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” in our annual report on Form 10-K for the Company’s fiscal year ended December 28, 2023. 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 28, 2023. In the following discussion and analysis, the term net income refers to net income attributable to NCM, Inc. Overview We are America’s Movie Network. As the largest cinema advertising network in North America, we are a media company dedicated to uniting brands with young, diverse audiences through the power of movies and pop culture. We currently derive revenue principally from the sale of advertising to national, regional and local businesses in The Noovie® Show, our cinema advertising and entertainment show seen on movie screens across the U.S. We present multiple formats of The Noovie Show depending on the theater circuit in which it runs, which may include Post-Showtime advertising inventory after the advertised showtime. As of March 28, 2024, theaters presenting The Noovie Show format with Post-Showtime Inventory made up approximately 64.8% of our network. All other NCM network theater circuits, which make up the remaining 35.2% 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 The 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 Audience Accelerator , across our suite of Noovie digital properties , as well as a variety of complementary out of home venues in order to reach entertainment audiences beyond the theater. As of March 28, 2024, 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 794.0 million data sets as of March 28, 2024. We have long-term exhibitor service agreements (“ESAs”) (approximately 14.8 weighted average years remaining) and multi-year agreements with our network affiliates, which expire at various dates between January 2025 and July 2033. The weighted average remaining term of the ESAs and the network affiliate agreements is 11.7 years as of March 28, 2024. 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 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, advertising pricing (CPM), local advertising rate per theater per week, advertising revenue per attendee, as well as significant operating expenses and related trends. We also monitor free cash flow, cash balances, the fixed charge coverage ratio and revolving credit facility availability to ensure financial debt covenant compliance and that there is adequate cash availability to fund our working capital needs, debt obligations and any future dividends declared by our Board of Directors. Our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled “Risk Factors” below and in our annual report on Form 10-K filed with the SEC on March 18, 2024 for our fiscal year ended December 28, 2023. Recent Developments 19 Share Repurchase Program —On March 18, 2024, the Board of Directors of the Company approved a stock repurchase program under which the Company is authorized to use assets of the Company to repurchase up to $100.0 million of shares of the Company’s Common Stock, exclusive of any fees, commissions or other expenses related to such repurchases, from time to time over a period of three years. During the three months ended March 28, 2024, 8,000 shares were repurchased on the open market. In accordance with ASC 505—Equity , these shares were retired and any excess over par value paid was recorded as a reduction to retained earnings. Bankruptcy Filing, Deconsolidation and Reconsolidation of NCM LLC On April 11, 2023 NCM LLC filed a voluntary petition for reorganization (the “Chapter 11 Case”) with a prearranged Chapter 11 plan under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“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. NCM, Inc. continued to operate as the manager of the debtor-in-possession pursuant to the authority granted under Chapter 11 of the Bankruptcy Code throughout the Chapter 11 Case. On June 27, 2023, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming NCM LLC’s Modified First Amended Plan of Reorganization of National CineMedia, LLC Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 428] (as may be amended, modified, or supplemented form time to time, the “Plan”) and approving the Amended Disclosure Statement for First Amended Chapter 11 Plan of Reorganization of National CineMedia, LLC [Docket No. 250] (the “Disclosure Statement”) on a final basis. Following confirmation of the Plan on August 7, 2023 (the “Effective Date’), all the conditions to effectiveness of the Plan were satisfied or waived, the Restructuring Transactions (as defined in the Plan”) 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’s Third Amended and Restated Limited Liability Company Operating Agreement (the “NCM LLC Operating Agreement”) were canceled and extinguished, NCM, Inc. received NCM LLC common units and transferred the NCM Capital Contribution (as defined in the Plan) of approximately $15.5 million to NCM LLC, NCM LLC assumed certain unexpired Executory Contracts and Unexpired Leases (each, as defined in the Plan), including AMC’s and Cinemark’s ESAs, NCM LLC transferred $8.8 million of cash to a professional fees escrow account and $15.0 million to an unsecured creditor settlements escrow account for the General Unsecured Claim Pool (as defined in the Plan). NCM LLC commenced distributions to creditors, including the issuance of shares of NCM, Inc. common stock to holders of Secured Debt Claims (as defined in the Plan) and NCM LLC entered into an Exit Facility (as defined in the Plan) to support operations upon emergence. As a result of the Plan, all historical debt of NCM LLC was discharged and NCM LLC recorded a gain on bankruptcy of $916.4 million for the year ended December 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. As of March 28, 2024, the Company had not completed all agreed upon payments to the General Unsecured Claim Pool and held a total of $3.0 million within the escrow accounts and accruals, presented within ‘Restricted cash’ and ‘Accounts payable’ on the unaudited Condensed Consolidated Balance Sheet as of March 28, 2024, respectively. Summary Historical and Operating Data You should read this information with the other information contained in this document, and our unaudited historical financial statements and the notes thereto included elsewhere in this document. Our Operating Data —The following table presents operating data and Adjusted OIBDA (dollars in millions, except share and margin data): 20 % Change Q1 2024 Q1 2023 Q1 2023 to Q1 2024 Revenue $ 37.4 $ 34.9 7.2 % Operating expenses: Network operating costs 3.6 3.9 (7.7) % ESA Parties and network affiliate fees 22.5 23.8 (5.5) % Selling and marketing costs 10.0 9.5 5.3 % Administrative and other costs 13.5 20.8 (35.1) % Depreciation expense 1.0 1.3 (23.1) % Amortization expense 9.5 6.2 53.2 % Total operating expenses 60.1 65.5 (8.2) % Operating loss (22.7) (30.6) (25.8) % Non-operating expense 12.0 23.4 (48.7) % Income tax expense — — — % Net loss attributable to noncontrolling interests — (8.5) (100.0) % Net loss attributable to NCM, Inc. $ (34.7) $ (45.5) (23.7) % Net loss per NCM, Inc. basic share $ (0.36) $ (3.13) (88.5) % Net loss per NCM, Inc. diluted share $ (0.36) $ (3.13) (88.5) % Adjusted OIBDA $ (5.7) $ (10.9) (47.7) % Adjusted OIBDA margin (15.2) % (31.2) % 16.0 % Total theater attendance (in millions) (1) 75.8 90.0 (15.8) % _________________________ (1) Represents the total attendance within our advertising network, excluding screens and attendance associated with certain AMC Carmike theaters that were part of another cinema advertising network during the periods presented. Refer to Note 6 to the unaudited Condensed Consolidated Financial Statements included elsewhere in this document. Non-GAAP Financial Measures 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, workforce reorganization costs and fees and expenses related to involvement in Regal’s Chapter 11 case (the “Cineworld Proceeding”) and the 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 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, workforce reorganization costs and fees and expenses 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 the Company’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, workforce reorganization costs and fees and expenses related to involvement in the Cineworld Proceeding and 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 21 measure to Adjusted OIBDA. Because not all companies use identical calculations, these non-GAAP presentations may not be comparable to other similarly titled measures of other companies, or calculations in the Company’s debt agreement. The following table reconciles operating income to Adjusted OIBDA for the periods presented (dollars in millions): Q1 2024 Q1 2023 Operating loss $ (22.7) $ (30.6) Depreciation expense 1.0 1.3 Amortization expense 9.5 6.2 Share-based compensation costs (1) 2.6 1.6 Impairment of long-lived assets (2) 0.1 — Workforce reorganization costs (3) 1.5 — Fees and expenses related to the Cineworld Proceeding and Chapter 11 Case (4) 2.3 10.6 Adjusted OIBDA $ (5.7) $ (10.9) Total revenue $ 37.4 $ 34.9 Adjusted OIBDA margin (15.2) % (31.2) % ____________________________________________ (1) Share-based compensation costs are included in network operations, selling and marketing and administrative expense in the accompanying unaudited Condensed Consolidated Financial Statements. (2) The impairment of long-lived assets primarily relates to the write down of certain property and equipment no longer in use. (3) Workforce reorganization costs represents redundancy costs associated with changes to the Company’s workforce primarily implemented during the first quarter of 2024. (4) 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 2024, as well as retention related expenses. Our Network —The change in the number of screens in our network by the ESA Parties and network affiliates during the three months ended March 28, 2024 was as follows. Number of screens ESA Parties Network Affiliates Total Balance as of December 28, 2023 9,573 8,830 18,403 Lost affiliates (1) — (89) (89) Closures, net of openings (2) (21) 4 (17) Balance as of March 28, 2024 9,552 8,745 18,297 ______________________________________ (1) Represents the loss of two of our affiliates following the end of their affiliate agreements resulting in a reduction of 89 affiliate screens to our network as of March 28, 2024. (2) Represents the closure of 17 screens, net of new screens added, across our ESA Parties and network affiliates. Our ESA Party and network affiliate agreements allow us to sell cinema advertising across the largest network of digitally equipped theaters in the U.S. We believe that our market coverage strengthens our selling proposition and competitive positioning against other national, regional and local video advertising platforms, including television, online and mobile video platforms and other out of home video advertising platforms by allowing advertisers the broad reach and national scale that they need to effectively reach their target audiences. Basis of Presentation The results of operations data for the three months ended March 28, 2024 (first quarter of 2024) and March 30, 2023 (first quarter of 2023) 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. Results of Operations First Quarter of 2024 and First Quarter of 2023 22 Revenue. Total revenue increased 7.2%, from $34.9 million for the first quarter of 2023 to $37.4 million for the first quarter of 2024. The following is a summary of revenue by category (in millions): $ Change % Change Q1 2024 Q1 2023 Q1 2023 to Q1 2024 Q1 2023 to Q1 2024 National advertising revenue $ 29.5 $ 22.5 $ 7.0 31.1 % Local and regional advertising revenue 5.3 8.0 (2.7) (33.8) % ESA Party advertising revenue from beverage concessionaire agreements 2.6 4.4 (1.8) (40.9) % Total revenue $ 37.4 $ 34.9 $ 2.5 7.2 % The following table shows data on theater attendance and revenue per attendee for the three months ended March 28, 2024 and March 30, 2023: % Change Q1 2024 Q1 2023 Q1 2023 to Q1 2024 National advertising revenue per attendee $ 0.389 $ 0.250 55.6 % Local and regional advertising revenue per attendee $ 0.070 $ 0.089 (21.3) % Total advertising revenue (excluding ESA Party beverage revenue) per attendee $ 0.459 $ 0.339 35.4 % Total revenue per attendee $ 0.493 $ 0.388 27.1 % Total theater attendance (in millions) (1) 75.8 90.0 (15.8) % ________________________________________________________ (1) Represents the total attendance within our advertising network, excluding screens and attendance associated with certain AMC Carmike theaters that were part of another cinema advertising network during the periods presented. National advertising revenue. National advertising revenue increased by $7.0 million, or 31.1%, from $22.5 million for the first quarter of 2023 to $29.5 million for the first quarter of 2024. The increase in national advertising revenue was primarily due to a 61.6% increase in national advertising utilization in the first quarter of 2024, as compared to the first quarter of 2023 as well as a 1.2% increase in national advertising CPMs. Inventory utilization is calculated as utilized impressions divided by total advertising impressions, which is based on eleven 30-second salable national advertising units in our Noovie show, which can be expanded, should market demand dictate. These increases were partially offset by a 15.8% decrease in network attendance due to a decreased movie slate in the first quarter of 2024 compared to the first quarter of 2023, caused by the writer and actor strikes in 2023. Local and regional advertising revenue. Local and regional advertising revenue decreased by $2.7 million, or 33.8%, from $8.0 million for the first quarter of 2023 to $5.3 million for the first quarter of 2024. The decrease in local and regional advertising revenue was primarily due to a 15.8% decrease in network attendance due to a decreased movie slate in the first quarter of 2024 compared to the first quarter of 2023, caused by the writer and actor strikes in 2023, coupled with a decrease in local and regional advertiser demand. These decreases were partially offset by 3.7% increase in CPMs in the first quarter of 2024, as compared to the first quarter of 2023. ESA Party beverage revenue. National advertising revenue from the ESA Parties’ beverage concessionaire agreement decreased $1.8 million, or 40.9%%, from $4.4 million for the first quarter of 2023 to $2.6 million for the first quarter of 2024. The decrease was due to a due to Regal’s termination of their ESA in 2023 and the resulting discontinuation of their beverage revenue as well as an 8.7% decrease in ESA Party attendance for the first quarter of 2024, as compared to the first quarter of 2023. Operating expenses. Total operating expenses decreased $5.4 million, or 8.2%, from $65.5 million for the first quarter of 2023 to $60.1 million for the first quarter of 2024. The following table shows the changes in operating expense for the first quarter of 2024 (in millions): 23 $ Change % Change Q1 2024 Q1 2023 Q1 2023 to Q1 2024 Q1 2023 to Q1 2024 Network operating costs $ 3.6 $ 3.9 $ (0.3) (7.7) % ESA Parties and network affiliate fees 22.5 23.8 (1.3) (5.5) % Selling and marketing costs 10.0 9.5 0.5 5.3 % Administrative and other costs 13.5 20.8 (7.3) (35.1) % Depreciation expense 1.0 1.3 (0.3) (23.1) % Amortization expense 9.5 6.2 3.3 53.2 % Total operating expenses $ 60.1 $ 65.5 $ (5.4) (8.2) % Network operating costs. Network operating costs decreased $0.3 million, or 7.7%, from $3.9 million for the first quarter of 2023 to $3.6 million for the first quarter of 2024. The decrease was primarily due to a $0.2 million decrease in personnel related expenses for the first quarter of 2024, compared to the first quarter of 2023. ESA Parties and network affiliate fees. ESA Parties and network affiliate fees decreased by $1.3 million, or 5.5%, from $23.8 million for the first quarter of 2023 to $22.5 million for the first quarter of 2024. The decrease was primarily due to the 15.8% decrease in network attendance, as well as the rejection of certain affiliate agreements through the bankruptcy proceedings in 2023. These decreases were partially offset by the increase in fees owed under the Regal Advertising Agreement, which commenced on July 14, 2023, as well as due to contractual rate increases for the first quarter of 2024, as compared to the first quarter of 2023. Selling and marketing costs. Selling and marketing costs increased $0.5 million, or 5.3%, from $9.5 million for the first quarter of 2023 to $10.0 million for the first quarter of 2024. The increase was primarily due to a $0.4 million increase in selling expenses in line with the increase in advertising revenue, as well as a $0.5 million increase in severance expense due to the workforce reorganization in the first quarter of 2024. These increases were partially offset by a $0.4 million decrease in other personnel related costs for the first quarter of 2024, compared to the first quarter of 2023. Administrative and other costs. Administrative and other costs decreased $7.3 million, or 35.1%, from $20.8 million for the first quarter of 2023 to $13.5 million for the first quarter of 2024. The decrease was primarily due to a $8.4 million decrease in advisor and legal fees related to the Chapter 11 Case and Cineworld Proceeding for the first quarter of 2024, compared to the first quarter of 2023. This decrease was partially offset by a $0.8 million increase in severance due to the workforce reorganization in the first quarter of 2024 and a $0.5 million net increase in other personnel related expense primarily due to an increase in share based compensation following the grant of a management equity incentive plan in the first quarter of 2024 compared to no grant activity in 2023. Depreciation expense. Depreciation expense decreased $0.3 million, or 23.1%, from $1.3 million for the first quarter of 2023 to $1.0 million in the first quarter of 2024. This decrease was primarily due to the fair value adjustments to NCM LLC’s property and equipment upon reconsolidation on August 7, 2023. Amortization expense. Amortization expense increased $3.3 million, or 53.2%, from $6.2 million for the first quarter of 2023 to $9.5 million for the first quarter of 2024. The increase was primarily due to the fair value adjustments to NCM LLC’s intangible assets upon reconsolidation with NCM, Inc. on August 7, 2023. Non-operating expense. Total non-operating expense decreased $11.4 million, or 48.7%, from $23.4 million in non-operating expense for the first quarter of 2023 to $12.0 million in non-operating expense for the first quarter of 2024. The following table shows the changes in non-operating income/expense for the first quarter of 2024 and the first quarter of 2023 (in millions): $ Change % Change Q1 2024 Q1 2023 Q1 2023 to Q1 2024 Q1 2023 to Q1 2024 Interest on borrowings $ 0.4 $ 24.0 $ (23.6) (98.3) % Gain on re-measurement of the payable under the tax receivable agreement 12.3 (0.6) 12.9 (2150.0) % Other non-operating income (0.7) — (0.7) 100.0 % Total non-operating expenses $ 12.0 $ 23.4 $ (11.4) (48.7) % 24 The decrease in non-operating expense was primarily due to a $23.6 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 by NCM, Inc. on August 7, 2023, a $0.7 million increase in other non-operating income primarily due to a $0.4 million decrease in loss on modification and retirement of debt. This was partially offset by a $12.9 million increase in the loss on re-measurement of the payable under the tax receivable agreement due to the inclusion of three years of projected taxable book income/(loss) within the calculation of the TRA payable in the first quarter of 2024, as compared to only one year in the first quarter of 2023, due to management’s ability to more accurately forecast following the conclusion of the COVID-19 pandemic. Known Trends and Uncertainties Beverage Revenue —Under the ESAs, up to 90 seconds of The Noovie® Show program can be sold to the ESA Parties to satisfy their on-screen advertising commitments under their beverage concessionaire agreements. In 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 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 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. From and after 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. On 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 and recorded within “ESA Parties and network affiliate fees” in the unaudited Condensed Consolidated Statement of Operations. 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 interest or principal payments on our Revolving Credit Facility 2023 (as defined below), income tax payments, TRA payments, available cash payments (as defined in the NCM LLC Operating Agreement) to Cinemark and AMC in the event the ESA Parties hold NCM LLC membership units and amount of dividends to NCM, Inc.’s common stockholders. On August 7, 2023, NCM LLC entered into a Loan, Security and Guarantee Agreement (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 $55.0 million. 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) $5.0 million 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) $5.0 million and (b) 10% of aggregate revolving commitments. Upon the effectiveness of 25 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 March 28, 2024. A summary of our financial liquidity is as follows (in millions): As of $ Change $ Change March 28, 2024 December 28, 2023 March 30, 2023 YE 2023 to Q1 2024 Q1 2023 to Q1 2024 Cash, cash equivalents and marketable securities (1) $ 57.1 $ 34.6 $ 70.0 $ 22.5 $ (12.9) NCM LLC Revolving Credit Facility 2023 availability (2) 44.4 44.4 — — 44.4 NCM LLC revolving credit facility availability (3) — — 7.2 — (7.2) Total liquidity $ 101.5 $ 79.0 $ 77.2 $ 22.5 $ 24.3 _________________________ (1) Included in cash, cash equivalents and marketable securities as of March 28, 2024, December 28, 2023 and March 30, 2023, was $54.8 million, $31.9 million and $54.7 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 March 28, 2024. As of March 28, 2024, 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 28, 2023 and March 30, 2023 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 28, 2023 and March 30, 2023. As of December 28, 2023 and March 30, 2023, 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 March 28, 2024, the weighted average remaining maturity of our debt was 2.4 years. As of March 28, 2024, 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): Three Months Ended March 28, 2024 March 30, 2023 Operating cash flow $ 24.1 $ 10.4 Investing cash flow $ (1.3) $ (0.7) Financing cash flow $ (0.3) $ (2.4) • Operating Activitie s. The $13.7 million increase in cash provided by operating activities for the three months ended March 28, 2024, as compared to the three months ended March 30, 2023, was primarily due to 1) $33.6 million decrease in net loss adjusted for non-cash items during the three months ended March 28, 2024, as compared to the three months ended March 30, 2023, 2) a $4.9 million change in other operating assets and liabilities primarily due to the commencement of new leases in the three months ended March 28, 2024, 3) a $4.2 million increase in deferred revenue, 4) a $1.8 million decrease in payments to the ESA parties and 5) a $0.9 million decrease in prepaid expenses during the three months ended March 28, 2024, as compared to the three months ended March 30, 2023. The increases in cash provided by operating activities were partially offset by 1) a $23.5 million increase in payments of accounts payable and accrued expenses, 2) a $4.8 million decrease in 26 account receivable collections and 3) a $3.6 million decrease in integration and other encumbered theaters payments received in the three months ended March 28, 2024, as compared to the three months ended March 30, 2023. • Investing Activities. The $0.6 million increase in cash used in investing activities for the three months ended March 28, 2024, as compared to the three months ended March 30, 2023, was primarily due to a $0.5 million increase in purchases of property and equipment in the three months ended March 28, 2024, as compared to the three months ended March 30, 2023, in connection with the commencement of new leases. • Financing Activities. The $2.1 million decrease in cash used in financing activities for the three months ended March 28, 2024, as compared to the three months ended March 30, 2023, was primarily due to a $1.2 million decrease in payments of debt issuance costs due to an amendment to the Credit Agreement 2018 and Revolving Credit Agreement 2022 in the three months ended March 30, 2023, as well as a $0.8 million decrease in repayment of the term loan facility due to the discharge of NCM LLC’s historical debt through its Chapter 11 Case in 2023. Sources of Capital and Capital Requirements NCM, Inc.’s primary source of liquidity and capital resources is the quarterly available cash distributions from NCM LLC as well as its existing cash balances and marketable securities, which as of March 28, 2024 were $60.1 million (including $54.8 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 $54.8 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, stock repurchases 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 March 28, 2024). The other members are only able to receive available cash when they hold units. The available cash distribution to the members of NCM LLC for the three months ended March 28, 2024 was calculated as approximately negative $10.2 million, due entirely to NCM, Inc, as the sole holder of NCM LLC units as of March 28, 2024. Pursuant to the NCM LLC Operating Agreement, there were no available cash distributions made for the first quarter of 2024. NCM, Inc. has the option to defer payment at its discretion. 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, stock repurchases and future dividends as declared by the Board of Directors. The Company does not expect to make a TRA payment in 2024 for the 2023 tax year and did not make a TRA payment in 2023 for the 2022 tax year. Distributions from NCM LLC and NCM, Inc. cash balances should be sufficient to fund payments associated with the TRA, income taxes and any stock buybacks or 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 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 28, 2023 and incorporated by reference herein. As of March 28, 2024, 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. 27 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.