID-19 Pandemic until a portion of founding member theaters reopened in late August 2020.

The Company did not owe the founding members any theater access fees for the period the theaters were not open and these fees were reduced, as compared to the third quarter of 2019, after theaters opened due to lower attendance and fewer open theaters.

Selling and marketing costs.

Selling and marketing costs decreased $ 9.5 million, or 58.6% , from $ 16.2 million for the second quarter of 2019 to $ 6.7 million for the second quarter of 2020 .

This decrease was primarily related to a $6.1 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic, as well as, a decrease in commission and bonus expense due to the revenue declines in the second quarter of 2020, as compared to the second quarter of 2019.

Selling and marketing costs also decreased $1.7 million related to non-essential operating expenditures including marketing, research and employee travel that were suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic, $1.1 million due to a decrease in barter expense and $0.7 million due to a decrease bad debt expense related to the revenue declines in the second quarter of 2020, as compared to the second quarter of 2019.

These decreases were partially offset by a $0.6 million increase in expense associated with our Cinema Accelerator service offering for the second quarter of 2020, compared to the second quarter of 2019.

Selling and marketing costs decreased $9.5 million, or 55.9%, from $17.0 million for the third quarter of 2019 to $7.5 million for the third quarter of 2020.

This decrease was primarily related to a $4.3 million decrease in personnel related expenses related to a decrease in commission and bonus expense due to lower revenue generated in the third quarter of 2020, as compared to the third quarter of 2019, as well as, the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Selling and marketing costs also decreased 1) $2.0 million related to non-cash impairment expense realized in the third quarter of 2019 related to investments obtained in prior years in exchange for advertising services, 2) $1.2 million related to a reduction in non-essential operating expenditures including marketing, research and employee travel that were suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic, 3) $0.9 million due to a decrease in barter

expense for the third quarter of 2020, as compared to the third quarter of 2019 and 4) $0.4 million due to a decrease in bad debt expense resulting from lower revenue in the third quarter of 2020, as compared to the third quarter of 2019.

Administrative and other costs.

Administrative and other costs decreased $ 3.7 million, or 33.3% , from $ 11.1 million in the second quarter of 2019 to $ 7.4 million in the second quarter of 2020 .

This decrease was primarily due to a $3.5 million decrease in personnel related expenses due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance-based compensation expense accrued following lower projected performance against internal bonus and performance based restricted stock targets as of the second quarter of 2020, compared to the second quarter of 2019.

Administrative and other costs also decreased $0.5 million due to a decrease in consulting services and $0.2 million lower CEO transition costs.

These decreases were partially offset by a $0.7 million increase in legal and professional expenses primarily related to legal services obtained related to the various implications of the COVID-19 Pandemic.

Impairment of long-lived assets.

Impairment of long-lived assets increased $1.7 million, or 100.0%, from $0.0 million in the second quarter of 2019 to $1.7 million in the second quarter of 2020.

This increase in impairment expense was primarily related to the write-off of certain long-lived assets during the second quarter of 2020.

Administrative and other costs decreased $4.6 million, or 44.2%, from $10.4 million in the third quarter of 2019 to $5.8 million in the third quarter of 2020.

This decrease was primarily due to a $4.0 million decrease in personnel related expenses due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance based compensation expense related to lower projected performance against internal bonus and performance based restricted stock targets as of the third quarter of 2020, compared to the third quarter of 2019.

Administrative and other costs also decreased $0.4 million due to a decrease in consulting services.

Depreciation expense.

Depreciation expense decreased $ 0.1 million, or 3.0% , from $ 3.3 million for the second quarter of 2019 to $ 3.2 million for the second quarter of 2020 .

Depreciation expense decreased $0.3 million, or 8.8%, from $3.4 million for the third quarter of 2019 to $3.1 million for the third quarter of 2020, as assets became fully depreciated.

Amortization of intangibles recorded for network theater screen leases.

Amortization of intangibles recorded for network theater screen leases decreased $0.9 million , or 12.9% , from $7.0 million for the second quarter of 2019 , to $6.1 million for the second quarter of 2020 , primarily due to the four year extension of the contractual life of the intangible assets for Cinemark and Regal following the 2019 ESA Amendments during the third quarter of 2019.

Amortization of intangibles recorded for network theater screen leases decreased $0.6 million, or 8.8%, from $6.8 million for the third quarter of 2019, to $6.2 million for the third quarter of 2020, primarily due to the four year extension of the contractual life of the intangible assets for Cinemark and Regal following the 2019 ESA Amendments at the end of the third quarter of 2019.

Non-operating expenses.

Total non-operating expenses decreased $ 0.6 million, or 4.2% , from $ 14.4 million for the second quarter of 2019 to $13.8 million for the second quarter of 2020 .

The following table shows the changes in non-operating expense for the second quarter of 2020 and the second quarter of 2019 (in millions):

Q2 2020 to Q2 2019

Total non-operating expenses decreased $0.2 million, or 1.6%, from $12.9 million for the third quarter of 2019 to $12.7 million for the third quarter of 2020.

The following table shows the changes in non-operating expense for the third quarter of 2020 and the third quarter of 2019 (in millions):

$ Change % Change

Q3 2020 Q3 2019 Q3 2020 to Q3 2019 Q3 2020 to Q3 2019

Interest on borrowings $ 13.7 $ 13.8 $ (0.1) (0.7) %

Interest income (0.1) (0.4) 0.3 (75.0) %

Loss on modification and retirement of debt, net

Loss on the re-measurement of the payable

Gain on the re-measurement of the payable

to founding members under the tax receivable

Other non-operating expense (income)

agreement (1.0) (0.5) (0.5) 100.0 %

Other non-operating expense 0.1 — 0.1 100.0 %

Total non-operating expenses $ 12.7 $ 12.9 $ (0.2) (1.6) %

The decrease in non-operating expense was primarily due to a $0.7 million decrease in the loss on the re-measurement of the payable to founding members under the TRA due to a smaller increase in the deferred state tax rate in the second quarter of 2020, as compared to the second quarter of 2019, and a $0.6 million decrease in interest on borrowings due to a 0.83% decrease in the weighted average interest rate, partially offset by an increase in the weighted average balance of debt outstanding for the second quarter of 2020, as compared to the second quarter of 2019.

These decreases were partially offset by a $0.3 million increase in the loss on modification and retirement of debt, net due to the Credit Agreement Amendment that occurred in the second quarter of 2020 and a $0.2 million decrease in interest income on the Company's marketable securities due to a decrease in the rate of return and the outstanding balance of securities in the second quarter of 2020 as compared to the second quarter of 2019.

The decrease in non-operating expense was primarily due to a $0.5 million increase in the gain on the re-measurement of the payable to founding members under the tax receivable agreement due to the reduction of the payable balance related to certain state net operating losses which the Company expects to expire prior to utilization and a $0.3 million decrease in interest income on the Company's marketable securities due to a decrease in the rate of return and the outstanding balance of securities in the third quarter of 2020 as compared to the third quarter of 2019.

Income Tax Benefit.

Income Tax Benefit increased from income tax expense of $2.3 million for the second quarter of 2019 to income tax benefit of $4.2 million for the second quarter of 2020.

Income Tax Benefit increased from income tax expense of $4.3 million for the third quarter of 2019 to $3.1 million of income tax benefit for the third quarter of 2020.

The increase in income tax benefit was primarily due to the decrease in pretax book income attributable to NCM Inc.

from income of $11.1 million for the second quarter of 2019 to loss of $18.0 million for the second quarter of 2020.

This increase in income tax benefit was partially offset by an increase in income tax expense due to a much smaller increase in the deferred state tax rate during the second quarter of 2020, as compared to the second quarter of 2019.

Net loss increased $22.7 million from net income of $8.9 million for the second quarter of 2019 to net loss of $13.8 million for the second quarter of 2020.

from income of $13.1 million for the third quarter of 2019 to loss of $15.8 million for the third quarter of 2020.

Net loss increased $21.9 million from net income of $9.2 million for the third quarter of 2019 to net loss of $12.7 million for the third quarter of 2020.

The increase in net loss was due to a $61.3 million increase in operating loss, partially offset by a $31.8 million increase in net loss attributable to noncontrolling interests, a $7.4 million increase in income tax benefit and a $0.2 million decrease in non-operating expenses.

Six months ended June 25, 2020 and June 27, 2019

Total revenue decreased 63.3% %, from $ 187.1 million for the six months ended June 27, 2019 to $ 68.7 million for the six months ended June 25, 2020 .

Nine months ended September 24, 2020 and September 26, 2019

Total revenue decreased 74.9%, from $297.6 million for the nine months ended September 26, 2019 to $74.7 million for the nine months ended September 24, 2020.

The following is a summary of revenue by category (in millions):

Six Months Ended

June 25, 2020

June 27, 2019

YTD 2020 to YTD 2019

Nine Months Ended $ Change % Change

September 24, 2020 September 26, 2019 YTD 2020 to YTD 2019 YTD 2020 to YTD 2019

National and regional advertising revenue $ 55.0 $ 228.1 $ (173.1) (75.9) %

3 unchanged sentences

Total revenue $ 74.7 $ 297.6 $ (222.9) (74.9) %

The following table shows data on theater attendance and revenue per attendee for the six months ended June 25, 2020 and June 27, 2019 :

Six Months Ended

June 25, 2020

June 27, 2019

YTD 2020 to YTD 2019

The following table shows data on theater attendance and revenue per attendee for the nine months ended September 24, 2020 and September 26, 2019:

Nine Months Ended % Change

September 24, 2020 September 26, 2019 YTD 2020 to YTD 2019

National and regional advertising revenue per attendee $ 0.437 $ 0.459 (4.8) %

5 unchanged sentences

125.8 497.4 (74.7) %

________________________________________________________

National and regional advertising revenue.

The $ 90.2 million , or 63.7% , decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was primarily due to a 60.8% decrease in impressions sold due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising beginning in mid-March 2020 through the end of the second quarter of 2020.

National advertising CPMs for the impressions delivered prior to the temporary theater closures also decreased 8.7% driven by a decrease in upfront and scatter market CPMs due to the churn of certain higher CPM deals that shifted to later in 2020 or did not return from 2019, that were replaced by lower CPM deals, as well as, a change in the mix of clients with a higher proportion of upfront clients and fewer higher CPM scatter market and content partner clients in the six months ended June 25, 2020, as compared to the six months ended June 27, 2019.

The $173.1 million, or 75.9%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was primarily due to a 74.9% decrease in impressions sold due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic preventing the Company from performing in-theater advertising beginning in mid-March 2020 until the beginning of September 2020 when some of the theaters within our network reopened and in-theater advertising resumed.

National advertising CPMs for the impressions delivered for the portion of the nine months ended September 24, 2020 the theaters were open decreased 8.8% driven by 1) a decrease in upfront and scatter market CPMs due to the churn of certain higher CPM deals, that were replaced by lower CPM deals, as well as, 2) a change in the mix of clients with a higher proportion of upfront clients and fewer higher CPM scatter market and content partner clients in the nine months ended September 24, 2020, as compared to the nine months ended September 26, 2019.

The scatter market represents inventory not included within an upfront or content partner commitment sold closer to the advertisement air date for typically higher CPMs.

Local advertising revenue.

The $ 18.8 million , or 61.6% , decrease in local advertising revenue was primarily due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic and thus the Company's inability to perform in theater advertising beginning in mid-March 2020 through the end of the second quarter of 2020.

The decrease is also due to a decrease in the volume of contracts and the average contract value for the portion of the six months ended June 25, 2020 that the theaters were open, compared to the same time period during the six months ended June 27, 2019 .

The $33.3 million, or 70.4%, decrease in local advertising revenue was primarily due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic preventing the Company from performing in-theater advertising beginning in mid-March 2020 until the beginning of September 2020 when some of the theaters within our network reopened and in-theater advertising resumed.

The decrease is also due to a decrease in the volume of contracts and the average contract value for the portion of the nine months ended September 24, 2020 that the theaters were open, compared to the same time period during the nine months ended September 26, 2019.

Founding member beverage revenue.

The $ 9.4 million , or 63.1% , decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a 64.0% decrease in founding member attendance for the six months ended June 25, 2020, as compared to six months ended June 27, 2019, due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

The $16.5 million, or 74.3%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a 74.8% decrease in founding member attendance for the nine months ended September 24, 2020, as compared to nine months ended September 26, 2019, due to the temporary theater closures describe above related to the COVID-19 Pandemic.

The national advertising revenue from the founding members’ beverage concessionaire agreements recognized in the nine months ended September 24, 2020 was due to founding member attendance that occurred in the first quarter of 2020 and the latter part of the third quarter of 2020.

Operating expenses.

Total operating expenses decreased $ 50.9 million , or 36.8% , from $ 138.5 million for the six months ended June 27, 2019 to $ 87.6 million for the six months ended June 25, 2020 .

The following table shows the changes in operating expense for the six months ended June 25, 2020 and June 27, 2019 (in millions):

Six Months Ended

June 25, 2020

June 27, 2019

YTD 2020 to YTD 2019

Total operating expenses decreased $94.1 million, or 45.0%, from $209.0 million for the nine months ended September 26, 2019 to $114.9 million for the nine months ended September 24, 2020.

The following table shows the changes in operating expense for the nine months ended September 24, 2020 and September 26, 2019 (in millions):

Nine Months Ended $ Change % Change

September 24, 2020 September 26, 2019 YTD 2020 to YTD 2019 YTD 2020 to YTD 2019

Advertising operating costs $ 8.4 $ 26.8 $ (18.4) (68.7) %

8 unchanged sentences

Total operating expenses

$ 114.9 $ 209.0 $ (94.1) (45.0) %

Advertising operating costs.

Advertising operating costs decreased $ 9.9 million , or 57.6% , from $ 17.2 million for the six months ended June 27, 2019 to $ 7.3 million for the six months ended June 25, 2020 .

The decrease was due to a $9.6 million decrease in advertising affiliate payments due to the temporary closure of almost all the affiliate theaters within our network in response to the COVID-19 Pandemic from mid-March through the end of the second quarter of 2020 and a $0.3 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Advertising operating costs decreased $18.4 million, or 68.7%, from $26.8 million for the nine months ended September 26, 2019 to $8.4 million for the nine months ended September 24, 2020.

The decrease was due to a $17.4 million decrease in advertising affiliate expense due to the temporary closure of almost all the affiliate theaters within our network in response to the COVID-19 Pandemic and the corresponding lower revenue and a $0.8 million decrease in personnel related expenses primarily related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Network costs.

Network costs decreased $ 2.4 million , or 34.8% , from $ 6.9 million for the six months ended June 27, 2019 to $ 4.5 million for the six months ended June 25, 2020 .

The decrease was primarily related to a $1.8 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance-based compensation expense accrued following an update to the Company's projected performance against internal bonus and performance based restricted stock targets during the six months ended June 25, 2020 primarily caused by the adverse impact of the COVID-19 Pandemic and a $0.4 million decrease in maintenance expense primarily related to our Digital Content Network due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

Network costs decreased $3.8 million, or 37.6%, from $10.1 million for the nine months ended September 26, 2019 to $6.3 million for the nine months ended September 24, 2020.

The decrease was primarily related to a $2.8 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance based compensation expense related to lower projected performance against internal bonus and performance based restricted stock targets as of September 24, 2020, as compared to September 26, 2019, and a $0.6 million decrease in maintenance expense primarily related to our Digital Content Network due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

Theater access fees and revenue share—founding members.

Theater access fees and revenue share decreased $ 23.0 million , or 56.5% , from $ 40.7 million for the six months ended June 27, 2019 to $ 17.7 million for the six months ended June 25, 2020 .

The decrease was primarily due to a 64.0% decrease in founding member attendance for the six months ended June 25, 2020, as compared to six months ended June 27, 2019, due to the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic.

The Company did not owe the founding members any theater access fees for the period the theaters were not displaying the Company's pre-show and the Company did not have access to the theaters.

These decreases were partially offset by $1.6 million of payments in the six months ended June 25, 2020 to Cinemark and Regal as compensation for post-showtime advertising in accordance with the 2019 ESA Amendments and $0.5 million increase in the expense associated with the founding member digital screens that are connected to the DCN (nearly 100% of our screens as of June 25, 2020), including higher quality digital cinema projectors and related equipment, due to the annual 5% rate increase specified in the ESAs.

Theater access fees and revenue share decreased $41.3 million, or 67.9%, from $60.8 million for the nine months ended September 26, 2019 to $19.5 million for the nine months ended September 24, 2020.

The decrease was primarily due to a 74.8% decrease in founding member attendance for the nine months ended September 24, 2020, as compared to nine months ended September 26, 2019, due to the temporary closure of almost all the founding member theaters in response to the COVID-19 Pandemic beginning in mid-March 2020 until late August when a portion of the founding member theaters reopened.

The Company did not owe the founding members any theater access fees for the period the theaters were not open.

This decrease was partially offset by $1.7 million of higher expense in the nine months ended September 24, 2020 to Cinemark and Regal as compensation for post-showtime advertising in accordance with the 2019 ESA Amendments.

Selling and marketing costs.

Selling and marketing costs decreased $ 10.8 million , or 34.4% , from $ 31.4 million for the six months ended June 27, 2019 to $ 20.6 million for the six months ended June 25, 2020 .

This decrease was primarily related to a $7.5 million decrease in personnel related expenses primarily due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic, as well as, a decrease in commission and bonus expense due to the revenue declines in the six months ended June 25, 2020, as compared to the six months ended June 27, 2019.

Selling and marketing costs also decreased $2.0 million related to non-essential operating expenditures, including marketing, research, consulting and employee travel that were suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic and a $1.4 million due to a decrease in barter expense for the six months ended June 25, 2020 , compared to the six months ended June 27, 2019 .

These decreases were partially offset by a $0.8 million increase in expense associated with our Cinema Accelerator service offering for the six months ended June 25, 2020 , compared to the six months ended June 27, 2019 .

Selling and marketing costs decreased $20.3 million, or 41.9%, from $48.4 million for the nine months ended September 26, 2019 to $28.1 million for the nine months ended September 24, 2020.

This decrease was primarily related to a $11.8 million decrease in personnel related expenses primarily due to a decrease in commission and bonus expense due to the revenue declines in the nine months ended September 24, 2020, as compared to the nine months ended September 26, 2019, as well as, the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic.

Selling and marketing costs also decreased $3.2 million related to non-essential operating expenditures, including marketing, research, consulting and employee travel that were suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic, $2.2 million due to a decrease in barter expense for the nine months ended September 24, 2020, compared to the nine months ended September 26, 2019, a $2.0 million decrease in non-cash impairment expense realized in the third quarter of 2019 related to investments obtained in prior years in exchange for advertising services, $0.5 million decrease in production and royalty related costs due to the decrease in revenue generated in the nine months ended September 24, 2020, compared to the nine months ended September 26, 2019 and $0.4 million due to a decrease in bad debt expense resulting from lower revenue in the nine months ended September 24, 2020, compared to the nine months ended

September 26, 2019.

These decreases were partially offset by a $0.9 million increase in expense associated with our Cinema Accelerator service offering for the nine months ended September 24, 2020, compared to the nine months ended September 26, 2019.

Administrative and other costs.

Administrative and other costs decreased $ 4.6 million , or 21.1% , from $ 21.8 million for the six months ended June 27, 2019 to $ 17.2 million for the six months ended June 25, 2020 .

Administrative and other costs decreased primarily due to a $3.5 million decrease in personnel related expenses due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance-based compensation expense accrued following lower projected performance against performance based restricted stock targets as of June 25, 2020, compared to June 27, 2019.

Administrative and other costs also decreased $0.7 million due to a decrease in consulting services and $0.3 million due to lower CEO transition costs.

Administrative and other costs decreased $9.2 million, or 28.6%, from $32.2 million for the nine months ended September 26, 2019 to $23.0 million for the nine months ended September 24, 2020.

Administrative and other costs decreased primarily due to a $7.4 million decrease in personnel related expenses due to the Temporary Salary and Wage Reductions implemented in response to the COVID-19 Pandemic and a decrease in performance based compensation expense related to lower projected performance against internal bonus and performance based restricted stock targets as of September 24, 2020, as compared to September 26, 2019.

Administrative and other costs also decreased $1.1 million due to a decrease in consulting services and $0.4 million decrease in CEO transition fees related to costs incurred in the first nine months of 2019.

Impairment of long-lived assets.

Impairment of long-lived assets increased $1.7 million, or 100.0%, from $0.0 million in the six months ended June 27, 2019 to $1.7 million in the six months ended June 25, 2020.

This increase in impairment expense was primarily related to the write-off of certain long-lived assets during the second quarter of 2020.

Impairment of long-lived assets increased $1.7 million, or 100.0%, from $0.0 million in the nine months ended September 26, 2019 to $1.7 million in the nine months ended September 24, 2020.

This increase in impairment expense was primarily related to the write-off of certain long-lived assets during the nine months ended September 24, 2020.

Depreciation expense.

Depreciation expense decreased $ 0.2 million , or 3.0% , from $ 6.6 million for the six months ended June 27, 2019 to $ 6.4 million for the six months ended June 25, 2020 .

Depreciation expense decreased $0.5 million, or 5.0%, from $10.0 million for the nine months ended September 26, 2019 to $9.5 million for the nine months ended September 24, 2020, as assets became fully depreciated.

Amortization of intangibles recorded for network theater screen leases.

Amortization of intangibles recorded for network theater screen leases decreased $ 1.7 million , or 12.2% , from $ 13.9 million for the six months ended June 27, 2019 , to $ 12.2 million for the six months ended June 25, 2020 , primarily due to the four year extension of the

contractual life of the intangible assets for Cinemark and Regal following the 2019 ESA Amendments during the third quarter of 2019.

Amortization of intangibles recorded for network theater screen leases decreased $2.3 million, or 11.1%, from $20.7 million for the nine months ended September 26, 2019, to $18.4 million for the nine months ended September 24, 2020, primarily due to the four year extension of the contractual life of the intangible assets for Cinemark and Regal following the 2019 ESA Amendments during the end of the third quarter of 2019.

Non-operating expenses.

Total non-operating expenses decreased $ 1.2 million , or 4.2% , from $ 28.5 million for the six months ended June 27, 2019 to $ 27.3 million for the six months ended June 25, 2020 .

The following table shows the changes in non-operating expense for the six months ended June 25, 2020 and June 27, 2019 (in millions):

Six Months Ended

June 25, 2020

June 27, 2019

YTD 2020 to YTD 2019

Total non-operating expenses decreased $1.4 million, or 3.4%, from $41.4 million for the nine months ended September 26, 2019 to $40.0 million for the nine months ended September 24, 2020.

The following table shows the changes in non-operating expense for the nine months ended September 24, 2020 and September 26, 2019 (in millions):

Nine Months Ended $ Change % Change

September 24, 2020 September 26, 2019 YTD 2020 to YTD 2019 YTD 2020 to YTD 2019

Interest on borrowings $ 40.9 $ 42.4 $ (1.5) (3.5) %

1 unchanged sentence

Loss (gain) on modification and retirement of

Loss on the re-measurement of the payable

debt, net 0.3 (0.3) 0.6 (200.0) %

(Gain) loss on the re-measurement of the payable

to founding members under the tax receivable

Other non-operating income

agreement (0.7) 1.0 (1.7) (170.0) %

Other non-operating expense (income) 0.1 (0.3) 0.4 (133.3) %

Total non-operating expenses $ 40.0 $ 41.4 $ (1.4) (3.4) %

The decrease in non-operating expense was primarily due to a decrease of $1.4 million in interest on borrowings due to a 0.66% decrease in the weighted average interest rate, partially offset by an increase in the weighted average balance of debt outstanding for the six months ended June 25, 2020 , as compared to the six months ended June 27, 2019 and a decrease of $1.2 million in the loss on the re-measurement of the payable to founding members under the TRA due to a smaller increase in the deferred state tax rate in the six months ended June 25, 2020 as compared to the six months ended June 27, 2019 .

These decreases were partially offset by a 1) $0.6 increase in the loss (gain) on modification and retirement of debt, net primarily related to the Credit Agreement Amendment that occurred in the second quarter of 2020 and the absence of a gain realized on the repurchase of a portion of the Notes due 2026 in the first quarter of 2019 and 2) a $0.5 million decrease in interest income on the Company's marketable securities due to a decrease in the rate of return and the outstanding balance of securities in the second quarter of 2020 as compared to the second quarter of 2019.

The decrease in non-operating expense was primarily due to a decrease of $1.5 million in interest on borrowings due to a 0.69% decrease in the weighted average interest rate, partially offset by an increase in the weighted average balance of debt outstanding for the nine months ended September 24, 2020, as compared to the nine months ended September 26, 2019 and a decrease of $1.7 million in the loss on the re-measurement of the payable to founding members under the TRA due to the reduction of the payable balance related to certain state net operating losses which the Company no longer expects to utilize and a smaller increase in the deferred state tax rate in the nine months ended September 24, 2020 as compared to the nine months ended September 26, 2019.

These decreases were partially offset by a 1) $0.6 increase in the loss (gain) on modification and retirement of debt, net primarily related to the Credit Agreement Amendment that occurred in the second quarter of 2020 and the absence of a gain realized on the repurchase of a portion of the Notes due 2026 in the first quarter of 2019 and 2) a $0.8 million decrease in interest income on the Company's marketable securities due to a decrease in the rate of return and the outstanding balance of securities in the nine months ended September 24, 2020 as compared to the nine months ended September 26, 2019.

Income Tax Benefit.

Income Tax Benefit increased from income tax expense of $1.7 million for the six months ended June 27, 2019 to income tax benefit of $4.6 million for the six months ended June 25, 2020 .

Income Tax Benefit increased from income tax expense of $6.0 million for the nine months ended September 26, 2019 to income tax benefit of $7.7 million for the nine months ended September 24, 2020.

The increase in income tax benefit was primarily due to the decrease in pretax book income attributable to NCM Inc.

from income of $9.4 million for the six months ended June 27, 2019 to loss of $22.0 million for the six months ended June 25, 2020 .

This increase in income tax benefit was partially offset by an increase in income tax expense due to a much smaller increase in the deferred state tax rate for the six months ended June 25, 2020 as compared to the six months ended June 27, 2019 .

Net loss increased $25.3 million from net income of $7.8 million for the six months ended June 27, 2019 to net loss of $17.5 million for the six months ended June 25, 2020.

The increase in net loss was due to a $67.5 million increase in operating loss, partially offset by a $34.7 million increase in net loss attributable to noncontrolling interests, a $6.3 million increase in income tax benefit and $1.2 million decrease in non-operating expenses.

from income of $22.5 million for the nine months ended September 26, 2019 to loss of $37.8 million for the nine months ended September 24, 2020.

Net loss increased $47.2 million from net income of $17.0 million for the nine months ended September 26, 2019 to net loss of $30.2 million for the nine months ended September 24, 2020.

The increase in net loss was due to a $128.8 million increase in operating loss, partially offset by a $66.5 million increase in net loss attributable to noncontrolling interests, a $13.7 million increase in income tax benefit and a $1.4 million decrease in non-operating expenses.

Known Trends and Uncertainties

COVID-19 —As discussed within the ' Recent Developments ' section, due to the COVID-19 Pandemic, the Company was unable to advertise in the theaters, and thus generate the majority of its revenue, for the three months ended June 25, 2020 and for the remaining duration of time that the theaters are generally closed.

The Company's theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and revenue and were not incurred for three months ended June 25, 2020 and will not be incurred for the duration the theaters are closed.

COVID-19 —As discussed within the ' Recent Developments ' section, due to the COVID-19 Pandemic, the Company was unable to advertise in the theaters, and thus generate the majority of its revenue, for the approximate six months of 2020 that the theaters were closed.

The Company's ability to advertise within the reopened theaters has been and will continue to be limited due to reduced movie schedules and patron capacities at many network theaters and the timing and frequency of new major motion picture releases as compared to prior years due to the COVID-19 Pandemic.

Our theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and/or revenue, and therefore, were not incurred for the duration of time that the theaters were closed and attendance-based fees will be reduced for the period of time that attendance is lower than historical levels.

Due to the rapidly changing business environment, unprecedented market volatility, and other circumstances resulting from the COVID-19 Pandemic, we are currently unable to fully determine the extent of COVID-19’s impact on our business in future periods.

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The CARES Act made changes to the U.S.

enactment date through December 31, 2020 until the end of 2021 for one-half of the tax and the remaining half to the end of 2022 and (4) creating the Employee Retention Payroll Tax Credit for the Company's portion of the 6.2% FICA payroll tax for certain qualifying employees from March 13, 2020 through December 31, 2020.

The impact of these relief measures that are estimable as of June 25, 2020 have been incorporated within the Company's financial statements.

tax code that affect our fiscal year ending December 31, 2020, including, but not limited to, (1) reducing the limitation on deductible interest expense, (2) changing uses and limitations of net operating losses generated in tax years 2018, 2019, and 2020, (3) deferring the payment of the 6.2% FICA portion of Company's payroll taxes beginning on the enactment date through December 31, 2020 until the end of 2021 for one-half of the tax and the remaining half to the end of 2022 and (4) creating the Employee Retention Payroll Tax Credit for the Company's portion of the 6.2% FICA payroll tax for certain qualifying employees from March 13, 2020 through December 31, 2020.

The impact of these relief measures that are estimable as of September 24, 2020 have been incorporated within the Company's financial statements.

Beverage Revenue —Under the ESAs, up to 90 seconds of the Noovie pre-show program can be sold to the founding members to satisfy their on-screen advertising commitments under their beverage concessionaire agreements.

For the first three and six months of 2020 and 2019 , two of the founding members purchased 60 seconds of on-screen advertising time and one founding member purchased 30 seconds to satisfy their obligations under their beverage concessionaire agreements.

For the first three and nine months of 2020 and 2019, two of the founding members purchased 60 seconds of on-screen advertising time and one founding member purchased 30 seconds to satisfy their obligations under their beverage concessionaire agreements.

The founding members’ current long-term contracts with their beverage suppliers require the 30 or 60 seconds of beverage advertising, although such commitments could change in the future.

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Beginning in 2020 and in accordance with the 2019 ESA Amendments, the price for the time sold to Cinemark and Regal's beverage suppliers instead increased at a fixed rate of 2.0%.

The Company will not recognize any beverage revenue for the period of time that our founding members' theaters are closed due to the COVID-19 Pandemic.

Further, attendance may be lower than historical levels following the re-opening of theaters which could reduce the Company’s beverage revenue.

The Company did not recognize any beverage revenue for the period of time that our founding members' theaters were closed due to the COVID-19 Pandemic.

Further, attendance has been and may continue to be lower than historical levels following the re-opening of theaters which could reduce the Company’s beverage revenue.

Theater Access Fees —In consideration for NCM LLC’s access to the founding members’ theater attendees for on-screen advertising and use of lobbies and other space within the founding members’ theaters for the LEN and lobby promotions, the founding members receive a monthly theater access fee under the ESAs.

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Pursuant to the ESAs, the payment per digital screen increases annually by 5%.

Pursuant to the 2019 ESA Amendments, Cinemark and Regal each receive an additional monthly theater access fee beginning November 1, 2019 in consideration for NCM LLC's access to certain on-screen advertising inventory after the advertised showtime of a feature film.

These fees are also based upon a fixed payment per patron beginning at $0.025 per patron on November 1, 2019, (ii) $0.0375 per patron beginning on November 1, 2020, (iii) $0.05 per patron beginning on November 1, 2021, (iv) $0.052 per patron beginning on November 1, 2022 and (v) increasing 8% every five years beginning November 1, 2027.

The Company does not owe the founding members any theater access fees when the theaters are not displaying the Company's pre-show or when the Company does not have access to the theaters.

As such, the Company did not owe these fees for the three months ended June 25, 2020 and will not owe these fees during the duration a founding member's theaters are closed in connection with the COVID-19 Pandemic.

The digital screen fee is calculated based upon average screens in use during each month.

No digital screen fees were incurred for the three months ended June 25, 2020 and no fees will be incurred for the months where no screens are in use and fees will be reduced for months where screens are in use for only part of the month.

Further, attendance may be lower than historical levels following the re-opening of theaters which could reduce the Company’s theater access fees.

inventory after the advertised showtime of a feature film.

These fees are also based upon a fixed payment per patron:

(i) beginning at $0.025 per patron on November 1, 2019, (ii) $0.0375 per patron beginning on November 1, 2020, (iii) $0.05 per patron beginning on November 1, 2021, (iv) $0.052 per patron beginning on November 1, 2022 and (v) increasing 8% every five years beginning November 1, 2027.

The Company does not owe the founding members any theater access fees when the theaters are closed.

As such, the Company did not owe these fees for the approximate 6 months the founding member theaters were closed and will not owe these fees during the duration of time a founding member's theaters are closed in connection with the COVID-19 Pandemic.

The digital screen fee is calculated based upon screens in use during each month.

No digital screen fees were incurred for approximately 6 months the founding member theaters were closed and no fees will be incurred for the months where no screens are in use and fees may be reduced for months where screens are in use for only part of the month.

Further, attendance has been and may continue to be lower than historical levels following the re-opening of theaters which could reduce the Company’s theater access fees.

Platinum Spot —In consideration for the utilization of the theaters post-showtime for Platinum Spots, Cinemark and Regal receive 25% of all revenue generated for the actual display of Platinum Spots in their applicable theaters, subject to a specified minimum.

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Our cash balances can fluctuate due to the seasonality of our business and related timing of collections of accounts receivable balances and operating expenditure payments, as well as available cash payments (as defined in the NCM LLC Operating Agreement) to NCM LLC’s founding members, interest or principal payments on our term loan and the Notes due 2026 and Notes due 2028, income tax payments, TRA payments to NCM LLC’s founding members and amount of quarterly dividends to NCM, Inc.’s common stockholders.

As a result of the COVID-19 Pandemic discussed within the 'Recent Developments' section above, we cannot generate revenue, other than revenue associated with our digital service offerings, while the theaters within our network are temporarily closed.

With the exception of collecting accounts receivable balances outstanding as of March 26, 2020, the Company has limited cash receipts until after the theaters reopen.

Further, once theaters re-open, there will be a lag between when revenue is generated at those theaters and when the Company ultimately collects the associated accounts receivable balance.

The Company also had reduced cash payments during the period the theaters are closed as expenses related to theater attendance are

not incurred (i.e.

As discussed within the ' Recent Developments ' section, due to the COVID-19 Pandemic, the Company was unable to advertise in the theaters, and thus generate the majority of its revenue, for the approximate 6 months that the theaters were generally closed.

The Company's ability to advertise within the reopened theaters has been and will continue to be limited due to reduced movie schedules and patron capacities at many network theaters and the timing and frequency of major motion picture releases as compared to prior years due to the COVID-19 Pandemic.

The Company will have limited cash receipts until the full network of theaters reopen, major motion pictures are released and theater patrons feel comfortable returning to the theaters allowing attendance levels to normalize.

Further, once the above conditions are met there will be a lag between when revenue is generated and when the Company ultimately collects the associated accounts receivable balance.

The Company also has reduced cash payments during the period theaters within the Company's network are closed or attendance levels are low as expenses related to theater attendance are either not incurred or incurred at lower levels (i.e.

theater access fees, Platinum Spot revenue share and network affiliate revenue share payments).

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In March 2020, we drew down an additional $110.0 million on our revolving credit facility.

Further, as of March 26, 2020, we had approximately $112.3 million of trade accounts receivable outstanding from customers, of which we have collected approximately $89.7 million as of June 25, 2020, increasing our cash and marketable securities balance to $249.9 million as of June 25, 2020 ($168.1 million at NCM LLC) and reducing trade accounts receivable to $25.3 million.

Further, as of March 26, 2020, we had approximately $112.3 million of trade accounts receivable outstanding from customers, of which we have collected approximately $103.3 million as of September 24, 2020, increasing our cash and marketable securities balance to $220.7 million as of September 24, 2020 ($157.4 million at NCM LLC) and reducing trade accounts receivable to $9.0 million.

The $157.4 million of cash at NCM LLC will be used to fund operations during the period of expected reduced cash flows.

Cash at NCM, Inc.

cannot be used to fund operations at NCM LLC and is held for future payment of dividends to NCM, Inc.

is held for future payment of dividends to NCM, Inc.

shareholders, income tax payments, income tax receivable payments to NCM LLC’s founding members and other obligations.

Further, from the approximate $25.3 million of trade accounts receivable outstanding from customers as of June 25, 2020, we have collected approximately $12.0 million as of July 31, 2020.

In accordance with the Credit Agreement Amendment entered into in order to obtain a waiver of the financial covenants for the period beginning in the second quarter of 2020 through the second quarter of 2021, NCM LLC must maintain a total balance of $55.0 million of a combination of unrestricted cash on hand and availability under NCM LLC's revolving credit facility.

Management believes that cash on hand following the additional draw down on the revolving credit facility and collection of the accounts receivable balance, as well as future funds generated from NCM LLC’s operations once theaters re-open should be sufficient to fund working capital requirements, NCM LLC’s debt service requirements and capital expenditures through at least the next twelve months.

As of September 24, 2020, NCM LLC was in compliance with the requirements of the Credit Agreement Amendment.

Management believes the Company can meet its obligations, including all interest and debt service payments within the twelve months following the date of issuance of these financial statements, based on its current financial position and liquidity sources, including current cash balances, and forecasted future cash flows.

The Company may not be able to meet certain of its financial covenants within one year following the date that these financial statements are issued.

If any of these financial covenants are not met, a majority of the lenders of the Senior Secured Credit Facility are permitted under the agreement to accelerate the debt which could also result in a cross-default under NCM LLC’s senior notes.

Considering current liquidity sources, the Company would not be able to repay the Company’s total outstanding debt balance.

These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

In light of this, the Company is actively pursuing with it administrative agent and expects to obtain an amendment to its Senior Secured Credit Facility to extend a waiver of its financial covenants through at least one year following the date that these financial statements are issued.

Management expects the

amendment to be approved during the next several months, however there can be no assurance that the Company will be successful in obtaining the amendment.

As long as an amendment has not been obtained, management’s plan cannot be considered probable and thus does not alleviate the substantial doubt about the Company’s ability to continue as a going concern.

A summary of our financial liquidity is as follows (in millions):

June 25, 2020

December 26, 2019

June 27, 2019

Q2 2020 to YE 2019

Q2 2020 to Q2 2019

As of $ Change $ Change

September 24, 2020 December 26, 2019 September 26, 2019 Q3 2020 to YE 2019 Q3 2020 to Q3 2019

Cash, cash equivalents and marketable securities (1)

$ 220.7 $ 80.9 $ 62.9 $ 139.8 $ 157.8

NCM LLC revolver availability (2)

4.4 132.4 164.2 (128.0) (159.8)

Total liquidity $ 225.1 $ 213.3 $ 227.1 $ 11.8 $ (2.0)

_________________________

Included in cash, cash equivalents and marketable securities as of June 25, 2020 , December 26, 2019 and June 27, 2019 , was $168.1 million, $11.4 million and $4.6 million, respectively, of cash held by NCM LLC that is not available to satisfy dividends declared by NCM, Inc., income tax, tax receivable payments to NCM LLC’s founding members and other obligations.

(1) Included in cash, cash equivalents and marketable securities as of September 24, 2020, December 26, 2019 and September 26, 2019, was $157.4 million, $11.4 million and $2.0 million, respectively, of cash held by NCM LLC that is not available to satisfy dividends declared by NCM, Inc., income tax, tax receivable payments to NCM LLC’s founding members and other obligations.

(2) The revolving credit facility portion of NCM LLC’s total borrowings is available, subject to certain conditions, for general corporate purposes of NCM LLC in the ordinary course of business and for other transactions permitted under the senior secured credit facility, and a portion is available for letters of credit.

NCM LLC’s total capacity under the revolving credit facility was $175.0 million as of June 25, 2020 , December 26, 2019 and June 27, 2019 .

As of June 25, 2020 , December 26, 2019 and June 27, 2019 , the amount available under the NCM LLC revolving credit facility in the table above, was net of the amount outstanding under the revolving credit facility of $167.0 million, $39.0 million and $27.0 million, respectively, and net letters of credit of $3.6 million, $3.6 million and $4.8 million, respectively.

As of June 25, 2020 , the weighted average remaining maturity of our debt was 6.0 years.

As of June 25, 2020 , approximately 59% of our total borrowings bear interest at fixed rates.

The remaining 41% of our borrowings bear interest at variable rates and as such, our net income and earnings per share could fluctuate with market interest rate fluctuations that could increase or decrease the interest paid on our borrowings.

NCM LLC’s total capacity under the revolving credit facility was $175.0 million as of September 24, 2020, December 26, 2019 and September 26, 2019.

As of September 24, 2020, December 26, 2019 and September 26, 2019, the amount available under the NCM LLC revolving credit facility in the table above, was net of the amount outstanding under the revolving credit facility of $167.0 million, $39.0 million and $6.0 million, respectively, and net letters of credit of $3.6 million, $3.6 million and $4.8 million, respectively.

As of September 24, 2020, the weighted average remaining maturity of our debt was 5.7 years.

As of September 24, 2020, approximately 59% of our total borrowings bear interest at fixed rates.

The remaining 41% of our borrowings bear interest at variable rates and our net income and earnings per share could fluctuate with market interest rate fluctuations that could increase or decrease the interest paid on our borrowings.

We have generated and used cash as follows (in millions):

Six Months Ended

June 25, 2020

June 27, 2019

Nine Months Ended

September 24, 2020 September 26, 2019

Operating cash flow $ 85.9 $ 113.6

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• Operating Activities.

The $48.1 million increase in cash provided by operating activities for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 was primarily due to a $122.3 million larger decrease in the accounts receivable balance during the six months ended June 25, 2020, as compared to the six months ended June 27, 2019, related to the collection of the accounts receivable balance and a decrease in

revenue described above and a $13.9 million decrease in the payment to founding members under the TRA due to the postponement of the original due date for the Company's U.S.

federal income tax return to July 15, 2020 from April 15, 2020.

These increases in cash provided by operating activities were partially offset by 1) a $60.0 million decrease in consolidated net income due the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic, 2) a $9.0 million larger decrease in accounts payable and accrued expenses during the six months ended June 25, 2020 as compared to the six months ended June 27, 2019, related to the decrease in operating expenses for the corresponding periods as described above, 3) a $7.3 million decrease in deferred income tax expense and the loss on re-measurement of the payable to founding members under the TRA primarily due to the Company recognizing an income tax benefit in the six months ended June 25, 2020 driven by the Company's consolidated net loss for the period, 4) a $6.9 million decrease in the amounts due to founding members, 5) a $3.3 million decrease in deferred revenue and 6) a $2.5 million decrease in non-cash share-bared compensation expense primarily related to a decrease in performance-based compensation expense accrued following lower projected performance against performance based restricted stock targets as of June 25, 2020, compared to June 27, 2019.

The $27.7 million decrease in cash provided by operating activities for the nine months ended September 24, 2020, compared to the nine months ended September 26, 2019 was primarily due to 1) a $113.7 million decrease in consolidated net income due the temporary closure of almost all the theaters within our network in response to the COVID-19 Pandemic during the period, 2) a $15.7 million larger decrease in accounts payable and accrued expenses during the nine months ended September 24, 2020 as compared to the nine months ended September 26, 2019, related to the decrease in operating expenses for the corresponding periods as described above, 3) a $15.4 million increase in deferred income tax benefit and the gain on re-measurement of the payable to founding members under the TRA primarily due to the Company recognizing an income tax benefit in the nine months ended September 24, 2020 driven by the Company's consolidated net loss for the period and 4) a $6.6 million decrease in founding member integration and other encumbered theater payments.

These decreases in cash provided by operating activities were partially offset by $135.0 million larger decrease in the accounts receivable balance during the nine months ended September 24, 2020, as compared to the nine months ended September 26, 2019, related to the collection of the accounts receivable balance and the decrease in revenue described above.

• Investing Activities.

The $4.9 million increase in cash provided by investing activities for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 was primarily due to a $4.7 million increase in proceeds from the sale of marketable securities, net of purchases and a $1.6 million decrease in purchases of property and equipment for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 driven by the Company's measures to preserve cash in response to the COVID-19 Pandemic, partially offset by a $1.4 million decrease in proceeds from the founding member notes receivable.

The $5.5 million increase in cash provided by investing activities for the nine months ended September 24, 2020, compared to the nine months ended September 26, 2019 was primarily due to a $3.7 million increase in proceeds from the sale of marketable securities, net of purchases and a $3.2 million decrease in purchases of property and equipment for the nine months ended September 24, 2020, compared to the nine

months ended September 26, 2019 driven by the Company's measures to preserve cash in response to the COVID-19 Pandemic, partially offset by a $1.4 million decrease in proceeds from the founding member notes receivable.

• Financing Activities.

The $135.1 million increase in cash provided by financing activities for the six months ended June 25, 2020, compared to the six months ended June 27, 2019 was primarily due to a $128.0 million increase in proceeds from our revolving credit facility, net of repayments made early in 2020, in order to fund operations during the period of expected reduced cash flows due to the temporary closure of the theaters within NCM LLC's network to address the COVID-19 Pandemic.

The increase was also due to a $6.2 million decrease in dividends paid related to the a decrease in the dividend amount declared from $0.17 in the second quarter of 2019 to $0.07 in the second quarter of 2020, and the absence of a $4.6 million repurchase of the retired Notes due 2026 that occurred in the first quarter of 2019.

These increases were partially offset by a $2.8 million increase in distributions to founding members in the six months ended June 25, 2020, compared to the six months ended June 27, 2019.

The $179.1 million increase in cash provided by financing activities for the nine months ended September 24, 2020, compared to the nine months ended September 26, 2019 was primarily due to a $149.0 million increase in proceeds from our revolving credit facility, net of repayments made early in 2020, in order to fund operations during the period of expected reduced cash flows due to the temporary closure of the theaters within NCM LLC's network to address the COVID-19 Pandemic.

The increase was also due to a $13.9 million decrease in dividends paid related to the a decrease in the dividend amounts declared from $0.51 per share during the nine months ended September 26, 2019 to $0.33 per share during the nine months ended September 24, 2020, a $12.6 million decrease in distributions to founding members in the nine months ended September 24, 2020, compared to the nine months ended September 26, 2019 and the absence of a $4.6 million repurchase of the retired Notes due 2026 that occurred in the first quarter of 2019.

Sources of Capital and Capital Requirements

NCM, Inc.’s primary source of liquidity and capital resources is the quarterly available cash distributions from NCM LLC as well as its existing cash balances and marketable securities, which as of June 25, 2020 were $81.8 million (excluding NCM LLC).

NCM, Inc.’s primary source of liquidity and capital resources is the quarterly available cash distributions from NCM LLC as well as its existing cash balances and marketable securities, which as of September 24, 2020 were $63.3 million (excluding NCM LLC).

NCM LLC’s primary sources of liquidity and capital resources are its cash provided by operating activities, availability under its revolving credit facility and cash on hand.

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Cash at NCM, Inc.

cannot be used to fund operations of NCM LLC and is used to fund income taxes, payments associated with the TRA with the founding members and for future payment of dividends to NCM, Inc.

is used to fund income taxes, payments associated with the TRA with the founding members and for future payment of dividends to NCM, Inc.

shareholders.

Further, as of June 25, 2020 , we had approximately $25.3 million of trade accounts receivable from customers, of which we have collected approximately $12.0 million as of July 31, 2020.

Management believes that cash on hand following the additional draw down on the revolving credit facility, collection of the $25.3 million trade accounts receivable balance at June 25, 2020 , as well as future funds generated from NCM LLC’s operations once theaters re-open should be sufficient to fund working capital requirements, NCM LLC’s debt service requirements and capital expenditures through at least the next twelve months.

On April 30, 2020, NCM LLC entered into the Credit Agreement Amendment to allow for the automatic waiver of any non-compliance with its Consolidated Net Senior Secured Leverage Ratio and Consolidated Total Leverage Ratio financial covenants occurring from the quarter ending June 25, 2020 until and including the quarter ending July 1, 2021.

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Further, NCM LLC can make available cash distributions to its members (AMC, Cinemark, Regal and NCM, Inc.) during the Covenant Holiday Period only if trailing 12-month Consolidated EBITDA (as defined in the Credit Agreement) equals or exceeds $277.0 million and outstanding loans under the Revolving Credit Facility are equal to or less than $39.0 million.

NCM LLC can make available cash distributions to its members outside of the Covenant Holiday Period so long as NCM LLC’s Consolidated Net Senior Secured Leverage Ratio is equal to or less than 5.00 to 1.00 and no default or event of default under

the Credit Agreement has occurred and is continuing.

As of June 25, 2020, NCM LLC was in compliance with the requirements of the Credit Agreement Amendment.

As of September 24, 2020, NCM LLC was in compliance with the requirements of the Credit Agreement Amendment.

Cash flows generated by NCM LLC’s distributions to NCM, Inc.

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NCM LLC is required pursuant to the terms of the NCM LLC Operating Agreement to distribute its available cash, as defined in the operating agreement and unless prohibited by NCM LLC's Credit Agreement, quarterly to its members (Regal, Cinemark, AMC and NCM, Inc.).

The available cash distribution to the members of NCM LLC for the three months ended June 25, 2020 was calculated as approximately negative $30.0 million, of which approximately $14.4 million was with NCM, Inc.

Pursuant to the NCM LLC Operating Agreement and the Credit Agreement Amendment, there will be no available cash distributions made for the second quarter of 2020.

These second quarter of 2020 negative available cash distributions are expected to be netted against any positive available cash distribution related to the second quarter of 2021, to be paid in the third quarter of 2021, if the Company is in compliance with the Credit Agreement Amendment requirements noted above and sufficient positive available cash is generated.

expects to use its cash balances and cash received from future available cash distributions (as allowed for under the Amended Credit Agreement) to fund income taxes, payments associated with the TRA with the founding members, including the TRA payment of $12.8 million made on July 15, 2020, and current and future dividends as declared by the Board of Directors, including a dividend declared on August 3, 2020 of $0.07 per share (approximately $5.5 million) on each share of the Company’s common stock (not including outstanding restricted stock) to stockholders of record on August 17, 2020 to be paid on August 31, 2020 .

The available cash distribution to the members of NCM LLC for the three months ended September 24, 2020 was calculated as approximately negative $24.5 million, of which NCM Inc.'s share is approximately negative $11.8 million.

The available cash distribution to the members of NCM LLC for the combined three months ended June 25, 2020 and three months ended September 24, 2020 was calculated as approximately negative $54.5 million, of which NCM Inc.'s share is approximately negative $26.2 million.

Pursuant to the NCM LLC Operating Agreement and the Credit Agreement Amendment, there will be no available cash distributions made for the third quarter of 2020.

These negative available cash distributions for the third quarter of 2020 are expected to be netted against any positive available cash distribution related to the second quarter of 2021, to be paid in the third quarter of 2021, if the Company is in compliance with the Credit Agreement Amendment requirements noted above and sufficient positive available cash is generated.

expects to use its cash balances and cash received from future available cash distributions (as allowed for under the Amended Credit Agreement) to fund income taxes, payments associated with the TRA with the founding members, including the TRA payment of $12.8 million made on July 15, 2020, and current and future dividends as declared by the Board of Directors, including a dividend declared on November 2, 2020 of $0.07 per share (approximately $5.5 million) on each share of the Company’s common stock (not including outstanding restricted stock) to stockholders of record on November 16, 2020 to be paid on December 1, 2020.

These items should be sufficient to fund payments associated with the TRA with the founding members, income taxes and its quarterly dividend for the foreseeable future at the discretion of the Board of Directors.

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 substantially all its free cash flow to stockholders through its quarterly dividend.

The declaration, payment, timing and amount of any future dividends payable will be at the sole 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 impacts to the Company related to the temporary theater closures for the COVID-19 Pandemic and restrictions under the NCM LLC Credit Agreement.

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 substantially all its free cash flow to stockholders through its quarterly dividend.

The declaration, payment, timing and amount of any future dividends payable will be at the sole 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 impacts to the Company related to the COVID-19 Pandemic and restrictions under the NCM LLC Credit Agreement.

Critical Accounting Policies

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” contained in our annual report on Form 10-K filed for the fiscal year ended December 26, 2019 and incorporated by reference herein.

As of June 25, 2020 , there were no significant changes in those critical accounting policies except for the change in allowance for doubtful accounts upon the adoption of ASC 326 in the first quarter of 2020 and discussed further within Note 1— The Company , to the unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

As of September 24, 2020, there were no significant changes in those critical accounting policies except for the change in allowance for doubtful accounts upon the adoption of ASC 326 in the first quarter of 2020 and discussed further within Note 1— The Company , to the unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.

Recent Accounting Pronouncements

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual and Other Obligations” contained in our annual report on Form 10-K for the fiscal year ended December 26, 2019 and incorporated by reference herein.

There were no material changes to our contractual obligations during the six months ended June 25, 2020 .

There were no material changes to our contractual obligations during the nine months ended September 24, 2020.

Our revenue and operating results are seasonal in nature, coinciding with the timing of marketing expenditures by our advertising clients and to a lesser extent the attendance patterns within the film exhibition industry.

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The following table reflects the quarterly percentage of total revenue for the fiscal years ended 2017, 2018 and 2019.

Quarter Second

Quarter Third

Quarter Fourth

FY 2017 16.9 % 22.8 % 27.3 % 33.0 %

FY 2018 18.2 % 25.8 % 24.9 % 31.1 %

FY 2019 17.3 % 24.8 % 24.8 % 33.1 %

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis