National CineMedia, Inc. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
National CineMedia, Inc. (NCM) is a holding company that consolidates National CineMedia, LLC (NCM LLC), the operator of a U.S. cinema advertising network. NCM owns approximately 48.3% of NCM LLC; Cinemark and Regal own the remaining 51.7%. AMC redeemed its remaining NCM LLC units in March 2021 and held no NCM LLC units at year-end.
The filing covers the 52-week fiscal year ended December 30, 2021, compared with the 53-week year ended December 31, 2020. Revenue is generated primarily from national, regional and local advertising in the Noovie cinema pre-show, theater lobbies, digital products and digital out-of-home venues, plus beverage concessionaire advertising.
- Network at year-end: 20,740 screens in 1,668 theaters across 195 designated market areas.
- Network attendance: 250.7 million in 2021 versus 138.2 million in 2020 and 651.4 million in 2019.
- Post-Showtime Inventory was available across theaters representing approximately 57% of network attendance based on pre-COVID-19 levels.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $114.6 million | $90.4 million | 26.8% increase |
| Operating loss | $68.6 million | $61.0 million | 12.5% larger loss |
| Net loss attributable to NCM, Inc. | $48.7 million | $65.4 million | 25.5% improvement |
| Basic and diluted loss per share | $0.61 loss | $0.84 loss | Improved |
| Adjusted OIBDA | $(24.7) million | $(19.4) million | Loss increased |
| Adjusted OIBDA margin | (21.6%) | (21.5%) | Essentially flat |
| Operating cash flow | $(95.2) million | $55.3 million | Declined $150.5 million |
| Capital expenditures | $6.5 million | $11.2 million | Decreased |
National and regional advertising revenue increased 28.5% to $85.7 million, local advertising revenue increased 1.7% to $17.8 million, and founding-member beverage revenue increased 79.0% to $11.1 million. Revenue benefited from higher attendance and a 48.0% increase in impressions sold, but national advertising utilization declined from 102.5% to 66.3%.
Total operating expenses increased 21.0% to $183.2 million. Theater access fees and revenue share to founding members more than doubled to $51.1 million as theaters reopened and attendance increased. Advertising operating costs increased to $18.4 million, while selling and marketing costs declined to $34.7 million. Administrative and other costs increased to $36.0 million, primarily because of higher performance-based compensation and cloud-computing costs.
The net loss attributable to NCM, Inc. improved primarily because 2020 included a $162.2 million income tax provision related to deferred tax valuation allowances. In 2021, income tax expense was zero. The Company recorded a $16.1 million non-cash gain from remeasurement of its tax receivable agreement payable.
Balance sheet, debt and liquidity
| Metric at December 30, 2021 | Amount |
|---|---|
| Cash and cash equivalents | $101.2 million |
| Cash, marketable securities and revolver availability | $109.3 million |
| Cash held by NCM LLC | $58.6 million |
| NCM, Inc. cash and marketable securities, excluding NCM LLC cash | $43.9 million |
| Total borrowings, before debt issuance costs | $1.108 billion |
| Total borrowings, net | $1.0975 billion |
| Total liabilities | $1.2009 billion |
| Total equity deficit | $383.5 million |
- Debt consisted principally of a $167.0 million revolving facility, $311.0 million of term loans, $400.0 million of 5.875% senior secured notes due 2028 and $230.0 million of 5.75% senior unsecured notes due 2026.
- Only $6.8 million remained available under the existing $175.0 million revolving facility at year-end, after $167.0 million of borrowings and $1.2 million of letters of credit.
- Approximately 57% of total borrowings carried fixed interest rates; a 100-basis-point change in variable rates would affect annual cash interest expense by approximately $4.8 million.
- Expected 2022 cash outflows included approximately $66.5 million of interest, $3.2 million of debt amortization, $6.5 million to $7.5 million of capital expenditures, $8.1 million of affiliate and digital out-of-home prepayments, and $3.8 million of lease payments.
Material changes versus the prior comparable period
- Theater attendance increased 81.4% and all network theaters were open by the end of the third quarter, but attendance and advertising revenue remained substantially below pre-pandemic levels.
- Operating loss widened despite higher revenue because costs associated with reopened theaters, advertising fulfillment and access fees increased faster than revenue.
- Operating cash flow shifted from $55.3 million provided in 2020 to $95.2 million used in 2021, primarily because of lower collections and working-capital effects.
- NCM LLC issued $50.0 million of incremental term loans in March 2021, receiving approximately $43.0 million of net proceeds for general corporate purposes.
- The quarterly dividend was reduced to $0.05 per share in 2021; total dividends declared were $0.20 per share versus $0.40 in 2020. The Board declared another $0.05 per share dividend on March 3, 2022.
- AMC’s ownership of NCM LLC declined to zero following its March 2021 unit redemption. Cinemark and Regal each retained approximately 26% of NCM LLC.
- The Company implemented a new cinema advertising management system in January 2021 and continued investing in digital, data and digital out-of-home products.
Guidance, outlook, risks and unusual items
The filing does not provide formal revenue or earnings guidance. Management expects a fuller 2022 film slate and continued recovery in theater attendance, but cautions that COVID-19 variants, release-date changes, streaming and shortened theatrical windows could continue to affect attendance and advertiser demand. Planned 2022 capital expenditures are approximately $6.5 million to $7.5 million, including approximately $3.3 million for digital product development.
On January 5, 2022, NCM LLC amended its credit agreement, extended covenant relief through the fiscal quarter ending December 29, 2022, established stepped leverage requirements beginning in 2023, and agreed to maintain $55.0 million of combined unrestricted cash and revolving availability through the fourth quarter of 2023. NCM LLC also borrowed the full $50.0 million available under a new secured revolving agreement bearing interest at term SOFR plus 8.0%, with a 1.0% floor, and maturing June 20, 2023.
The 2021 financial statements were prepared on a going-concern basis. Management stated that the January 2022 financing and covenant amendments removed substantial doubt about the Company’s ability to continue as a going concern, although liquidity and covenant compliance remain significant investor considerations.
- COVID-19 and possible changes in consumer behavior remain the principal operating risks.
- The Company depends on long-term exhibitor services agreements with Cinemark and Regal, whose theaters represented approximately 79% of network screens and 80% of attendance at year-end.
- Contractual theater access fees escalate over time, including an 8% per-patron increase beginning in fiscal 2022 and annual increases in digital-screen fees.
- The Company has a $223.8 million valuation allowance against deferred tax assets and a $16.4 million tax receivable agreement payable at year-end. Future profitability could increase the payable to founding members.
- Network affiliate agreements include potential future minimum revenue guarantees totaling up to $126.3 million over their remaining terms; $0.4 million was recorded as a liability at year-end.
- One content partner accounted for 11.8% of 2021 revenue, creating customer-concentration risk.
- No material pending litigation was identified, and Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether theater attendance and advertising utilization recover sufficiently to produce positive Adjusted OIBDA and operating cash flow.
- Available liquidity after the January 2022 $50.0 million borrowing, including restrictions on NCM LLC distributions to NCM, Inc.
- Compliance with the amended leverage covenants and the $55.0 million minimum combined cash-and-availability requirement.
- Debt refinancing or repayment capacity before the $167.0 million revolver maturity in 2023 and the $49.8 million term-loan maturity in 2024.
- The sustainability of the $0.05 quarterly dividend given negative 2021 operating cash flow and restricted NCM LLC distributions.
- Progress in expanding Post-Showtime Inventory, digital advertising, data monetization and digital out-of-home revenue.
- Potential impairment, tax receivable agreement and deferred-tax-asset consequences if the recovery in theater attendance is delayed.