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, as amended (the “Exchange Act”). 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”, statements related to the impact of the Chapter 11 Case and the Cineworld Proceeding 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 29, 2022. 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 is 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 29, 2022. In the following discussion and analysis, the term net income refers to net income attributable to NCM, Inc. Bankruptcy Filing As a result of the commencement of NCM LLC’s Chapter 11 Case on April 11, 2023, we are operating as the manager of the debtor-in-possession pursuant to the authority granted under Chapter 11 of the Bankruptcy Code. Pursuant to the Chapter 11 Case, we intend to de-lever NCM LLC’s balance sheet and reduce overall indebtedness. Additionally, as a debtor in possession, certain of NCM LLC’s activities are subject to review and approval by the Bankruptcy Court, including, among other things, the incurrence of secured indebtedness, material asset dispositions, and other transactions outside the ordinary course of business. On June 27, 2023, the Bankruptcy Court entered the Confirmation Order approving the Disclosure Statement on a final basis and confirming the Company’s Plan. In order for the Plan to become effective, NCM LLC must satisfy a number of conditions, which include the funding of an exit financing facility and NCM, Inc. implementing a reverse stock split. NCM, Inc. currently has a special meeting of the stockholders scheduled for August 2, 2023 and NCM LLC is diligently working to complete all other conditions, but there can be no guarantee that NCM LLC will successfully implement the Plan or that the Plan will be implemented in a time frame that is acceptable to the Bankruptcy Court. Deconsolidation of NCM LLC Subsequent to April 11, 2023, while NCM, Inc. continues to manage NCM LLC, the “debtor in possession”, as the Company no longer controls NCM LLC for accounting purposes, NCM LLC was deconsolidated from the Company’s financial statements prospectively as of April 11, 2023 and recorded as an investment accounted for in accordance with ASC 321 on the unaudited Condensed Consolidated Balance Sheet as of June 29, 2023. Delisting of our Common Stock from NASDAQ On April 19, 2023, NCM, Inc. received a letter from Nasdaq indicating that as a result of NCM LLC filing the Chapter 11 Case, and in accordance with Nasdaq Listing Rule 5100, the Nasdaq Staff determined that the Company is a “public shell” and that continued listing of NCM, Inc.’s common stock is no longer warranted. The letter advised that Nasdaq would suspend trading of the common stock on April 28, 2023 and that Nasdaq would file a Form 25-NSE with the Securities and Exchange Commission to effect the delisting of the common stock unless NCM, Inc. requested an appeal of this determination. NCM, Inc. filed such an appeal with the Panel on April 21, 2023 and had a hearing on May 25, 2023. On June 14, 2023, the Company received written notice from Nasdaq that the Panel had approved the Company’s request for continued listing, on an interim basis through at least July 26, 2023, subject to the Company updating the Panel on the status of the Chapter 11 Case and confirmation of the Plan. The Company updated the Panel regarding the confirmation of the Plan. The suspension and delisting of NCM, Inc.’s securities has been stayed pending the Panel’s final decision. On July 28, 2023, the Company received written notice from Nasdaq that the Panel had approved the Company’s request for continued listing subject to the Company demonstrating compliance with Nasdaq’s continued listing requirements on or before August 31, 2023. As previously disclosed, on April 21, 2023, the Company requested an appeal with the Panel regarding a determination by the Listing Qualifications department of Nasdaq to delist the Company’s securities following NCM LLC’s Chapter 11 Case, and, on June 14, 2023, the Panel approved the Company’s request for continued listing on an interim basis through July 26, 2023. Overview 29 NCM, Inc. is the sole manager of NCM LLC, America’s Movie Network. NCM, Inc. derives revenue principally from its role as the manager of NCM LLC. As the largest cinema advertising network in North America, NCM LLC is a media company dedicated to uniting brands with young, diverse audiences through the power of movies and pop culture. NCM LLC derives revenue principally from the sale of advertising to national, regional and local businesses in its Noovie® show, a cinema advertising and entertainment show seen on movie screens across the U.S. NCM LLC has long-term ESAs (approximately 16.2 weighted average years) with the founding members and multi-year agreements with network affiliates, which expire at various dates between August 9, 2023 and December 31, 2037. The weighted average remaining term of the ESAs and the network affiliate agreements is 13.3 years as of June 29, 2023. The ESAs and network affiliate agreements grant NCM LLC exclusive rights in their theaters to sell advertising, subject to limited exceptions. Our Noovie show and LEN programming are distributed predominantly via satellite through our proprietary DCN. Management focuses on several measurements that we believe provide us with the necessary ratios and key performance indicators to manage NCM LLC’s 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 many operating metrics including changes in revenue, Adjusted OIBDA and Adjusted OIBDA margin, 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, national, 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 there is adequate cash availability to fund our working capital needs and debt obligations and any future dividends declared by our Board of Directors. Recent Developments Cineworld Proceeding — On September 7, 2022, Cineworld Group plc, the parent company of Regal, and certain of its subsidiaries, including Regal, Regal Cinemas, Inc., a party to the ESA with NCM LLC, and Regal CineMedia Holdings, LLC, a party to other agreements with NCM LLC and NCM, Inc., filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of Texas. On October 21, 2022, Regal filed a motion to reject the ESA without specifying an effective date for the rejection and indicated that Regal planned on negotiating with NCM LLC. NCM LLC also filed an adversary proceeding against Regal seeking declaratory relief and an injunction prohibiting Regal from breaching certain exclusivity, non-compete, non-negotiate and confidentiality provisions in the ESA by entering into a new agreement with a third-party or bringing any of the services performed by NCM LLC in-house. On February 1, 2023, Cineworld filed a motion for summary judgment on NCM LLC’s adversary proceeding with a hearing scheduled during the second quarter of 2023. On May 5, 2023, NCM LLC and Regal agreed to stay the ongoing litigation while the parties worked towards the terms of a new arrangement for NCM LLC to provide advertising services to Regal. In lieu of litigating Regal’s potential rejection of the ESA and NCM LLC’s adversary proceeding against Regal, the parties negotiated a Network Affiliate Transaction Agreement and a Joint Venture Termination and Settlement Agreement. The Network Affiliate Transaction Agreement was effective on July 14, 2023 and provides that NCM LLC will acquire the exclusive right to provide on-screen advertisements at Regal’s theaters for a term of ten years in exchange for payments based on the attendance at Regal’s theaters and the revenue generated by NCM LLC through advertising displayed in Regal’s theaters. Pursuant to the Regal Advertising Agreement, NCM LLC will have the right to display advertising in Regal’s theaters with a program of inventory that provides for (i) up to five minutes in length for exhibition on-screen immediately prior to showtime of a feature film or digital programming event, (ii) up to ten minutes immediately after the showtime of a feature film, extending the time available to NCM LLC by five minutes, and (iii) the Platinum Spot that may be exhibited on-screen prior to the last two trailers, which may be either thirty or sixty seconds in length, and subject to Regal’s approval, NCM LLC may display two thirty-second spots in the Platinum Spot and a Gold Spot, a thirty second spot displayed immediately prior to the fourth trailer preceding a feature film or digital programming event. Pursuant to the Regal Termination Agreement, the ESA was rejected by Regal and is terminated. Additionally Regal and Regal’s affiliates’ waived all rights and interests as to the Tax Receivable Agreement, the Common Unit Adjustment Agreement, the Software License Agreement, the Director Designation Agreement, the Registration Rights Agreement and all the other joint venture agreements described in NCM LLC’s Third Amended and Restated Limited Liability Company Operating Agreement, and Regal and Regal’s affiliates waived and released claims against other parties thereto. Regal has also agreed to support NCM LLC’s Plan and surrender all shares in the Company upon the effective date of the Plan. In connection with the Regal Advertising Agreement, NCM LLC and Regal also agreed to dismiss with prejudice the ongoing litigation between the parties related to NCM LLC’s request to enforce certain provisions of the ESA, including the exclusivity provision. Following the Regal Termination Agreement, Regal will no longer be a founding member and will be included within the network affiliate metrics. Selected Historical and Operating Data 30 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 —Within the financial results outlined below, all periods subsequent to the deconsolidation of NCM LLC on April 11, 2023 represent activity and balances for NCM, Inc. standalone, and all activity and balances prior to the deconsolidation of NCM LLC on April 11, 2023 represent NCM, Inc. consolidated, inclusive of NCM LLC. The operating results for NCM LLC, which management believes better represent the Company's historical consolidated performance, are presented separately subsequent to the operating data for NCM, Inc., which is presented below (dollars in millions, except share and margin data): % Change Q2 2023 Q2 2022 YTD 2023 YTD 2022 Q2 2022 to Q2 2023 YTD 2022 to YTD 2023 Revenue $ 14.8 $ 67.1 $ 49.7 $ 103.0 (77.9) % (51.7) % Operating expenses: Advertising operating costs 1.0 8.3 6.7 13.0 (88.0) % (48.5) % Network costs 0.3 2.1 2.7 4.1 (85.7) % (34.1) % Theater access fees and revenue share to founding members 3.7 23.2 23.3 41.1 (84.1) % (43.3) % Selling and marketing costs 1.1 10.4 10.6 20.6 (89.4) % (48.5) % Administrative and other costs 12.5 9.7 33.3 19.4 28.9 % 71.6 % Impairment of long-lived assets — — — 5.8 — % (100.0) % Depreciation expense 0.2 1.5 1.5 3.5 (86.7) % (57.1) % Amortization of intangibles recorded for network theater screen leases 0.9 6.3 7.1 12.4 (85.7) % (42.7) % Total operating expenses 19.7 61.5 85.2 119.9 (68.0) % (28.9) % Operating (loss) income (4.9) 5.6 (35.5) (16.9) (187.5) % 110.1 % Non-operating (income) expense, net (550.2) 14.2 (526.8) 37.7 (3974.6) % (1497.3) % Income tax expense — — — — — % — % Net loss attributable to noncontrolling interests — (7.9) (8.5) (28.7) (100.0) % (70.4) % Net income (loss) attributable to NCM, Inc. $ 545.3 $ (0.7) $ 499.8 $ (25.9) (78000.0) % (2029.7) % Net income (loss) per NCM, Inc. basic share $ 3.13 $ (0.01) $ 3.13 $ (0.32) (31400.0) % (1078.1) % Net income (loss) per NCM, Inc. diluted share $ 3.13 $ (0.01) $ 2.83 $ (0.32) (31400.0) % (984.4) % Basis of Presentation The results of operations data for the three months ended June 29, 2023 (second quarter of 2023) and June 30, 2022 (second quarter of 2022) and the six months ended June 29, 2023 and June 30, 2022 was derived from the unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc. and should be read in conjunction with the accompanying notes. Within the results of operations outlined below, all periods subsequent to the deconsolidation of NCM LLC on April 11, 2023 represent activity and balances for NCM, Inc. standalone and all activity and balances prior to the deconsolidation of NCM LLC on April 11, 2023 represent NCM, Inc. consolidated, inclusive of NCM LLC. Results of Operations Second Quarter of 2023 and Second Quarter of 2022 for NCM, Inc. Revenue. Total revenue decreased 77.9%, from $67.1 million for the second quarter of 2022 to $14.8 million for the second quarter of 2023. The following is a summary of revenue by category (in millions): 31 $ Change % Change Q2 2023 Q2 2022 Q2 2022 to Q2 2023 Q2 2022 to Q2 2023 Advertising revenue $ 7.1 $ 67.1 $ (60.0) (89.4) % Management fee reimbursement 7.7 — 7.7 — % Total revenue $ 14.8 $ 67.1 $ (52.3) (77.9) % Advertising revenue. National advertising revenue decreased by $60.0 million, or 89.4%, from $67.1 million for the second quarter of 2022 to $7.1 million for the second quarter of 2023. This decrease was due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes, with the $7.1 million of revenue for the second quarter of 2023 representing the 12 days of activity of NCM LLC within the second quarter prior to the deconsolidation event on April 11, 2023. Management fee reimbursement. Management fee reimbursement increased $7.7 million, from $0.0 million for the second quarter of 2022 to $7.7 million for the second quarter of 2023. This increase was primarily due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes and represents the revenue recognized by NCM, Inc. for managing NCM LLC during the second quarter of 2023 that historically would have been eliminated upon consolidation. This amount is equal to the expenses incurred by NCM, Inc. that were paid by NCM LLC. Operating expenses. Total operating expenses decreased $41.8 million, or 68.0%, from $61.5 million for the second quarter of 2022 to $19.7 million for the second quarter of 2023. The following table shows the changes in operating expense for the second quarter of 2023 and the second quarter of 2022 (in millions): $ Change % Change Q2 2023 Q2 2022 Q2 2022 to Q2 2023 Q2 2022 to Q2 2023 Advertising operating costs $ 1.0 $ 8.3 $ (7.3) (88.0) % Network costs 0.3 2.1 (1.8) (85.7) % Theater access fees and revenue share—founding members 3.7 23.2 (19.5) (84.1) % Selling and marketing costs 1.1 10.4 (9.3) (89.4) % Administrative and other costs 12.5 9.7 2.8 28.9 % Impairment of long-lived assets — — — — % Depreciation expense 0.2 1.5 (1.3) (86.7) % Amortization of intangibles recorded for network theater screen leases 0.9 6.3 (5.4) (85.7) % Total operating expenses $ 19.7 $ 61.5 $ (41.8) (68.0) % Advertising operating costs. Advertising operating costs decreased $7.3 million, or 88.0%, from $8.3 million for the second quarter of 2022 to $1.0 million for the second quarter of 2023. This decrease was due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes, with the $1.0 million of expense for the second quarter of 2023 representing the 12 days of activity of NCM LLC within the second quarter prior to the deconsolidation event on April 11, 2023. Network costs. Network costs decreased $1.8 million, or 85.7%, from $2.1 million for the second quarter of 2022 to $0.3 million for the second quarter of 2023. This decrease was due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes, with the $0.3 million of expense for the second quarter of 2023 representing the 12 days of activity of NCM LLC within the second quarter prior to the deconsolidation event on April 11, 2023. Theater access fees and revenue share—founding members. Theater access fees and revenue share decreased by $19.5 million, or 84.1%, from $23.2 million for the second quarter of 2022 to $3.7 million for the second quarter of 2023. This decrease was due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes, with the $3.7 million of expense for the second quarter of 2023 representing the 12 days of activity of NCM LLC within the second quarter prior to the deconsolidation event on April 11, 2023. Selling and marketing costs. Selling and marketing costs decreased $9.3 million, or 89.4%, from $10.4 million for the second quarter of 2022 to $1.1 million for the second quarter of 2023. This decrease was due to the deconsolidation of 32 NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes, with the $1.1 million of expense for the second quarter of 2023 representing the 12 days of activity of NCM LLC within the second quarter prior to the deconsolidation event on April 11, 2023. Administrative and other costs. Administrative and other costs increased $2.8 million, or 28.9%, from $9.7 million for the second quarter of 2022 to $12.5 million for the second quarter of 2023. The increase was primarily due to an increase in legal and professional fees incurred related to the Chapter 11 Case and Cineworld Proceeding in the second quarter of 2023, as well as, an increase in personnel related costs related to a retention program implemented to ensure continuity of the management team during the Chapter 11 Case. Depreciation expense. Depreciation expense decreased $1.3 million, or 86.7%, from $1.5 million for the second quarter of 2022 to $0.2 million in the second quarter of 2023. This decrease was due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes, with the $0.2 million of expense for the second quarter of 2023 representing the 12 days of activity of NCM LLC within the second quarter prior to the deconsolidation event on April 11, 2023. Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen decreased $5.4 million, or 85.7%, from $6.3 million for the second quarter of 2022 to $0.9 million for the first quarter of 2023. This decrease was due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes, with the $0.9 million of expense for the second quarter of 2023 representing the 12 days of activity of NCM LLC within the second quarter prior to the deconsolidation event on April 11, 2023. Non-operating income. Total non-operating income increased $564.4 million, or 3974.6%, from $14.2 million of non-operating expenses for the second quarter of 2022 to $550.2 million non-operating income for the second quarter of 2023. The following table shows the changes in non-operating expense for the second quarter of 2023 and the second quarter of 2022 (in millions): $ Change % Change Q2 2023 Q2 2022 Q2 2022 to Q2 2023 Q2 2022 to Q2 2023 Interest on borrowings $ 3.1 $ 20.4 $ (17.3) (84.8) % Gain on modification and retirement of debt, net — (5.9) 5.9 100.0 % Loss (gain) on the re-measurement of the payable to founding members under the tax receivable agreement 4.0 (0.1) 4.1 (4100.0) % Gain on deconsolidation of NCM LLC (557.7) — (557.7) — Other non-operating expense (income) 0.4 (0.2) 0.6 (300.0) % Total non-operating (income) expense $ (550.2) $ 14.2 $ (564.4) (3974.6) % The increase in non-operating income was largely driven by the gain recognized upon the deconsolidation of NCM LLC of $557.7 million and a $17.3 million decrease in interest on borrowings due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes. These increases were partially offset by a $5.9 million decrease in gain on modification and retirement of debt, net due to NCM, Inc.’s purchase of certain of the Notes due 2028 on the open market during the second quarter of 2022, reducing the principal amount owed by NCM LLC to third parties, with no comparable purchases in the current year, and the loss on the re-measurement of the payable to founding members under the tax receivable agreement increased by $4.1 million, or 4100.0% from a gain of $0.1 million for the second quarter of 2022, to a loss of $4.0 million for the second quarter of 2023 . Results of Operations for NCM LLC for the Second Quarter of 2023 and Second Quarter of 2022 33 The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data) for the three months ended June 29, 2023 (second quarter of 2023) and June 30, 2022 (second quarter of 2022) for NCM LLC: $ Change % Change Q2 2023 Q2 2022 Q2 2022 to Q2 2023 Q2 2022 to Q2 2023 Revenue $ 64.4 $ 67.1 $ (2.7) (4.0) % Operating expenses: Advertising operating costs 7.4 8.3 (0.9) (10.8) % Network costs 2.2 2.1 0.1 4.8 % Theater access fees and revenue share to founding members 23.9 23.2 0.7 3.0 % Selling and marketing costs 10.1 10.4 (0.3) (2.9) % Administrative and other costs 15.5 9.7 5.8 59.9 % Impairment of long-lived assets — — — — % Depreciation expense 1.3 1.5 (0.2) (13.3) % Amortization of intangibles recorded for network theater screen leases 6.2 6.3 (0.1) (1.6) % Total operating expenses 66.6 61.5 5.1 8.3 % Operating (loss) income $ (2.2) $ 5.6 $ (7.8) (139.4) % Adjusted OIBDA $ 12.5 $ 15.1 $ (2.6) (17.3) % Adjusted OIBDA margin 19.7 % 22.5 % (2.8) % (12.4) % Total theater attendance (in millions) (1) 134.9 124.2 10.7 8.6 % Revenue. Revenue decreased $2.7 million, or 4.0%, from $67.1 million for the second quarter of 2022 to $64.4 million for the second quarter of 2023. National advertising revenue decreased by $6.4 million, or 12.7% from $50.8 million for the second quarter of 2022 to $44.3 million for the second quarter of 2023. The decrease in national advertising revenue was primarily due to a 18.7% decrease in national advertising utilization in the second quarter of 2023, as compared to the second quarter of 2022, as well as lower scatter market revenue in the second quarter of 2023, as compared to the second quarter of 2022. Inventory utilization is calculated as utilized impressions divided by total advertising impressions, which is based on eleven 30-second salable national advertising units in NCM LLC’s Noovie show, which can be expanded, should market demand dictate. Local and regional advertising revenue increased by $2.9 million, or 27.7% from $10.5 million for the second quarter of 2022 to $13.4 million for the second quarter of 2023. The increase in local and regional advertising revenue was primarily due to an increase in contract activity and size within the government, healthcare, education, arts, and beverages service categories in the second quarter of 2023, as compared to the second quarter of 2022. National advertising from the founding members beverage concessionaire agreement increased $0.8 million, or 14.2% from $5.8 million for the second quarter of 2022 to $6.6 million for the second quarter of 2023. The increase was due to a 10.8% increase in founding member attendance as well as an average 3% rate increase for the second quarter of 2023, as compared to the second quarter of 2022. Advertising operating costs. Advertising operating costs decreased $0.9 million, or 10.8%, from $8.3 million for the second quarter of 2022 to $7.4 million for the second quarter of 2023. The decrease was due primarily to a $1.0 million decrease in advertising affiliate payments due in part to lower in cinema revenue for the second quarter 2023, as compared to the second quarter of 2022. Network costs. Network costs increased $0.1 million, or 4.8%, from $2.1 million for the second quarter of 2022 to $2.2 million for the second quarter of 2023. Theater access fees and revenue share—founding members. Theater access fees and revenue share increased by $0.7 million, or 3.0%, from $23.2 million for the second quarter of 2022 to $23.9 million for the second quarter of 2023. This increase consisted of a $1.4 million increase due to the 10.8% increase in founding member theater attendance in the second quarter of 2023, as compared to the second quarter of 2022, and a $0.1 million increase due to an increase in average rate per active screens in the second quarter of 2023, as compared to the second quarter of 2022. These 34 increases were offset by a $0.8 million decrease in revenue share for the second quarter of 2023, as compared to the second quarter of 2022. Selling and marketing costs. Selling and marketing costs decreased $0.3 million, or 2.9%, from $10.4 million for the second quarter of 2022 to $10.1 million for the second quarter of 2023. The decrease was primarily due to a $0.4 million decrease in bad debt expense for the second quarter of 2023, as compared to the second quarter of 2022. Administrative and other costs. Administrative and other costs increased $5.8 million, or 59.9%, from $9.7 million for the second quarter of 2022 to $15.5 million for the second quarter of 2023. The increase was primarily related to a $6.0 million increase in legal and professional fees incurred in the second quarter of 2023 prior to the petition date related to the Chapter 11 Case and Cineworld Proceeding. All fees incurred to related to the Chapter 11 Case subsequent to the petition date have been presented within ‘Reorganization Items’ on the unaudited Condensed Balance Sheet for NCM LLC. Depreciation expense. Depreciation expense decreased $0.2 million, or 13.3%, from $1.5 million for the second quarter of 2022 to $1.3 million in the second quarter of 2023. Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen decreased $0.1 million, or 1.6%, from $6.3 million for the second quarter of 2022 to $6.2 million for the second quarter of 2023. Six months ended June 29, 2023 and June 30, 2022 for NCM, Inc. Revenue. Total revenue decreased $53.3 million, or 51.7%, from $103.0 million for the six months ended June 30, 2022 to $49.7 million for the six months ended June 29, 2023. The following is a summary of revenue by category (in millions): Six Months Ended $ Change % Change June 29, 2023 June 30, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Advertising revenue $ 42.0 $ 103.0 $ (61.0) (59.2) % Management fee reimbursement 7.7 — 7.7 — % Total revenue $ 49.7 $ 103.0 $ (53.3) (51.7) % Advertising revenue. National advertising revenue decreased by $61.0 million, or 59.2%, from $103.0 million for the six months ended June 30, 2022 to $42.0 million for the six months ended June 29, 2023. This decrease was primarily due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes. Management fee reimbursement. Management fee reimbursement increased from $7.7 million from $0.0 million for the six months ended June 30, 2022 to $7.7 million for the six months ended June 29, 2023. This increase was primarily due to the deconsolidation of NCM LLC on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes and represents the revenue recognized by NCM, Inc. for managing NCM LLC during the second quarter of 2023 that historically would have been eliminated upon consolidation. This amount is equal to the expenses incurred by NCM, Inc. that were paid by NCM LLC. Operating expenses. Total operating expenses decreased $34.7 million, or 28.9%, from $119.9 million for the six months ended June 30, 2022 to $85.2 million for the six months ended June 29, 2023. The following table shows the changes in operating expense for the six months ended June 29, 2023 and June 30, 2022 (in millions): 35 Six Months Ended $ Change % Change June 29, 2023 June 30, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Advertising operating costs $ 6.7 $ 13.0 $ (6.3) (48.5) % Network costs 2.7 4.1 (1.4) (34.1) % Theater access fees and revenue share—founding members 23.3 41.1 (17.8) (43.3) % Selling and marketing costs 10.6 20.6 (10.0) (48.5) % Administrative and other costs 33.3 19.4 13.9 71.6 % Impairment of long-lived assets — 5.8 (5.8) (100.0) % Depreciation expense 1.5 3.5 (2.0) (57.1) % Amortization of intangibles recorded for network theater screen leases 7.1 12.4 (5.3) (42.7) % Total operating expenses $ 85.2 $ 119.9 $ (34.7) (28.9) % Advertising operating costs. Advertising operating costs decreased $6.3 million, or 48.5%, from $13.0 million for the six months ended June 30, 2022 to $6.7 million for the six months ended June 29, 2023. The $6.7 million of expense for the six months ended June 29, 2023 represents the 103 days of activity of NCM LLC within 2023 prior to the deconsolidation event on April 11, 2023. Network costs. Network costs decreased $1.4 million, or 34.1%, from $4.1 million for the six months ended June 30, 2022, to $2.7 million for the six months ended June 29, 2023. The $2.7 million of expense for the six months ended June 29, 2023 represents the 103 days of activity of NCM LLC within 2023 prior to the deconsolidation event on April 11, 2023. Theater access fees and revenue share—founding members. Theater access fees and revenue share decreased $17.8 million, or 43.3%, from $41.1 million for the six months ended June 30, 2022 to $23.3 million for the six months ended June 29, 2023. The $23.3 million of expense for the six months ended June 29, 2023 represents the 103 days of activity of NCM LLC within 2023 prior to the deconsolidation event on April 11, 2023. Selling and marketing costs. Selling and marketing costs decreased $10.0 million, or 48.5%, from $20.6 million for the six months ended June 30, 2022 to $10.6 million for the six months ended June 29, 2023. The $10.6 million of expense for the six months ended June 29, 2023 represents the 103 days of activity of NCM LLC within 2023 prior to the deconsolidation event on April 11, 2023. Administrative and other costs. Administrative and other costs increased $13.9 million, or 71.6%, from $19.4 million for the six months ended June 30, 2022 to $33.3 million for the six months ended June 29, 2023. The increase is due to costs incurred through the petition date related to NCM LLC’s Chapter 11 Case, as well as, expenses incurred directly by NCM, Inc. related to NCM LLC’s Chapter 11 Case, increase in NCM., Inc. personnel related costs related to a retention program implemented to ensure continuity of the management team during the Chapter 11 Case and an allocation of NCM LLC expenses related to NCM LLC administrative services utilized by NCM, Inc. Impairment of long-lived assets. Impairment of long-lived assets decreased $5.8 million, or (100.0)%, from $5.8 million for the six months ended June 30, 2022 to $0.0 million for the six months ended June 29, 2023. The $5.8 million of expense for the six months ended June 30, 2022 was due to the write-off of certain long-lived intangible assets, with no comparable write-offs in the current year. Depreciation expense. Depreciation expense decreased $2.0 million, or 57.1%, from $3.5 million for the six months ended June 30, 2022 to $1.5 million for the six months ended June 29, 2023. The $1.5 million of expense for the six months ended June 29, 2023 represents the 103 days of activity of NCM LLC within the six months ended June 30, 2022 prior to the deconsolidation event on April 11, 2023. Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen decreased $5.3 million, or 42.7%, from $12.4 million for the six months ended June 30, 2022 to $7.1 million for the six months ended June 29, 2023. The $7.1 million of expense for the six months ended June 29, 2023 represents the 103 days of activity of NCM LLC within the six months ended June 29, 2023 prior to the deconsolidation event on April 11, 2023. Non-operating income. Total non-operating income increased $564.5 million, or 1497.3%, from $37.7 million of non-operating loss for the six months ended June 30, 2022 to $526.8 on non-operating income for the six months ended June 29, 2023. The following table shows the changes in non-operating loss for the six months ended June 29, 2023 and June 30, 2022 (in millions): 36 Six Months Ended $ Change % Change June 29, 2023 June 30, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Interest on borrowings $ 27.1 $ 37.6 $ (10.5) (27.9) % Loss (gain) on modification and retirement of debt 0.4 (5.9) 6.3 (106.8) % Loss on the re-measurement of the payable to founding members under the tax receivable agreement 3.4 6.3 (2.9) (46.0) % Gain on sale of asset (0.3) — (0.3) — % Gain on deconsolidation of NCM LLC (557.7) — (557.7) — % Other non-operating expense (income) 0.3 (0.3) 0.6 (200.0) % Total non-operating (income) expense $ (526.8) $ 37.7 $ (564.5) (1497.3) % The increase in non-operating income was largely driven by the gain on deconsolidation of NCM LLC $557.7 million recorded on April 11, 2023 after NCM LLC filed the Chapter 11 Case resulting in NCM, Inc.’s loss of control of NCM LLC for accounting purposes. Additionally, there was a $10.5 million decrease in interest on borrowings caused by the Chapter 11 Case filed by NCM LLC, and a $2.9 million decrease in the loss on the re-measurement of the payable to the founding members under the tax receivable agreement. This increase was partially offset by a $6.3 million decrease in gain on modification and retirement of debt, net due to NCM, Inc.’s purchase of certain of the Notes due 2028 on the open market during the second quarter of 2022, reducing the principal amount owed by NCM LLC to third parties, with no comparable purchases in the current year. Results of Operations for NCM LLC for the six months ended June 29, 2023 and June 30, 2022 The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data)for the six months ended June 29, 2023 (second quarter of 2023) and June 30, 2022 (second quarter of 2022) for NCM LLC: Six Months Ended $ Change % Change June 29, 2023 June 30, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Revenue $ 99.3 $ 103.0 $ (3.7) (3.6) % Operating expenses: Advertising operating costs 13.1 13.0 0.1 0.8 % Network costs 4.6 4.1 0.5 12.2 % Theater access fees and revenue share to founding members 43.5 41.1 2.4 5.8 % Selling and marketing costs 19.6 20.6 (1.0) (4.9) % Administrative and other costs 36.3 19.4 16.9 87.1 % Impairment of long-lived assets — 5.8 (5.8) (100.0) % Depreciation expense 2.5 3.5 (1.0) (28.6) % Amortization of intangibles recorded for network theater screen leases 12.5 12.4 0.1 0.8 % Total operating expenses 132.1 119.9 12.2 10.2 % Operating loss $ (32.8) $ (16.9) $ (15.9) 94.1 % Adjusted OIBDA $ 1.6 $ 8.2 $ (6.6) (80.5) % Adjusted OIBDA margin 1.6 % 8.0 % (6.4) % (80.0) % Total theater attendance (in millions) (1) 224.9 200.2 24.7 12.3 % Revenue. Revenue decreased $3.7 million, or 3.6%, from $103.0 million for the six months ended June 30, 2022 to $99.3 million for the six months ended June 29, 2023. National advertising revenue decreased by $10.2 million, or 13.2% from $77.0 million for the six months ended June 30, 2022 to $66.8 million for the six months ended June 29, 2023. The decrease in national advertising revenue was primarily due to a 16.7% decrease in national advertising utilization in the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, as well as lower scatter market revenue in the six months ended June 29, 2023, as compared to the six months ended June 30, 2022. Inventory utilization is calculated as utilized 37 impressions divided by total advertising impressions, which is based on eleven 30-second salable national advertising units in NCM LLC’s Noovie show, which can be expanded, should market demand dictate. Local and regional advertising revenue increased by $4.8 million, or 29.3% from $16.6 million for the six months ended June 30, 2022 to $21.4 million for the six months ended June 29, 2023. The increase in local and regional advertising revenue was primarily due to an increase in contract activity and size within the government, healthcare, education, arts, retail, professional and beverages service categories in the second quarter of 2023, as compared to the second quarter of 2022. National advertising from the founding members beverage concessionaire agreement increased $1.7 million, or 17.7% from $9.4 million for the six months ended June 30, 2022 to $11.1 million for the six months ended June 29, 2023. The increase was due to a 14.2% increase in founding member attendance and an average 3% rate increase for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022. Advertising operating costs. Advertising operating costs increased $0.1 million, or 0.8%, from $13.0 million for the for the six months ended June 30, 2022 to $13.1 million for the six months ended June 29, 2023. Network costs. Network costs increased $0.5 million, or 12.2%, from $4.1 million for the six months ended June 30, 2022 to $4.6 million for the six months ended June 29, 2023. The increase was primarily due to a $0.5 million increase in personnel related costs for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022. Theater access fees and revenue share—founding members. Theater access fees and revenue share increased by $2.4 million, or 5.8%, from $41.1 million for the six months ended June 30, 2022 to $43.5 million for the six months ended June 29, 2023. This increase was primarily caused by a $2.8 million increase due to the 14.2% increase in founding member theater attendance for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, and a $0.3 million increase due to an increase in average rate per active screens for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022. These increases were offset by a $0.7 million decrease in revenue share for the six months ended June 29, 2023, as compared to six months ended June 30, 2022. Selling and marketing costs. Selling and marketing costs decreased $1.0 million, or 4.9%, from $20.6 million for the six months ended June 30, 2022 to $19.6 million for the six months ended June 29, 2023. The decrease was primarily related to a $1.9 million decrease in selling related expenses, as well, as a $0.5 decrease in bad debt expense. These decreases were offset by a $0.9 million increase in personnel related costs for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, driven by an increase in commissions to local sales account directors in line with the increase in local revenue. Administrative and other costs. Administrative and other costs increased $16.9 million, or 87.1%, from $19.4 million for the six months ended June 30, 2022 to $36.3 million for the six months ended June 29, 2023. The increase was primarily related to a $16.7 million increase in legal and professional fees incurred in the first and second quarter of 2023 prior to the petition date related to the Chapter 11 Case and Cineworld Proceeding. All fees incurred to related to the Chapter 11 Case subsequent to the petition date have been presented within ‘Reorganization Items’ on the unaudited Condensed Balance Sheet for NCM LLC. Depreciation expense. Depreciation expense decreased $1.0 million, or 28.6%, from $3.5 million for the six months ended June 30, 2022 to $2.5 million for the six months ended June 29, 2023. The was primarily due to a decrease in depreciable property & equipment for the six months ended June 29, 2023 compared to the six months ended June 30, 2022. Amortization of intangibles recorded for network theater screen leases. Amortization of intangibles recorded for network theater screen increased $0.1 million, or 0.8%, from 12.4 million for the six months ended June 30, 2022 to $12.5 million for the six months ended June 29, 2023. Non-GAAP Financial Measures for NCM LLC 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 and amortization 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 advisor fees related to involvement in the Cineworld Proceeding and Chapter 11 Case. 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 38 bearing on its operating performance and 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 and amortization policies, amounts of amortization of intangibles recorded for network theater screen leases, non-cash share-based compensation programs, impairment of long-lived assets and advisor fees related to involvement in the Cineworld Proceeding and Chapter 11 Case, interest rates, debt levels or income tax rates. A limitation of these measures, however, is that they exclude depreciation and amortization, which represent a proxy for the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in NCM LLC’s business. In addition, Adjusted OIBDA has the limitation of not reflecting the effect of the Company’s amortization of intangibles recorded for network theater screen leases, share-based payment costs, impairments of long-lived assets and advisor fees related to involvement in the Cineworld Proceeding or Chapter 11 Case. Adjusted OIBDA should not be regarded as an alternative to operating income, net income or as indicators of operating performance, nor should it be considered in isolation of, or as substitutes 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 NCM LLC’s debt agreement. The following table reconciles operating income to Adjusted OIBDA for NCM LLC for the periods presented (dollars in millions): Q2 2023 Q2 2022 YTD 2023 YTD 2022 Operating (loss) income $ (2.2) $ 5.6 $ (32.8) $ (16.9) Depreciation expense 1.3 1.5 2.5 3.5 Amortization of intangibles recorded for network theater screen leases (1) 6.2 6.3 12.5 12.4 Share-based compensation costs (2) 1.2 1.7 2.7 3.0 Impairment of long-lived assets (3) — — — 5.8 Sales force reorganization costs (4) — — — 0.4 Fees and expenses related to the Cineworld Proceeding and Chapter 11 Case included within Operating Income (5) 6.0 — 16.7 — Adjusted OIBDA $ 12.5 $ 15.1 $ 1.6 $ 11.2 Total revenue $ 64.4 $ 67.1 $ 99.3 $ 103.0 Adjusted OIBDA margin 19.4 % 22.5 % 1.6 % 10.9 % ____________________________________________ (1) Following the adoption of ASC 842, as discussed within Note 9 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document, amortization of the ESA and affiliate intangible balances is considered a form of lease expense and has been reclassified to this account as of the adoption date, December 28, 2018. The Company adopted ASC 842 prospectively and thus, prior period balances remain within amortization expense. (2) Share-based compensation costs are included in network operations, selling and marketing and administrative expense in NCM LLC’s unaudited Condensed Consolidated Financial Statements. (3) The impairment of long-lived assets primarily relates to the write down of certain internally developed software no longer in use. (4) Sales force reorganization costs represents redundancy costs associated with changes to NCM LLC’s sales force implemented during the first quarter of 2022. (5) Advisor and legal fees and expenses incurred in connection with the Company’s involvement in the Cineworld Proceeding and Chapter 11 Case during the first quarter of 2023, as well as retention related expenses and retainers to the members of the special and restructuring committees of the Company’s Board of Directors. Known Trends and Uncertainties Chapter 11 Case —We expect NCM LLC to emerge from Chapter 11 within one month of this filing. Emergence is contingent upon numerous factors, many of which are out of the Company’s control. Major factors include implementing the approved Chapter 11 Plan of reorganization, which will enable NCM LLC to transition from Chapter 11 into ordinary course operations outside of bankruptcy. NCM LLC also expects to obtain a new credit facility, or “exit financing.” NCM LLC’s ability to finalize such financing will depend on, among other things, the timing and outcome of various ongoing matters related 39 to the Chapter 11 Case as well as the general global macroeconomic factors. The plan of reorganization will determine the rights and satisfaction of claims of various creditors and security holders and is subject to the ultimate outcome of negotiations and Bankruptcy Court decisions ongoing through the date on which such plan is confirmed. Beverage Revenue —Under the ESAs, up to 90 seconds of the Noovie® show program can be sold to the founding members to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. For the first three and six months of 2023 and 2022, 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 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. As of July 14, 2023, the effective date of the Regal Advertising Agreement with Regal, NCM LLC no longer receives founding member beverage revenue from Regal. 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 increased by 4% on November 1, 2022 and will increase by 8% every five years, with the next increase occurring in 2027. 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 of $0.052 per patron beginning on November 1, 2022 and increasing 8% every five years beginning November 1, 2027. As of July 14, 2023, the ESA with Regal was terminated and the Regal Advertising Agreement with Regal became effective. The payments under the Regal Advertising Agreement are based on the attendance at Regal’s theaters and the revenue generated by NCM LLC through advertising displayed in Regal’s theaters. Financial Condition and Liquidity Liquidity and Capital Resources As a result of the commencement of the Chapter 11 Case on April 11, 2023, we are operating as the manager of a debtor in possession pursuant to the authority granted under Chapter 11 of the Bankruptcy Code. Pursuant to the Chapter 11 filings, we intend to de-lever NCM LLC’s balance sheet and reduce overall indebtedness upon emergence from Chapter 11. Additionally, as a debtor-in-possession, certain of NCM LLC’s and NCM, Inc.’s activity, as its manager, are subject to review and approval by the Bankruptcy Court, including, among other things, the incurrence of secured indebtedness, material asset dispositions, and other transactions outside the ordinary course of business. Our normal operating cash flows are providing liquidity for the Company to operate as usual and fulfill ongoing commitments to stakeholders. In the first quarter of 2023, conditions existed that raised substantial doubt about NCM LLC’s ability to continue as a going concern because NCM LLC filed the Chapter 11 Case with the Bankruptcy Court on April 11, 2023. NCM, Inc.’s primary sources of cash flow from operations are distributions from NCM LLC pursuant to the NCM LLC Operating Agreement, management fee payments pursuant to a management services agreement with NCM LLC in exchange for providing specified management services to NCM LLC and NCM, Inc.’s existing cash balance. Pursuant to the Plan that was approved by the Bankruptcy Court on June 27, 2023, NCM, Inc. will continue to be the manager of NCM LLC and NCM LLC will assume its agreements with NCM, Inc., including the management services agreement. Pursuant to the Plan, when NCM LLC successfully emerges from Chapter 11, NCM, Inc. will make a capital contribution of its cash on hand, expected to be approximately $15.0 million, on hand in exchange for new common membership units under the NCMI 9019 Capital Contribution within the Restructuring Support Agreement. Following this contribution, NCM, Inc. is expected to rely on management fee payments received from NCM LLC to fund its day-to-day operations. NCM LLC currently expects to emerge from bankruptcy within one month of this filing; however, NCM LLC’s status in Chapter 11 creates uncertainty around the future satisfaction of its liabilities, including the payments due to NCM, Inc. under the Operating Agreement and management services agreement. If NCM LLC fails to emerge from Chapter 11 in the required timeline and the Plan is not implemented, NCM, Inc. will have sufficient liquidity through the use of NCM, Inc.’s existing cash balance. As such, substantial doubt about the Company's ability to continue as a going concern no longer exists. 40 Subsequent to and during pendency of the Chapter 11 Case, we expect that NCM LLC’s primary liquidity requirements in conjunction with exit financing will be sufficient to fund operations. Based on current financial projections, we expect NCM LLC to be able to continue to generate cash flows from operations in amounts sufficient to fund our operations and pay administrative expenses including professional fees while under Chapter 11. However, should the Chapter 11 Case take longer than anticipated or should our financial results be materially and negatively impacted by general global macroeconomic factors, we may be required to seek additional sources of liquidity. There can be no assurance that we will be able to obtain such liquidity on terms favorable to us, if at all. NCM LLC’s cash balances can fluctuate due to the seasonality of NCM LLC’s 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. NCM Inc.’s cash balance can fluctuate due to available cash payment receipts from NCM LLC, income tax payments, TRA payments to the founding members and amount of dividends to NCM, Inc.’s common stockholders. A summary of our financial liquidity is as follows (in millions): As of $ Change $ Change June 29, 2023 December 29, 2022 June 30, 2022 YE 2022 to Q2 2023 Q2 2022 to Q2 2023 Cash, cash equivalents and marketable securities (1) $ 16.4 $ 62.7 $ 74.4 $ (46.3) $ (58.0) NCM LLC revolving credit facility availability (2) — 7.2 6.8 (7.2) (6.8) Total liquidity $ 16.4 $ 69.9 $ 81.2 $ (53.5) $ (64.8) _________________________ (1) Included in cash, cash equivalents and marketable securities as of June 29, 2023, December 29, 2022 and June 30, 2022, was $0.0 million, $59.4 million and $57.7 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. NCM LLC’s balances were eliminated on deconsolidation in the unaudited Condensed Consolidated Balance Sheet as of June 29, 2023. (2) The revolving credit facility portion of NCM LLC’s total borrowings is not available due to the voluntary petition of reorganization filed on April 11, 2023. NCM, Inc. used and generated cash as follows (in millions): Six Months Ended June 29, 2023 June 30, 2022 Operating cash flow $ 4.5 $ (40.4) Investing cash flow $ (0.8) $ (1.5) Financing cash flow $ (52.0) $ 13.8 • Operating Activitie s. The $44.9 million increase in cash provided by operating activities for the six months ended June 29, 2023, as compared to the six months ended June 30 2022, was primarily due to 1) $68.4 million decrease in account receivable during the second quarter of 2023, as compared to the second quarter of 2022 primarily due to the deconsolidation of NCM LLC, 2) a $6.2 million decrease in change of accounts payable and accrued expenses primarily due to the accrual of restructuring related costs due upon NCM LLC’s emergence, 3) a $6.2 million decrease in change in deferred revenue primarily due to the deconsolidation of NCM LLC and 4) a $2.4 million increase in integration and other encumbered theaters payments received in the first quarter of 2023 compared to the first quarter of 2022 driven by higher revenue and AOIBDA in the fourth quarter of 2022, as compared to the fourth quarter of 2021, as the payments are made one month in arrears. The increases in cash provided were partially offset by 1) a $24.2 million increase in net loss adjusted for non-cash items during the second quarter of 2023, as compared to the second quarter of 2022 primarily due to the deconsolidation of NCM LLC, 2) a $14.8 million increase in prepaids due to payments made prior to the petition date, 3) a $3.1 million decrease in the other assets, net of liabilities primarily due to the deconsolidation of NCM LLC and 4) a $1.4 million increase in payments made to or received from the founding members primarily due to the deconsolidation of NCM LLC in the second quarter of 2023, as compared to the second quarter of 2022. • Investing Activities. The $0.7 million decrease in cash used in investing activities for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, was primarily due to a $0.4 million decrease in 41 purchases of property and equipment and a $0.3 million increase in gain on sale of asset during the six months ended June 29, 2023, as compared to the six months ended June 30, 2022. • Financing Activities. The $65.8 million increase in cash used by financing activities for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, was primarily due to the issuance of the $50.0 million Revolving Credit Facility 2022 in the first quarter of 2022 with no issuances in 2023, as well as, the $49.6 million removal of cash and cash equivalents due to the deconsolidation of NCM LLC in the second quarter of 2023. These increases in cash used were partially offset by a $19.8 million decrease in purchases of the Notes due 2028 as there were no purchases made in 2023, a $6.6 million decrease in dividend payments following the suspension of the dividend in the third quarter of 2022, a $5.6 million decrease in payments of debt issuance costs as there were no debt issuances in 2023 and a $1.6 million decrease in repayment of the term loan facility in the six months ended June 29, 2023, as compared to the six months ended June 30, 2022 due to the deconsolidation of NCM LLC in the second quarter of 2023. NCM LLC used and generated cash as follows (in millions): Six Months Ended June 29, 2023 June 30, 2022 Operating cash flow $ (0.3) $ (39.7) Investing cash flow $ (1.5) $ (1.5) Financing cash flow $ (2.0) $ 40.3 • Operating Activitie s. The $39.4 million decrease in cash used in operating activities for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, was primarily due to 1) a $34.0 million increase in account receivable collections during the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, 2) a $28.7 million decrease in payments of accounts payable and accrued expenses due in part to the accrual of restructuring related costs due upon NCM LLC’s emergence from Chapter 11 Case, as well as, the inability to pay prepetition payables during the Chapter 11 Case, 3) an $8.7 million decrease in deferred revenue, 4) a $2.6 million increase in integration and other encumbered theaters payments received in the first quarter of 2023 compared to the first quarter of 2022 driven by higher revenue and AOIBDA in the fourth quarter of 2022, as compared to the fourth quarter of 2021 as the payments are made one month in arrears and 5) a $2.2 million decrease in payments made to the founding members due in part to the Chapter 11 Case. The decreases in cash used were partially offset by 1) a $32.3 million increase in net loss adjusted for non-cash items during the six months ended June 29, 2023, as compared to the six months ended June 30, 2022 and 2) a $4.7 million decrease in the other assets, net of liabilities primarily due to prepayments made prior to the petition date in the second quarter of 2023. • Investing Activities. There were no meaningful changes in cash used in investing activities for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022 • Financing Activities. The $42.3 million decrease in cash provided by financing activities for the six months ended June 29, 2023, as compared to the six months ended June 30, 2022, was primarily due to the issuance of the $50.0 million Revolving Credit Facility 2022 in the first quarter of 2022 with no issuances in 2023, partially offset by a $5.6 million decrease in payments of debt issuance costs in the second quarter of 2022 as there were no debt issuances in 2023 and a $1.6 million decrease in repayment of the term loan facility in the six months ended June 29, 2023, as compared to the six months ended June 30, 2022 due to the Chapter 11 Case. 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, when generated and payable, as well as its existing cash balances and marketable securities, which as of June 29, 2023 were $16.4 million. NCM LLC’s primary sources of liquidity and capital resources are its cash provided by operating activities 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, NCM LLC entered in the Revolving Credit Agreement 2022 and drew down upon the revolving credit facility of $50.0 million. Cash at NCM, Inc. is used to fund income taxes, payments associated with the TRA with the founding members, payments of NCM, Inc. specific expenses, purchases of low risk investments and for future payment of dividends to NCM, Inc. shareholders. 42 Cash flows generated by NCM LLC’s distributions to NCM, Inc. and the founding members are being deferred during the Chapter 11 Case. 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 (only NCM, Inc. as of June 29, 2023). The available cash distribution to the members of NCM LLC for the six months ended June 29, 2023 was calculated as approximately negative $31.6 million, of which NCM, Inc.'s share is approximately negative $31.6 million. Pursuant to the NCM LLC Operating Agreement and the Credit Agreement Amendment, there were no available cash distributions made for the first quarter of 2023. The net negative available cash distributions for 2020, 2021 and 2022 can be used to offset a positive available cash distribution in the second quarter of 2023 in accordance with the NCM LLC Operating Agreement after the Extended Covenant Waiver Holiday. NCM, Inc. expects to use its cash balances and cash received from future available cash distributions to fund payments associated with the TRA with the founding members and future dividends as declared by the Board of Directors or make other strategic investments as approved by the Board of Directors. NCM, Inc. will owe an estimated $0.3 million TRA payment for the 2022 tax year. 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 any declared dividends for the foreseeable future at the discretion of the Board of Directors. NCM, Inc. intends to revisit its dividend policy upon emergence from the Chapter 11 Case. Critical Accounting Policies Valuation of investment in unconsolidated affiliate NCM LLC does not have a readily determinable fair value. Upon the deconsolidation of NCM LLC, the original cost of the investment was valued based upon NCM, Inc.'s ownership of the secured debt of NCM LLC and the estimation of the enterprise value of NCM LLC utilizing a combination of a market approach and income approach. The market approach relied upon a comparison with guideline public companies and entails selecting relevant financial information of the subject company and capitalizing those amounts using valuation multiples that are based on empirical market observation. The income approach relied upon an analysis of NCM LLC’s projected economic earnings discounted to present value. Significant assumptions utilized within these analyses include the weighted average cost of capital and NCM LLC’s forecasted cash flows. Due to the inherent uncertainty of determining the fair value of securities that do not have a readily available fair value, the determination of the fair value required significant judgment or estimation and changes in the estimates and assumptions used in the valuation models could materially affect the determination. See Note 4 - Investment in Unconsolidated NCM LLC and Note 10 - Fair Value Measurements for further information. For further 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 29, 2022 and incorporated by reference herein. As of June 29, 2023, there were no other significant changes in those critical accounting policies. Recent Accounting Pronouncements For a discussion of the recent accounting pronouncements relevant to our business operations, refer to the information provided under Note 1 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document. 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.