National CineMedia, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 28, 2023, compared with fiscal year ended December 29, 2022. The request identifies “2022 Q4,” but the provided filing is a fiscal-year 2023 Form 10-K and does not provide a standalone 2022 fourth-quarter filing.
Business context and reporting period
National CineMedia, Inc. is a holding company whose primary operating subsidiary is National CineMedia, LLC. NCM sells cinema, lobby, digital, mobile and digital out-of-home advertising through The Noovie Show and related platforms. As of December 28, 2023, its network included 18,403 screens in 1,439 theaters across 190 designated market areas, with approximately 438.9 million theater attendees during 2023.
Fiscal 2023 was significantly affected by NCM LLC’s Chapter 11 proceedings. NCM LLC filed for bankruptcy on April 11, 2023, was deconsolidated from NCM, Inc. during the bankruptcy period, and emerged and was reconsolidated on August 7, 2023. Consequently, consolidated 2023 results are not directly comparable with 2022 results. NCM LLC activity is included only before April 11 and after August 7.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Consolidated revenue | $165.2 million | $249.2 million | Down 33.7% |
| Advertising revenue | $155.1 million | $249.2 million | Down 37.8% |
| Operating income/(loss) | $(27.3) million | $6.9 million | Declined $34.2 million |
| Net income/(loss) attributable to NCM, Inc. | $705.2 million | $(28.7) million | Improved by $733.9 million |
| Basic diluted-adjusted EPS | $14.73 / $14.34 | $(3.50) / $(3.50) | Not comparable due to restructuring and share issuance |
| Operating cash flow | $(6.7) million | $(47.3) million | Improved by $40.6 million |
| Capital expenditures | $5.3 million | $4.2 million | Up $1.1 million |
| NCM LLC revenue | $259.8 million | $249.2 million | Up 4.3% |
| NCM LLC Adjusted OIBDA | $52.7 million | $57.3 million | Down 8.0% |
| NCM LLC Adjusted OIBDA margin | 20.3% | 23.0% | Down 2.7 percentage points |
Reported consolidated net income was dominated by unusual, non-cash and restructuring-related items, including a $916.4 million gain on bankruptcy and gains of $557.7 million from deconsolidation, $35.5 million from remeasurement of the NCM LLC investment and $167.8 million from reconsolidation. Consolidated operating results therefore provide a poor indication of recurring earnings power.
NCM LLC’s revenue increased on higher attendance, impressions sold and local and regional advertising. National advertising revenue rose 1.5% to $190.1 million, local and regional revenue rose 17.5% to $51.1 million, and network attendance increased 11.2%. These improvements were offset by higher affiliate-related costs, bankruptcy and legal expenses, and a $125.7 million loss associated with termination of the Regal ESA.
Liquidity, debt and cash flow
- Cash, cash equivalents and marketable securities totaled $34.6 million at year-end, compared with $62.7 million at the prior year-end. Of the 2023 amount, $31.9 million was held by NCM LLC and was not available for NCM, Inc. dividends or other parent-level obligations.
- Total reported liquidity was $79.0 million, consisting of cash and securities of $34.6 million plus $44.4 million of availability under the new revolving facility.
- NCM LLC entered into a $55.0 million asset-backed revolving credit facility on August 7, 2023, maturing August 7, 2026. It had $10.0 million outstanding, $0.6 million of letters of credit and $44.4 million of availability at year-end.
- The facility carried a weighted-average interest rate of 9.2% at year-end and bears variable interest at a base rate or SOFR plus 3.75% to 4.50%.
- All historical debt, including approximately $1.1 billion of net debt reported at December 29, 2022, was discharged in the Chapter 11 proceedings.
- NCM LLC was in compliance with its financial covenants at year-end. Its fixed-charge coverage ratio was 54.2:1.0 versus a required 1.1:1.0 during applicable trigger periods.
- Cash flow from investing activities was $32.6 million, primarily reflecting $49.5 million of cash reconsolidated with NCM LLC, partially offset by the $15.5 million contribution to NCM LLC.
- Cash flow from financing activities was $(52.1) million. Dividends were largely suspended, and future dividends remain subject to board discretion, liquidity and debt covenant restrictions.
Material changes versus the prior comparable period
- NCM LLC filed for and emerged from Chapter 11, resulting in debt discharge, deconsolidation and subsequent reconsolidation under business-combination accounting.
- Regal terminated its ESA effective July 14, 2023 and entered into a 10-year network affiliate advertising agreement. Regal’s theaters were reclassified from ESA Party theaters to network affiliate theaters.
- The Company completed a one-for-ten reverse stock split and issued 83.4 million shares to secured creditors. Year-end shares outstanding increased to 96.8 million from 12.8 million.
- Network screens declined from 20,095 to 18,403, primarily due to theater closures, rejected affiliate contracts and the reclassification of Regal theaters.
- Consolidated revenue fell because NCM LLC was not consolidated for approximately four months. On an NCM LLC operating basis, revenue increased 4.3%.
- Administrative costs increased 29.3% on a consolidated basis, and NCM LLC administrative costs increased 132.1%, primarily due to bankruptcy, Cineworld proceeding, legal and advisory expenses and retention costs.
- The tax receivable agreement payable was $59.8 million at year-end. The Company recorded a $146.0 million valuation allowance against deferred tax assets and made no TRA payment for the 2022 tax year during 2023.
Guidance, outlook, commentary and risks
Management expects fiscal 2024 capital expenditures of approximately $6.0 million to $7.0 million, including investments in content-management and advertising systems, network affiliate additions, digital products and data sets. Management also plans to expand programmatic advertising, continue developing NCMx and digital out-of-home products, and increase the portion of the network using Post-Showtime Inventory.
The filing does not provide formal revenue or earnings guidance. Management describes the business as dependent on continued recovery in theater attendance, film release volume, advertising demand, CPMs, network affiliate relationships and the ability to maintain sufficient liquidity after emergence from bankruptcy.
- The appeals by AMC and Cinemark of the bankruptcy Confirmation Order and Regal Order remained pending in the U.S. District Court for the Southern District of Texas.
- The Company faces risks from theater attendance volatility, shortened theatrical release windows, streaming competition, film production disruptions and changes in patron arrival behavior.
- AMC and Cinemark theaters represented approximately 52.0% of network screens and 72.4% of network attendance at year-end. Loss, nonrenewal or renegotiation of either ESA could materially affect revenue and profitability.
- Network affiliate agreements include potential minimum revenue guarantees of up to $276.2 million over their remaining terms, although no payments were made under these guarantees in 2023 or 2022.
- The Company is exposed to variable-rate interest risk, customer concentration, privacy and cybersecurity requirements, advertising-market cyclicality and execution risk associated with its digital strategy.
- Blantyre Capital beneficially owned approximately 27.5% of the Company’s shares at year-end, and creditor-related parties may designate up to six of nine directors under the Director Designation Agreement.
Important facts for investors to verify
- Confirm the final accounting for the Chapter 11 emergence, including provisional fair values assigned to NCM LLC’s assets and liabilities and the treatment of the $916.4 million bankruptcy gain.
- Monitor the pending AMC and Cinemark appeals and their potential effects on the ESAs, governance and theater access.
- Assess recurring operating performance using NCM LLC revenue, Adjusted OIBDA and cash flow rather than consolidated GAAP net income, which was heavily affected by restructuring gains.
- Verify cash available to NCM, Inc. separately from cash held at NCM LLC, and review restrictions on distributions under the revolving credit facility.
- Track theater attendance, CPMs, advertising utilization, Post-Showtime Inventory adoption and the impact of Regal’s new affiliate agreement.
- Review the $59.8 million TRA payable, deferred tax asset valuation allowance and potential future cash payments to ESA Parties.
- Evaluate the $276.2 million maximum potential affiliate minimum guarantees, variable-rate debt exposure and the August 2026 revolver maturity.