National CineMedia, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Some of the information in this Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended. All statements other than statements of historical facts included in this Form 10-Q, including, without limitation, certain statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and statements related to the impact of the current COVID-19 Pandemic on our business and results of operations, may constitute forward-looking statements. In some cases, you can identify these “forward-looking statements” by the specific words, including but not limited to “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of those words and other comparable words. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those indicated in these statements as a result of certain factors as more fully discussed under the heading “Risk Factors” below and in our annual report on Form 10-K for the Company’s fiscal year ended December 31, 2020. Among other risks, we face significant risk and volatility related to the COVID-19 Pandemic as discussed in this report. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. The following discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto included herein and the audited financial statements and other disclosure included in our annual report on Form 10-K for the Company’s fiscal year ended December 31, 2020. In the following discussion and analysis, the term net income refers to net income attributable to NCM, Inc. Overview We are America's Movie Network. As the largest cinema advertising network in the U.S., we unite brands with the power of movies and engage movie fans anytime and anywhere. We currently derive revenue principally from the sale of advertising to national, regional and local businesses in Noovie® , our cinema advertising and entertainment pre-show seen on movie screens across the U.S. We present two different formats of our Noovie pre-show depending on the theater circuit in which it runs. In Regal and Cinemark and a portion 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 September 30, 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. The movie trailers that run before the feature film are not part of our Noovie preshow. 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, 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 September 30, 2021, over 6.0 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 approximately 252 million as of September 30, 2021. We have long-term ESAs (approximately 18.0 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 December 2021 and December 2037. The weighted average remaining term of the ESAs and the network affiliate agreements is 15.7 years as of September 30, 2021. The ESAs and network affiliate agreements grant NCM LLC exclusive rights in their theaters to sell advertising, subject to limited exceptions. Our Noovie pre-show and LEN programming are distributed predominantly via satellite through our proprietary digital content network (“DCN”). Management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage our business, determine how we are performing versus our internal goals and targets, and against the performance of our competitors and other benchmarks in the marketplace in which we operate. We focus on operating metrics including changes in revenue, Adjusted OIBDA and Adjusted OIBDA margin, as defined and discussed below, as some of our primary measurement metrics. In addition, we monitor our monthly advertising performance measurements, including advertising inventory utilization, national and regional advertising pricing (CPM), local advertising rate per screen per week, national and local and regional and total advertising revenue per attendee. We also monitor free cash flow, the dividend coverage ratio, financial leverage ratio (net debt divided by Adjusted OIBDA plus integration payments and other encumbered theater payments), cash balances and revolving credit facility availability to ensure financial debt covenant compliance and that 22 there is adequate cash availability to fund our working capital needs and debt obligations and current and future dividends declared by our Board of Directors. Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors” below and in our annual report on Form 10-K filed with the SEC on March 8, 2021 for our fiscal year ended December 31, 2020. Recent Developments 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 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 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 prior comparative periods due primarily to the shift in motion picture release schedules and the local/state COVID-19 patron capacity limitations. Beginning in 2021, the FDA approved COVID-19 vaccines, which 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 and by the third quarter of 2021 all of the theaters within the Company’s network were open. Multiple, successful major motion pictures were released during the second and third quarters 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 and major motion picture studios committing to theatrical-only releases. Despite the increase in network attendance, the second quarter and third quarter of 2021 in-theater advertising revenue remained significantly below historical levels as we were not able to participate in the 2021 advertising upfront marketplace during the summer of 2020 while theaters were closed. During 2021, variants of the COVID-19 virus spread throughout the United States resulting in the reinstatement of mask mandates in certain areas with increased infection rates and concerning some advertisers about the impact on theater attendance. There can be no assurance that the cases of the COVID-19 virus will continue to decline; new variants will not emerge and 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 almost 35% 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. 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. 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, mask mandates and social distancing guidelines, theater capacity restrictions, government restrictions, vaccine mandates, 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. Summary Historical and Operating Data 23 You should read this information with the other information contained in this document, and our unaudited historical financial statements and the notes thereto included elsewhere in this document. Our Operating Data —The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data): % Change Q3 2021 Q3 2020 YTD 2021 YTD 2020 Q3 2021 to Q3 2020 YTD 2021 to YTD 2020 Revenue $ 31.7 $ 6.0 $ 51.1 $ 74.7 428.3 % (31.6) % Operating expenses: Advertising 29.2 8.1 60.4 50.5 260.5 % 19.6 % Network, administrative and unallocated costs 21.2 19.2 67.3 64.4 10.4 % 4.5 % Total operating expenses 50.4 27.3 127.7 114.9 84.6 % 11.1 % Operating loss (18.7) (21.3) (76.6) (40.2) (12.2) % 90.5 % Non-operating expenses 14.8 12.7 45.8 40.0 16.5 % 14.5 % Income tax benefit — (3.1) — (7.7) (100.0) % (100.0) % Net loss attributable to noncontrolling interests (18.3) (18.2) (65.1) (42.3) 0.5 % 53.9 % Net loss attributable to NCM, Inc. $ (15.2) $ (12.7) $ (57.3) $ (30.2) 19.7 % 89.7 % Net loss per NCM, Inc. basic share $ (0.19) $ (0.16) $ (0.72) $ (0.39) 18.8 % 84.6 % Net loss per NCM, Inc. diluted share $ (0.19) $ (0.16) $ (0.72) $ (0.39) 18.8 % 84.6 % Adjusted OIBDA $ (8.2) $ (11.2) $ (43.1) $ (9.5) (26.8) % 353.7 % Adjusted OIBDA margin (25.9) % (186.7) % (84.3) % (12.7) % 160.8 % (71.6) % Total theater attendance (in millions) (1) 75.7 5.2 138.6 125.8 NM 10.2 % _________________________ NM = Not meaningful (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. Refer to Note 4 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document. Non-GAAP Financial Measures 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, non-cash share-based compensation costs, impairment of long-lived assets and executive transition costs. Adjusted OIBDA margin is calculated by dividing Adjusted OIBDA by total revenue. Our management uses these non-GAAP financial measures to evaluate operating performance, to forecast future results and as a basis for compensation. 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. 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. In addition, Adjusted OIBDA has the limitation of not reflecting the effect of the Company’s share-based payment costs, the impairment of long-lived assets or costs associated with the transition of executive officers. Adjusted OIBDA should not be regarded as an alternative to operating income, net income or as an indicator of operating performance, nor should it be considered in isolation of, or as a substitute for, financial measures prepared in accordance with GAAP. The Company believes that operating income is the most directly comparable GAAP financial measure 24 to Adjusted OIBDA. Because not all companies use identical calculations, these non-GAAP presentations may not be comparable to other similarly titled measures of other companies, or calculations in the Company’s debt agreement. The following table reconciles operating income to Adjusted OIBDA for the periods presented (dollars in millions): Q3 2021 Q3 2020 YTD 2021 YTD 2020 Operating loss $ (18.7) $ (21.3) $ (76.6) $ (40.2) Depreciation expense 2.5 3.1 8.4 9.5 Amortization of intangibles recorded for network theater screen leases 6.2 6.2 18.5 18.4 Share-based compensation costs (1) 1.7 0.8 6.5 1.1 Impairment of long-lived assets (2) — — — 1.7 Executive transition costs (3) 0.1 — 0.1 — Adjusted OIBDA $ (8.2) $ (11.2) $ (43.1) $ (9.5) Total revenue $ 31.7 $ 6.0 $ 51.1 $ 74.7 Adjusted OIBDA margin (25.9) % (186.7) % (84.3) % (12.7) % ____________________________________________ (1) Share-based compensation costs are included in network operations, selling and marketing and administrative expense in the accompanying unaudited Condensed Consolidated Financial Statements. (2) The impairment of long-lived assets primarily relates to the write off of certain internally developed software. (3) Executive transition costs represent costs associated with the search for a new Company CFO during the third quarter of 2021. Our Network —The change in the number of screens in our network by the founding members and network affiliates during the nine months ended September 30, 2021 was as follows. Number of screens Founding Members Network Affiliates Total Balance as of December 31, 2020 16,515 3,935 20,450 New affiliates, net of lost affiliates (1) — 362 362 Closures, net of openings (2) (15) (21) (36) Balance as of September 30, 2021 16,500 4,276 20,776 ______________________________________ (1) Represents the addition of one new affiliate which added 501 new screens to our network, offset by the loss of four of our affiliates that closed during the first nine months of 2021 resulting in a reduction of 139 affiliate screens to our network as of September 30, 2021. (2) Excludes the temporary theater closures in response to the COVID-19 Pandemic. Our founding member and network affiliate agreements allow us to sell cinema advertising across the largest network of digitally equipped theaters in the U.S. We believe that our market coverage strengthens our selling proposition and competitive positioning against other national, regional and local video advertising platforms, including television, online and mobile video platforms and other out-of-home video advertising platforms by allowing advertisers the broad reach and national scale that they need to effectively reach their target audiences. Basis of Presentation The results of operations data for the three months ended September 30, 2021 (third quarter of 2021) and September 24, 2020 (third quarter of 2020) and the nine months ended September 30, 2021 and September 24, 2020 were derived from the unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc. and should be read in conjunction with the accompanying notes. Results of Operations Third Quarter of 2021 and Third Quarter of 2020 25 Revenue. Total revenue increased 428.3%, from $6.0 million for the third quarter of 2020 to $31.7 million for the third quarter of 2021. The following is a summary of revenue by category (in millions): $ Change % Change Q3 2021 Q3 2020 Q3 2021 to Q3 2020 Q3 2021 to Q3 2020 National and regional advertising revenue $ 22.9 $ 3.5 $ 19.4 554.3 % Local advertising revenue 5.4 2.3 3.1 134.8 % Founding member advertising revenue from beverage concessionaire agreements 3.4 0.2 3.2 NM Total revenue $ 31.7 $ 6.0 $ 25.7 428.3 % ____________________________________________ NM = Not meaningful The following table shows data on theater attendance and revenue per attendee for the three months ended September 30, 2021 and September 24, 2020: % Change Q3 2021 Q3 2020 Q3 2021 to Q3 2020 National and regional advertising revenue per attendee $ 0.303 NM NM Local advertising revenue per attendee $ 0.071 NM NM Total advertising revenue (excluding founding member beverage revenue) per attendee $ 0.374 NM NM Total advertising revenue per attendee $ 0.419 NM NM Total theater attendance (in millions) (1) 75.7 5.2 NM ________________________________________________________ NM = Not meaningful (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 $19.4 million, or 554.3%, increase in national and regional advertising revenue (excluding beverage revenue from founding members) was due to a significant increase in attendance as all of the theaters within our network were open and multiple major motion pictures were released during the third quarter of 2021 compared to the temporary closure of almost all of the theaters in our network in response to the COVID-19 Pandemic until late August 2020 when theaters began to reopen. National advertising utilization increased from 71.0% for the third quarter of 2020 to 79.3% for the third quarter of 2021. Local advertising revenue. The $3.1 million, or 134.8%, increase in local advertising revenue was due primarily to the ability to generate onscreen advertising revenue in the third quarter of 2021, compared to the third quarter of 2020 as all of the theaters within our network were open and multiple major motion pictures were released during the third quarter of 2021 compared to the temporary closure of almost all of the theaters in our network in response to the COVID-19 Pandemic until late August 2020 when theaters began to reopen. Founding member beverage revenue. The $3.2 million increase in national advertising revenue from the founding members’ beverage concessionaire agreements was due to the reopening of all founding member theaters within our network and the release of multiple major motion pictures during the third 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 until late August 2020 when theaters began to reopen. Operating expenses. Total operating expenses increased $23.1 million, or 84.6%, from $27.3 million for the third quarter of 2020 to $50.4 million for the third quarter of 2021. The following table shows the changes in operating expense for the third quarter of 2021 (in millions): 26 $ Change % Change Q3 2021 Q3 2020 Q3 2021 to Q3 2020 Q3 2021 to Q3 2020 Advertising operating costs $ 5.2 $ 1.1 $ 4.1 372.7 % Network costs 2.0 1.8 0.2 11.1 % Theater access fees and revenue share—founding members 16.7 1.8 14.9 827.8 % Selling and marketing costs 8.2 7.5 0.7 9.3 % Administrative and other costs 9.6 5.8 3.8 65.5 % Depreciation expense 2.5 3.1 (0.6) (19.4) % Amortization of intangibles recorded for network theater screen leases 6.2 6.2 — — % Total operating expenses $ 50.4 $ 27.3 $ 23.1 84.6 % Advertising operating costs. Advertising operating costs increased $4.1 million, or 372.7%, from $1.1 million for the third quarter of 2020 to $5.2 million for the third quarter of 2021. The increase was due primarily to a $3.6 million increase in advertising affiliate expense and a $0.3 million increase in our digital platform revenue share expense from higher revenue in the third quarter of 2021 as compared to the third quarter of 2020 related to certain digital partners and the addition of a new affiliate representing 501 screens during 2021. Network costs. Network costs increased $0.2 million, or 11.1%, from $1.8 million for the third quarter of 2020 to $2.0 million for the third quarter of 2021. Theater access fees and revenue share—founding members. Theater access fees and revenue share increased from $1.8 million in the third quarter of 2020 to $16.7 million in the third quarter of 2021. The increase was due to the increase in theater attendance and active founding member screens in the third quarter of 2021, compared to the third quarter of 2020 when all the founding member theaters in our network were closed until they began to reopen in late August 2020. Selling and marketing costs. Selling and marketing costs increased $0.7 million, or 9.3%, from $7.5 million for the third quarter of 2020 to $8.2 million for the third quarter of 2021. This increase was primarily related to a $0.9 million increase in personnel expenses largely 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 were in effect during the third quarter of 2020 in response to the COVID-19 Pandemic and a $0.6 million increase in bad debt expense consistent with the increase in trade accounts receivable and was partially offset by a $0.7 million decrease in expense related to certain of our digital offerings due to a decrease in digital revenue for the third quarter of 2021, as compared to the third quarter of 2020. Administrative and other costs. Administrative and other costs increased $3.8 million, or 65.5%, from $5.8 million in the third quarter of 2020 to $9.6 million in the third quarter of 2021. This increase was primarily due to a $2.8 million increase in personnel expenses due to higher performance-based compensation expense in the third quarter of 2021 due in part to the modification of our performance based grants in early 2021, the reversal of the bonus accrual in the third quarter of 2020 and less capitalized personnel costs in our technology department during the third quarter of 2021, as compared to the third quarter of 2020. Administrative and other costs also increased $0.6 million related to cloud computing expense incurred in the third quarter of 2021 following the implementation of our new cinema advertising management system in January 2021 and a $0.2 million increase in employee recruiting expense due in part to the one-time expense of hiring our new CFO. Depreciation expense. Depreciation expense decreased $0.6 million, or 19.4%, from $3.1 million for the third quarter of 2020 to $2.5 million in the third quarter of 2021, as certain assets were retired following the implementation of our new cinema advertising management system in January 2021. Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen remained consistent at $6.2 million for the third quarter of 2020 and the third quarter of 2021. Non-operating expenses. Total non-operating expenses increased $2.1 million, or 16.5%, from $12.7 million for the third quarter of 2020 to $14.8 million for the third quarter of 2021. The following table shows the changes in non-operating expense for the third quarter of 2021 and the third quarter of 2020 (in millions): 27 $ Change % Change Q3 2021 Q3 2020 Q3 2021 to Q3 2020 Q3 2021 to Q3 2020 Interest on borrowings $ 16.6 $ 13.7 $ 2.9 21.2 % Interest income — (0.1) 0.1 (100.0) % Gain on the re-measurement of the payable to founding members under the tax receivable agreement (1.8) (1.0) (0.8) 80.0 % Other non-operating expense — 0.1 (0.1) (100.0) % Total non-operating expenses $ 14.8 $ 12.7 $ 2.1 16.5 % The increase in non-operating expense was primarily due to a $2.9 million increase in interest on borrowings related to the issuance of additional debt and the increase in the interest rate on our credit facilities following the Credit Agreement Second Amendment entered into on March 8, 2021. These changes resulted in a 0.62% increase in the weighted average interest rate in the third quarter of 2021, as compared to the third quarter of 2020. The increase in non-operating expense was partially offset by a $0.8 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 changes to the Company’s projected performance. Income Tax Benefit. Income tax benefit decreased from income tax benefit of $3.1 million for the third quarter of 2020 to $0.0 million of income tax benefit for the third 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 September 30, 2021 which reduced deferred tax expense to $0.0 million for the three months ended September 30, 2021. Net Loss . Net loss increased $2.5 million from net loss of $12.7 million for the third quarter of 2020 to $15.2 million for the third quarter of 2021. The increase in net loss was due to a $3.1 million decrease in income tax benefit and a $2.1 million increase in non-operating expense, partially offset by a $2.6 million decrease in operating loss and a $0.1 million increase in net loss attributable to noncontrolling interests. Nine months ended September 30, 2021 and September 24, 2020 Revenue. Total revenue decreased 31.6%, from $74.7 million for the nine months ended September 24, 2020 to $51.1 million for the nine months ended September 30, 2021. The following is a summary of revenue by category (in millions): Nine Months Ended $ Change % Change September 30, 2021 September 24, 2020 YTD 2021 to YTD 2020 YTD 2021 to YTD 2020 National and regional advertising revenue $ 35.5 $ 55.0 $ (19.5) (35.5) % Local advertising revenue 9.6 14.0 (4.4) (31.4) % Founding member advertising revenue from beverage concessionaire agreements 6.0 5.7 0.3 5.3 % Total revenue $ 51.1 $ 74.7 $ (23.6) (31.6) % The following table shows data on theater attendance and revenue per attendee for nine months ended September 30, 2021 and September 24, 2020: Nine Months Ended % Change September 30, 2021 September 24, 2020 YTD 2021 to YTD 2020 National and regional advertising revenue per attendee $ 0.256 $ 0.437 (41.4) % Local advertising revenue per attendee $ 0.069 $ 0.111 (37.8) % Total advertising revenue (excluding founding member beverage revenue) per attendee $ 0.325 $ 0.548 (40.7) % Total advertising revenue per attendee $ 0.369 $ 0.594 (37.9) % Total theater attendance (in millions) (1) 138.6 125.8 10.2 % ________________________________________________________ 28 (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 $19.5 million, or 35.5%, decrease in national and regional advertising revenue (excluding beverage revenue from founding members) was primarily due to the inclusion of a pre-pandemic quarter in the prior period. Impressions sold decreased 36.2% related to a decrease in national advertising utilization from 103.6% for the nine months ended September 24, 2020 to 60.0% for the nine months ended September 30, 2021, partially offset by a 10.2% increase in network attendance. Local advertising revenue. The $4.4 million, or 31.4%, decrease was largely driven by the inclusion of a pre-pandemic quarter in the prior period. Local advertising revenue in the third quarter of 2021 was adversely impacted by the continued effects of COVID-19 on certain categories of advertisers that have historically advertised in our theaters such as arts and entertainment, restaurants, automotive and travel and tourism, which were suffering from various impacts including decreased inventory due to supply chain delays and the inability to serve existing patrons due to staffing shortages during the third quarter of 2021. Founding member beverage revenue. The $0.3 million, or 5.3%, increase in national advertising revenue from the founding members’ beverage concessionaire agreements was primarily due to a 5.2% increase in founding member attendance for the nine months ended September 30, 2021, as compared to the nine months ended September 24, 2020. Operating expenses. Total operating expenses increased $12.8 million, or 11.1%, from $114.9 million for the nine months ended September 24, 2020 to $127.7 million for the nine months ended September 30, 2021. The following table shows the changes in operating expense for the nine months ended September 30, 2021 and September 24, 2020 (in millions): Nine Months Ended $ Change % Change September 30, 2021 September 24, 2020 YTD 2021 to YTD 2020 YTD 2021 to YTD 2020 Advertising operating costs $ 9.9 $ 8.4 $ 1.5 17.9 % Network costs 5.7 6.3 (0.6) (9.5) % Theater access fees—founding members 31.0 19.5 11.5 59.0 % Selling and marketing costs 24.8 28.1 (3.3) (11.7) % Administrative and other costs 29.4 23.0 6.4 27.8 % Impairment of long-lived assets — 1.7 (1.7) (100.0) % Depreciation expense 8.4 9.5 (1.1) (11.6) % Amortization of intangibles recorded for network theater screen leases 18.5 18.4 0.1 0.5 % Total operating expenses $ 127.7 $ 114.9 $ 12.8 11.1 % Advertising operating costs. Advertising operating costs increased $1.5 million, or 17.9%, from $8.4 million for the nine months ended September 24, 2020 to $9.9 million for the nine months ended September 30, 2021. The increase was due primarily to a $1.6 million increase in advertising affiliate expense due to the addition of a new affiliate representing 501 screens that joined our network in 2021 and an increase in per patron fees owed to certain existing affiliates driven by a 10.2% increase in the attendance for the nine months ended September 30, 2021 as compared to the nine months ended September 24, 2020. Advertising operating costs also increased $0.3 million in digital platform revenue share expense due to higher revenue in the third quarter of 2021 as compared to the third quarter of 2020 related to certain digital partners. These increases were partially offset by a $0.3 million decrease related to non-essential operating expenditures that were suspended as part of the measures taken to reduce expenses and preserve cash during the COVID-19 Pandemic. Network costs. Network costs decreased $0.6 million, or 9.5%, from $6.3 million for the nine months ended September 24, 2020 to $5.7 million for the nine months ended September 30, 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 nine months ended September 30, 2021, as compared to six of the nine months ended September 24, 2020 . Theater access fees and revenue share—founding members. Theater access fees and revenue share increased $11.5 million, or 59.0%, from $19.5 million in the nine months ended September 24, 2020 to $31.0 million in the nine months 29 ended September 30, 2021. Theater access fees and revenue share increased $9.8 million due to a substantial increase in average active screens for the nine months ended September 30, 2021, as compared to the nine months ended September 24, 2020, $0.8 million due to the annual contractual rate increase related to the fee for post-showtime attendance and digital screens and $0.4 million due to a 5.2% increase in founding member attendance. The Company did not owe the founding members any theater access fees for the period during which the theaters were closed. Selling and marketing costs. Selling and marketing costs decreased $3.3 million, or 11.7%, from $28.1 million for the nine months ended September 24, 2020 to $24.8 million for the nine months ended September 30, 2021. This decrease was primarily related to a $2.6 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, a $0.5 million decrease in bad debt expense related to lower revenue and a $0.4 million decrease in software costs , partially offset by a $0.4 million increase in non-cash barter expense for the nine months ended September 30, 2021, as compared to the nine months ended September 24, 2020. Administrative and other costs. Administrative and other costs increased $6.4 million, or 27.8%, from $23.0 million for the nine months ended September 24, 2020 to $29.4 million for the nine months ended September 30, 2021. This increase was primarily due to a $7.4 million increase in performance-based compensation expense due in part to the modification of certain of the Company’s performance-based equity grants and issuance of new equity grants during the nine months ended September 30, 2021, $2.1 million in personnel expenses due to less capitalized personnel costs from our technology department during the nine months ended September 30, 2021, as compared to the nine months ended September 24, 2020, and a $1.3 million increase related to cloud computing expense incurred following the implementation of our new cinema advertising management system in January 2021 . These increases were partially offset by a $3.1 million decrease in salary and other personnel related expenses related to the Payroll Related Cost Reductions in place during the nine months ended September 30, 2021 in response to the COVID-19 Pandemic and a $1.5 million decrease in legal and professional fees due in part to non-recurring legal services obtained in 2020 related to the various implications of the COVID-19 Pandemic and the negotiation of the services agreement for our cinema advertising management system. Impairment of long-lived assets. Impairment of long-lived assets decreased $1.7 million, or 100.0%, from $1.7 million in the nine months ended September 24, 2020 to $0.0 million in the nine months ended September 30, 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 $1.1 million, or 11.6%, from $9.5 million for the nine months ended September 24, 2020 to $8.4 million in the nine months ended September 30, 2021, as certain assets were retired following the implementation of our new cinema advertising management system in January 2021. Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen leases increased $0.1 million, or 0.5%, from $18.4 million for the nine months ended September 24, 2020, to $18.5 million for the nine months ended September 30, 2021. Non-operating expenses. Total non-operating expenses increased $5.8 million, or 14.5%, from $40.0 million for the nine months ended September 24, 2020 to $45.8 million for the nine months ended September 30, 2021. The following table shows the changes in non-operating expense for the nine months ended September 30, 2021 and September 24, 2020 (in millions): Nine Months Ended $ Change % Change September 30, 2021 September 24, 2020 YTD 2021 to YTD 2020 YTD 2021 to YTD 2020 Interest on borrowings $ 48.2 $ 40.9 $ 7.3 17.8 % Interest income (0.1) (0.6) 0.5 (83.3) % Loss on modification and retirement of debt, net 0.8 0.3 0.5 166.7 % Gain on re-measurement of the payable to founding members under the tax receivable agreement (3.2) (0.7) (2.5) 357.1 % Other non-operating expense 0.1 0.1 — 100.0 % Total non-operating expenses $ 45.8 $ 40.0 $ 5.8 14.5 % The increase in non-operating expense was primarily due to a $7.3 million increase in interest on borrowings related to the issuance of additional debt and the increase in the interest rate on our credit facilities and a $0.5 million increase in the loss 30 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 $2.5 million increase in the gain on re-measurement of the payable to founding members under the 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 and changes to the Company’s projected performance during nine months ended September 30, 2021. Income Tax Benefit. Income tax benefit decreased from income tax benefit of $7.7 million for the nine months ended September 24, 2020 to $0.0 million of income tax benefit for the nine months ended September 30, 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 September 30, 2021 which reduced deferred tax expense to $0.0 million for the nine months ended September 30, 2021. Net Loss . Net loss increased $27.1 million from net loss of $30.2 million for the nine months ended September 24, 2020 to $57.3 million for the nine months ended September 30, 2021. The increase in net loss was due to a $36.4 million increase in operating loss, a $7.7 million decrease in income tax benefit and a $5.8 million increase in non-operating expense, partially offset by a $22.8 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 certain theaters within the Company’s network were temporarily closed during a portion of the nine months ended September 30, 2021. The Company's ability to advertise within theaters once opened has been 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. Due to the rapidly changing business environment, unprecedented market volatility, and other circumstances resulting from the COVID-19 Pandemic, we are currently unable to fully determine the extent of the COVID-19 Pandemic’s impact on our business in future periods. However, we are monitoring the rapidly evolving situation and its potential impacts on our financial position, results of operations, liquidity and cash flows. Beverage Revenue —Under the ESAs, up to 90 seconds of the Noovie® pre-show program can be sold to the founding members to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. For the first three and nine 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. Should the amount of time required as part of these beverage concessionaire agreements decline, this premium time will be available for sale to other clients. Per the ESA with AMC, the time sold to AMC’s beverage supplier is priced equal to the greater of (1) the advertising CPM charged by NCM LLC in the previous year for the time sold to AMC’s beverage supplier and (2) the advertising CPM for the previous year charged by NCM LLC to unaffiliated third parties during segment one (closest to showtime) of the Noovie pre-show in AMC’s theaters, limited to the highest advertising CPM being then-charged by NCM LLC. 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% annually. 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. Theater Access Fees —In consideration for NCM LLC’s access to the founding members’ theater attendees for on-screen advertising and use of lobbies and other space within the founding members’ theaters for the LEN and lobby promotions, the founding members receive a monthly theater access fee under the ESAs. The theater access fee is composed of a fixed payment per patron and a fixed payment per digital screen (connected to the DCN). The payment per theater patron increases by 8% every five years, with the next increase occurring in fiscal year 2022. Pursuant to the ESAs, the payment per digital screen increases annually by 5%. Pursuant to the 2019 ESA Amendments, Cinemark and Regal each receive an additional monthly theater access fee beginning November 1, 2019 in consideration for NCM LLC's access to certain on-screen advertising inventory after the advertised showtime of a feature film. These fees are also based upon a fixed payment per patron: (i) beginning at $0.025 per patron on November 1, 2019, (ii) $0.0375 per patron beginning on November 1, 2020, (iii) $0.05 per patron beginning on November 1, 2021, (iv) $0.052 per patron beginning on November 1, 2022 and (v) increasing 8% every five years beginning November 1, 2027. The Company does not owe the founding members any theater access fees when the theaters are closed. The digital screen fee is calculated based upon screens in use during each month. No digital screen fees will be incurred for the months where a screen is not in use and fees may be reduced for months where screens are in use for only 31 part of the month. Further, founding member attendance has been and may continue to be lower than historical levels following the re-opening of theaters, which could reduce the Company’s theater access fees. Platinum Spot —In consideration for the utilization of the theaters post-showtime for Platinum Spots, Cinemark and Regal receive 25% of all revenue generated for the actual display of Platinum Spots in their applicable theaters, subject to a specified minimum. If NCM LLC runs advertising in more than one concurrent advertisers’ Platinum Spot for any portion of the network over a period of time, then NCM LLC will be required to satisfy a minimum average CPM for that period of time. Financial Condition and Liquidity Liquidity and Capital Resources 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, certain theaters within the Company’s network remained temporarily closed during a portion of the nine months ended September 30, 2021 and the Company's ability to advertise within the reopened theaters has been 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 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). As all of the theaters within our network were open for the third quarter of 2021, the screen-based portion of these expenses returned to historical levels and the attendance-based portion of these e xpenses is expected to continue to increase as attendance increases following the continued release 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 nine months ended September 30, 2021, 35%-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 almost 35% 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, second and third 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 third quarter of 2021 and cash savings of $63.2 million for NCM, Inc. since the beginning of the pandemic; and • Introduced an active cash management process, which, among other things, requires CEO approval of all outgoing payments. Due to the future market uncertainties outlined above, the Board of Directors of NCM, Inc. and required NCM LLC founding members approved the material terms of a revolving loan agreement between NCM Inc. and NCM LLC. Borrowings by NCM LLC will be available through December 31, 2022. The final definitive loan agreement will be approved by the Audit Committee of NCM, Inc. if needed. The final definitive loan agreement was not executed during the third quarter of 2021 as NCM LLC did not need the additional liquidity. If 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 flexibility with respect to the NCM LLC minimum liquidity covenant. 32 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 $64.4 million of cash at NCM LLC as of September 30, 2021 will be used to fund operations during the period of expected reduced cash flows. Cash at NCM, Inc. is held for future payment of dividends to NCM, Inc. stockholders, 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 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 September 30, 2021, NCM LLC was in compliance with the requirements of the Credit Agreement, as amended. Management believes the Company can meet its operating obligations, including all currently scheduled interest and debt service payments within one year following the date of issuance of the accompanying financial statements, based on its current financial position and liquidity sources, including current cash balances, and forecasted future cash flows. The Company does not expect to meet its financial covenants within one year following the date that these financial statements are issued. If these financial covenants are not met a majority of the lenders of the Senior Secured Credit Facility are permitted under the agreement to accelerate the debt which could also result in a cross-default under NCM LLC’s senior notes. Considering current liquidity sources, the Company would not be able to repay the Company’s total outstanding debt balance. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern. In light of this, the Company is actively pursuing a number of options including amending its Senior Secured Credit Facility to extend a waiver of these financial covenants and obtaining additional financing either through a loan from third party lenders or NCM, Inc. Management expects to conclude one of these alternatives in the very near term; however, there can be no assurance that the Company will be successful in completing any of these options. As a result, management’s plan cannot be considered probable and thus does not alleviate the substantial doubt about the Company’s ability to continue as a going concern. A summary of our financial liquidity is as follows (in millions): As of $ Change $ Change September 30, 2021 December 31, 2020 September 24, 2020 Q2 2021 to YE 2020 Q3 2021 to Q3 2020 Cash, cash equivalents and marketable securities (1) $ 111.3 $ 181.8 $ 220.7 $ (70.5) $ (109.4) NCM LLC revolving credit facility availability (2) 6.8 4.4 4.4 2.4 2.4 Total liquidity $ 118.1 $ 186.2 $ 225.1 $ (68.1) $ (107.0) _________________________ (1) Included in cash, cash equivalents and marketable securities as of September 30, 2021, December 31, 2020 and September 24, 2020, was $64.4 million, $123.9 million and $157.4 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 pursuant to the Credit Agreement was $175.0 million as of September 30, 2021, December 31, 2020 and September 24, 2020. As of September 30, 2021, December 31, 2020 and September 24, 2020, the amount available under the NCM LLC revolving credit facility pursuant to the Credit Agreement 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 $1.2 million, $3.6 million and $3.6 million, respectively. As of September 30, 2021, the weighted average remaining maturity of our debt was 4.7 years. As of September 30, 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): 33 Nine Months Ended September 30, 2021 September 24, 2020 Operating cash flow $ (92.5) $ 85.9 Investing cash flow $ (3.6) $ 15.5 Financing cash flow $ 25.9 $ 60.4 • Operating Activities. The $178.4 million increase in cash used in operating activities for the nine months ended September 30, 2021, compared to the nine months ended September 24, 2020 was primarily due to a $175.6 million decrease in accounts receivable collections during the nine months ended September 30, 2021, as compared to the nine months ended September 24, 2020, a $49.9 million increase in consolidated net loss and a $9.4 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 decreased revenue and negative Adjusted OIBDA, from which integration payments are calculated. These decreased cash inflows were partially offset by i) a $23.5 million decrease in payments of accounts payable and accrued expenses due in part to the cash preservation actions taken by the Company to mitigate the impact of the COVID-19 Pandemic, ii) an $11.9 million decrease to the amount paid to founding member under the TRA, iii) a $7.7 million decrease in deferred income tax expense related to the full valuation allowance on its net deferred tax assets during the nine months ended September 30, 2021 and iv) a $6.7 million increase in amounts due to founding members for the nine months ended September 30, 2021, as compared to the nine months ended September 24, 2020 due to the increase in theater access fees, net of beverage discussed above. • Investing Activities. The $19.1 million increase in cash used in investing activities for the nine months ended September 30, 2021, compared to the nine months ended September 24, 2020 was primarily due to a $21.8 million decrease in proceeds from the sale of marketable securities, net of purchases. This decrease was partially offset by a $2.7 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 $34.5 million decrease in cash provided by financing activities for the nine months ended September 30, 2021, compared to the nine months ended September 24, 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 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 and a $13.6 million decrease in dividends paid related to the decrease in the dividend amounts declared from $0.33 per share during the nine months ended September 24, 2020 to $0.15 per share during the nine months ended September 30, 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 September 30, 2021 were $46.9 million (excluding $64.4 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 $43.0 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 $64.4 million of cash at NCM LLC will be used to fund operations during the period of expected reduced cash flows. Cash at NCM, Inc. is used to fund income taxes, payments associated with the TRA with the founding members and for future payment of dividends to NCM, Inc. stockholders. Cash flows generated by NCM LLC’s distributions to its members (Regal, Cinemark and NCM, Inc.) have been impacted by the temporary closure of our network theaters and may be deferred through the quarter ending September 29, 2022 or longer if NCM LLC is not in compliance with the following limitations: (i) no default or event of default under the Credit Agreement has occurred and is continuing; (ii) the senior secured financial covenant leverage ratio is equal to or less than 4.00 to 1.00; and (iii) the aggregate principal amount of all outstanding revolving loans under the Credit Agreement is $39.0 million or less. 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. The available cash distribution to NCM LLC’s members for the three months ended September 30, 2021 was calculated as approximately negative $23.2 million, of which NCM, Inc.'s share is approximately negative $11.2 million. The available cash distribution to NCM LLC’s members for the nine months ended September 30, 2021 was calculated as approximately negative $93.3 million, of which NCM, Inc.'s share is approximately negative $45.0 million. Further there was $85.9 million of negative 34 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 fourth quarter of 2021. Negative available cash distributions for the first, second and third 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. NCM, Inc. expects to use its cash balances and cash received from future available cash distributions (as allowed for under the Credit Agreement) to fund income taxes, pay amounts associated with the TRA with the founding members, fund the revolving loan to NCM LLC, if needed, and pay current and future dividends as declared by the Board of Directors, including a dividend declared on November 8, 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 November 22, 2021 to be paid on December 7, 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, restrictions under the NCM LLC Credit Agreement and the current availability and funding of the revolving loan agreement between NCM Inc. and NCM LLC, if needed. 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 September 30, 2021, there were no significant changes in those critical accounting policies. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, see the information provided under Note 1— The Company to the unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its unaudited Condensed Consolidated Financial Statements. Related Party Transactions For a discussion of related party transactions, see the information provided under Note 5— Related Party Transactions to the unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q. Off-Balance Sheet Arrangements We do not believe the Company has any off-balance sheet arrangements that are material to our current or future financial condition, results of operations, liquidity, capital resources or capital expenditures. Contractual and Other Obligations See Item 7. “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 nine months ended September 30, 2021.