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 30, 2021. 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 a supplement to and 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 30, 2021. 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 young, diverse audiences through the power of movies and popular culture. We currently derive revenue principally from the sale of advertising to national, regional and local businesses in our Noovie® pre-show, 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 Post-Showtime 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. As of March 31, 2022, theaters presenting the new Noovie pre-show format with Post-Showtime Inventory made up approximately 57% of our network. All other NCM network theater circuits, which make up the remaining 43% 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 Shuffle, Name That Movie® and Noovie ARcade , as well as a variety of complementary out of home venues, including restaurants and convenience stores, in order to reach entertainment audiences beyond the theater. As of March 31, 2022, over 6.9 million moviegoers have downloaded our mobile apps. These downloads and the acquisition of second- and third-party data have resulted in data sets of approximately 297 million as of March 31, 2022. We have long-term ESAs (approximately 17.5 weighted average years remaining) with the founding members and multi-year agreements with our network affiliates, which expire at various dates between July 2022 and December 2037. The weighted average remaining term of the ESAs and the network affiliate agreements is 15.2 years as of March 31, 2022. 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 theater per week, and national, local, 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 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. 21 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 3, 2022 for our fiscal year ended December 30, 2021. Recent Developments COVID-19 Impact and Outlook —The COVID-19 Pandemic has had and continues to have a significant impact on the world and our business. All of the theaters within the Company’s network and the release of major motion pictures have resumed since the third quarter of 2021 resulting in the highest attendance numbers within our network since the start of the COVID-19 Pandemic. Despite the increase in network attendance, in-theater advertising revenue for the year ended December 30, 2021 and the quarter ended March 31, 2022 remained below historical levels due to the lag between the recovery of attendees and advertisers. The movie slate for 2022 remains packed due to the addition of the major motion pictures originally scheduled for 2020 and 2021 and major motion pictures studios committing to theatrical-only releases. However, variants of the COVID-19 virus continue to circulate throughout the United States and may lead to increased health and safety regulations and restrictions (such as restrictions on travel, public gatherings and other events, mask requirements and social distancing guidelines) or impact consumer behavior. To ensure sufficient liquidity to endure the impacts of the COVID-19 Pandemic, 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 measures as well as a headcount reduction of approximately 45% as of March 31, 2022, 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 were open, which were reduced for months where screens were in use for only part of the month. On January 5, 2022, NCM LLC entered into the Credit Agreement Third Amendment. Among other things, the Credit Agreement Third Amendment provides for: (i) certain modifications to and extensions to modifications of the affirmative and negative covenants therein; (ii) the suspension of the consolidated net total leverage and consolidated net senior secured leverage financial covenants through the fiscal quarter ending December 29, 2022; and (iii) the consolidated net total leverage ratio and consolidated net senior secured leverage ratio financial covenants to be set to 9.25 to 1.00 and 7.25 to 1.00, respectively, for the fiscal quarter ending on or about March 30, 2023, 8.50 to 1.00 and 6.50 to 1.00, respectively, for the fiscal quarter ending on or about June 29, 2023, 8.00 to 1.00 and 6.00 to 1.00, respectively, for the fiscal quarter ending on or about September 28, 2023, and 6.25 to 1.00 and 4.50 to 1.00, respectively, for the fiscal quarter ending on or about December 28, 2023 and each fiscal quarter thereafter. On January 5, 2022, NCM LLC also entered into the New Revolving Credit Agreement among NCM LLC, the lenders party thereto and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent. The New Revolving Credit Agreement provides for revolving loan commitments of $50.0 million of secured revolving loans, the entire amount of which was funded on January 5, 2022. The New Revolving Credit Agreement provides for (i) a cash interest rate of term SOFR plus 8.00%, with a 1.00% floor, (ii) a maturity date of June 20, 2023 and (iii) a termination premium if NCM LLC terminates the commitments under the New Revolving Credit Agreement at any time before maturity. The New Revolving Credit Agreement also contains covenants, representations and warranties and events of default that are substantially similar to the Credit Agreement. Summary Historical and Operating Data 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): 22 % Change Q1 2022 Q1 2021 Q1 2021 to Q1 2022 Revenue $ 35.9 $ 5.4 564.8 % Operating expenses: Advertising 31.3 10.5 198.1 % Network, administrative and unallocated costs 27.1 23.2 16.8 % Total operating expenses 58.4 33.7 73.3 % Operating loss (22.5) (28.3) (20.5) % Non-operating expenses 23.5 13.7 71.5 % Income tax expense — — — % Net loss attributable to noncontrolling interests (20.8) (22.6) (8.0) % Net loss attributable to NCM, Inc. $ (25.2) $ (19.4) 29.9 % Net loss per NCM, Inc. basic share $ (0.31) $ (0.25) 24.0 % Net loss per NCM, Inc. diluted share $ (0.31) $ (0.25) 24.0 % Adjusted OIBDA $ (6.8) $ (16.2) (58.0) % Adjusted OIBDA margin (18.9) % (300.0) % 281.1 % Total theater attendance (in millions) (1) 76.0 13.8 450.7 % _________________________ (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 during the 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 costs related to the reorganization of the sales force. 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, impairment of long-lived assets, costs related to sales force reorganization, 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 related to sales force reorganization. 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 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. 23 The following table reconciles operating income to Adjusted OIBDA for the periods presented (dollars in millions): Q1 2022 Q1 2021 Operating loss $ (22.5) $ (28.3) Depreciation expense 2.0 3.3 Amortization of intangibles recorded for network theater screen leases 6.1 6.1 Share-based compensation costs (1) 1.4 2.7 Impairment of long-lived assets (2) 5.8 — Sales force reorganization costs (3) 0.4 — Adjusted OIBDA $ (6.8) $ (16.2) Total revenue $ 35.9 $ 5.4 Adjusted OIBDA margin (18.9) % (300.0) % ____________________________________________ (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 down of certain internally developed software no longer in use. (3) Sales force reorganization costs represents redundancy costs associated with changes to the Company’s sales force implemented during the first quarter of 2022. Our Network —The change in the number of screens in our network by the founding members and network affiliates during the three months ended March 31, 2022 was as follows. Number of screens Founding Members Network Affiliates Total Balance as of December 30, 2021 16,436 4,304 20,740 Closures, net of openings (1) (75) (60) (135) Balance as of March 31, 2022 16,361 4,244 20,605 ______________________________________ (1) Represents the closure of 135 screens, net of new screens added, across our founding members and network affiliates. 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 March 31, 2022 (first quarter of 2022) and April 1, 2021 (first quarter of 2021) 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 First Quarter of 2022 and First Quarter of 2021 Revenue. Total revenue increased 564.8%, from $5.4 million for the first quarter of 2021 to $35.9 million for the first quarter of 2022. The following is a summary of revenue by category (in millions): 24 $ Change % Change Q1 2022 Q1 2021 Q1 2021 to Q1 2022 Q1 2021 to Q1 2022 National advertising revenue $ 26.3 $ 3.2 $ 23.1 721.9 % Local and regional advertising revenue 6.1 1.7 4.4 258.8 % Founding member advertising revenue from beverage concessionaire agreements 3.5 0.5 3.0 600.0 % Total revenue $ 35.9 $ 5.4 $ 30.5 564.8 % The following table shows data on theater attendance and revenue per attendee for the three months ended March 31, 2022 and April 1, 2021: % Change Q1 2022 Q1 2021 Q1 2021 to Q1 2022 National advertising revenue per attendee $ 0.346 $ 0.232 49.1 % Local and regional advertising revenue per attendee $ 0.080 $ 0.123 (35.0) % Total advertising revenue (excluding founding member beverage revenue) per attendee $ 0.426 $ 0.355 20.0 % Total revenue per attendee $ 0.472 $ 0.391 20.7 % Total theater attendance (in millions) (1) 76.0 13.8 450.7 % ________________________________________________________ (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 during the periods presented. National advertising revenue. National advertising revenue (excluding beverage revenue from founding members) increased to $23.1 million, or 721.9%, from $3.2 million for the first quarter of 2021. The increase was due to a significant increase in impressions sold driven by an increase in network attendance related to our network being fully open in the first quarter of 2022, whereas approximately 40% of our network remained closed in response to the COVID-19 Pandemic during the first quarter of 2021. Local and regional advertising revenue. Local and regional advertising revenue increased to $4.4 million, or 258.8%, from $1.7 million for the first quarter of 2021. The increase was due primarily to our network being fully open in the first quarter of 2022, whereas approximately 40% of our network remained closed in response to the COVID-19 Pandemic during the first quarter of 2021. Founding member beverage revenue. National advertising revenue from the founding members’ beverage concessionaire agreement increased $3.0 million, or 600%, from $0.5 million for the first quarter of 2021. The increase was due to a 496.6% increase in founding member attendance for the first quarter of 2022, compared to the first quarter of 2021 as approximately 40% of our network remained closed in response to the COVID-19 Pandemic during the first quarter of 2021 and by an increase in beverage revenue CPMs in the first quarter of 2022, compared to the first quarter of 2021. The 2022 beverage revenue CPM is based on a fixed annual increase for Cinemark and Regal following the 2019 ESA Amendments and the increase in the CPM during segment one from 2021 to 2022 for AMC. Operating expenses. Total operating expenses increased $24.7 million, or 73.3%, from $33.7 million for the first quarter of 2021 to $58.4 million for the first quarter of 2022. The following table shows the changes in operating expense for the first quarter of 2022 (in millions): 25 $ Change % Change Q1 2022 Q1 2021 Q1 2021 to Q1 2022 Q1 2021 to Q1 2022 Advertising operating costs $ 4.7 $ 1.5 $ 3.2 213.3 % Network costs 2.0 1.8 0.2 11.1 % Theater access fees and revenue share—founding members 17.9 3.1 14.8 477.4 % Selling and marketing costs 10.2 7.7 2.5 32.5 % Administrative and other costs 9.7 10.2 (0.5) (4.9) % Impairment of long-lived assets 5.8 — 5.8 (100.0) % Depreciation expense 2.0 3.3 (1.3) (39.4) % Amortization of intangibles recorded for network theater screen leases 6.1 6.1 — — % Total operating expenses $ 58.4 $ 33.7 $ 24.7 73.3 % Advertising operating costs. Advertising operating costs increased $3.2 million, or 213.3%, from $1.5 million for the first quarter of 2021 to $4.7 million for the first quarter of 2022. The increase was due primarily to a $3.1 million increase in advertising affiliate expense due an increase in revenue share payments driven by the increase in revenue for the first quarter of 2022, as compared to the first quarter of 2021. Network costs. Network costs increased $0.2 million, or 11.1%, from $1.8 million for the first quarter of 2021 to $2.0 million for the first quarter of 2022. The increase was primarily related to a $0.2 million increase in personnel related costs due to the reinstatement of full salaries to all employees within the first quarter of 2022, compared to the first quarter of 2021 when temporary salary and wage reductions were in place. Theater access fees and revenue share—founding members. Theater access fees and revenue share increased from $3.1 million for the first quarter of 2021 to $17.9 million in the first quarter of 2022. This increase was primarily due to $8.1 million caused by the substantial increase in average active screens for the first quarter of 2022, as compared to the first quarter of 2021, and $6.4 million of the increase was due to a 496.6% increase in founding member attendance. Selling and marketing costs. Selling and marketing costs increased $2.5 million, or 32.5%, from $7.7 million for the first quarter of 2021 to $10.2 million for the first quarter of 2022. This increase was primarily due to a $1.3 million expense increase related to increasing market activity, a $0.5 million increase in personnel related expenses due to the reinstatement of full salaries to employees in the first quarter of 2022, compared to the first quarter of 2021 when temporary salary and wage reductions were in place, a $0.4 million increase in redundancy costs related to the sales force reorganization and a $0.5 million increase in bad debt expense driven by the increase in revenue in the first quarter of 2022, compared to the first quarter of 2021. These increases were partially offset by a $0.5 million decrease in non-cash barter expense for the first quarter of 2022, compared to the first quarter of 2021. Administrative and other costs. Administrative and other costs decreased $0.5 million, or 4.9%, from $10.2 million for the first quarter of 2021 to $9.7 million for the first quarter of 2022. This decrease was primarily due to a $1.3 million decrease in personnel related expenses driven by a $1.1 million decrease in non-cash share-based compensation expense related to a modification of share-based compensation awards occurring in the first quarter of 2021, with little comparative activity occurring in the first quarter of 2022, partially offset by a $0.3 million increase in legal and professional fees as well as a $0.3 million increase in cloud computing expense incurred following the implementation of our new cinema advertising management system in the first quarter of 2021. Impairment of long-lived assets. Impairment of long-lived assets increased $5.8 million, or 100%, from $0.0 million for the first quarter of 2021 to $5.8 million for the first quarter of 2022. This increase in impairment expense was primarily related to the write-off of certain long-lived assets during the first quarter of 2022. Depreciation expense. Depreciation expense decreased $1.3 million, or 39.4%, from $3.3 million for the first quarter of 2021 to $2.0 million in the first quarter of 2022, primarily due to the write-off of internally developed software in the first quarter of 2022. Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen remained consistent at $6.1 million for the first quarter of 2022 and the first quarter of 2021. 26 Non-operating expenses. Total non-operating expenses increased $9.8 million, or 71.5%, from $13.7 million for the first quarter of 2021 to $23.5 million for the first quarter of 2022. The following table shows the changes in non-operating expense for the first quarter of 2022 and the first quarter of 2021 (in millions): $ Change % Change Q1 2022 Q1 2021 Q1 2021 to Q1 2022 Q1 2021 to Q1 2022 Interest on borrowings $ 17.2 $ 14.7 $ 2.5 17.0 % Loss on modification and retirement of debt, net — 0.4 (0.4) (100.0) % Loss (gain) on the re-measurement of the payable to founding members under the tax receivable agreement 6.4 (1.5) 7.9 (526.7) % Other non-operating (income) expense (0.1) 0.1 (0.2) (200.0) % Total non-operating expenses $ 23.5 $ 13.7 $ 9.8 71.5 % The increase in non-operating expense was primarily due to a $7.9 million increase in the loss on the re-measurement of the payable to founding members under the TRA related to the increase in our payable to the founding members under the TRA resulting from an increase in projected taxable income before TRA deductions for the year ended December 29, 2022. The increase was also due to a $2.5 million increase in interest on borrowings primarily related to the issuance of the New Revolving Credit Agreement in January of 2022, partially offset by a $0.4 million decrease in the loss on modifications and retirements of debt, net resulting from the Credit Agreement Second Amendment in the first quarter of 2021, with little comparable activity in the first quarter of 2022. Net Loss . Net loss increased $5.8 million from net loss of $19.4 million for the first quarter of 2021 to $25.2 million for the first quarter of 2022. The increase in net loss was due to a $9.8 million increase in non-operating expense and a $1.8 million decrease in net loss attributable to noncontrolling interests, partially offset by a $5.8 million decrease in operating loss. 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 2021. The Company's ability to advertise within theaters once opened in 2021 was limited due to reduced movie schedules and patron capacities at many network theaters and the timing and frequency of new major motion picture releases as compared to prior years due to the COVID-19 Pandemic. Our theater access fees, network affiliate payments and Platinum Spot revenue share payments are driven by attendance, active screens and/or revenue, and therefore, were not incurred when theaters were closed and attendance-based fees were reduced for the period of time that attendance was 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 months of 2022 and 2021, 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. Per the ESA with AMC, the time sold to the founding member 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 the founding member 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 the founding member’s theaters, limited to the highest advertising CPM being then-charged by NCM LLC. Beginning in 2020 and in accordance with the 2019 ESA Amendments, the price for the time sold to Cinemark and Regal’s beverage suppliers now increases at a fixed rate of 2.0% each year. 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 an increase occurring in the current year and the next increase occurring in 2027. Pursuant to the 27 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) $0.0375 per patron beginning on November 1, 2020, (ii) $0.05 per patron beginning on November 1, 2021, (iii) $0.052 per patron beginning on November 1, 2022 and (iv) increasing 8% every five years beginning November 1, 2027. Platinum Spot —In consideration for the utilization of the theaters post-showtime for Platinum Spots, Cinemark and Regal receive a percentage 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 Cinemark and Regal, interest or principal payments on our term loans and the Notes due 2026 and Notes due 2028, income tax payments, TRA payments to the 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 2021 and the Company's ability to advertise within the reopened theaters in 2021 was 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 has had limited cash receipts as attendance levels normalize and advertising revenue increases. Further, there is 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 (i.e., theater access fees, Platinum Spot revenue share and network affiliate revenue share payments) were either not incurred or incurred at lower levels . As all of the theaters within our network were open for the first quarter of 2022, 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: • 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 beginning with the first quarter of 2021 in equivalent value of the Company’s common stock in lieu of cash; • 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 beginning in the second quarter of 2020, which results in cash savings of $13.0 million in the first quarter of 2022 and cash savings of $84.3 million for NCM, Inc. since the beginning of the pandemic; and • Introduced an active cash management process, which, among other things, requires CEO or CFO approval of all outgoing payments. In March 2020, we drew down an additional $110.0 million on our revolving credit facility, in March 2021, we received $43.0 million in proceeds under incremental term loans that mature on December 20, 2024, and in January 2022 we received $43.3 million in proceeds under an incremental revolving credit facility that matures on June 20, 2023. The $76.2 million of cash at NCM LLC as of March 31, 2022 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. 28 On January 5, 2022, NCM LLC entered into the Credit Agreement Third Amendment. Among other things, the Credit Agreement Third Amendment provides for: (i) certain modifications to and extensions to modifications of the affirmative and negative covenants therein; (ii) the suspension of the consolidated net total leverage and consolidated net senior secured leverage financial covenants through the fiscal quarter ending December 29, 2022; (iii) the consolidated net total leverage ratio and consolidated net senior secured leverage ratio financial covenants to be set to 9.25 to 1.00 and 7.25 to 1.00, respectively, for the fiscal quarter ending on or about March 30, 2023, 8.50 to 1.00 and 6.50 to 1.00, respectively, for the fiscal quarter ending on or about June 29, 2023, 8.00 to 1.00 and 6.00 to 1.00, respectively, for the fiscal quarter ending on or about September 28, 2023, and 6.25 to 1.00 and 4.50 to 1.00, respectively, for the fiscal quarter ending on or about December 28, 2023 and each fiscal quarter thereafter, and (iv) with respect to NCM LLC’s audited financial statements for the fiscal year ended December 30, 2021, a waiver of the requirement to deliver an auditor’s opinion for such financial statements without a “going concern” or like qualification or exception. Also on January 5, 2022, NCM LLC also entered into the New Revolving Credit Agreement among NCM LLC, the lenders party thereto and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent. The New Revolving Credit Agreement provides for revolving loan commitments of $50.0 million of secured revolving loans, the entire amount of which was funded on January 5, 2022. The New Revolving Credit Agreement provides for (i) a cash interest rate of term SOFR plus 8.00%, with a 1.00% floor, (ii) a maturity date of June 20, 2023 and (iii) a termination premium if NCM LLC terminates the commitments under the New Revolving Credit Agreement at any time before maturity. The New Revolving Credit Agreement also contains covenants, representations and warranties and events of default that are substantially similar to the Credit Agreement. 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 March 31, 2022, NCM LLC was in compliance with the requirements of the Credit Agreement, as amended, and the New Revolving Credit Agreement. 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. A summary of our financial liquidity is as follows (in millions): As of $ Change $ Change March 31, 2022 December 30, 2021 April 1, 2021 YE 2021 to Q1 2022 Q1 2021 to Q1 2022 Cash, cash equivalents and marketable securities (1) $ 115.1 $ 102.5 $ 192.2 $ 12.6 $ (77.1) NCM LLC revolving credit facility availability (2) 6.8 6.8 5.6 — 1.2 Total liquidity $ 121.9 $ 109.3 $ 197.8 $ 12.6 $ (75.9) _________________________ (1) Included in cash, cash equivalents and marketable securities as of March 31, 2022, December 30, 2021 and April 1, 2021, was $76.2 million, $58.6 million and $139.4 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 March 31, 2022, December 30, 2021 and April 1, 2021. As of March 31, 2022, December 30, 2021 and April 1, 2021, 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, $1.2 million and $2.4 million, respectively. As of March 31, 2022, the weighted average remaining maturity of our debt was 4.0 years. As of March 31, 2022, approximately 54% of our total borrowings bear interest at fixed rates. The remaining 46% 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): 29 Three Months Ended March 31, 2022 April 1, 2021 Operating cash flow $ (23.6) $ (25.0) Investing cash flow $ (0.7) $ (2.0) Financing cash flow $ 36.9 $ 37.4 • Operating Activities. The $1.4 million decrease in cash used in operating activities for the first quarter of 2022, as compared to the first quarter of 2021, was primarily due to a $7.9 million increase in the noncash loss on the remeasurement of the payable to founding members under the TRA and a $5.8 million increase in the impairment of long-lived assets related to the write down in the first quarter of 2022 of certain internally developed software no longer in use, partially offset by a $3.9 million increase in payments of accounts payable and accrued expenses due in part to increased market activity, a $4.0 million increase in consolidated net loss and a $5.0 million increase in deferred revenue related to higher revenue in the first quarter of 2022, as compared to the first quarter of 2021. • Investing Activities. The $1.3 million decrease in cash used in investing activities for the first quarter of 2022, as compared to the first quarter of 2021, was due to a $1.3 million decrease in purchases of property and equipment in the first quarter of 2022, compared to the first quarter of 2021. • Financing Activities. The $0.5 million decrease in cash provided by financing activities for the first quarter of 2022, compared to the year first quarter of 2021 was primarily due to the $50.0 million issuance of the second tranche of term loans that occurred in the first quarter of 2021 and $1.6 increase in debt amortization costs in the first quarter of 2022, partially offset by the $50.0 million increase from the issuance of the New Revolving Credit Facility in the first quarter of 2022, as discussed above, and a $0.9 million decrease in the repurchase of restricted stock tax withholding related to the increase in tax liability settlement through selling of shares, rather than withholding shares in the first quarter of 2022, compared to the first quarter of 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 March 31, 2022 were $115.1 million (including $76.2 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 in order to supplement the decrease in cash provided by operating activities during the period our network theaters were closed. On January 5, 2022, the company entered in the New Revolving Credit Agreement and drew down upon the new revolving credit facility of $50.0 million. The $76.2 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 NCM, Inc. and the founding members have been affected by the impact of the COVID-19 Pandemic on our operations and may be deferred through the quarter ending December 28, 2023 or longer due to the limitations instituted by the Credit Agreement First Amendment, Credit Agreement Second Amendment and Credit Agreement Third Amendment. 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, AMC and NCM, Inc.). The available cash distribution to NCM LLC’s members for the three months ended March 31, 2022 was calculated as approximately negative $27.2 million, of which NCM, Inc.'s share is approximately negative $12.9 million. Further there was $93.7 million and $85.2 million of negative available cash generated during the years ended December, 30, 2021 and December 31, 2020, respectively. 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 2022. Negative available cash distributions for the years of 2021 and 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 Third 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 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 9, 2022 of $0.03 per share (approximately $2.4 million) on each share of the Company’s common stock (not including outstanding restricted stock) to stockholders of record on May 23, 2022 to be paid on June 7, 2022. The Company does not expect to make a TRA payment in 30 2022 for the 2021 tax year. The Company will also consider opportunistically using cash received for partial repayments of NCM LLC's outstanding debt balance. Distributions from NCM LLC and NCM, Inc. cash balances should be sufficient to fund payments associated with the TRA with the founding members, income taxes and its regular 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 take into account general economic and advertising market business conditions, the Company’s financial condition, available cash, current and anticipated cash needs and any other factors that the Board of Directors considers relevant, which includes short-term and long-term impacts to the Company related to the COVID-19 Pandemic and restrictions under the NCM LLC Credit Agreement. Critical Accounting Policies 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 30, 2021 and incorporated by reference herein. As of March 31, 2022, 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.