What changed in this filing

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Item 1A. Risk Factors

2021-03-09 compared with 2020-02-20 · 174 added, 133 removed, 267 unchanged (53% of the section changed)

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Risks Related to Our Business and Industry

Pandemics, epidemics or disease outbreaks, such as the novel coronavirus (COVID-19 virus), have disrupted and are continuing to disrupt our business and the business of our founding members and network affiliates, which has and could continue to materially affect our operations, liquidity and results of operations.

Pandemics or disease outbreaks such as the novel coronavirus (COVID-19 virus) have and are continuing to disrupt our business and the business of our founding member and network affiliates’ theaters.

Following the World Health Organization’s declaration of the COVID-19 virus as a pandemic in March 2020, 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 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.

As of the date of this filing, approximately 49.0% of theaters within our network are open, with 51.0% remaining closed due to local government mandates or the lack of major motion picture releases.

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

During the COVID-19 Pandemic, a number of major motion picture releases were delayed until 2021 and some studios shortened the “release window” between the release of motion pictures in theaters and an alternative delivery method or released motion pictures directly to alternative delivery methods bypassing the theater entirely or releasing in theaters on the same day as the film is released on a streaming video on demand service and this may continue during the COVID-19 Pandemic and after it has subsided.

For example, some studios announced plans to release all of their 2021 films on the same day they are released in theaters, and other studios announced plans to shorten the exclusive window provided to theaters for certain types of movies, regardless of the then current impact of the COVID-19 Pandemic.

The impact, extent and duration of the government-imposed restrictions on travel, public gatherings, other events and business generally, the duration of such measures, the timing and acceptance of a rollout of any approved vaccine to combat the spread of COVID-19, and studios willingness to release first-run content and cinema audience’s willingness to attend movies in theaters due to alternative availability or the COVID-19 Pandemic the overall effect of the COVID-19 Pandemic is currently unknown but has had and is continuing to have a material negative impact on our business, liquidity, financial conditions and results of operations.

We cannot predict when the effects of the COVID-19 Pandemic will subside, when all of our theaters will reopen and patrons will be comfortable attending, if our business will recover at the same time as other advertising companies or the exhibition industry generally, or when the business will return to normal levels.

The longer and more severe the pandemic, including repeat or cyclical outbreaks or increases in rates of infection, the more severe the adverse effects will be on our business, liquidity, financial conditions and/or results of operations.

Significant impacts on our business caused by the COVID-19 Pandemic and other pandemics include and are likely to continue to include among others:

• decreased attendance in theaters after they reopen, including due to (i) continued safety and health concerns or perceived infection or health risk and social distancing requirements or (ii) a change in consumer behavior in favor of alternative forms of entertainment;

• advertisers’ perception of cinema advertising may change based on future attendance, the type and number of movies released in theaters or shortened theatrical windows, and potential impacts of film production;

• due to adverse business impacts, advertisers may be less willing to invest in advertising and may prioritize other types of investment during and after the COVID-19 Pandemic;

• advertisers may be unwilling to enter into upfront advertising arrangements with us or commit to allocate budgets to cinema advertising due to uncertainty regarding the opening of cinemas, upcoming film releases, and the availability of other advertising options;

• the bankruptcy or restructuring of our founding members or other network affiliates in which the agreement with that party may be rejected, renegotiated or deemed unenforceable;

• increased operating costs without associated revenues during periods where theaters are open but attendance has not reached historical levels;

• an inability to collect accounts receivable from small business advertisers that have been temporarily or permanently closed;

• reductions and delays associated with planned operating and capital expenditures;

• increased risk related to employee matters, including litigation and claims relating to furloughs or pay reductions and increased turnover, which increased significantly during the fourth quarter of 2020 among our employees;

• actual and potential impairment charges and additional deferred tax expense related to the increase of valuation allowances on our deferred tax assets;

• the economic impact caused by increased unemployment rates, economic conditions and reduced level of economic growth may lead to reduced consumer spending available for consumers to attend theaters;

• our ability to implement business continuity plans in a fast-moving emergency, which could have an adverse effect on our internal controls (potentially giving rise to significant deficiencies or material weaknesses) and also increase our vulnerability to information technology and other systems disruptions;

• our inability to generate significant cash flow from operations, which could lead to a substantial increase in indebtedness and negatively affect our ability to comply with the financial covenants, if applicable, in our debt agreements;

• our inability to access lending, capital markets and other sources of liquidity, if needed, on reasonable terms, or at all, or obtain amendments, extensions and waivers;

• our inability to effectively meet our short- and long-term obligations;

• our inability to service our existing and future indebtedness.

Significant declines in theater attendance could reduce the attractiveness of cinema advertising and could reduce our revenue

Our business is affected by the level of attendance at the founding members’ theaters and to a lesser extent our network affiliates, who operate in a highly competitive industry and whose attendance is reliant on the presence of motion pictures that attract audiences.

Over the last 10 years, theater attendance has fluctuated from year to year but on average has remained relatively flat.

Our business is affected by the level of attendance at the founding members’ theaters and to a lesser extent our network affiliates’ theaters, who operate in a highly competitive industry and whose attendance is reliant on the presence of motion pictures that attract audiences.

Over the 10 years prior to 2020, theater attendance has fluctuated from year to year but on average has remained relatively flat.

The value of our advertising business could be adversely affected by a decline in theater attendance or even the perception by media buyers that our network is no longer relevant to their marketing plan due to the decreases in attendance and geographic coverage.

Factors that could reduce attendance at our network theaters include the following:

if NCM LLC’s network theater circuits cannot compete with other out-of-home entertainment due to an increase in the use of alternative film delivery methods (and the shortening of the “release window” between the release of major motion pictures to the alternative delivery methods), including network, video streaming and downloads via the Internet;

theater circuits in NCM LLC’s network continue to renovate auditoriums in certain of their theaters to install new larger, more comfortable seating, which reduces the number of seats in a theater auditorium.

During the COVID-19 Pandemic, several studios shortened or eliminated the “release window” between the release of major motion pictures to alternative delivery methods or released motion pictures directly to alternative delivery methods bypassing the theater entirely.

The COVID-19 Pandemic also led to significant changes in consumer behavior;

including avoiding crowds and other public indoor spaces, and governments restricted the ability of theaters to operate at normal capacity.

While some research suggests the changes in consumer behavior may only be in response to the COVID-19 Pandemic, it is unclear whether consumers and studios will revert to their pre-COVID-19 Pandemic behavior or if these changes are long-term trends.

Additional factors that could reduce attendance at our network theaters include the following, which may be accelerated by actions taken in response to the COVID-19 Pandemic:

• if NCM LLC’s network theater circuits cannot compete with other out-of-home entertainment due to an increase in the use of alternative film delivery methods (and the shortening or elimination of the “release window” between the release of major motion pictures and releasing to alternative delivery methods or releasing motion pictures directly to alternative delivery methods bypassing the theater entirely), including network, video streaming and downloads via the Internet;

• theater circuits in NCM LLC’s network are expected to continue to renovate auditoriums in certain of their theaters to install new larger, more comfortable seating, which reduces the number of seats in a theater auditorium.

This renovation has been viewed favorably by patrons and many theater circuits have noted an intent to continue such renovations;

changes in theater operating policies, including the number and length of trailers for upcoming films that are played prior to the start of the feature film, which if the length of trailers increases, may result in most or all of the Noovie pre-show starting further out from the actual start of the feature film;

any reduction in consumer confidence or disposable income in general that reduces the demand for motion pictures or adversely affects the motion picture production industry;

• changes in theater operating policies, including adjustments to seating arrangements or restricted capacity and the number and length of trailers for upcoming films that are played prior to the start of the feature film, which if the length of trailers increases, may result in most or all of the Noovie® pre-show starting further out from the actual start of the feature film;

• any reduction in consumer confidence or disposable income in general that reduces the demand for motion pictures or adversely affects the motion picture production or exhibition industries;

• the success of first-run motion pictures, which depends upon the production and marketing efforts of the major studios and the attractiveness and value proposition of the movies to consumers compared to other forms of entertainment;

if the theaters in our network fail to maintain their theaters and provide amenities that consumers prefer;

if studios begin to reduce the number of feature films produced for theater exhibition and their investments in those films or reduce the investments made to market those films;

if future theater attendance declines significantly over an extended time period, one or more of the founding members or network affiliates may face financial difficulties and could be forced to sell or close theaters or reduce the number of screens it builds or upgrades or increase ticket prices;

NCM LLC’s network theater circuits also may not successfully compete for licenses to exhibit quality films and are not assured a consistent supply of motion pictures if they do not have long-term arrangements with major film distributors.

• if political events, such as terrorist attacks, or health-related epidemics, such as flu outbreaks and pandemics, such as the COVID-19 Pandemic, cause consumers to avoid movie theaters or other places where large crowds are in attendance or governments to restrict or prohibit the operation of and attendance at theaters;

• regulations, theater operating policies or consumer behavior that require higher levels of social distancing, including those put in place as a response to the COVID-19 Pandemic;

• if the theaters in our network fail to maintain their theaters and provide amenities that consumers prefer, including cleanliness;

• if studios begin to reduce the number of feature films produced for theater exhibition or their investments in producing those films or reduce the investments made to market those films;

• if future theater attendance declines significantly over an extended time period, such as a result of prolonged closures resulting from the COVID-19 Pandemic, one or more of the founding members or network affiliates may face financial difficulties and could be forced to sell or close theaters or reduce the number of screens it builds or upgrades or increase ticket prices;

• NCM LLC’s network theater circuits also may not successfully compete for licenses to exhibit quality films and are not assured a consistent supply of motion pictures.

Any of these circumstances could reduce our revenue because our national and regional advertising revenue, and local advertising to a lesser extent, depends on the number of theater patrons who attend movies.

Additionally, if attendance declines significantly, the Company will be required to provide additional advertising time (makegoods) to national advertisers to reach agreed-on audience delivery thresholds.

Additionally, if attendance underperforms against expectations or declines significantly, the Company will be required to provide additional advertising time (makegoods) to national advertisers to reach agreed-on audience delivery thresholds.

Certain of these circumstances can also lead to volatility within our utilization.

We have also experienced volatility in our utilization over the years, with annual national inventory utilization ranging from 113.5% to 128.3% from 2015 through 2019.

We experience even more substantial volatility quarter-to-quarter.

We have historically seen our annual national inventory utilization vary more than 10% on an annual basis and we experience even more substantial volatility quarter-to-quarter.

Changes in theater patron behavior could result in declines in the viewership of our Noovie® pre-show which could reduce the attractiveness of cinema advertising and our revenues.

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• theater patrons are increasingly purchasing tickets ahead of time via on-line ticketing mediums and when available reserving a seat in the theater (offered in approximately 87% of our network as of December 31, 2020), which could affect how early patrons arrive to the theater and reduce the number of patrons that are in a theater seat to view most or all of the Noovie pre-show;

• during the COVID-19 Pandemic consumers changed their behavior in order to avoid large groups and other public indoor activities, and it is unclear whether these behavior changes will become a long-term trend;

• changes in theater patron amenities, including, online ticketing, bars and entertainment within exhibitor lobbies causing increased dwell time of patrons.

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Among other things, the 2019 ESA Amendments provide that, beginning November 1, 2019, NCM LLC is entitled to display up to five minutes of the Noovie ® pre-show after the scheduled showtime of a feature film and a Platinum Spot that is either 30 or 60 seconds of the Noovie pre-show in the trailer position directly prior to the “attached” trailers preceding the feature film.

We expect the 2019 ESA Amendments to result in an increase in average CPM, revenues and Adjusted OIBDA, however we may not realize any or all such benefits.

We expect the 2019 ESA Amendments to ultimately result in an increase in average CPM, revenues and Adjusted OIBDA, however we may not realize any or all such benefits.

Potential difficulties and uncertainties that may impair the full realization of the anticipated benefits include, among others:

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• potential advertisers may not view the Post-Showtime Inventory as attractive due to inability to run across our entire network or view it as a premium advertising opportunity and the average CPMs for the Noovie pre-show may not increase as much as anticipated, or at all;

NCM LLC may not satisfy the minimum average CPM which is required by the 2019 ESA Amendments for it to have the right to display the Platinum Spot for more than one concurrent advertiser;

• NCM LLC may not satisfy the minimum average CPM or the other restrictions which are required by the 2019 ESA Amendments for it to have the right to display the Platinum Spot for more than one concurrent advertiser;

• the extended length of time between the advertised showtime and the beginning of the feature film may decrease the average CPM for that portion of the Noovie pre-show appearing before the advertised showtime, which may partially or fully offset any increase in average CPM for the Post-Showtime Inventory;

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As a result of the 2019 ESA Amendments, NCM LLC is entitled to display up to five minutes of the Noovie ® pre-show after the scheduled showtime of a feature film and a Platinum Spot that is either 30 or 60 seconds of the Noovie pre-show in the trailer position directly prior to the “attached” trailers preceding the feature film.

However, at this time NCM LLC is only displaying Post-Showtime Inventory in Cinemark and Regal operated theaters, which constituted approximately 54.0% of the attendance in our network as of December 26, 2019 .

We have entered into agreements to provide similar access to inventory as the 2019 ESA Amendments with ten of our other current network affiliates, and we expect that the inventory will begin to be displayed in these network affiliates theaters throughout 2020.

We also entered into agreements to provide similar access to inventory as the 2019 ESA Amendments with certain of our other current network affiliates.

At this time NCM LLC is displaying Post-Showtime Inventory in Cinemark, Regal and a number of affiliate networks, which together constituted approximately 58% of the attendance in our network based upon pre-COVID-19 attendance levels.

While we intend to seek to enter into agreements that provide similar access to inventory as the 2019 ESA Amendments with more of our current network affiliates and other potential network affiliates, there can be no assurance that we will be successful in increasing either the number of theaters of current network affiliates or potential network affiliates in which NCM LLC has the right to display advertising, including Post-Showtime Inventory.

AMC, which constituted approximately 28.9% of the attendance in our network as of December 26, 2019 , has announced that it has no plans to introduce commercial advertising close to the start of a feature film’s commencement.

Certain of our theater partners have previously indicated that they have no plans to introduce our post-showtime inventory in their theaters.

In addition, any agreements with other network affiliates or new network affiliates may be on terms less favorable to us than the current network affiliate agreements and the 2019 ESA Amendments.

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Each ESA provides NCM LLC with a five-year right of first refusal for the services that it provides to the founding members, which begins one year prior to the end of the term of each respective ESA.

The founding members’ theaters represent approximately 79.6% of the screens and approximately 82.9% of the attendance in our network as of December 26, 2019.

If any one of the ESAs was terminated, not renewed at its expiration or found to be unenforceable, it would have a material adverse effect on our revenue, profitability and financial condition.

The founding members’ theaters represent approximately 81% of the screens and approximately 83% of the attendance in our network based upon pre-COVID-19 attendance levels.

If any one of the ESAs was terminated, not renewed at its expiration or found to be unenforceable, it could have a material negative impact on our revenue, profitability and financial condition.

The ESAs require the continuing cooperation, investment and support of the founding members, the absence of which could adversely affect us.

Pursuant to the ESAs, the founding members must make investments to replace digital network equipment within their theaters and equip newly constructed theaters with digital network equipment.

Pursuant to the ESAs, the founding members must make investments to replace network equipment within their theaters and equip newly constructed theaters with digital network equipment.

If the founding members do not have adequate financial resources or operational strength, and if they do not replace equipment or equip new theaters to maintain the level of operating functionality that we have today, or if such equipment becomes obsolete, we may have to make additional capital expenditures or our advertising revenue and operating margins may decline.

In addition, the ESAs give the

founding members the right to object to certain content in our Noovie pre-show, including content that competes with us or the applicable founding member.

If the founding members do not agree with our decisions on what content, strategic program or partnerships are permitted under the ESAs, we may lose clients and the resulting revenue, which would harm our business.

On October 24, 2019, AMC redeemed 197,118 membership units, which were issued to AMC in March 2019 in accordance with the terms of the common unit adjustment agreement with the founding members, in exchange for shares of our common stock.

In addition, the ESAs give the founding members the right to object to certain content in our Noovie ® pre-show, including content that competes with us or the applicable founding member.

If the founding members do not agree with our decisions on what content, strategic program or partnerships are permitted under the ESAs, we may lose advertising clients and the resulting revenue, which would harm our business.

On October 24, 2019, AMC redeemed 197,118 membership units in exchange for shares of our common stock, reducing its ownership percentage in NCM LLC to 0.0% as of December 26, 2019.

On December 31, 2020, AMC had 1,390,566 membership units in NCM LLC which were issued in March 2020 in accordance with the terms of the common unit adjustment agreement with the founding members.

AMC is eligible to be issued additional shares pursuant to the terms of the common unit adjustment agreement.

We are uncertain how AMC’s lack of ownership interest in NCM LLC may affect its cooperation with us under its ESA or otherwise going forward.

Our plans for developing additional digital revenue opportunities may not be implemented and may not be achieved.

We are uncertain how AMC’s minimal ownership interest in NCM LLC may affect its cooperation with us under its ESA or otherwise going forward.

Our plans for developing additional digital or digital out-of-home revenue opportunities may not be implemented and may not be achieved.

We have invested significant resources in pursuing potential opportunities for revenue growth, which we describe in this annual report on Form 10-K under “Business-Our strategy.” We had 106.5 million and 171.0 million first- and second-party data sets as of December 26, 2019 and December 31, 2020, respectively.

These valuable data sets consist of both our own NCM first-party data from our owned-and-operated digital products, and a variety of key second-party data addressable consumer records, including location-based data that allows us to track when our audiences go to the movie theater to see our Noovie pre-show and where they go in the days and weeks afterwards.

Our ability to increase our first- and second-party data sets requires us to invest in third-party relationships and develop innovative digital properties that will increase the number of users of our online and mobile advertising network and mobile apps.

Our ability to collect and leverage first and second party movie audience data remains at an early stage, is under increasing competitive pressure and may not deliver the future benefits that we are expecting.

Our ability to increase our first- and second-party data sets requires us to invest in third-party relationships, to comply with evolving privacy and data security laws, rules and regulations and to develop innovative digital properties that will increase the number of users of our online and mobile entertainment and advertising network and mobile apps.

Our ability to collect and leverage first and second party movie audience data remains at an early stage, is under increasing competitive and regulatory pressure and may be negatively impacted by changes to advertising technology and may not deliver the future benefits that we are expecting.

It is important that we achieve a critical mass of audience data to make our digital offering more attractive to advertisers, including national brands who buy both our national and regional advertising inventory.

If we are unable to execute on products relevant to the marketplace or integrate these digital marketing products with our core on-screen and theater lobby products, and if these offerings do not continue to provide relevant data or to grow in importance to advertising clients and agencies, they may not provide a way to help expand our cinema advertising business as it matures and begins to compete with new or improved advertising platforms including online and mobile video services.

Our digital out-of-home business remains at an early stage and is under significant competitive pressure with the proliferation of available alternatives in the digital out-of-home space and may not deliver the future benefits that we are expecting.

If we are unable to develop relationships and advertising that is relevant to the marketplace that can be integrated with our core on-screen advertising products, and if these offerings are not attractive to our advertisers, then the digital out-of-home business may not provide significant revenue or a method to help expand our cinema advertising business as it matures.

Additionally, the COVID-19 Pandemic has impacted the consumer traffic and available impressions at a number of locations we have the right to display digital out-of-home advertising, and the traffic has not yet recovered to historic levels.

As such, there can be no assurance that we will recoup our investments made pursuing additional revenue opportunities.

If we are unable to execute on products relevant to the marketplace or integrate these digital and digital out-of-home marketing products with our core on-screen and theater lobby products, or if these offerings or other data sources do not continue or are unable to provide relevant data or to grow in importance to advertising clients and agencies, they may not provide a way to help expand our advertising business as it matures and begins to compete with new or improved advertising platforms including online and mobile video services.

As such, there can be no assurance that we will recoup our investments made pursuing additional revenue opportunities.

The markets for advertising are competitive and we may be unable to compete successfully.

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and thus, we must compete with established, larger and better known national and local media platforms such as cable, broadcast and satellite television networks and other video media platforms including those distributed on the internet and mobile networks.

In addition to these video advertising platforms, we compete for advertising directly with several additional media platforms, including radio, various local print media and billboards, and online and mobile advertising.

In addition to these video advertising platforms, we compete for advertising directly with several additional media platforms, including online, digital out-of-home and mobile, radio, various local print media and billboards.

We also compete with several other local and national cinema advertising companies.

We expect all of these competitors to devote significant effort to maintaining and growing their business at our expense.

We also expect existing competitors and new entrants to the advertising business, most notably the online and mobile advertising companies and video media platforms distributed on the internet and mobile networks, to constantly revise and improve their business models to meet expectations of advertising clients.

In addition, the pricing and volume of advertising may be affected by shifts in spending toward online and mobile offerings from more traditional media, or toward new ways of purchasing advertising, such as through automated purchasing, dynamic advertising insertion, third parties selling local advertising posts and advertising exchanges, some or all of which may not be as advantageous to the Company as current advertising methods.

Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions, as well as budgeting and buying patterns.

We expect all of these competitors to devote significant effort to maintaining and growing their business, which may be at our expense.

We also expect existing competitors and new entrants to the advertising business, most notably the online, digital out-of-home and mobile advertising companies and video media platforms distributed on the internet and mobile networks, to constantly revise and improve their business models to meet expectations of advertising clients.

In addition, the pricing and volume of advertising may be affected by shifts in spending toward online, digital out-of-home and mobile offerings from more traditional media, or toward new ways of purchasing advertising, such as through automated purchasing, dynamic advertising insertion, third parties selling local advertising posts and advertising exchanges, some or all of which may not be as advantageous to the Company as current advertising methods.

Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions, as well as budgeting and buying patterns and may be impacted by the current economic conditions caused by the COVID-19 Pandemic.

A decline in the economic prospects of advertisers, industries, such as retail or consumer products, or the economy in general could alter current or prospective advertisers’ spending priorities.

If we cannot respond effectively to changes in the media marketplace, changes in the advertising market, new entrants or advances by our existing competitors, our business may be adversely affected.

Additionally, the mix of film ratings of the available motion pictures, such as a higher proportion of G and PG rated films, could cause advertisers to reduce their spending with us as the theater patrons for these films may not represent those advertisers’ target markets.

Additionally, the mix of film ratings of the available motion pictures, such as a higher proportion of G and PG rated films or a shift in the types of films being shown in theaters, could cause advertisers to reduce their spending with us as the theater patrons for these films may not represent those advertisers’ target markets.

Advertising demand also impacts the price (CPM) we are able to charge our clients.

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If we do not continue to upgrade our technology, our business could fail to grow and revenue and operating margins could decline.

Failure to successfully or cost-effectively implement upgrades to our in-theater advertising network and proposal and inventory control, audience targeting and other management systems could limit our ability to offer our clients innovative unique, integrated and targeted marketing products, which could limit our future revenue growth.

New advertising platforms such as online and mobile networks, and traditional mediums including television networks are beginning to use new digital technology to reach a broader audience with more targeted marketing products, and failure by us to upgrade our technology could hurt our ability to compete with those companies.

In early 2021, we implemented a new end-to-end order management and scheduling system, Advertising Accord, which is developed by a third-party vendor.

This system will replace many of our internally developed systems and provide delivery optimization, inventory management and monetization, intelligent dynamic scheduling, increased flexibility, and workflow automation.

The system will also interface with our accounting system thus driving client invoicing and revenue recognition.

Given the pervasive impact of this new system on the Company's processes, problems with the implementation of the system or integration with our other systems and software could cause operational difficulties, lead to errors within our financial reporting and slow or prevent the growth of our business in the future.

As we continue to move our technology to cloud based SaaS platforms, our operating results may be impacted as operating expenses associated with the SaaS licenses may increase as our annual capital expenditure spending may decrease and this shift in costs may exceed our current estimates.

If the recent implementation of our end-to-end order management and scheduling system does not successfully provide all of the services we expect, if we are unable to continue to successfully and cost-effectively implement further upgrades to the system or if we lose access to the system through termination of the agreement or otherwise, our ability to offer our clients innovative, unique, integrated and targeted marketing products may be impacted, which could limit our future revenue growth.

New advertising platforms such as online, digital out-of-home and mobile networks, and traditional mediums including television networks are beginning to use new digital technology to reach a broader audience with more targeted marketing products, and failure to upgrade and maintain our technology could hurt our ability to compete with those companies.

Under the ESAs, the founding members are required to provide technology that is consistent with that in place at the signing of the ESA.

We may request that the founding members upgrade the equipment or software installed in their theaters, but we must negotiate with the founding members as to the terms of such upgrade, including cost sharing terms, if any.

If we are not able to come to an agreement on a future upgrade request, we may elect to pay for the upgrades requested which could result in our incurring significant capital expenditures, which could adversely affect our results.

We also have many internally developed systems which support our operations due to the unique nature of our business model.

The failure to continue to develop or the failure of the system to meet our needs may require us to make significant additional investments in our infrastructure or seek alternative technology which may impact our costs and prevent our growth.

In order to address this risk, we expect to implement a new licensed sales planning, proposal and inventory tracking system in 2021 which will replace many of our internally developed systems and house the end to end sales process from proposal to inventory delivery.

We expect that the system will achieve a more seamless digital buying experience required by today's media buyers and solve the speed-to-market friction issues associated with our cinema product.

The system will also interface with our accounting system thus driving client invoicing and revenue recognition.

Given the pervasive impact of this new system on the Company's processes, the failure or delay in implementation of the system or problems with the integration with our other systems and software could cause operational difficulties and slow or prevent the growth of our business in the future.

In addition, the failure or delay in implementation of such upgrades or problems with the integration of our systems and software could slow or prevent the growth of our business.

Also, as we continue to move our technology to cloud based SaaS platforms, we will continue to reduce our annual capital expenditure spending.

However, operating expenses associated with the SaaS licenses will increase and the costs of implementing this system and the related ongoing service costs may exceed our current estimates.

Certain implementation costs of our SaaS platforms are capitalized during the implementation period and expensed to operating income over the term of the SaaS contract.

Economic uncertainty or deterioration in economic conditions may adversely impact our business, operating results or financial condition.

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Our Adjusted OIBDA is derived from high margin advertising revenue.

The reduction in spending by or loss of a national or group of local advertisers or failure to grow our advertising revenue in line with the growth of our contractual costs could have a meaningful adverse effect on our business.

The reduction in spending by or loss of a national advertiser or group of local advertisers or failure to grow our advertising revenue in line with the growth of our contractual costs could have a meaningful adverse effect on our business.

We generate all of our operating income and Adjusted OIBDA from our high margin advertising business.

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In addition, large advertisers generally have set advertising budgets, most of which are focused on online and mobile networks and traditional media platforms like television.

Reductions in the size of advertisers’ budgets due to local or national economic trends, a shift in spending to advertising mediums like the internet and mobile platforms or other factors could result in lower spending on cinema advertising.

Reductions in the size of advertisers’ budgets due to local or national economic trends, epidemics, pandemics, other natural disasters or similar events, a shift in spending to advertising mediums like the internet and mobile platforms or other factors could result in lower spending on our advertising inventory.

Advertisers are spending in the scatter market closer to the start date of their advertising campaign.

A substantial portion of our advertising revenue relates to contracts with terms of a month or less, and clients have many video media choices and can adjust where ads are placed up until their airdates without the risk of securing desired impressions.

We have been successful in increasing the dollar value of upfront advertising agreements, but as advertising spending shifts in the

scatter market closer to the start date of advertising campaigns, our ability to maintain high CPMs in the upfront markets may decrease.

We have previously been successful in increasing the dollar value of upfront advertising agreements, but as advertising spending shifts in the scatter market closer to the start date of advertising campaigns, our ability to maintain high CPMs in the upfront markets may decrease.

Because of the high incremental margins on our individual advertising contracts, if we are unable to remain competitive and provide value to our advertising clients, they may reduce their advertising purchases or stop placing advertisements with us.

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None of these companies individually accounted for over 10% of our total revenue during the year ended December 26, 2019.

However, the agreements with the content partners, PSAs and beverage advertising with the founding members in aggregate accounted for approximately 23% and 26% of our total revenue during the years ended December 26, 2019 and December 27, 2018, respectively.

The agreements with the content partners, PSAs and beverage advertising with the founding members in aggregate accounted for approximately 23% of our total revenue during the year ended December 26, 2019.

During the year ended December 31, 2020, one content partner accounted for 14.6% of our total revenue as a result from the temporary theater closures due to the COVID-19 Pandemic.

Because we derive a significant percentage of our total revenue from a relatively small number of large companies, the loss of one or more of them as a customer could decrease our revenue and adversely affect current and future operating results.

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We depend upon our senior management and our business may be adversely affected if we cannot retain or replace them.

Our success depends in part upon the retention of our experienced senior management with specialized industry, sales and technical knowledge and/or industry relationships.

In November 2018, our Chief Executive Officer stepped down and a new Chief Executive Officer was appointed in August 2019.

Our Chief Financial Officer will retire following the later of March 12,

2020 or the filing of this annual report on Form 10-K.

The Company has engaged a national search firm and is in the process of identifying a new Chief Financial Officer.

If we are not able to find qualified internal or external replacements for critical members of our senior management team, the loss of these key employees could have a material adverse effect on our ability to effectively pursue our business strategy and our relationships with advertisers and content partners.

Our success depends in part upon the retention of our experienced senior management with specialized industry, sales and technical knowledge or industry relationships.

Our Chief Financial Officer retired on March 12, 2020 and the Company initially engaged a national search firm in order to identify a new Chief Financial Officer.

Due to the impact of the COVID-19 Pandemic, the Company temporarily postponed the search until operations normalize.

If we are not able to find qualified internal or external replacements for critical members of our senior management team, the loss of these key employees could have a material negative impact on our ability to effectively pursue our business strategy and our relationships with advertisers, exhibitors, media and content partners.

In response to the COVID-19 Pandemic, the Company instituted a temporary pay reduction for all employees of up to 50% and each of our named executive officers agreed to a 20% reduction of their base salary.

Beginning in the fourth quarter of 2020, we began to see an increase in voluntary turnover among our employees generally.

If these temporary salary reductions continue and the increase in voluntary turnover continues or accelerates for an extended period of time, we may be subject to a higher rate of turnover of our senior management and other employees.

Additionally, the uncertainty caused by the COVID-19 Pandemic, hiring freeze and salary reductions, may make it more difficult for the Company to find experienced replacements for senior management, including the open Chief Financial Officer position.

We do not have key-man life insurance covering any of our employees.

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With certain limited exceptions, each of the ESAs prohibits the applicable founding member from engaging in any of the business activities that we provide in the founding member’s theaters under the amended ESAs, and from owning interests in other entities that compete with us.

These provisions are intended to prevent the founding members from harming our business by providing cinema advertising services directly to their theaters or by entering into agreements with third-party cinema advertising providers.

However, under state and federal law, a court may determine that a non-competition covenant is unenforceable, in whole or in part, for reasons including, but not limited to, the court’s determination that the covenant:

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The industry-wide construction of larger, more expensive megaplexes featuring stadium seating in the late 1990s that rendered existing, smaller, sloped-floor theaters under long-term leases obsolete and unprofitable, were significant contributing factors to these bankruptcies.

As a result of the COVID-19 Pandemic, each of the founding members temporarily closed all of their theaters in the United States and furloughed the majority of their employees for a portion of 2020 and chose to seek additional financing through various methods.

If a bankruptcy case were commenced by or against a founding member, it is possible that all or part of the ESA with that founding member could be rejected by a trustee in the bankruptcy case pursuant to Section 365 or Section 1123 of the United States Bankruptcy Code, or by the founding member, and thus not be enforceable.

Alternatively, the founding member could seek to renegotiate the ESA in a manner less favorable to us than the existing agreement.

Should the founding member seek to sell or otherwise dispose of theaters or remove theaters from our network through bankruptcy or for other business reasons, if the acquirer did not agree to continue to allow us to sell advertising in the acquired theaters the number of theaters in our advertising networks would be reduced which in turn would reduce the number of advertising impressions available to us and thus could reduce our advertising revenue.

The founding members and our network affiliates are subject to substantial government regulation, which could slow their future growth of locations and screens and in turn slow our growth prospects.

The founding members and our network affiliates are subject to various federal, state and local laws, regulations and administrative practices affecting their movie theater business, including provisions regulating antitrust, health and sanitation standards, access for those with disabilities, environmental, and licensing.

Should the founding member seek to sell or otherwise liquidate or dispose of theaters or remove theaters from our network through bankruptcy or for other business reasons, if the acquirer did not agree to continue to allow us to sell advertising in the acquired theaters the number of theaters in our advertising networks would be reduced which in turn would reduce the number of advertising impressions available to us and thus could reduce our advertising revenue.

The founding members and our network affiliates are subject to substantial government regulation, which could limit their current business, slow their future growth of locations and screens and in turn impact our business and slow our growth prospects.

The founding members and our network affiliates are subject to various federal, state and local laws, regulations and administrative practices affecting their movie theater business, including provisions regulating antitrust, health, safety and sanitation standards (including in connection with the COVID-19 Pandemic), access for those with disabilities, environmental, and licensing.

Some of these laws and regulations also apply directly to us and NCM LLC.

Changes in existing laws or implementation of new laws, regulations and practices could have a significant impact on the founding members’, our network affiliates’ and our respective businesses.

For example, to the extent that antitrust laws, regulation and enforcement policy restrict the ability of the founding members or the network affiliates to acquire additional theaters, it may slow the future growth of those founding members or network affiliates and in turn the growth of our network.

For example, to the extent that health, safety and sanitation laws, regulation and enforcement policy restrict the ability of the founding members or the network affiliates to open their theaters or operate at full capacity, it may impact their current business and future growth prospects and in turn impact our business and the growth of our network.

We may be unable to effectively manage changes to our business strategy to continue the growth of our advertising inventory and network.

If we do not effectively implement the changes within our strategy, we may not be able to continue our historical growth.

To effectively execute on our strategy to expand our digital offerings and continue to grow our inventory, we will need to

develop additional products.

To effectively execute on our strategy to expand our digital offerings and continue to grow our inventory, we will need to develop additional products or obtain access to third party digital inventory.

These enhancements and improvements could require an additional allocation of financial and management resources and acquisition of talent.

High turnover, loss of specialized talent or insufficient capital could also place significant demands on management, the success of the organization, and our strategic outlook.

The amount of inventory we have to sell is limited by the length of the Noovie pre-show.

During the COVID-19 Pandemic, our ability to invest in our existing digital business and our new digital out-of-home business have been and will continue to be negatively impacted, which may decrease the increase in growth of these businesses.

The amount of in-theater inventory we have to sell is limited by the length of the Noovie pre-show.

In order to maintain in-theater growth we will need to expand the number of theaters and screens in our network.

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Our business relies heavily on our technology systems, and any failures or disruptions may materially and adversely affect our operations.

In order to conduct our business, we rely on information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information and manage and support a variety of business processes and activities.

The temporary or permanent loss of our computer equipment, audience data or software systems through cyber and other security threats, termination of a material technology license or contract, operating malfunction, software virus, human error, natural disaster, power loss, terrorist attacks or other catastrophic events could disrupt our operations and cause a material adverse impact.

In order to conduct our business, we rely on information technology networks and systems, some of which are managed and owned by third parties, to process, transmit and store electronic information and manage and support a variety of business processes and activities.

The temporary or permanent loss of our computer equipment, networks, data or software systems through cyber and other security threats, termination of a material technology license or contract, operating malfunction, software virus, human error, natural disaster, power loss, terrorist attacks or other catastrophic events could disrupt our operations and cause a material negative impact and the steps that we have taken to mitigate these risks may prove to be ineffective.

These problems may arise in both internally developed systems and the systems of third-party service providers.

We devote significant resources to maintaining a disaster recovery location separate from our operations, network security and other measures to protect our network from unauthorized access and misuse.

However, depending on the nature and scope of a disruption, if our technology systems were to fail and we were unable to recover in a timely way through our disaster recovery site, we would be unable to fulfill critical business functions, which could lead to a loss of clients and could harm our reputation.

We devote significant resources to maintaining a disaster recovery location separate from our operations, and we employ network security and other measures to help protect our network from unauthorized access and misuse.

However, depending on the nature and scope of a disruption, if our technology network systems were to fail and we were unable to recover in a timely way through our disaster recovery site, we would be unable to fulfill critical business functions, which could lead to a loss of clients and revenue and could harm our reputation.

Technological breakdown could also interfere with our ability to comply with financial reporting and other regulatory requirements.

Intellectual property rights of our business include the copyrights, trademarks, trade secrets and patents of our in-theater, online, and mobile services, including the websites we operate at ncm.com and Noovie.com , our digital gaming products including Noovie Arcade , Fantasy Movie League , Name That Movie and Noovie Shuffle , and the features and functionality, content, and software we make available through those websites and apps.

We rely on our own intellectual property rights as well as intellectual property rights obtained from third parties to conduct our business and provide our in-theater, online, and mobile services.

We may discover that our business or the technology we use to provide our in-theater, online, or mobile services infringes patent, copyright, or other intellectual property rights owned by others.

In addition, our competitors or others may claim rights in patents, copyrights, or other intellectual property rights that will prevent, limit or interfere with our ability to provide our in-theater, online, or mobile services either in the U.S.

or in international markets.

Our revenue and Adjusted OIBDA fluctuate from quarter to quarter and may be unpredictable, which could increase the volatility of our stock price.

A weak advertising market or the shift in spending of a major client from one quarter to another, the performance of films released in a given quarter, a disruption in the release schedule of films or changes in the television scatter market could significantly affect quarter-to-quarter results or even affect results for the entire fiscal year.

In addition, 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.

Advertising expenditures in our business have historically been higher during the second, third, and fourth fiscal quarters.

Because our results may vary from quarter to quarter and may be unpredictable, our financial results for one quarter cannot necessarily be compared to another quarter or the same quarter in prior years and may not be indicative of our financial performance in subsequent quarters.

These variations in our financial results could contribute to volatility in our stock price.

Our business, services, or technology may infringe on intellectual property rights owned by others, which may interfere with our ability to provide services or expose us to increased liability or expense, or otherwise may be affected by our efforts to protect our intellectual property or restrictions or obligations in third-party licenses., or otherwise may be affected by our efforts to protect our intellectual property or restrictions or obligations in third-party licenses.

Our business uses a variety of intellectual property rights, including the copyrights, trademarks, trade secrets, domain names and patents or patentable ideas.

Those intellectual property rights relate to varying aspects of our business and in-theater, online, mobile and creative services, including the websites we operate at ncm.com and Noovie.com , our digital gaming products including Noovie® Arcade , Name That Movie and Noovie Shuffle , and the features and functionality, content, and software we make available through those websites and apps.

We rely on our own intellectual property rights as well as intellectual property rights obtained from third parties (including through open-source licenses), to conduct our business and provide our in-theater, online, mobile and creative services.

We may incur expenses, some of which may be significant, in developing, protecting, maintaining, and defending our intellectual property rights or licensing intellectual property from third parties.

In some instances, we may not be able to or may choose not to protect, maintain, or defend our intellectual property rights.

Further, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of the U.S.

The content we distribute through our in-theater, online or mobile services may expose us to liability.

Our in-theater, online, and mobile services facilitate the distribution of content.

We may discover that our business or the technology or methods we use to provide our in-theater, online, mobile, or creative services infringes patent, trademark, copyright, publicity rights, or other intellectual property rights owned by others or is otherwise negatively impacted by restrictions imposed by or obligations under third-party intellectual property licenses.

In addition, our competitors or others may claim rights in patents, trademarks, copyrights, publicity rights, or other intellectual property rights that will prevent, limit or interfere with our ability to provide our in-theater, online, or mobile services either in the U.S.

or in international markets.

We may incur significant costs in protecting our own intellectual property rights or defending or settling intellectual property infringement claims and may face significant damage awards (including the potential for awards of attorneys’ fees) if we are found to be infringing third party intellectual property rights.

Our in-theater, online, and mobile services facilitate the distribution of content, and we create content for others.

This content includes advertising-related content, as well as movie, television, music, gaming and other media content, much of which is obtained from third parties.

Our websites and social media channels also include features enabling users to upload or add their own content to the websites and modify certain content on the websites.

As a distributor of content, we face potential liability for negligence, copyright, patent or trademark infringement, or other claims based on the content that we distribute.

We or entities that we license content from may not be adequately insured or indemnified to cover claims of these types or liability that may be imposed on us.

The user information we collect and maintain through our online and mobile services may expose us to liability.

In order to take advantage of some of the online and mobile services we provide, users may, now or in the future, be required to establish an account on one of our websites.

As a result, we may collect and maintain personal information about those users.

We also may, now or in the future, collect and maintain information about users who view certain advertising displayed through our online and mobile services and users who enter the theaters in our network.

Our apps, websites, and social media channels also include features enabling users to upload or add their own content and modify certain content.

As a distributor of content, we face potential liability for

negligence, copyright, patent, trademark, or publicity infringement, or other claims based on the content that we distribute or create for others.

We or entities that we license or receive content from or distribute content through may not be adequately insured or indemnified to cover claims of these types or liability that may be imposed on us.

The user information we collect and maintain through our online and mobile services may expose us to liability or cause us to incur greater operating expenses.

In order to take advantage of some of the online and mobile services we provide, users may, now or in the future, be required to establish an account on one of our websites or apps.

As a result, we may collect and maintain personal information about those individuals who establish accounts or other users of our websites or apps.

We may also receive information from third parties to supplement or enhance the information we collect and maintain about users of our online and mobile services or individuals who view advertising or enter theaters.

The collection and use of this information is governed by applicable privacy, information security and consumer protection-related laws and regulations.

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Our collection and use of information, including personal information, regarding users of our online and mobile services could result in legal liability.

For example, the failure, or perceived failure, to comply with applicable privacy

information security or consumer protection-related laws or regulations or our posted privacy policies could result in actions against us by governmental entities or others.

For example, the failure, or perceived failure, to comply with applicable privacy information security or consumer protection-related laws or regulations or our posted privacy policies could result in actions against us by governmental entities or others.

If an actual or perceived breach of our data occurs, the market perception of the effectiveness of our security measures could be harmed, and we could lose users of these services and the associated benefits from gathering such user data.

Changes in regulations relating to the Internet or other areas of our online or mobile services may result in the need to alter our business practices or incur greater operating expenses.

A number of regulations, including those referenced below, may impact our business as a result of our online or mobile services.

The Digital Millennium Copyright Act has provisions that limit, but do not necessarily eliminate, liability for posting, or linking to third-party websites that include materials that infringe copyrights or other rights.

Portions of the Communications Decency Act are intended to provide statutory protections to online service providers who distribute third-party content.

The Child Online Protection Act and the Children’s Online Privacy Protection Act restrict the distribution of materials considered harmful to children and impose additional restrictions on the ability of online services to collect information from minors.

A number of statutes and regulations, including those referenced below, may impact our business as a result of our online or mobile services.

The Digital Millennium Copyright Act has provisions that limit, but do not necessarily eliminate, liability for online service providers when site users post or link to materials that infringe copyrights.

Section 230 of the Communications Decency Act is intended to provide statutory protections to interactive computer service providers that host third-party content, but there have been recent efforts to modify or eliminate the scope of protection afforded by Section 230.

The Children’s Online Privacy Protection Act imposes additional restrictions on the ability of online services to collect information from minors.

The California Consumer Protection Act and other privacy laws give residents of certain states additional rights with regards to their personal information.

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Likewise, any failure on our part to comply with these and other regulations may subject us to additional liabilities.

Our revenue and Adjusted OIBDA fluctuate from quarter to quarter and may be unpredictable, which could increase the volatility of our stock price.

Advertising expenditures tend be higher during the second, third, and fourth fiscal quarters.

These variations in our financial results could contribute to volatility in our stock price.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud, and as a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud.

Any failure to implement required controls, or difficulties encountered in implementing new or improved controls, could cause us to fail to meet our reporting obligations.

In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.

Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Risks Related to Our Corporate Structure

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Consequently, our ability to obtain operating funds primarily depends upon distributions from NCM LLC.

The distribution of cash flows and other transfers of funds by NCM LLC to us are subject to statutory and contractual restrictions based upon NCM LLC’s financial performance, including NCM LLC’s compliance with the covenants

in its senior secured credit facility and indentures, and the NCM LLC operating agreement.

The NCM LLC Senior Secured Credit Facility and indentures limit NCM LLC’s ability to distribute cash to its members, including us, based upon certain leverage tests, with exceptions for, among other things, payment of our income taxes and a management fee to NCM, Inc.

pursuant to the terms of the management services agreement (incorporated in the ESA).

Refer to the information provided under Note 10 to the audited Condensed Consolidated Financial Statements included elsewhere in this document for leverage discussion.

Refer to the information provided under Note 10 to the audited Consolidated Financial Statements included elsewhere in this document for leverage discussion.

The declaration of future dividends on our common stock will be at the discretion of our Board of Directors and will depend upon many factors, including NCM LLC’s results of operations, financial condition, earnings, capital requirements, limitations in NCM LLC’s debt agreements and legal requirements.

On March 8, 2021, NCM LLC entered into an additional amendment

to its Credit Agreement, dated as of June 20, 2018, as discussed within Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this document.

This additional amendment also restricts NCM LLC’s ability to distribute cash to its members, including us, until after the delivery of a compliance certificate following the third quarter of 2022.

In the event NCM LLC fails to comply with these covenants and is unable to distribute cash to us quarterly, once NCM, Inc.

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We have structured the NCM LLC Senior Secured Credit Facility and indentures to allow NCM LLC to distribute cash to its members (including us and NCM LLC’s other members) in amounts sufficient to cover their tax liabilities and management fees, if any.

To the extent that NCM LLC has insufficient cash flow to make such payments, it could have a material adverse effect on our business, financial condition, results of operations or prospects.

To the extent that NCM LLC has insufficient cash flow to make such payments, it could have a negative impact on our business, financial condition, results of operations or prospects.

NCM LLC’s substantial debt obligations could impair our financial condition or prevent us from achieving our business goals.

NCM LLC is party to substantial debt obligations.

The senior secured credit facility and indentures contain restrictive covenants that limit NCM LLC’s ability to take specified actions and prescribe minimum financial maintenance requirements that NCM LLC must meet.

The Senior Secured Credit Facility and indentures contain restrictive covenants that limit NCM LLC’s ability to take specified actions and in some instances prescribe minimum financial maintenance requirements that NCM LLC must meet, which, in some cases, were made more restrictive following the second amendment to NCM LLC’s Senior Secured Credit Facility.

Because NCM LLC is our only operating subsidiary, complying with these restrictions may prevent NCM LLC from taking actions that we believe would help us to grow our business.

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Any such defaults could materially impair our financial condition and liquidity.

For further information, refer to Note 10 to the audited Condensed Consolidated Financial Statements included elsewhere in this document.

For further information, refer to Note 10 to the audited Consolidated Financial Statements included elsewhere in this document.

If NCM LLC is unable to meet its debt service obligations, it could be forced to restructure or refinance the obligations, seek additional equity financing or sell assets.

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If new debt is added to current debt levels, the related risks that we now face, including those described above under “NCM LLC’s substantial debt obligations could impair our financial condition or prevent us from achieving our business goals,” could intensify.

NCM LLC’s other founding members or their affiliates may have interests that differ from those of our public stockholders and they may be able to influence our affairs.

NCM LLC’s other founding members or their affiliates, as well as our largest stockholder, may have interests that differ from those of our public stockholders and they may be able to influence our affairs.

So long as either Cinemark or Regal owns at least 5% of NCM LLC’s issued and outstanding common membership units, if the two directors appointed by Cinemark or the two directors appointed by Regal to our Board of Directors (except that if either Cinemark or Regal has only appointed one director, and such director qualifies as an “independent director” under the applicable rules of the Nasdaq Stock Market LLC, then such director) vote against any of the corporate actions listed below, we and NCM LLC will be prohibited from taking any such actions:

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Under these circumstances, our corporate governance documents allow NCM LLC’s other members and their affiliates to exercise a greater degree of influence in the operation of our business and that of NCM LLC and the management of our affairs and those of NCM LLC than is typically available to stockholders of a publicly-traded company.

Even if NCM LLC’s other members or their affiliates own a minority economic interest (but not less than 5%) in NCM LLC, they may be able to continue exerting such degree of influence over us and NCM LLC.

Even if NCM LLC’s other

members or their affiliates own a minority economic interest (but not less than 5%) in NCM LLC, they may be able to continue exerting such degree of influence over us and NCM LLC.

Further, Standard General L.P.

(“Standard General”), our largest stockholder, beneficially owns 19,417,990 shares of our common stock, and as of December 31, 2020, Cinemark, and Regal held NCM LLC membership interests that are convertible into another 83,140,762 shares of our common stock.

As a result, each of Regal, Cinemark and Standard General is in a position to influence or control to some degree the outcome of matters requiring stockholder approval, including the adoption of amendments to our certificate of incorporation or bylaws and the approval of mergers and other significant corporate transactions.

Their influence or control of our Company and NCM LLC may have the effect of delaying or promoting a change of control of our Company and may adversely affect the voting and other rights of other stockholders.

In addition, Standard General has the right to designate directors to our Board.

Like the directors designated by Regal and Cinemark, these Standard General directors have the authority, subject to applicable rules and regulations, to vote in favor of issuing additional stock, implementing stock repurchase programs, declaring dividends and making other decisions.

It is possible that the interests of Regal, Cinemark and Standard General may in some circumstances conflict with our interests and the interests of our other stockholders.

For example, Cinemark and Regal may have different tax positions from us, especially in light of the TRA we entered into with founding members that provides for the payment by us to the founding members of 90% of the amount of any tax benefits that we actually realize, or in some cases are deemed to realize.

This could influence their decisions regarding whether and when we should dispose of assets, and whether and when we or NCM LLC should incur indebtedness.

As another example, Standard General is in the business of making investments in companies and may hold, and may from time to time in the future acquire, interests in or provide advice to businesses that directly or indirectly compete with us.

Different interests among the founding members or between the founding members and us could prevent us from achieving our business goals.

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This provision may apply even if the business opportunity is one that we might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so.

In addition, our certificate of incorporation and the NCM LLC operating agreement expressly provide that NCM LLC’s founding members may have other business interests and may engage in any other businesses not specifically prohibited by the terms of the certificate of incorporation, including the exclusivity provisions of the ESAs.

terms of the certificate of incorporation, including the exclusivity provisions of the ESAs.

The parent companies of NCM LLC’s founding members could develop new media platforms that could compete for advertising dollars with our services.

Further, we may also compete with NCM LLC’s founding members or their affiliates in the area of employee recruiting and retention.

These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by NCM LLC’s founding members to themselves or their other affiliates or we lose key personnel to them.

These potential conflicts of interest could have a material negative impact on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by NCM LLC’s founding members to themselves or their other affiliates or we lose key personnel to them.

The agreements between us and NCM LLC’s founding members were made in the context of an affiliated relationship and may contain different terms than comparable agreements with unaffiliated third parties.

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• do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates.

NCM LLC’s operating agreement also provides that NCM LLC’s other members will be able to exercise a greater degree of influence over the operations of NCM LLC, which may discourage other nominations to our Board of Directors, if any director nominee designated by NCM LLC’s other members is not elected by our stockholders.

NCM LLC’s operating agreement also provides that NCM LLC’s other members will be able to exercise a greater degree of influence over the operations of NCM LLC if any director nominee designated by NCM LLC’s other members is not elected by our stockholders, which may discourage other nominations to our Board of Directors.

In addition, we entered into a letter agreement with Standard General L.P., our largest stockholder, on June 1, 2018, that contains customary standstill provisions that may discourage a third party from seeking to enter into a strategic transaction with us.

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The common unit adjustment agreement and the ESAs provide that NCM LLC will issue common membership units to account for changes in the number of theater screens NCM LLC’s founding members operate and which are made part of our advertising network.

Historically, in most years each of NCM LLC’s founding members has increased the number of screens it operates.

Historically, each of NCM LLC’s founding members has increased the number of screens it operates in most years.

If this trend continues, NCM LLC may issue additional common membership units to NCM LLC’s founding members to reflect their increase in net screen count.

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Other than the maximum number of authorized shares of common stock in our certificate of incorporation, there is no limit on the number of shares of our common stock that we may issue upon redemption of an NCM LLC founding member’s common membership units in NCM LLC.

For further information, refer to Note 5 to the audited Condensed Consolidated Financial Statements included elsewhere in this document.

For further information, refer to Note 5 to the audited Consolidated Financial Statements included elsewhere in this document.

Our future issuance of preferred stock could dilute the voting power of our common stockholders and adversely affect the market value of our common stock.

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However, if anything were to occur that would cause us to be deemed an investment company, we would become subject to restrictions imposed by the Investment Company Act of 1940.

These restrictions, including limitations on our capital structure and our ability to enter into transactions with our affiliates, could make it impractical for us to continue our business as currently conducted and could have a material adverse effect on our financial performance and operations.

These restrictions, including limitations on our capital structure and our ability to enter into transactions with our affiliates, could make it impractical for us to continue our business as currently conducted and could have a material negative impact on our financial performance and operations.

We also rely on representations of NCM LLC’s founding members that they are not investment companies under the Investment Company Act.

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The substantial number of shares that are eligible for sale could cause the market price for our common stock to decline or make it difficult for us to sell equity securities in the future.

We cannot predict the effect, if any, that market sales of shares of common stock by Regal, Cinemark, or Standard General will have on the market price of our common stock from time to time.

Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline or make future offerings of our equity securities more difficult.

We cannot predict the effect, if any, that market sales of shares of common stock by Regal, Cinemark, AMC, Standard General or any of our significant stockholders will have on the market price of our common stock from time to time.

Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could

cause the market price of our common stock to decline or make future offerings of our equity securities more difficult.

If we are unable to sell equity securities at times and prices that we deem appropriate, we may be unable to fund growth.

Cinemark and Regal may receive up to 81,508,369 shares of common stock as of December 26, 2019 upon redemption of their outstanding common membership units of NCM LLC.

Cinemark, Regal and AMC may receive up to 84,531,328 shares of common stock as of December 31, 2020 upon redemption of their outstanding common membership units of NCM LLC.

The resale of these shares of common stock has been registered as required by the terms of the registration rights agreement between NCM, Inc.

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Standard General also owns 19,417,990 shares that it may sell at any time.

Additionally, once options and restricted stock held by our employees become vested and/or exercisable, as applicable, to the extent that they are not held by one of our affiliates, the shares acquired upon vesting or exercise are freely tradable.

Additionally, once equity awards held by our employees become vested and/or exercisable, as applicable, to the extent that they are not held by one of our affiliates, the shares acquired upon vesting or exercise are freely tradable.

Refer to Note 11 to the audited Consolidated Financial Statements included in our annual report on Form 10-K.

The interests of our largest stockholder and NCM LLC’s other members may be different from or conflict with those of our other stockholders.

Standard General beneficially owns 15,808,390 shares of our common stock, and as of December 26, 2019 , Cinemark and Regal held NCM LLC membership interests that are convertible into another 81,508,369 shares of our common stock.

result, each of Regal, Cinemark and Standard General is in a position to influence or control to some degree the outcome of matters requiring stockholder approval, including the adoption of amendments to our certificate of incorporation or bylaws and the approval of mergers and other significant corporate transactions.

In addition, each of Regal, Cinemark and Standard General has the right to designate directors to our Board.

These directors have the authority, subject to applicable rules and regulations, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions.

It is possible that the interests of Regal, Cinemark and Standard General may in some circumstances conflict with our interests and the interests of our other stockholders.

This could influence their decisions regarding whether and when we should dispose of assets, and whether and when we or NCM LLC should incur indebtedness.

Unresolved Staff Comments

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-K

Item 1A. Risk Factors