What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 234 added, 132 removed, 207 unchanged (64% of the section changed)

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We present two different formats of our Noovie pre-show depending on the theater circuit in which it runs.

In Regal and Cinemark and 15 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 April 1, 2021, theaters presenting the new Noovie format with Post-Showtime Inventory made up approximately 59% of our network.

In Regal and Cinemark and 18 of our network affiliates' theaters, the Noovie pre-show 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 July 1, 2021, theaters presenting the new Noovie format with Post-Showtime Inventory made up approximately 56% of our network.

All other NCM network theater circuits, which make up the remaining 44% 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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We also sell advertising on our LEN, a series of strategically placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theater lobbies.

In addition, we sell online and mobile advertising through our Noovie Audience Accelerator, across our suite of Noovie digital properties, including Noovie.com , Noovie Shuffle , Name That Movie and Noovie Arcade, as well as a variety of complementary out of home venues, including restaurants, retail locations, convenience stores and office and residential buildings, in order to reach entertainment audiences beyond the theater.

As of April 1, 2021, approximately 5.2 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 183.7 million as of April 1, 2021.

We have long-term ESAs (approximately 18.5 weighted average years remaining based on pre-COVID-19 attendance levels) with the founding members and multi-year agreements with our network affiliates, which expire at various dates between May 2021 and December 2037.

The weighted average remaining term of the ESAs and the network affiliate agreements is 20.9 years as of April 1, 2021.

In addition, we sell online and mobile advertising through our Noovie Audience Accelerator, across our suite of Noovie digital properties, including Noovie.com , Noovie Shuffle , Name That Movie and Noovie Arcade, on third party partner’s internet sites, as well as a variety of complementary out of home venues, including restaurants, retail locations, convenience stores, college campuses and office and residential buildings, in order to reach entertainment audiences beyond the theater.

As of July 1, 2021, over 5.6 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 202.6 million as of July 1, 2021.

We have long-term ESAs (approximately 18.2 weighted average years remaining based on pre-COVID-19 attendance levels) with the founding members and multi-year agreements with our network affiliates, which expire at various dates between August 2021 and December 2037.

The weighted average remaining term of the ESAs and the network affiliate agreements is 15.9 years as of July 1, 2021.

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

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Recent Developments

COVID-19 —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, with Regal temporarily re-closing its theaters again in October 2020.

As of April 1, 2021, approximately 60.0% of the theaters within our network had reopened.

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 returned to historical levels.

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

As of May 7, 2021, approximately 77.0% of the theaters within our network have reopened.

The Company generated no in-theater advertising revenue for the approximate six months that the theaters were closed and 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 significantly less than normal given COVID-19 restrictions around patron capacity limitations and a continued lack of new major motion picture releases.

The results of operations for the three months ended April 1, 2021 were significantly impacted by the COVID-19 Pandemic.

The Company's ability to advertise has been and will continue to be limited due to the portion of our network that is 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.

COVID-19 Impact and Outlook —As previously disclosed, the COVID-19 Pandemic has had a significant impact on the world and our business beginning in March 2020 as 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.

These governmental restrictions resulted in the closure of most of our network theaters for approximately six months and thus the Company generated no in-theater advertising revenue during that time.

When theaters began to reopen in late in the third quarter of 2020, in-theater advertising revenue continued to be adversely impacted as attendance at the reopened theaters was significantly less than normal given COVID-19 restrictions around patron capacity limitations and a continued lack of new major motion picture releases.

Beginning in 2021, Multiple COVID-19 vaccines were approved and have been widely administered throughout the United States.

As a result, during the second quarter of 2021, government restrictions lessened allowing theaters in key larger markets to fully reopen over the course of the second quarter of 2021.

As of July 1, 2021, approximately 97.0% of the theaters within the Company’s network were open.

Multiple, successful major motion pictures were released during the second quarter of 2021 resulting in the highest attendance numbers within our network since the start of the COVID-19 Pandemic.

The movie slate for the remainder of 2021 and into 2022 remains packed due to the addition of the major motion pictures originally scheduled for 2020.

Despite the increase in network attendance, second quarter of 2021 in-theater advertising revenue remained significantly below historical levels as we believe many advertisers continued to delay making commitments until they confirmed that industry attendance had achieved necessary critical mass.

We were also not able to participate in the 2021 advertising upfront marketplace during the summer of 2020 while theaters were closed.

There can be no assurance that the cases of the COVID-19 virus will continue to decline;

new variants will not continue to spread;

recently reinstated mask mandates will not negatively impact network attendance, advertiser sentiment, and our business in general;

social distancing, capacity restrictions, and other public safety measures will not be reintroduced;

when or if theaters within our network will return to historic attendance levels and that the theaters which have reopened will remain open.

To ensure sufficient liquidity to endure the impacts of the COVID-19 Pandemic, even if prolonged, we continued to manage our liquidity position through various cost control methods discussed further within the “ Financial Condition and Liquidity ” section below.

Since the beginning of the COVID-19 Pandemic, the Company has significantly reduced payroll related costs through a combination of temporary furloughs, permanent layoffs and salary reductions (“Payroll Related Cost Reductions”).

In total, the Company’s headcount has been reduced by over 30% as compared to headcount levels prior 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 continue to 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.

Given the limited attendance levels and delay in new movie releases, during the three months ended April 1, 2021, over 75% of our current employee base continued to be furloughed or had salary reductions of up to 50% (“Temporary Salary and Wage Reductions”).

Further, since the start of the COVID-19 Pandemic our total headcount has been reduced by almost 30% from pre-COVID-19 Pandemic headcount levels.

Since the start of the COVID-19 Pandemic and during the three months ended April 1, 2021, we have also taken the following cash preservation actions that the Company anticipates continuing until the Company’s operations normalize:

• Temporarily reduced cash compensation of the Company's Board of Directors by 20% and offered the option for the Board to receive the cash retainers for the first and second quarter in equivalent value of the Company’s common stock in lieu of cash;

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

• Temporarily suspended the 401K employee match program;

• Terminated or deferred certain non-essential capital expenditures;

• Strategically worked with our 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 for the first three quarters of 2020 and to $0.05 for the fourth quarter of 2020 and first quarter of 2021 from $0.19 per share in the fourth quarter of 2019.

When compared to the first quarter of 2020 this results in a cash savings of $11.2 million in the first quarter of 2021 and cash savings of $41.6 million for NCM, Inc.

since the beginning of the pandemic;

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

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.

As of the filing date, multiple COVID-19 vaccines have been developed and immunizations are under way throughout the United States.

Because of this, cases of the COVID-19 virus have decreased from the peak numbers experienced in late 2020 and government restrictions have lessened allowing theaters in key markets to reopen.

Regal also began a phased reopening of its theaters within our network beginning in April 2021 and multiple major motion picture releases are scheduled beginning in May 2021.

However, there can be no assurance that the cases of the COVID-19 virus will continue to decline, when theaters within our network will return to normal operations, that the theaters which have reopened will remain open or that patrons will return to the theaters at historical levels.

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 a 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.

We were still required to pay these screen-based fees when theaters are open, which were reduced for months where screens are in use for only part of the month.

As a result of these actions and lower attendance, total operating expenses were over 20% lower in the six months ended July 1, 2021, as compared to the six months ended June 25, 2020.

Further, due to these future market uncertainties and in order to provide additional liquidity while revenue levels build and accounts receivable balances are collected, the Board of Directors of NCM, Inc.

and required NCM LLC founding members approved the material terms of a $20.0 million unsecured revolving loan agreement between NCM Inc.

Borrowings by NCM LLC will be available from October 1, 2021 through March 31, 2022.

The final definitive loan agreement will be approved by the Audit Committee of NCM, Inc.

and is expected to be completed in the third quarter of 2021.

Once entered into, this revolving loan facility will provide NCM LLC with short-term working capital loans as NCM LLC rebuilds its advertising revenue base and collects related accounts receivable and will provide additional cushion with respect to the NCM LLC debt covenants.

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 continue to benefit from pent-up social demand as 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, responsive governmental regulations, including mandated business closures which could recur causing subsequent closure periods, social distancing guidelines, theater capacity restrictions, government restrictions, shifting movie slates, voluntary theater closures and decreasing levels of theater attendance.

Our business also could be significantly affected

should the disruptions caused by the COVID-19 Pandemic lead to permanent changes in consumer behavior (such as the movie audience’s willingness to return to the movie theaters, which may be influenced by the adoption or continued use of streaming services), 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.

We are monitoring the rapidly evolving situation and its potential impacts on our financial position, results of operations, liquidity and cash flows.

On March 8, 2021, NCM LLC entered into the Credit Agreement Second Amendment.

Among other things, the Credit Agreement Second Amendment provides for certain modifications to the negative covenants, with respect to NCM LLC’s audited financial statements for the fiscal year ended December 31, 2020, a waiver of the requirement to deliver such financial statements without a “going concern” or like qualification or exception, additional waivers and term changes outlined below and grants security interests in certain assets of NCM LLC and other potential loan parties that are not currently pledged to the lenders.

In addition, pursuant to the Credit Agreement Second Amendment, NCM LLC incurred a second tranche of the term loans in an aggregate principal amount of $50.0 million, the net proceeds of $43.8 million will be used for general corporate purposes.

Upon execution of the Credit Agreement Second Amendment, the Company recorded $2.3 million as a discount, $3.5 million as debt issuance costs and $0.4 million within “Loss on modification and retirement of debt, net”.

Summary Historical and Operating Data

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

Q1 2021 Q1 2020 Q1 2021 to Q1 2020

Q2 2021 Q2 2020 YTD 2021 YTD 2020 Q2 2021 to Q2 2020 YTD 2021 to YTD 2020

Revenue $ 14.0 $ 4.0 $ 19.4 $ 68.7 250.0 % (71.8) %

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Total operating expenses 43.6 27.8 77.3 87.6 56.8 % (11.8) %

Operating (loss) income (28.3) 4.9 (677.6) %

Operating loss (29.6) (23.8) (57.9) (18.9) 24.4 % 206.3 %

Non-operating expenses 17.3 13.8 31.0 27.3 25.4 % 13.6 %

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Total theater attendance (in millions) (1)

13.8 120.4 (88.5) %

49.1 0.2 62.9 120.6 NM (47.8) %

_________________________

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Adjusted Operating Income Before Depreciation and Amortization (“Adjusted OIBDA”) and Adjusted OIBDA margin are not financial measures calculated in accordance with GAAP in the United States.

Adjusted OIBDA represents operating income before depreciation expense adjusted to also exclude amortization of intangibles recorded for network theater screen leases and non-cash share-based compensation costs.

Adjusted OIBDA represents operating income before depreciation expense adjusted to also exclude amortization of intangibles recorded for network theater screen leases, non-cash share-based compensation costs and impairment of long-lived assets.

Adjusted OIBDA margin is calculated by dividing Adjusted OIBDA by total revenue.

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The Company believes these are important supplemental measures of operating performance because they eliminate items that have less bearing on the Company's operating performance and so highlight trends in its core business that may not otherwise be apparent when relying solely on GAAP financial measures.

The Company believes the presentation of these measures is relevant and useful for investors because it enables them to view performance in a manner similar to the method used by the Company’s management, helps improve their ability to understand the Company’s operating performance and makes it easier to compare the Company’s results with other companies that may have different depreciation policies, amortization of intangibles recorded for network theater screen leases, non-cash share based compensation programs, interest rates, debt levels or income tax rates.

theater screen leases, non-cash share based compensation programs, interest rates, debt levels or income tax rates.

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.

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

Q1 2021 Q1 2020

Operating (loss) income $ (28.3) $ 4.9

Q2 2021 Q2 2020 YTD 2021 YTD 2020

Operating loss $ (29.6) $ (23.8) $ (57.9) $ (18.9)

Depreciation expense 2.6 3.2 5.9 6.4

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Share-based compensation costs (1)

2.1 0.1 4.8 0.3

Impairment of long-lived assets (2)

Adjusted OIBDA $ (18.7) $ (12.7) $ (34.9) $ 1.7

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(1) Share-based compensation costs are included in network operations, selling and marketing and administrative expense in the accompanying unaudited Condensed Consolidated Financial Statements.

Our Network —The change in the number of screens in our network by the founding members and network affiliates during the three months ended April 1, 2021 was as follows.

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

Our Network —The change in the number of screens in our network by the founding members and network affiliates during the six months ended July 1, 2021 was as follows.

Number of screens

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(23) (8) (31)

Balance as of April 1, 2021 16,434 4,224 20,658

Balance as of July 1, 2021 16,492 4,391 20,883

______________________________________

(1) Represents the addition of one new affiliate which added 363 new screens to our network, offset by the loss of one of our affiliates that closed as of the end of the first three months of 2021 resulting in a reduction of 23 affiliate screens to our network during the three months ended April 1, 2021.

(1) Represents the addition of one new affiliate which added 501 new screens to our network, offset by the loss of three of our affiliates that closed during the first six months of 2021 resulting in a reduction of 37 affiliate screens to our network as of July 1, 2021.

(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 April 1, 2021 (first quarter of 2021) and March 26, 2020 (first quarter of 2020) 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 July 1, 2021 (second quarter of 2021) and June 25, 2020 (second quarter of 2020) and the six months ended July 1, 2021 and June 25, 2020 and 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

First Quarter of 2021 and First Quarter of 2020

Total revenue decreased 91.7%, from $64.7 million for the first quarter of 2020 to $5.4 million for the first quarter of 2021.

Second Quarter of 2021 and Second Quarter of 2020

Total revenue increased 250.0%, from $4.0 million for the second quarter of 2020 to $14.0 million for the second quarter of 2021.

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

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Total revenue $ 14.0 $ 4.0 $ 10.0 250.0 %

The following table shows data on theater attendance and revenue per attendee for the three months ended April 1, 2021 and March 26, 2020:

The following table shows data on theater attendance and revenue per attendee for the three months ended July 1, 2021 and June 25, 2020:

Q2 2021 Q2 2020 Q2 2021 to Q2 2020

National and regional advertising revenue per attendee $ 0.268 $ 0.414 (35.3) %

Local advertising revenue per attendee $ 0.087 $ 0.078 11.5 %

National and regional advertising revenue per attendee $ 0.181 NM NM

Local advertising revenue per attendee $ 0.061 NM NM

Total advertising revenue (excluding founding

member beverage revenue) per attendee $ 0.355 $ 0.492 (27.8) %

Total advertising revenue per attendee $ 0.391 $ 0.537 (27.2) %

member beverage revenue) per attendee $ 0.242 NM NM

Total advertising revenue per attendee $ 0.285 NM NM

Total theater attendance (in millions) (1)

________________________________________________________

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

National and regional advertising revenue.

The $46.1 million, or 92.6%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was due to an 95.4% decrease in impressions sold due to the continued temporary closure of approximately 40% of the theaters within our network in response to the COVID-19 Pandemic and the significant decrease in attendance from historical levels at open theaters during the first quarter of 2021.

The $7.2 million, or 423.5%, increase in national and regional advertising revenue (excluding beverage revenue from founding members) was due to a significant increase in impressions sold and attendance as 97.0% of the theaters within our network were open and multiple major motion pictures were released during the second quarter of 2021 compared to the temporary closure of almost all of the theaters in our network in response to the COVID-19 Pandemic in the second quarter of 2020.

Local advertising revenue.

The $8.2 million, or 87.2%, decrease in local advertising revenue was due to the continued temporary closure of approximately 40% the theaters within our network in response to the COVID-19 Pandemic and the significant decrease in attendance from historical levels at open theaters during the first quarter of 2021.

The $0.7 million, or 30.4%, increase in local advertising revenue was due primarily to the ability to generate onscreen advertising revenue in the second quarter of 2021, compared to the second quarter of 2020 as 97.0% of the theaters within our network were open and multiple major motion pictures were released during the second quarter of 2021 compared to the temporary closure of almost all of the theaters in our network in response to the COVID-19 Pandemic in the second quarter of 2020.

Founding member beverage revenue.

The $5.0 million, or 90.9%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to an 89.7% decrease in founding member attendance for the first quarter of 2021, as compared to the first quarter of 2020, due to the continued temporary theater closures described above related to the COVID-19 Pandemic.

The $2.1 million, or 100.0%, increase in national advertising revenue from the founding members’ beverage concessionaire agreements was due to the reopening of 98.8% of founding member theaters within our network and the release of multiple major motion pictures during the second quarter of 2021 compared to the temporary closure of all of the founding member theaters in our network in response to the COVID-19 Pandemic during the second quarter of 2020.

Operating expenses.

Total operating expenses decreased $26.1 million, or 43.6%, from $59.8 million for the first quarter of 2020 to $33.7 million for the first quarter of 2021.

The following table shows the changes in operating expense for the first quarter of 2021 (in millions):

Total operating expenses increased $15.8 million, or 56.8%, from $27.8 million for the second quarter of 2020 to $43.6 million for the second quarter of 2021.

The following table shows the changes in operating expense for the second quarter of 2021 (in millions):

$ Change % Change

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Administrative and other costs 9.6 7.4 2.2 29.7 %

Impairment of long-lived assets — 1.7 (1.7) (100.0) %

Depreciation expense 2.6 3.2 (0.6) (18.8) %

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Advertising operating costs.

Advertising operating costs decreased $4.7 million, or 75.8%, from $6.2 million for the first quarter of 2020 to $1.5 million for the first quarter of 2021.

The decrease was due primarily to a $4.0 million decrease in advertising affiliate expense due to lower revenue in the first quarter of 2021 as compared to the first quarter of 2020 due to the COVID-19 Pandemic, and a $0.4 million decrease in personnel related expenses due to the Temporary Salary and Wage Reductions in place during the first quarter of 2021 in response to the COVID-19 Pandemic.

Advertising operating costs increased $2.1 million, or 190.9%, from $1.1 million for the second quarter of 2020 to $3.2 million for the second quarter of 2021.

The increase was due primarily to a $2.0 million increase in advertising affiliate expense due to higher revenue in the second quarter of 2021 as compared to the second quarter of 2020 and the addition of a new affiliate representing 501 screens during 2021.

Network costs.

Network costs decreased $1.1 million, or 37.9%, from $2.9 million for the first quarter of 2020 to $1.8 million for the first quarter of 2021.

The decrease was primarily related to a $0.9 million decrease in personnel related expenses related to the Temporary Salary and Wage Reductions in place during the first quarter of 2021 in response to the COVID-19 Pandemic and a $0.1 million decrease related to non-essential operating expenditures, including employee travel that was suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic.

Network costs increased $0.3 million, or 18.8%, from $1.6 million for the second quarter of 2020 to $1.9 million for the second quarter of 2021.

The increase was primarily related to a $0.4 million increase in personnel expenses primarily related to the return of certain employees from furlough and restoration of hours and/or salaries of certain other employees from reductions that had been implemented at the beginning of the second 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 $14.6 million, or 82.5%, from $17.7 million in the first quarter of 2020 to $3.1 million in the first quarter of 2021.

The decrease was due to an 89.7% decrease in founding member attendance for the first quarter of 2021, as compared to first quarter of 2020, and fewer active founding member screens during the first quarter of 2021 due to the temporary closure of certain founding member theaters in response to the COVID-19 Pandemic.

Theater access fees and revenue share increased from $0.0 million in the second quarter of 2020 to $11.2 million in the second quarter of 2021.

The increase was due to there being theater attendance and active founding member screens in the second quarter of 2021, compared to closures of all the founding member theaters in our network in the second quarter of 2020.

Selling and marketing costs.

Selling and marketing costs decreased $6.2 million, or 44.6%, from $13.9 million for the first quarter of 2020 to $7.7 million for the first quarter of 2021.

This decrease was primarily related to a $2.9 million decrease in personnel related expenses primarily due to a decrease in commission expense driven by the revenue declines during the first quarter of 2021, as compared to the first quarter of 2020, as well as other lower personnel related expenses related to the Temporary Salary and Wage Reductions in place during the first quarter of 2021 in response to the COVID-19 Pandemic, a $2.3 million decrease related to non-essential operating expenditures, including marketing, training, 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 $1.5 million decrease in bad debt expense and production and royalty related costs resulting from lower revenue in the first quarter of 2021, compared to the first quarter of 2020.

These decreases were partially offset by a $0.5 million increase in expense associated with our Noovie® Audience Accelerator service offering in 2021, compared to 2020 due to higher digital revenue and a change in the mix of digital products sold.

Selling and marketing costs increased $2.2 million, or 32.8%, from $6.7 million for the second quarter of 2020 to $8.9 million for the second quarter of 2021.

This increase was primarily related to a $1.9 million increase in personnel expenses primarily related to the return of a portion of our sales and marketing departments from furlough and restoration of hours and/or salaries of certain other employees from reductions that had been implemented at the beginning of the second quarter of 2020 in response to the COVID-19 Pandemic, an increase in commission expense related to higher revenue during the second quarter of 2021, as compared to the second quarter of 2020, and the higher share-based compensation expense.

Administrative and other costs.

Administrative and other costs increased $0.4 million, or 4.1%, from $9.8 million in the first quarter of 2020 to $10.2 million in the first quarter of 2021.

This increase was primarily due to a $3.2 million increase in performance-based compensation expense following the modification of certain of the Company’s performance-based stock grants during the first quarter of 2021, issuance of retention related stock grants and higher projected performance against internal bonus targets, partially offset by a $1.9 million decrease in salary and other personnel related expenses related to the Temporary Salary and Wage Reductions in place during the first quarter of 2021 in response to the COVID-19 Pandemic, a $0.6 million decrease in legal and professional fees for the first quarter of 2021, as compared to the first quarter of 2020 and a $0.3 million decrease related to non-essential operating expenditures, including employee travel that was suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic.

Administrative and other costs increased $2.2 million, or 29.7%, from $7.4 million in the second quarter of 2020 to $9.6 million in the second quarter of 2021.

This increase was primarily due to a $2.5 million increase in personnel expenses due to higher share-based compensation expense primarily from the issuance of equity grants in late 2020 and early 2021, higher projected performance against internal bonus targets during the six months ended July 1, 2021 and due to a decrease in capitalized personnel costs resulting from the nature of the work being performed by our technology department during the second quarter of 2021, as compared to the second quarter of 2020.

Administrative and other costs also increased $0.5 million related to cloud computing expense incurred in the second quarter of 2021 related to the implementation of our new end-to-end order management and scheduling system in January 2021.

These increases were partially offset by a $0.9 million decrease in legal and professional fees primarily related to legal services obtained in the second quarter of 2020 related to the various implications of the COVID-19 Pandemic.

Impairment of long-lived assets.

Impairment of long-lived assets decreased $1.7 million, or 100.0%, from $1.7 million in the second quarter of 2020 to $0.0 million in the second quarter of 2021.

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

Depreciation expense.

Depreciation expense increased $0.1 million, or 3.1%, from $3.2 million for the first quarter of 2020 to $3.3 million in the first quarter of 2021.

Depreciation expense decreased $0.6 million, or 18.8%, from $3.2 million for the second quarter of 2020 to $2.6 million in the second quarter of 2021, as assets became fully depreciated.

Amortization of intangibles recorded for network theater screen leases.

Amortization of intangibles recorded for network theater screen leases remained consistent at $6.1 million for the first quarter of 2021 and 2020.

Amortization of intangibles recorded for network theater screen leases increased $0.1 million, or 1.6%, from $6.1 million for the second quarter of 2020 to $6.2 million for the second quarter of 2021.

Non-operating expenses.

Total non-operating expenses increased $0.2 million, or 1.5%, from $13.5 million for the first quarter of 2020 to $13.7 million for the first quarter of 2021.

The following table shows the changes in non-operating expense for the first quarter of 2021 and the first quarter of 2020 (in millions):

Total non-operating expenses increased $3.5 million, or 25.4%, from $13.8 million for the second quarter of 2020 to $17.3 million for the second quarter of 2021.

The following table shows the changes in non-operating expense for the second quarter of 2021 and the second quarter of 2020 (in millions):

$ Change % Change

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Loss on modification and retirement of debt, net 0.4 0.3 0.1 33.3 %

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

Loss on the re-measurement of the payable

to founding members under the tax receivable

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Total non-operating expenses $ 17.3 $ 13.8 $ 3.5 25.4 %

The increase in non-operating expense was primarily due to a $1.1 million increase in interest on borrowings primarily due to the increase in debt outstanding following the $110.0 million draw down on the revolving credit facility in late March 2020 and issuance of the second tranche of the terms loans under the Credit Agreement Second Amendment entered into on March 8, 2021 and a $0.4 million increase in the loss on modification and retirement of debt, net related to certain third party fees incurred in conjunction with the Credit Agreement Second Amendment, partially offset by a $1.7 million increase in the gain on the re-measurement of the payable to founding members under the Tax Receivable Agreement (“TRA”) due to a reduction in the payable to the founding members under the TRA following the recognition of certain deferred tax assets related to cancellation of debt income recognized for tax purposes in the first quarter of 2021 related to the Credit Agreement Second Amendment.

The increase in non-operating expense was primarily due to a $3.3 million increase in interest on borrowings related to the issuance of the second tranche of the terms loans and the increase in the contracted interest rate on the initial tranche of the term loans and the revolving credit facility following the Credit Agreement Second Amendment entered into on March 8, 2021.

Income Tax Benefit.

Income tax benefit decreased from income tax benefit of $0.4 million for the first quarter of 2020 to $0.0 million of income tax benefit for the first quarter of 2021.

The decrease in income tax benefit was primarily due to the full valuation allowance recorded against the Company’s deferred tax assets as of April 1, 2021 which reduced deferred tax expense to $0.0 million for the three months ended April 1, 2021.

Net loss increased $15.7 million from net loss of $3.7 million for the first quarter of 2020 to $19.4 million for the first quarter of 2021.

The increase in net loss was due to a $33.2 million increase in operating loss, a $0.4 million decrease in income tax benefit and a $0.2 million increase in non-operating expense, partially offset by an $18.1 million increase in net loss attributable to noncontrolling interests.

Income tax benefit decreased from income tax benefit of $4.2 million for the second quarter of 2020 to $0.0 million of income tax benefit for the second quarter of 2021.

The decrease in income tax benefit was primarily due to the full valuation allowance recorded against the Company’s deferred tax assets as of July 1, 2021 which reduced deferred tax expense to $0.0 million for the three months ended July 1, 2021.

Net loss increased $8.9 million from net loss of $13.8 million for the second quarter of 2020 to $22.7 million for the second quarter of 2021.

The increase in net loss was due to a $5.8 million increase in operating loss, a $4.2 million decrease in income tax benefit and a $3.5 million increase in non-operating expense, partially offset by a $4.6 million increase in net loss attributable to noncontrolling interests.

Six months ended July 1, 2021 and June 25, 2020

Total revenue decreased 71.8%, from $68.7 million for the six months ended June 25, 2020 to $19.4 million for the six months ended July 1, 2021.

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

Six Months Ended $ Change % Change

July 1, 2021 June 25, 2020 YTD 2021 to YTD 2020 YTD 2021 to YTD 2020

National and regional advertising revenue $ 12.6 $ 51.5 $ (38.9) (75.5) %

Local advertising revenue 4.2 11.7 (7.5) (64.1) %

Founding member advertising revenue from

beverage concessionaire agreements 2.6 5.5 (2.9) (52.7) %

Total revenue $ 19.4 $ 68.7 $ (49.3) (71.8) %

The following table shows data on theater attendance and revenue per attendee for six months ended July 1, 2021 and June 25, 2020:

Six Months Ended % Change

July 1, 2021 June 25, 2020 YTD 2021 to YTD 2020

National and regional advertising revenue per attendee $ 0.200 $ 0.427 (53.2) %

Local advertising revenue per attendee $ 0.067 $ 0.097 (30.9) %

Total advertising revenue (excluding founding

member beverage revenue) per attendee $ 0.267 $ 0.524 (49.0) %

Total advertising revenue per attendee $ 0.308 $ 0.570 (46.0) %

Total theater attendance (in millions) (1) 62.9 120.6 (47.8) %

________________________________________________________

National and regional advertising revenue.

The $38.9 million, or 75.5%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was due to an 81.8% decrease in impressions sold due to the significant decrease in attendance from historical levels as a result of fewer open theaters within our network, fewer motion picture releases and a longer period of government mandated capacity restrictions during the six months ended July 1, 2021, compared to the six months ended June 25, 2020.

Local advertising revenue.

The $7.5 million, or 64.1%, decrease in local advertising revenue was due to fewer open theaters within our network, fewer motion picture releases and a longer period of government mandated capacity restrictions during the six months ended July 1, 2021, compared to the six months ended June 25, 2020.

Founding member beverage revenue.

The $2.9 million, or 52.7%, decrease in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a 51.2% decrease in founding member attendance for the six months ended July 1, 2021, as compared to the six months ended June 25, 2020, due to the temporary theater closures and lower attendance described above related to the COVID-19 Pandemic.

Operating expenses.

Total operating expenses decreased $10.3 million, or 11.8%, from $87.6 million for the six months ended June 25, 2020 to $77.3 million for the six months ended July 1, 2021.

The following table shows the changes in operating expense for the six months ended July 1, 2021 and June 25, 2020 (in millions):

Six Months Ended $ Change % Change

July 1, 2021 June 25, 2020 YTD 2021 to YTD 2020 YTD 2021 to YTD 2020

Advertising operating costs $ 4.7 $ 7.3 $ (2.6) (35.6) %

Network costs 3.7 4.5 (0.8) (17.8) %

Theater access fees—founding members 14.3 17.7 (3.4) (19.2) %

Selling and marketing costs 16.6 20.6 (4.0) (19.4) %

Administrative and other costs 19.8 17.2 2.6 15.1 %

Impairment of long-lived assets — 1.7 (1.7) (100.0) %

Depreciation expense 5.9 6.4 (0.5) (7.8) %

Amortization of intangibles recorded for

network theater screen leases 12.3 12.2 0.1 0.8 %

Total operating expenses $ 77.3 $ 87.6 $ (10.3) (11.8) %

Advertising operating costs.

Advertising operating costs decreased $2.6 million, or 35.6%, from $7.3 million for the six months ended June 25, 2020 to $4.7 million for the six months ended July 1, 2021.

The decrease was due primarily to a $2.0 million decrease in advertising affiliate expense due to lower revenue in the six months ended July 1, 2021 as compared to the six m onths ended June 25, 2020 due to the COVID-19 Pandemic and a $0.3 million decrease in personnel related expenses due to the Payroll Related Cost Reductions implemented in response to the COVID-19 Pandemic which were in place for the full six months ended July 1, 2021, as compared to three of the six months ended June 25, 2020.

Network costs.

Network costs decreased $0.8 million, or 17.8%, from $4.5 million for the six months ended June 25, 2020 to $3.7 million for the six months ended July 1, 2021.

The decrease was primarily related to a $0.5 million decrease in personnel related expenses related to the Payroll Related Cost Reductions implemented in response to the COVID-19 Pandemic which were in place for the full six months ended July 1, 2021, as compared to three of the six months ended June 25, 2020, and a $0.1 million decrease related to non-essential operating expenditures, including employee travel that was suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic.

Theater access fees and revenue share—founding members.

Theater access fees and revenue share decreased $3.4 million, or 19.2%, from $17.7 million in the six months ended June 25, 2020 to $14.3 million in the six months ended July 1, 2021.

Theater access fees and revenue share decreased $5.6 million due to a 51.2% decrease in founding member attendance.

The decrease due to attendance was partially offset by a $1.3 million increase due to the annual contractual rate increase related to the fee for post-showtime attendance and digital screens and a $0.9 million increase due to an increase in active screens for the six months ended July 1, 2021, as compared to the six months ended June 25, 2020.

Selling and marketing costs.

Selling and marketing costs decreased $4.0 million, or 19.4%, from $20.6 million for the six months ended June 25, 2020 to $16.6 million for the six months ended July 1, 2021.

This decrease was primarily related to a $2.3 million decrease related to non-essential operating expenditures, including marketing, training, 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 $1.0 million decrease in bad debt expense related to lower revenue in the six months ended July 1, 2021, compared to the six months ended June 25, 2020.

Personnel expense also decreased $1.0 million primarily related to the Payroll Related Cost Reductions implemented in response to the COVID-19 Pandemic and a decrease in commission expense driven by the revenue declines during the six months ended July 1, 2021, as compared to the six months ended June 25, 2020.

These decreases were partially offset by a $0.8 million increase in expense associated with our digital offerings due to an increase in digital revenue for the six months ended July 1, 2021, as compared to the six months ended June 25, 2020.

Administrative and other costs.

Administrative and other costs increased $2.6 million, or 15.1%, from $17.2 million for the six months ended June 25, 2020 to $19.8 million for the six months ended July 1, 2021.

This increase was primarily due to a $5.4 million increase in performance-based compensation expense following the modification of certain of the Company’s performance-based equity grants, issuance of new equity grants and higher projected performance against internal bonus targets during the six months ended July 1, 2021 .

This increase was partially offset by a $1.6 million decrease in salary and other personnel related expenses related to the Payroll Related Cost Reductions in place during the six months ended July 1, 2021 in response to the COVID-19 Pandemic, a $1.5 million decrease in legal and professional fees for the six months ended July 1, 2021, as compared to the six months ended June 25, 2020 due in part to legal services obtained in the second quarter of 2020 related to the various implications of the COVID-19 Pandemic and a $0.3 million decrease related to reductions in non-essential operating expenditures, including employee travel that was suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic.

Impairment of long-lived assets.

Impairment of long-lived assets decreased $1.7 million, or 100.0%, from $1.7 million in the six months ended June 25, 2020 to $0.0 million in the six months ended July 1, 2021.

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

Depreciation expense.

Depreciation expense decreased $0.5 million, or 7.8%, from $6.4 million for the six months ended June 25, 2020 to $5.9 million in the six months ended July 1, 2021, as assets became fully depreciated.

Amortization of intangibles recorded for network theater screen leases.

Amortization of intangibles recorded for network theater screen leases increased $0.1 million, or 0.8%, from $12.2 million for the six months ended June 25, 2020, to $12.3 million for the six months ended July 1, 2021.

Non-operating expenses.

Total non-operating expenses increased $3.7 million, or 13.6%, from $27.3 million for the six months ended June 25, 2020 to $31.0 million for the six months ended July 1, 2021.

The following table shows the changes in non-operating expense for the six months ended July 1, 2021 and June 25, 2020 (in millions):

Six Months Ended $ Change % Change

July 1, 2021 June 25, 2020 YTD 2021 to YTD 2020 YTD 2021 to YTD 2020

Interest on borrowings $ 31.6 $ 27.2 $ 4.4 16.2 %

Interest income (0.1) (0.5) 0.4 (80.0) %

Loss on modification and retirement of debt, net 0.8 0.3 0.5 166.7 %

(Gain) loss on re-measurement of the

payable to founding members under the

tax receivable agreement (1.4) 0.3 (1.7) (566.7) %

Other non-operating expense 0.1 — 0.1 100.0 %

Total non-operating expenses $ 31.0 $ 27.3 $ 3.7 13.6 %

The increase in non-operating expense was primarily due to a $4.4 million increase in interest on borrowings related to the issuance of the second tranche of the terms loans and the increase in the contracted interest rate on the initial tranche of the term loans and the revolving credit facility and a $0.5 million increase in the loss on modifications and retirements of debt, net resulting from the Credit Agreement Second Amendment entered into on March 8, 2021.

These increases were partially offset by a $1.7 million increase in the gain on re-measurement of the payable to founding members under the Tax Receivable Agreement (“TRA”) due to a reduction in the payable to the founding members under the TRA following the recognition of certain deferred tax assets related to cancellation of debt income recognized for tax purposes in the first quarter of 2021 related to the Credit Agreement Second Amendment.

Income Tax Benefit.

Income tax benefit decreased from income tax benefit of $4.6 million for the six months ended June 25, 2020 to $0.0 million of income tax benefit for the six months ended July 1, 2021.

Net loss increased $24.6 million from net loss of $17.5 million for the six months ended June 25, 2020 to $42.1 million for the six months ended July 1, 2021.

The increase in net loss was due to a $39.0 million increase in operating loss, a $4.6 million decrease in income tax benefit and a $3.7 million increase in non-operating expense, partially offset by a $22.7 million increase in net loss attributable to noncontrolling interests.

Known Trends and Uncertainties

COVID-19 —As discussed within the ‘ Recent Developments ’ section, due to the COVID-19 Pandemic, approximately 40% of the theaters within the Company’s network remained temporarily closed as of April 1, 2021 and the Company's ability to advertise within the opened 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.

COVID-19 —As discussed within the ‘ Recent Developments ’ section, due to the COVID-19 Pandemic certain theaters within the Company’s network remained temporarily closed during the six months ended July 1, 2021 and the Company's ability to advertise within the opened 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, are not incurred when theaters are closed and attendance-based fees will be reduced for the period of time that attendance is lower than historical levels.

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However, we are monitoring the rapidly evolving situation and its potential impacts on our financial position, results of operations, liquidity and cash flows.

CARES Act —On March 27, 2020, the U.S.

Government enacted various relief and stimulus measures in response to the unprecedented adverse economic impacts of the COVID-19 Pandemic, commonly referred to as the CARES Act.

The CARES Act made changes to the U.S.

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 resulting in the deferral of $1.3 million in qualifying payments in the year ended December 31, 2020 for the Company 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 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.

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 months of 2021 and 2020, 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 six months of 2021 and 2020, 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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The CPM on our beverage concessionaire revenue related to AMC in 2021 did not change compared to 2020.

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%.

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%.

Founding member attendance has been and may continue to be lower than historical levels following the re-opening of theaters due to the COVID-19 Pandemic, which could reduce the Company’s beverage revenue.

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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 loans 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 discussed within the ‘ Recent Developments’ section, due to the COVID-19 Pandemic, approximately 40% of the theaters within the Company’s network remained temporarily closed as of April 1, 2021 and 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.

As discussed within the ‘ Recent Developments ’ section, due to the COVID-19 Pandemic, certain theaters within the Company’s network remained temporarily closed during the six months ended July 1, 2021 and the Company's ability to advertise within the reopened theaters has been and may continue to be limited due to lower than historical levels of attendance due in part 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 attendance levels normalize and advertising revenue increases.

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.

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

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

The Company also implemented a number of cost-saving measures in order to preserve cash as further outlined within the ‘ Recent Developments’ section above.

In March 2020, we drew down an additional $110.0 million on our revolving credit facility and in March 2021 we received $43.8 million in proceeds under incremental term loans that

mature on December 20, 2024.

The $139.4 million of cash at NCM LLC as of April 1, 2021 will be used to fund operations during the period of expected reduced cash flows.

As 97.0% of the theaters within our network were open as of July 1, 2021, the screen-based portion of these expenses is expected to return to historical levels during the third quarter of 2021 and the attendance-based portion of these e xpenses is expected to increase as attendance increases following the upcoming releases of many major motion pictures.

The Company also implemented the following cost-saving measures in order to preserve cash at the start of the COVID-19 Pandemic, and those measures remain in place as of the filing date:

• During the six months ended July 1, 2021, 45%-75% of our current employee base continued to be furloughed or had salary reductions of up to 50%.

Further, since the start of the COVID-19 Pandemic our total headcount has been reduced by over 30% from pre-COVID-19 Pandemic headcount levels.

• Temporarily reduced cash compensation of the Company's Board of Directors by 20% and offered the option for the Board to receive the cash retainers for the first, second and third quarter in equivalent value of the Company’s common stock in lieu of cash;

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

• Temporarily suspended the 401K employee match program;

• Terminated or deferred certain non-essential capital expenditures;

• Strategically worked with our 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 for the first three quarters of 2020 and to $0.05 for the fourth quarter of 2020 and first and second quarters of 2021 from $0.19 per share in the fourth quarter of 2019.

When compared to the first quarter of 2020 this results in a cash savings of $10.8 million in the second quarter of 2021 and cash savings of $52.4 million for NCM, Inc.

since the beginning of the pandemic;

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

Due to the future market uncertainties and in order to provide additional liquidity while revenue levels build and accounts receivable balances are collected, the Board of Directors of NCM, Inc.

and required NCM LLC founding members approved the material terms of a $20 million unsecured revolving loan agreement between NCM Inc.

Borrowings by NCM LLC will be available from October 1, 2021 through March 31, 2022.

The final definitive loan agreement will be approved by the Audit Committee of NCM, Inc.

and is expected to be completed in the third quarter of 2021.

In March 2020, we drew down an additional $110.0 million on our revolving credit facility and in March 2021 we received $43.0 million in proceeds under incremental term loans that mature on December 20, 2024.

The $98.2 million of cash at NCM LLC as of July 1, 2021 will be used to fund operations during the period of expected reduced cash flows.

Cash at NCM, Inc.

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

In accordance with the Credit Agreement amendment entered into on April 30, 2020 (“the Credit Agreement First Amendment”) and the Credit Agreement Second Amendment, for the period beginning in the second quarter of 2020 through the date that NCM LLC delivers a compliance certificate for the third quarter of 2022, 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.

As of April 1, 2021, NCM LLC was in compliance with the requirements of the Credit Agreement, as amended.

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.

In accordance with the Credit Agreement amendment entered into on April 30, 2020 (“the Credit Agreement First Amendment”) and the Credit Agreement Second Amendment, for the period beginning in the second quarter of 2020 through the date that NCM LLC delivers a compliance certificate for the third quarter of 2022, NCM LLC must maintain a minimum liquidity balance of $55.0 million consisting of a combination of unrestricted cash on hand and availability under NCM LLC's revolving credit facility.

As of July 1, 2021, NCM LLC was in compliance with the requirements of the Credit Agreement, as amended.

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

As of $ Change $ Change

April 1, 2021 December 31, 2020 March 26, 2020 Q1 2021 to YE 2020 Q1 2021 to Q1 2020

July 1, 2021 December 31, 2020 June 25, 2020 Q2 2021 to YE 2020 Q2 2021 to Q2 2020

Cash, cash equivalents and marketable securities (1)

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_________________________

(1) Included in cash, cash equivalents and marketable securities as of April 1, 2021, December 31, 2020 and March 26, 2020, was $139.4 million, $123.9 million and $132.2 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 July 1, 2021, December 31, 2020 and June 25, 2020, was $98.2 million, $123.9 million and $168.1 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 April 1, 2021, December 31, 2020 and March 26, 2020.

As of April 1, 2021, December 31, 2020 and March 26, 2020, 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, $167.0 million and $167.0 million, respectively, and net letters of credit of $2.4 million, $3.6 million and $3.6 million, respectively.

As of April 1, 2021, the weighted average remaining maturity of our debt was 5.2 years.

As of April 1, 2021, approximately 57% of our total borrowings bear interest at fixed rates.

NCM LLC’s total capacity under the revolving credit facility was $175.0 million as of July 1, 2021, December 31, 2020 and June 25, 2020.

As of July 1, 2021, December 31, 2020 and June 25, 2020, 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, $167.0 million and $167.0 million, respectively, and net letters of credit of $2.4 million, $3.6 million and $3.6 million, respectively.

As of July 1, 2021, the weighted average remaining maturity of our debt was 4.9 years.

As of July 1, 2021, approximately 57% of our total borrowings bear interest at fixed rates.

The remaining 43% 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 used and generated cash as follows (in millions):

Three Months Ended

April 1, 2021 March 26, 2020

Six Months Ended

July 1, 2021 June 25, 2020

Operating cash flow $ (61.6) $ 107.4

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• Operating Activities.

The $83.1 million increase in cash used in operating activities for the first quarter of 2021, compared to the first quarter of 2020 was primarily due to a $51.7 million decrease in accounts receivable collections during the first quarter of 2021, as compared to the first quarter of 2020, a $33.8 million increase in consolidated net loss, and a $8.5 million decrease in founding member integration and other encumbered theater payments.

The $169.0 million increase in cash used in operating activities for the six months ended July 1, 2021, compared to the six months ended June 25, 2020 was primarily due to a $142.9 million decrease in accounts receivable collections during the six months ended July 1, 2021, as compared to the six months ended June 25, 2020, a $47.3 million increase in consolidated net loss and a $9.6 million decrease in founding member integration and other encumbered theater payments.

These decreases were due to the temporary closure of the theaters within our network in response to the COVID-19 Pandemic resulting in significantly decreased revenue and negative Adjusted OIBDA, from which integration payments are calculated.

These decreased cash inflows were partially offset by a $10.9 million decrease in accounts payable and accrued expenses payments due to the cash preservation actions taken by the Company to mitigate the impact of the COVID-19 Pandemic.

These decreased cash inflows were partially offset by a $18.9 million decrease in accounts payable and accrued expenses payments due in part to the cash preservation actions taken by the Company to mitigate the impact of the COVID-19 Pandemic and an $8.5 million increase in amounts due to founding members for the six months ended July 1, 2021, as compared to the six months ended June 25, 2020 due to the increase in theater access fees, net of beverage discussed above.

• Investing Activities.

The $2.8 million increase in cash used in investing activities for the first quarter of 2021, compared to the first quarter of 2020 was primarily due to a $4.1 million decrease in proceeds from the sale of

marketable securities, net of purchases.

The $18.4 million increase in cash used in investing activities for the six months ended July 1, 2021, compared to the six months ended June 25, 2020 was primarily due to a $20.7 million decrease in proceeds from the sale of marketable securities, net of purchases.

This decrease was partially offset by a $2.3 million decrease in purchases of property and equipment in 2021, compared to 2020 due to the cash preservation actions taken by the Company to mitigate the impact of the COVID-19 Pandemic.

• Financing Activities.

The $41.0 million decrease in cash provided by financing activities for the first quarter of 2021, compared to the first quarter of 2020 was primarily due to a $128.0 million decrease in proceeds from the revolving credit facility, net of repayments and a $5.9 million increase in the payment of debt issuance costs related to Credit Agreement Second Amendment executed in the first quarter of 2021.

These were partially offset by a $50.0 million increase in the issuance of term loans, a $32.4 million decrease in distributions to founding members in the first quarter of 2021, compared to the first quarter of 2020, and a $10.7 million decrease in dividends paid related to the decrease in the dividend amounts declared from $0.19 per share during the first quarter of 2020 to $0.05 per share during the first quarter of 2021.

The $35.0 million decrease in cash provided by financing activities for the six months ended July 1, 2021, compared to the six months ended June 25, 2020 was primarily due to a $128.0 million decrease in proceeds from the revolving credit facility, net of repayments, and a $5.5 million increase in the payment of debt issuance costs related to Credit Agreement Second Amendment executed in the first quarter of 2021.

These decreases were partially offset by a $50.0 million increase in the issuance of term loans, a $36.8 million decrease in distributions to founding members in the six months ended July 1, 2021, compared to the six months ended June 25, 2020, and a $12.2 million decrease in dividends paid related to the decrease in the dividend amounts declared from $0.26 per share during the six months ended June 25, 2020 to $0.10 per share during the six months ended July 1, 2021.

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 April 1, 2021 were $52.8 million (excluding $139.4 million of cash held by 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 July 1, 2021 were $50.8 million (excluding $98.2 million of cash held by 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.

NCM LLC drew down an additional $110.0 million of its revolving credit facility in March 2020 and received net proceeds of $43.8 million from incremental terms loans in March 2021 in order to supplement the decrease in cash provided by operating activities during the period a portion or all of our network theaters are closed.

NCM LLC drew down an additional $110.0 million of its revolving credit facility in March 2020 and received net proceeds of $43.0 million from incremental terms loans in March 2021 in order to supplement the decrease in cash provided by operating activities during the period during which a portion or all of our network theaters are closed.

The $98.2 million of cash at NCM LLC will be used to fund operations during the period of expected reduced cash flows.

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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, unless prohibited by NCM LLC's Credit Agreement, quarterly to its members (Regal, Cinemark and NCM, Inc.).

The available cash distribution to the members of NCM LLC for the three months ended April 1, 2021 was calculated as approximately negative $30.9 million, of which NCM, Inc.'s share is approximately negative $14.9 million.

Further there was $85.9 million of negative available cash generated in during 2020.

Pursuant to the NCM LLC Operating Agreement and the Credit Agreement amendments, there will be no available cash distributions made for the first quarter of 2021.

Negative available cash distributions for the first quarter of 2021 and the negative available cash from 2020 are expected to be netted in accordance with the NCM LLC Operating Agreement against future positive available cash distributions after the Extended Covenant Waiver Holiday.

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, and current and future dividends as declared by the Board of Directors, including a dividend declared on May 10, 2021 of $0.05 per share (approximately $4.0 million) on each share of the Company’s common stock (not including outstanding restricted stock) to stockholders of record on May 21, 2021 to be paid on June 7, 2021.

The available cash distribution to the members of NCM LLC for the three months ended July 1, 2021 was calculated as approximately negative $39.2 million, of which NCM, Inc.'s share is approximately negative $18.9 million.

The available cash distribution to the members of NCM LLC for the six months ended July 1, 2021 was calculated as approximately negative $70.1 million, of which NCM, Inc.'s share is approximately negative $33.8 million.

Further there was $85.9 million of negative available cash generated during 2020.

Pursuant to the NCM LLC Operating Agreement and the Credit Agreement amendments, there will be no available cash distributions made for the third quarter of 2021.

Negative available cash

distributions for the first and second quarter of 2021 and the negative available cash from 2020 are expected to be netted in accordance with the NCM LLC Operating Agreement against future positive available cash distributions after the Extended Covenant Waiver Holiday, contingent upon the Company's compliance with the covenants outlined within the Credit Agreement Second Amendment defined within Note 6— Borrowings and in accordance with the NCM LLC Operating Agreement.

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, pay associated with the TRA with the founding members, fund the unsecured revolving loan to NCM LLC, and pay current and future dividends as declared by the Board of Directors, including a dividend declared on August 9, 2021 of $0.05 per share (approximately $4.1 million) on each share of the Company’s common stock (not including outstanding restricted stock) to stockholders of record on August 23, 2021 to be paid on September 6, 2021.

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 COVID-19 Pandemic and restrictions under the NCM LLC Credit Agreement.

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, restrictions under the NCM LLC Credit Agreement and the current availability and funding of the unsecured revolving loan agreement between NCM Inc.

Critical Accounting Policies

For a discussion of accounting policies that we consider critical to our business operations and understanding of our results of operations, and that affect the more significant judgments and estimates used in the preparation of our unaudited Condensed Consolidated Financial Statements, see Item 7.

“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 31, 2020 and incorporated by reference herein.

As of April 1, 2021, there were no significant changes in those critical accounting policies.

“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 31, 2020 and incorporated by reference herein.

As of July 1, 2021, there were no significant changes in those critical accounting policies.

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 31, 2020 and incorporated by reference herein.

There were no material changes to our contractual obligations during the three months ended April 1, 2021.

There were no material changes to our contractual obligations during the six months ended July 1, 2021.

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