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” 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, Deconsolidation and Reconsolidation of NCM LLC On April 11, 2023 NCM LLC filed a voluntary petition for reorganization with a prearranged Chapter 11 plan under Chapter 11 of title 11 of the United States Code in the Bankruptcy Code in the Bankruptcy Court. During the Chapter 11 Case, the Company was deemed to no longer control NCM LLC for accounting purposes and NCM LLC was deconsolidated from the Company’s financial statements prospectively as of April 11, 2023. We continued to operate as the manager of the debtor-in-possession pursuant to the authority granted under Chapter 11 of the Bankruptcy Code. 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. Following confirmation of the Plan on August 7, 2023, all the conditions to effectiveness of the Plan were satisfied or waived, the Restructuring Transactions were substantially consummated and NCM LLC emerged from bankruptcy. Among other things, on the Effective Date, in accordance with the Plan, all common units under the NCM LLC Operating Agreement were canceled and extinguished, NCM, Inc. received NCM LLC common units and transferred approximately $15.5 million to NCM LLC consistent with the NCMI 9019 Settlement, NCM LLC assumed certain unexpired Executory Contracts and Unexpired Leases, including AMC’s and Cinemark’s ESAs, NCM LLC commenced distributions to creditors, including the issuance of shares of NCM, Inc. common stock to holders of Secured Debt Claims and NCM LLC entered into an Exit Facility to support operations upon emergence. As a result of the Plan, all historical debt of NCM LLC was discharged. NCM LLC recorded a gain on bankruptcy of $915.3 million for the three and nine months ended September 28, 2023. Additionally, upon emergence from bankruptcy, NCM, Inc., regained control and retained 100.0% ownership of NCM LLC, after taking into account elections by the holders of Secured Debt Claims to receive NCM, Inc. common stock in lieu of NCM LLC common units and was therefore reconsolidated into the Company’s financial statements prospectively as of August 7, 2023 akin to an acquisition under ASC 805 – Business Combinations . In accordance with ASC 805 – Business Combinations , the assets and liabilities of NCM LLC were adjusted to their estimated fair value as of the Effective Date. 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, local and regional businesses in our Noovie® pre-show, our cinema advertising and entertainment pre-show seen on movie screens across the U.S. We present multiple formats of our Noovie show depending on the theater circuit in which it runs, which may include Post-Showtime advertising inventory after the advertised showtime. As of September 28, 2023, theaters presenting the Noovie show format with Post-Showtime Inventory made up approximately 65.4% of our network. All other NCM network theater circuits, which make up the remaining 34.6% of our network, present the Noovie show, without Post-Showtime advertising inventory. The movie trailers presented by the theater circuits that run before the feature film are not part of our Noovie show. We also sell advertising on our lobby network (“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 Trivia, Noovie Shuffle, and Name That Movie®, as well as a variety of complementary out of home venues, including restaurants and 23 convenience stores, in order to reach entertainment audiences beyond the theater. As of September 28, 2023, over 7.3 million moviegoers have downloaded our mobile apps. These downloads and the acquisition of second- and third-party data have resulted in approximately 603.9 million data sets as of September 28, 2023. We have long-term ESAs (approximately 15.3 weighted average years remaining) and multi-year agreements with our network affiliates, which expire at various dates between December 2023 and July 2033. The weighted average remaining term of the ESAs and the network affiliate agreements is 12.1 years as of September 28, 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 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, each 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 future dividends declared by our Board of Directors. Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors” below and in our annual report on Form 10-K filed with the SEC on April 13, 2023 for our fiscal year ended December 29, 2022. 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 acquired 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 has 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 a separate termination agreement (the “Regal Termination Agreement”), effective on July 14, 2023, Regal rejected and terminated the ESA. 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 Company Operating Agreement, and Regal and Regal’s affiliates waived and released claims against other parties thereto. 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 effect date of the Regal Termination Agreement of July 14, 2023, Regal is no longer a founding member or related party and is included within the network affiliate metrics. 24 Revolving Credit Facility 2023 - On August 7, 2023, NCM LLC entered into a Loan, Security and Guarantee Agreement (the “Revolving Credit Facility 2023”) with the lenders party thereto and CIT Northbridge Credit LLC as agent. Under the Revolving Credit Facility 2023, NCM LLC has access to a revolving credit facility with aggregate commitments totaling $55,000,000. The proceeds of the Revolving Credit Facility 2023 may be used for, inter alia, working capital and capital expenditures. The Revolving Credit Facility 2023 will mature on August 7, 2026. The interest rate under the Revolving Credit Facility 2023 is a base rate or SOFR benchmark plus (i) 3.75% if less than 50% of revolving commitments are utilized or (ii) 4.50% if 50% or more of revolving commitments are utilized (utilizing the average revolver usage for the prior calendar month as a benchmark for this determination). The Revolving Credit Facility 2023 also contains a financial maintenance covenant requiring that the fixed charge coverage ratio ending on the last day of each fiscal month is at least 1.1 to 1.0 during a “Trigger Period.” A Trigger Period begins upon (i) an event of default or (ii) if availability is less than the greater of (a) $5,000,000 and (b) 10% of aggregate revolving commitments. A Trigger Period ends only if (i) no event of default existed for the preceding 30 consecutive days and (ii) availability is greater than both (a) $5,000,000 and (b) 10% of aggregate revolving commitments. Upon the effectiveness of the Revolving Credit Facility 2023, NCM LLC immediately drew $10.0 million from the facility, which represents the only amounts currently outstanding under the Revolving Credit Facility 2023 as of September 28, 2023. 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 —Within the financial results outlined below, all activity during the Chapter 11 Case from April 11, 2023 to August 7, 2023 when NCM LLC was deconsolidated from NCM, Inc. represents activity and balances for NCM, Inc. standalone. All activity and balances prior to the deconsolidation of NCM LLC on April 11, 2023 and after the reconsolidation of NCM LLC on August 7, 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 Q3 2023 Q3 2022 YTD 2023 YTD 2022 Q3 2022 to Q3 2023 YTD 2022 to YTD 2023 Revenue $ 24.7 $ 54.5 $ 74.4 $ 157.5 (54.7) % (52.8) % Operating expenses: Advertising 8.3 6.3 15.0 19.3 31.7 % (22.3) % Network costs 1.5 2.1 4.1 6.2 (28.6) % (33.9) % ESA theater access fees and revenue share 7.3 21.3 30.6 62.4 (65.7) % (51.0) % Selling and marketing costs 6.3 10.4 16.9 31.0 (39.4) % (45.5) % Administrative and other costs 7.3 10.8 40.6 30.2 (32.4) % 34.4 % Impairment of long-lived assets — — — 5.8 — % (100.0) % Depreciation expense 0.6 1.5 2.1 5.1 (60.0) % (58.8) % Amortization expense 5.7 6.3 12.8 18.7 (9.5) % (31.6) % Total operating expenses 37.0 58.7 122.1 178.7 (37.0) % (31.7) % Operating loss (12.3) (4.2) (47.7) (21.2) 192.9 % 125.0 % Non-operating (income) expenses (194.1) 17.5 (720.7) 55.1 (1209.1) % (1408.0) % Income tax expense — — — — — % — % Net loss attributable to noncontrolling interests — (12.8) (8.5) (41.5) (100.0) % (79.5) % Net income (loss) attributable to NCM, Inc. $ 181.8 $ (8.9) $ 681.5 $ (34.8) (2142.7) % (2058.3) % Net income (loss) per NCM, Inc. basic share $ 2.89 $ (1.09) $ 21.58 $ (4.28) (365.1) % (604.2) % Net income (loss) per NCM, Inc. diluted share $ 2.89 $ (1.09) $ 20.72 $ (4.28) (365.1) % (584.1) % Basis of Presentation The results of operations data for the three months ended September 28, 2023 (third quarter of 2023) and September 29, 2022 (third quarter of 2022) and the nine months ended September 28, 2023 and September 29, 2022 was derived from the 25 unaudited Condensed Consolidated Financial Statements and accounting records of NCM, Inc. and should be read in conjunction with the accompanying notes. Results of Operations Third Quarter of 2023 and Third Quarter of 2022 for NCM, Inc. Revenue. Total revenue decreased 54.7%, from $54.5 million for the third quarter of 2022 to $24.7 million for the third quarter of 2023. The following is a summary of revenue by category (in millions): $ Change % Change Q3 2023 Q3 2022 Q3 2022 to Q3 2023 Q3 2022 to Q3 2023 Advertising revenue $ 22.3 $ 54.5 $ (32.2) (59.1) % Management fee reimbursement 2.4 — 2.4 100.0 % Total revenue $ 24.7 $ 54.5 $ (29.8) (54.7) % Advertising revenue. Advertising revenue decreased by $32.2 million, or 59.1%, from $54.5 million for the third quarter of 2022 to $22.3 million for the third quarter of 2023. This decrease was primarily due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $22.3 million of revenue for the third quarter of 2023 represents the activity of NCM LLC within the third quarter after the reconsolidation event on August 7, 2023. Management fee reimbursement. Management fee reimbursement increased by $2.4 million, from $0.0 million for the third quarter of 2022 to $2.4 million for the third quarter of 2023. This increase was primarily due to the deconsolidation of NCM LLC on April 11, 2023 and represents the revenue recognized by NCM, Inc. for managing NCM LLC during the third quarter of 2023 prior to reconsolidation event on August 7, 2023. Management fee reimbursement is eliminated during periods of consolidation. This amount is equal to the expenses incurred by NCM, Inc. that were paid by NCM LLC. Operating expenses. Total operating expenses decreased $21.7 million, or 37.0%, from $58.7 million for the third quarter of 2022 to $37.0 million for the third quarter of 2023. The following table shows the changes in operating expense for the third quarter of 2023 (in millions): $ Change % Change Q3 2023 Q3 2022 Q3 2022 to Q3 2023 Q3 2022 to Q3 2023 Advertising operating costs $ 8.3 $ 6.3 $ 2.0 31.7 % Network costs 1.5 2.1 (0.6) (28.6) % ESA theater access fees and revenue share 7.3 21.3 (14.0) (65.7) % Selling and marketing costs 6.3 10.4 (4.1) (39.4) % Administrative and other costs 7.3 10.8 (3.5) (32.4) % Depreciation expense 0.6 1.5 (0.9) (60.0) % Amortization expense 5.7 6.3 (0.6) (9.5) % Total operating expenses $ 37.0 $ 58.7 $ (21.7) (37.0) % Advertising operating costs. Advertising operating costs increased $2.0 million, or 31.7%, from $6.3 million for the third quarter of 2022 to $8.3 million for the third quarter of 2023. The increase was primarily due to an increase in advertising affiliate and partner expense for the third quarter of 2023, compared to the third quarter of 2022, primarily related to the Regal Advertising Agreement which commenced on July 14, 2023. When operating under the Regal ESA, the fees owed to Regal were previously presented within “ESA theater access fees and revenue share”. The increase was partially offset by the deconsolidation of NCM LLC from April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case, with the $8.3 million of expense for the third quarter of 2023 representing the activity of NCM LLC after the reconsolidation of NCM LLC on August 7, 2023. Network costs. Network costs decreased $0.6 million, or 28.6%, from $2.1 million for the third quarter of 2022 to $1.5 million for the third quarter of 2023. The decrease was due to the deconsolidation of NCM LLC from April 11, 2023 26 through August 7, 2023 during NCM LLC’s Chapter 11 Case, with the $1.5 million of expense for the third quarter of 2023 representing the activity of NCM LLC after the reconsolidation of NCM LLC on August 7, 2023. ESA theater access fees and revenue share. Theater access fees and revenue share decreased by $14.0 million, or 65.7%, from $21.3 million for the third quarter of 2022 to $7.3 million for the third quarter of 2023. The decrease was primarily due to the deconsolidation of NCM LLC from April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case, with the $7.3 million of expense for the third quarter of 2023 representing the activity of NCM LLC after the reconsolidation of NCM LLC on August 7, 2023. The decrease was also due to the exclusion of Regal theater access fees following Regal’s termination of the Regal ESA on July 14, 2023. Selling and marketing costs. Selling and marketing costs decreased $4.1 million, or 39.4%, from $10.4 million for the third quarter of 2022 to $6.3 million for the third quarter of 2023. The decrease was due to the deconsolidation of NCM LLC from April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case, with the $6.3 million of expense for the third quarter of 2023 representing the activity of NCM LLC after the reconsolidation of NCM LLC on August 7, 2023. Administrative and other costs. Administrative and other costs decreased $3.5 million, or 32.4%, from $10.8 million for the third quarter of 2022 to $7.3 million for the third quarter of 2023. The decrease was due to the deconsolidation of NCM LLC from April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case, with the $7.3 million of expense for the third quarter of 2023 representing the activity of NCM LLC after the reconsolidation of NCM LLC on August 7, 2023. Depreciation expense. Depreciation expense decreased $0.9 million, or 60.0%, from $1.5 million for the third quarter of 2022 to $0.6 million in the third quarter of 2023. This decrease was primarily due to a $0.5 million decrease in depreciation expense based upon the purchase price adjustments to NCM LLC’s property and equipment upon reconsolidation on August 7, 2023. Amortization expense. Amortization expense increased $0.6 million, or 9.5%, from $6.3 million for the third quarter of 2022 to $5.7 million for the third quarter of 2023. The increase was primarily based on the increase in amortization expense of NCM LLC’s intangible assets based upon the purchase price adjustments to NCM LLC’s intangible assets upon reconsolidation on August 7, 2023. This increase was partially offset by a reduction in amortization expense caused by the deconsolidation of NCM LLC from April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. Non-operating income and expenses. Total non-operating income and expenses increased $211.6 million, or 1209.1%, from $17.5 million in non-operating expenses for the third quarter of 2022 to $194.1 million in non-operating income for the third quarter of 2023. The following table shows the changes in non-operating income/expense for the third quarter of 2023 and the third quarter of 2022 (in millions): $ Change % Change Q3 2023 Q3 2022 Q3 2022 to Q3 2023 Q3 2022 to Q3 2023 Interest on borrowings $ 0.3 $ 19.8 $ (19.5) (98.5) % Loss (gain) on re-measurement of the payable under the tax receivable agreement 9.3 (2.2) 11.5 (522.7) % Gain on re-measurement of investment in NCM LLC (35.3) — $ (35.3) 100.0 % Gain on reconsolidation of NCM LLC (168.0) — (168.0) 100.0 % Other non-operating income (0.4) (0.1) (0.3) 300.0 % Total non-operating (income) expenses $ (194.1) $ 17.5 $ (211.6) (1209.1) % The increase in non-operating income was primarily due to the $168.0 million gain on reconsolidation and the $35.3 million gain on remeasurement of NCM LLC recorded after NCM LLC emerged from bankruptcy and was reconsolidated on August 7, 2023, as well as a $19.5 million decrease in interest on borrowings primarily due to the discharge of historical debt that occurred upon NCM LLC’s emergence from bankruptcy and reconsolidation on August 7, 2023. This was partially offset by a $11.5 million increase in the loss on re-measurement of the payable under the tax receivable agreement primarily due to the net impact of the reconsolidation of NCM LLC and the Regal Termination Agreement. Results of Operations for NCM LLC for the Third Quarter of 2023 and Third Quarter of 2022 27 The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data) for the three months ended September 28, 2023 third quarter of 2023) and September 29, 2022 (third quarter of 2022) for NCM LLC: $ Change % Change Q3 2023 Q3 2022 Q2 2022 to Q2 2023 Q2 2022 to Q2 2023 Revenue $ 69.6 $ 54.5 $ 15.1 27.7 % Operating expenses: Advertising operating costs 19.6 6.3 13.3 211.1 % Network costs 2.2 2.1 0.1 4.8 % ESA theater access fees and revenue share 16.7 21.3 (4.6) (21.6) % Selling and marketing costs 11.8 10.4 1.4 13.5 % Administrative and other costs 21.3 8.1 13.2 163.0 % Loss on termination of Regal ESA 125.6 — 125.6 100.0 % Impairment of long-lived assets 9.6 — 9.6 100.0 % Administrative fee—managing member 4.7 2.7 2.0 74.1 % Depreciation expense 1.0 1.5 (0.5) (33.3) % Amortization expense 7.8 6.3 1.5 23.8 % Total operating expenses 220.3 58.7 161.6 275.3 % Operating loss $ (150.7) $ (4.2) $ (146.5) 3488.1 % Adjusted OIBDA $ 11.3 $ 7.0 $ 4.3 61.4 % Adjusted OIBDA margin 16.2 % 12.8 % 3.4 % 26.6 % Total theater attendance (in millions) (1) 131.7 106.6 25.1 23.5 % Revenue. Revenue increased $15.1 million, or 27.7%, from $54.5 million for the third quarter of 2022 to $69.6 million for the third quarter of 2023. National advertising revenue increased by $12.3 million, or 31.0% from $39.7 million for the third quarter of 2022 to $52.0 million for the third quarter of 2023. The increase was primarily due to a 42.0% increase in impressions sold and a 23.5% increase in network attendance for the third quarter of 2023, compared to the third quarter of 2022. These increases were partially offset by lower CPMs for the third quarter of 2023, compared to the third quarter of 2022. Local and regional advertising revenue increased by $3.1 million, or 31.6% from $9.8 million for the third quarter of 2022 to $12.9 million for the third quarter of 2023. The increase in local and regional advertising revenue was primarily due to an increase in contract activity and average size within the beverage, government and healthcare service categories in the third quarter of 2023, compared to the third quarter of 2022. National advertising from the ESA Parties’ beverage concessionaire agreement decreased $0.3 million, or 6.0% from $5.0 million for the third quarter of 2022 to $4.7 million for the third quarter of 2023. The decrease was primarily due to Regal’s termination of the Regal ESA on July 14, 2023 and subsequent discontinuation of beverage concessionaire revenue related to Regal. This decrease was partially offset by a 31.1% increase in attendance from the ESA Parties in the third quarter of 2023, compared to the third quarter of 2022. Advertising operating costs. Advertising operating costs increased $13.3 million, or 211.1%, from $6.3 million for the third quarter of 2022 to $19.6 million for the third quarter of 2023. The increase was due to a $13.1 million increase in advertising affiliate and partner expense for the third quarter of 2023, compared to the third quarter of 2022, primarily related to the Regal Advertising Agreement which commenced on July 14, 2023. When operating under the Regal ESA, the fees owed to Regal were previously presented within “ESA theater access fees and revenue share”. Network costs. Network costs increased $0.1 million, or 4.8%, from $2.1 million for the third quarter of 2022 to $2.2 million for the third quarter of 2023. ESA theater access fees and revenue share. Theater access fees and revenue share decreased by $4.6 million, or 21.6%, from $21.3 million for the third quarter of 2022 to $16.7 million for the third quarter of 2023. This decrease was 28 primarily due to a $3.8 million decrease in the fees related to the number of active screens and a $1.0 million decrease related to the fees due to theater attendance for the third quarter of 2023, compared to the third quarter of 2022, primarily due to Regal’s termination of the Regal ESA on July 14, 2023. These decreases were partially offset by a $0.6 million increase due to contractual rate increases, for the third quarter of 2023, compared to the third quarter of 2022. Selling and marketing costs. Selling and marketing costs increased $1.4 million, or 13.5%, from $10.4 million for the third quarter of 2022 to $11.8 million for the third quarter of 2023. This increase was primarily due to a $1.5 million increase in personnel related expenses for the third quarter of 2023, compared to the third quarter of 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 $13.2 million, or 163.0%, from $8.1 million for the third quarter of 2022 to $21.3 million for the third quarter of 2023. This increase was primarily due to a $13.4 increase in advisor fees related to the Chapter 11 Case during the third quarter of 2023, compared to the third quarter of 2022. Loss on termination of Regal ESA. Loss on termination of Regal ESA costs increased to $125.6 million, or 100.0%, from $0.0 million for the third quarter of 2022 to $125.6 million for the third quarter of 2023. This increase was primarily due to $141.5 million disposal of the intangible asset related to the Regal ESA. This was offset by $13.0 million gain on Regal’s surrender of ownership in the Company and $2.9 million in payables forgiven in conjunction with emergence from bankruptcy during the third quarter of 2023, compared to the third quarter of 2022. Impairment of long-lived assets. Impairment of long-lived assets increased to $9.6 million, or 100.0%, from $0.0 million for the third quarter of 2022 to $9.6 million for the third quarter of 2023. This increase was primarily due to the write-off of certain long-lived intangible assets in the third quarter of 2023, compared to the third quarter of 2022. Administrative fee—managing member. Administrative fee—managing member increased $2.0 million, or 74.1%, from $2.7 million for the third quarter of 2022 to $4.7 million for the third quarter of 2023. This increase was primarily due to a $1.8 million increase in personnel related expenses primarily related to a retention program implemented to ensure continuity of the management team during the Chapter 11 Case and a $0.2 million increase in legal and professional fees for the third quarter of 2023, compared to the third quarter of 2022. Depreciation expense. Depreciation expense decreased $0.5 million, or 33.3%, from $1.5 million for the third quarter of 2022 to $1.0 million in the third quarter of 2023. The decrease was primarily due to a $0.5 million decrease in depreciation expense based upon the purchase price adjustments to NCM LLC’s property and equipment upon reconsolidation with NCM, Inc. on August 7, 2023. Amortization expense. Amortization expense increased $1.5 million, or 23.8%, from $6.3 million for the third quarter of 2022 to $7.8 million for the third quarter of 2023.The increase was due to a $1.5 million increase in amortization expense of NCM LLC’s intangible assets based upon the purchase price adjustments to NCM LLC’s intangible assets upon reconsolidation with NCM, Inc. on August 7, 2023. Nine months ended September 28, 2023 and September 29, 2022 for NCM, Inc. Revenue. Total revenue decreased 36.2%, from $116.7 million for the nine months ended September 29, 2022 to $74.4 million for the nine months ended September 28, 2023. The following is a summary of revenue by category (in millions): Nine Months Ended $ Change % Change September 28, 2023 September 29, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Advertising revenue $ 64.3 $ 116.7 $ (52.4) (44.9) % Management fee reimbursement 10.1 — 10.1 — % Total revenue $ 74.4 $ 116.7 $ (42.3) (36.2) % Advertising revenue. Advertising revenue decreased by $52.4 million, or 44.9%, from $116.7 million for the nine months ended September 29, 2022 to $64.3 million for the nine months ended September 28, 2023. This decrease was due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $64.3 million of revenue for the nine months ended September 28, 2023 represents the activity of NCM LLC within the approximate five months of the period NCM LLC was consolidated by NCM, Inc. Management fee reimbursement. Management fee reimbursement increased by $10.1 million, from $0.0 million for the nine months ended September 29, 2022 to $10.1 million for the nine months ended September 28, 2023. The 29 management fee reimbursement represents the revenue recognized by NCM, Inc. for managing NCM LLC during the deconsolidation period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. This amount is equal to the expenses incurred by NCM, Inc. that were paid by NCM LLC during that period. Management fee reimbursement is eliminated during periods of consolidation. Operating expenses. Total operating expenses decreased $56.6 million, or 31.7%, from $178.7 million for the nine months ended September 29, 2022 to $122.1 million for the nine months ended September 28, 2023. The following table shows the changes in operating expense for the nine months ended September 28, 2023 and September 29, 2022 (in millions): Nine Months Ended $ Change % Change September 28, 2023 September 29, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Advertising operating costs $ 15.0 $ 19.3 $ (4.3) (22.3) % Network costs 4.1 6.2 (2.1) (33.9) % ESA theater access fees and revenue share 30.6 62.4 (31.8) (51.0) % Selling and marketing costs 16.9 31.0 (14.1) (45.5) % Administrative and other costs 40.6 30.2 10.4 34.4 % Impairment of long-lived assets — 5.8 (5.8) (100.0) % Depreciation expense 2.1 5.1 (3.0) (58.8) % Amortization expense 12.8 18.7 (5.9) (31.6) % Total operating expenses $ 122.1 $ 178.7 $ (56.6) (31.7) % Advertising operating costs. Advertising operating costs decreased $4.3 million, or 22.3%, from $19.3 million for the nine months ended September 29, 2022 to $15.0 million for the nine months ended September 28, 2023. This decrease was due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $15.0 million of expense for the nine months ended September 28, 2023 represents the activity of NCM LLC within the approximate five months of the period NCM LLC was consolidated by NCM, Inc. This decrease was partially offset by an increase in advertising affiliate and partner expense related to the Regal Advertising Agreement which commenced on July 14, 2023. When operating under the Regal ESA, the fees owed to Regal were previously presented within “ESA theater access fees and revenue share”. Network costs. Network costs decreased $2.1 million, or 33.9%, from $6.2 million for the nine months ended September 29, 2022 to $4.1 million for the nine months ended September 28, 2023. This decrease was due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $4.1 million of expense for the nine months ended September 28, 2023 represents the activity of NCM LLC within the approximate five months of the period NCM LLC was consolidated by NCM, Inc. ESA theater access fees and revenue share. Theater access fees and revenue share decreased by $31.8 million, or 51.0%, from $62.4 million for the nine months ended September 29, 2022 to $30.6 million for the nine months ended September 28, 2023. This decrease was due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $30.6 million of expense for the nine months ended September 28, 2023 represents the activity of NCM LLC within the approximate five months of the period NCM LLC was consolidated by NCM, Inc. The decrease was also due to the exclusion of Regal theater access fees for the period following Regal’s termination of the Regal ESA on July 14, 2023. Selling and marketing costs. Selling and marketing costs decreased $14.1 million, or 45.5%, from $31.0 million for the nine months ended September 29, 2022 to $16.9 million for the nine months ended September 28, 2023. This decrease was due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $16.9 million of expense for the nine months ended September 28, 2023 represents the activity of NCM LLC within the approximate five months of the period NCM LLC was consolidated by NCM, Inc. Administrative and other costs. Administrative and other costs increased $10.4 million, or 34.4%, from $30.2 million for the nine months ended September 29, 2022 to $40.6 million for the nine months ended September 28, 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 through August 7, 2023, increase in NCM., Inc. personnel related costs primarily 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. 30 Impairment of long-lived assets. Impairment of long-lived assets decreased $5.8 million, or 100.0%, from $5.8 million for the nine months ended September 29, 2022 to $0.0 million for the nine months ended September 28, 2023. The $5.8 million of expense for the nine months ended September 29, 2022 was due to the write-off of certain long-lived intangible assets, with no comparable activity in the current year. Depreciation expense. Depreciation expense decreased $3.0 million, or 58.8%, from $5.1 million for the nine months ended September 29, 2022 to $2.1 million for the nine months ended September 28, 2023. This decrease was due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $2.1 million of expense for the nine months ended September 28, 2023 represents the activity of NCM LLC within the approximate five months of the period NCM LLC was consolidated by NCM, Inc. Amortization expense. Amortization expense decreased $5.9 million, or 31.6%, from $18.7 million for the nine months ended September 29, 2022 to $12.8 million for the nine months ended September 28, 2023. This decrease was due to the deconsolidation of NCM LLC for the period of April 11, 2023 through August 7, 2023 during NCM LLC’s Chapter 11 Case. The $12.8 million of expense for the nine months ended September 28, 2023 represents the activity of NCM LLC within the approximate five months of the period NCM LLC was consolidated by NCM, Inc. Non-operating income/expenses. Total non-operating income increased $775.8 million, or 1408.0%, from $55.1 million in non-operating expenses for the nine months ended September 29, 2022 to $720.7 million in non-operating income for the nine months ended September 28, 2023. The following table shows the changes in non-operating income/expense for the nine months ended September 28, 2023 and September 29, 2022 (in millions): Nine Months Ended $ Change % Change September 28, 2023 September 29, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Interest on borrowings $ 27.5 $ 57.3 $ (29.8) (52.0) % Gain on modification and retirement of debt, net 0.4 (5.9) 6.3 (106.8) % Loss on re-measurement of the payable under the tax receivable agreement 12.7 4.0 8.7 217.5 % Gain on sale of asset (0.3) — (0.3) 100.0 % Gain on deconsolidation of affiliate (557.7) — (557.7) 100.0 % Gain on re-measurement of investment in NCM LLC (35.5) — (35.5) 100.0 % Gain on reconsolidation of NCM LLC (168.0) — (168.0) 100.0 % Other non-operating (income) expense 0.2 (0.3) 0.5 (166.7) % Total non-operating (income) expenses $ (720.7) $ 55.1 $ (775.8) (1408.0) % 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, as well as by the gain on reconsolidation of NCM LLC on August 7, 2023 upon NCM LLC’s emergence from bankruptcy of $168.0 million and the gain on remeasurement of NCM LLC on $35.5 million. The increase was also due to a $29.8 million decrease in interest on borrowings primarily due to the discharge of historical debt and accrued interest that occurred upon NCM LLC’s emergence from bankruptcy on August 7, 2023. These changes were partially offset by an $8.7 million increase in the loss on re-measurement of the payable under the tax receivable agreement primarily due to the net impact of the reconsolidation of NCM LLC and the Regal Termination Agreement and a $6.3 million decrease in the 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 limited activity in the current year. Results of Operations for NCM LLC for the nine months ended September 28, 2023 and September 29, 2022 The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data)for the nine months ended September 28, 2023 (third quarter of 2023) and September 29, 2022 (third quarter of 2022) for NCM LLC: Nine Months Ended $ Change % Change September 28, 2023 September 29, 2022 YTD 2022 to YTD 2023 YTD 2022 to YTD 2023 Revenue $ 168.9 $ 157.5 $ 11.4 7.2 % Operating expenses: 31 Advertising operating costs 32.7 19.3 13.4 69.4 % Network costs 6.8 6.2 0.6 9.7 % ESA theater access fees and revenue share 60.2 62.4 (2.2) (3.5) % Selling and marketing costs 31.4 31.0 0.4 1.3 % Administrative and other costs 64.9 22.3 42.6 191.0 % Loss on impairment of Regal ESA 125.6 — 125.6 100.0 % Impairment of long-lived assets 9.6 5.8 3.8 65.5 % Administrative fee—managing member 16.0 7.9 8.1 102.5 % Depreciation expense 3.6 5.1 (1.5) (29.4) % Amortization expense 20.3 18.7 1.6 8.6 % Total operating expenses 371.1 178.7 192.4 107.7 % Operating loss $ (202.2) $ (21.2) $ (181.0) 853.8 % Adjusted OIBDA $ 12.9 $ 15.2 $ (2.3) (15.1) % Adjusted OIBDA margin 7.6 % 9.7 % (2) % (20.6) % Total theater attendance (in millions) (1) 356.6 306.8 49.8 16.2 % Revenue. Revenue increased $11.4 million, or 7.2%, from $157.5 million for the nine months ended September 29, 2022 to $168.9 million for the nine months ended September 28, 2023. National advertising revenue increased by $1.5 million, or 1.3% from $116.7 million for the nine months ended September 29, 2022 to $118.2 million for the nine months ended September 28, 2023. The increase in national advertising revenue was primarily due to a 9.6% increase in impressions sold and a 16.2% increase in network attendance for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. This was partially offset by lower CPMs for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. Local and regional advertising revenue increased by $8.5 million, or 32.2% from $26.4 million for the nine months ended September 29, 2022 to $34.9 million for the nine months ended September 28, 2023. The increase in local and regional advertising revenue was primarily due to an increase in contract activity and average size within the beverage, government, healthcare, travel and education service categories in the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. National advertising from the ESA Parties’ beverage concessionaire agreement increased $1.4 million, or 9.7% from $14.4 million for the nine months ended September 29, 2022 to $15.8 million for the nine months ended September 28, 2023. The increase was due to a 22.4% increase in theater attendance for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. This was partially offset by Regal’s termination of the Regal ESA on July 14, 2023 and subsequent discontinuation of beverage concessionaire revenue related to Regal. Advertising operating costs. Advertising operating costs increased $13.4 million, or 69.4%, from $19.3 million for the for the nine months ended September 29, 2022 to $32.7 million for the nine months ended September 28, 2023. The increase was primarily due to a $12.8 million increase in advertising affiliate and partner expense, primarily related to the Regal Advertising Agreement which commenced on July 14, 2023. When operating under the Regal ESA, the fees owed to Regal were previously presented within “ESA theater access fees and revenue share”. This increase was also due to a $0.5 million increase in personnel related expenses for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022, primarily related to a retention program implemented to ensure continuity of the management team during the Chapter 11 Case . Network costs. Network costs increased $0.6 million, or 9.7%, from $6.2 million for the nine months ended September 29, 2022 to $6.8 million for the nine months ended September 28, 2023. The increase was primarily due to a $0.5 increase in personnel related expenses for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022, primarily related to a retention program implemented to ensure continuity of the management team during the Chapter 11 Case. ESA theater access fees and revenue share. Theater access fees and revenue share decreased by $2.2 million, or 3.5%, from $62.4 million for the nine months ended September 29, 2022 to $60.2 million for the nine months ended 32 September 28, 2023. The decrease was primarily due to a $4.0 million decrease in the fees related to the number of active screens for the third quarter of 2023, compared to the third quarter of 2022, primarily due to Regal’s termination of the Regal ESA on July 14, 2023 and a $1.2 million decrease in revenue share. This was partially offset by a $1.6 million increase in fees related to ESA Party theater attendance and a $1.3 million increase in fees due to contractual rate increases, for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. Selling and marketing costs. Selling and marketing costs increased $0.4 million, or 1.3%, from $31.0 million for the nine months ended September 29, 2022 to $31.4 million for the nine months ended September 28, 2023. The increase was primarily due to a $2.3 million increase in personnel related expenses for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022, driven by an increase in commissions to local and regional sales account directors in line with the increase in local and regional revenue during the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. These increases were partially offset by a $2.1 million decrease in selling related expenses for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. Administrative and other costs. Administrative and other costs increased $42.6 million, or 191.0%, from $22.3 million for the nine months ended September 29, 2022 to $64.9 million for the nine months ended September 28, 2023. This increase was primarily due to a $43.2 million increase in advisor fees related to the Chapter 11 Case and Cineworld Proceeding for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. This increase was partially offset by $0.2 million decrease in lease costs related to leases modified and terminated in conjunction with the Company’s emergence from bankruptcy. Administrative fee—managing member. Administrative fee—managing member increased $8.1 million, or 102.5%, from $7.9 million for the third quarter of 2022 to $16.0 million for the third quarter of 2023. This increase was primarily due to a $5.3 million increase in personnel related costs primarily related to a retention program implemented to ensure continuity of the management team during the Chapter 11 Case and a $2.8 million increase in advisor fees related to the Chapter 11 Case and Cineworld Proceeding for the nine months ended September 28, 2023, compared to the nine months ended September 29, 2022. Loss on termination of Regal ESA. Loss on termination of Regal ESA costs increased $125.6 million, or 100.0%, from $0.0 million for the nine months ended September 29, 2022 to $125.6 million for the nine months ended September 28, 2023. This increase was primarily due to the $141.5 million disposal of the intangible asset related to the Regal ESA. This was partially offset by the $13.0 million gain on Regal’s surrender of ownership in the Company and the $2.9 million in payables forgiven in conjunction with emergence from bankruptcy during the third quarter of 2023, compared to the third quarter of 2022. Impairment of long-lived assets. Impairment of long-lived assets increased $3.8 million, or 65.5%, from $5.8 million for the nine months ended September 29, 2022 to $9.6 million for the nine months ended September 28, 2023. This increase was primarily due to the $9.6 million write-off of certain long-lived intangible assets in the third quarter of 2023, compared to the nine months ended September 29, 2022, with only $5.8 million of write-off of long-lived assets. The reconsolidation did not result in a change to the size of the Company’s network. Depreciation expense. Depreciation expense decreased $1.5 million, or 29.4%, from $5.1 million for the nine months ended September 29, 2022 to $3.6 million for the nine months ended September 28, 2023. This was primarily due to a $1.5 million decrease in depreciation expense based upon the purchase price adjustments to NCM LLC’s property and equipment upon reconsolidation with NCM, Inc. on August 7, 2023. Amortization expense. Amortization expense decreased $1.6 million, or 8.6%, from $18.7 million for the nine months ended September 29, 2022 to $20.3 million for the nine months ended September 28, 2023.The increase was primarily due to a $1.5 million increase in amortization expense of NCM LLC’s intangible assets based upon the purchase price adjustments to NCM LLC’s intangible assets upon reconsolidation with NCM, Inc. on August 7, 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, termination of the Regal ESA 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 33 they eliminate items that have less 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, termination of the Regal ESA 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, termination of the Regal ESA 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): Q3 2023 Q3 2022 YTD 2023 YTD 2022 Operating loss $ (150.7) $ (4.2) $ (202.2) $ (21.2) Depreciation expense 1.0 1.5 3.6 5.1 Amortization expense 7.8 6.3 20.3 18.7 Share-based compensation costs (1) 1.2 2.1 3.9 5.1 Impairment of long-lived assets (2) 9.6 — 9.6 5.8 Sales force reorganization costs (3) — — — 0.4 Loss on termination of Regal ESA, net (4) 125.6 — 125.6 — Fees and expenses related to the Cineworld Proceeding and Chapter 11 Case included within Operating Income (5) 16.8 1.3 52.1 1.3 Adjusted OIBDA $ 11.3 $ 7.0 $ 12.9 $ 15.2 Total revenue $ 69.6 $ 54.5 $ 168.9 $ 157.5 Adjusted OIBDA margin 16.2 % 12.8 % 7.6 % 9.7 % ____________________________________________ (1) Share-based compensation costs are included in network operations, selling and marketing and administrative expense in NCM LLC’s unaudited Condensed Consolidated Financial Statements. (2) The impairment of long-lived assets primarily relates to the write down of certain intangible assets related to a purchased affiliate and internally developed software and leasehold improvements no longer in use. (3) Sales force reorganization costs represents redundancy costs associated with changes to NCM LLC’s sales force implemented during the first quarter of 2022. (4) The net impact of Regal’s termination of the ESA resulting from the disposal of the intangible asset partially offset by the surrender of Regal’s ownership in the Company and the forgiveness of prepetition claims. (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 nine months ended September 28, 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 Beverage Revenue —Under the ESAs, up to 90 seconds of the Noovie® pre-show program can be sold to the ESA Parties to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. For the first three and nine months of 2023 and 2022, Cinemark and Regal, prior to its termination of the ESA, purchased 60 seconds of on-screen advertising time and AMC purchased 30 seconds to satisfy their obligations under their beverage concessionaire agreements. The ESA Parties’ current long-term contracts with their beverage suppliers require the 30 or 60 seconds of 34 beverage advertising, although such commitments could change in the future. Per the ESA with AMC, the time sold to the 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 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 ESA Parties’ 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, the Company no longer receives ESA beverage revenue from Regal. Theater Access Fees —In consideration for NCM LLC’s access to the ESA Parties’ theater attendees for on-screen advertising and use of lobbies and other space within the ESA Parties’ theaters for the LEN and lobby promotions, the ESA Parties 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 ESAs, the payment per digital screen increases annually by 5%. Pursuant to the 2019 ESA Amendments, Cinemark receives and Regal previously received 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 beginning on November 1, 2022 and (iv) increasing 8% every five years beginning November 1, 2027. As of July 14, 2023, Regal rejected and terminated the Regal ESA and the Regal Advertising Agreement became effective. The payments under the Regal Advertising Agreement are based on the attendance at Regal’s theaters and the revenue generated by the Company through advertising displayed in Regal’s theaters. 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 AMC, interest or principal payments on our Revolving Credit Facility 2023, income tax payments, TRA payments and amount of dividends to NCM, Inc.’s common stockholders. On August 7, 2023, NCM LLC entered into the Revolving Credit Facility 2023 with CIT Northbridge Credit LLC as agent. The Revolving Credit Facility 2023 is an asset backed line facility where the capacity depends upon NCM LLC’s trade accounts receivable balance, as adjusted for aged balances and other considerations. The maximum availability NCM LLC has access to under the revolver is $55,000,000. The proceeds of the Revolving Credit Facility 2023 may be used for, inter alia, working capital and capital expenditures. The Revolving Credit Facility 2023 will mature on August 7, 2026. The interest rate under the Revolving Credit Facility 2023 is a base rate or SOFR benchmark plus (i) 3.75% if less than 50% of revolving commitments are utilized or (ii) 4.50% if 50% or more of revolving commitments are utilized (utilizing the average revolver usage for the prior calendar month as a benchmark for this determination). The Revolving Credit Facility 2023 also contains a financial maintenance covenant requiring that the fixed charge coverage ratio ending on the last day of each fiscal month is at least 1.1 to 1.0 during a “Trigger Period.” A Trigger Period begins upon (i) an event of default or (ii) if availability is less than the greater of (a) $5,000,000 and (b) 10% of aggregate revolving commitments. A Trigger Period ends only if (i) no event of default existed for the preceding 30 consecutive days and (ii) availability is greater than both (a) $5,000,000 and (b) 10% of aggregate revolving commitments. Upon the effectiveness of the Revolving Credit Facility 2023, NCM LLC immediately drew $10 million from the facility, which represents the only amounts currently outstanding under the Revolving credit facility 2023, as of September 28, 2023. A summary of our financial liquidity is as follows (in millions): As of $ Change $ Change September 28, 2023 December 29, 2022 September 29, 2022 YE 2022 to Q3 2023 Q3 2022 to Q3 2023 Cash, cash equivalents and marketable securities (1) $ 23.0 $ 62.7 $ 74.8 $ (39.7) $ (12.1) NCM LLC Revolving Credit Facility 2023 availability (2) 44.4 — — 44.4 44.4 NCM LLC revolving credit facility availability (3) — 7.2 6.8 (7.2) (6.8) Total liquidity $ 67.4 $ 69.9 $ 81.6 $ (2.5) $ 25.5 _________________________ 35 (1) Included in cash, cash equivalents and marketable securities as of September 28, 2023, December 29, 2022 and September 29, 2022, was $21.1 million, $59.4 million and $60.9 million, respectively, of cash held by NCM LLC that is not available to satisfy dividends declared by NCM, Inc., income tax, TRA payments and other obligations. (2) The Revolving Credit Facility 2023 portion of NCM LLC’s total borrowings that 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 2023, which subject to fluctuations in underlying the assets, is $55.0 million as of September 28, 2023. As of September 28, 2023, the amount available under the NCM LLC Revolving Credit Facility 2023 in the table above is net of the amount outstanding under the Revolving Credit Facility 2023 of $10.0 million, and net letters of credit of $0.6 million. (3) The revolving credit facility portion of NCM LLC’s total borrowings that was 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 previous senior secured credit facility, and a portion was available for letters of credit. NCM LLC’s total capacity under the previous revolving credit facility pursuant to the Credit Agreement, dated as of June 20, 2018 among NCM LLC as Borrower, JPMorgan Chase Bank, N.A. in its capacity as administrative agent and the lenders party thereto (the “Credit Agreement 2018”) was $175.0 million as of December 29, 2022 and September 29, 2022 and NCM LLC’s total capacity under the previous revolving credit facility pursuant to the Revolving Credit Agreement, dated as of January 5, 2022, among NCM LLC as Borrower, Wilmington Savings Fund Society, FSB in its capacity as administrative agent, and the lenders party thereto (the “Revolving Credit Agreement 2022”) was $50.0 million as of December 29, 2022 and September 29, 2022. As of December 29, 2022 and September 29, 2022, the amount available under the NCM LLC revolving credit facilities pursuant to the Credit Agreement 2018 and the Revolving Credit Agreement 2022 in the table above was net of the amount outstanding under the revolving credit facilities of $217.0 million and $217.0 million, respectively, and net letters of credit of $0.8 million and $1.2 million, respectively. As of September 28, 2023, the weighted average remaining maturity of our debt was 2.9 years. As of September 28, 2023, 100.0% 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): Nine Months Ended September 28, 2023 September 29, 2022 Operating cash flow $ (22.3) $ (36.7) Investing cash flow $ 33.6 $ (2.0) Financing cash flow $ (52.1) $ 11.0 • Operating Activitie s. The $14.4 million decrease in cash used in operating activities for the nine months ended September 28, 2023, as compared to the nine months ended September 29, 2022, was primarily due to 1) a $70.2 million increase in account receivable collections primarily due to higher revenue of NCM LLC during the nine months ended September 28, 2023, as compared to the nine months ended September 29, 2022, 2) a $2.9 million change in other assets due primarily to the change in account balances of NCM LLC’s between deconsolidation on April 11, 2023 and reconsolidation on August 7, 2023 and 3) a $2.1 million increase in integration and other encumbered theaters payments received in the third quarter of 2023 compared to the third quarter of 2022 primarily due to the withholding of payment during NCM LLC’s Chapter 11 Case. The decreases in cash used were partially offset by 1) a $19.0 million increase in payments of accounts payable and accrued expenses primarily due to NCM LLC’s emergence from bankruptcy, as well as, the change in account balances of NCM LLC’s between deconsolidation on April 11, 2023 and reconsolidation on August 7, 2023, 2) an $18.4 million increase in net loss adjusted for non-cash items during the nine months ended September 28, 2023, as compared to the nine months ended September 29, 2022, 3) a $11.6 million decrease in prepaid expenses primarily due to NCM LLC’s emergence from bankruptcy and 4) $10.5 million increase in payments made to the other NCM LLC members primarily due to NCM LLC’s emergence from bankruptcy. • Investing Activities. The $35.6 million increase in cash provided by investing activities for the nine months ended September 28, 2023, as compared to the nine months ended September 29, 2022, was primarily due to a $49.5 million addition of cash and cash equivalents due to the reconsolidation of NCM LLC in the third quarter of 2023, a $1.0 million increase in proceeds from sale and maturities of marketable securities and a $0.3 million increase in proceeds from the sale of assets and a $0.3 million decrease in purchases of property and equipment in the nine months ended September 28, 2023, as compared to the nine months ended September 29, 2022. 36 These increases were partially offset by a $15.5 million cash contribution made in conjunction with the reconsolidation of NCM LLC. • Financing Activities. The $63.1 million increase in cash used by financing activities for the nine months ended September 28, 2023, as compared to the nine months ended September 29, 2022, was primarily due to the issuance of the $50.0 million Revolving Credit Facility 2022 in the first quarter of 2022 with no issuance 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 the purchases of the Notes due 2028 as there were no purchases made in 2023, a $9.0 million decrease in dividend payments following the suspension of the dividend in the third quarter of 2022, a $5.8 million decrease in payments of debt issuance costs due to the absence of an issuance in 2023, a $1.6 million decrease in repayment of the term loan facility due to the discharge of NCM LLC’s historical debt through its Chapter 11 Case and a $0.3 million decrease in stock withheld upon vesting during the nine months ended September 28, 2023, as compared to the nine months ended September 29, 2022. Sources of Capital and Capital Requirements NCM, Inc.’s primary source of liquidity and capital resources is the quarterly available cash distributions from NCM LLC as well as its existing cash balances and marketable securities, which as of September 28, 2023 were $23.0 million (including $21.1 million of cash and restricted 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 2023 and cash on hand. NCM LLC drew down $10.0 million of its Revolving Credit Facility 2023 immediately upon emergence from bankruptcy on August 7, 2023. The $21.1 million of cash at NCM LLC will be used to fund operations. Cash at NCM, Inc. is used to fund income taxes, payments associated with the TRA and for future payment of dividends to NCM, Inc. stockholders. Cash flows generated by NCM LLC’s distributions to NCM, Inc. and NCM LLC’s other members were 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 NCM LLC Operating Agreement, quarterly to its members (only NCM, Inc. as of September 28, 2023). The available cash distribution to the members of NCM LLC for the nine months ended September 28, 2023 was calculated as approximately negative $57.9 million, of which NCM, Inc.'s share is approximately negative $57.9 million. Further there was $20.6 million and $93.7 million of negative available cash generated during the years ended December 29, 2022 and December 30, 2021, respectively. Pursuant to the NCM LLC Operating Agreement, there will be no available cash distributions made for the first, second or third quarter of 2023. Negative available cash distributions for the years of 2022 and 2021 are expected to be netted in accordance with the NCM LLC Operating Agreement against future positive available cash distributions. NCM, Inc. expects to use its cash balances and cash received from future available cash distributions (as allowed for under the Revolving Credit Facility 2023) to fund payments associated with the TRA and future dividends as declared by the Board of Directors. The Company did not make a TRA payment in 2023 for the 2022 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, income taxes and any declared dividends for the foreseeable future at the discretion of the Board of Directors. At the discretion of the Board of Directors, it is the Company’s intention to distribute substantially all its free cash flow to stockholders through dividends. 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. Critical Accounting Policies Deconsolidation of NCM LLC 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. 37 Reconsolidation of NCM LLC The Company accounted for the reconsolidation of NCM LLC using the acquisition method of accounting. The acquisition method requires the Company to make significant estimates and assumptions, especially at the acquisition date as the Company allocates the estimated fair values of acquired tangible and intangible assets and the liabilities assumed. The Company also uses our best estimates to determine the useful lives of the tangible and definite-lived intangible assets, which impact the periods over which depreciation and amortization of those assets are recognized. These best estimates and assumptions are inherently uncertain as they pertain to forward looking views of the Company’s businesses, client behavior and market conditions. See See Note 4 - Reconsolidation of NCM LLC for further information on the valuation methods and the results of applying the acquisition method of accounting, including the estimated fair values of the assets acquired and liabilities assumed, and, where relevant, the estimated remaining useful lives. The ongoing accounting for the tangible and intangible assets acquired requires the Company to make significant estimates and assumptions and exercise judgement to evaluate these assets for impairment. The processes and accounting policies for evaluating impairments are further described in Note 1 - The Company . 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 Estimates” 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 September 28, 2023, there were no other 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not required for smaller reporting companies.