National CineMedia, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 28, 2024, compared with March 30, 2023. Although the request metadata identifies “2023 Q1,” the filing is the Company’s first-quarter 2024 Form 10-Q, filed May 6, 2024.
Business Context
National CineMedia operates a U.S. cinema advertising network, including the Noovie pre-show, theater-lobby screens and promotions, digital and mobile advertising, and complementary out-of-home venues. The Company operates as a single advertising segment and holds long-term exhibitor service agreements and network affiliate agreements. Weighted-average remaining terms were approximately 14.8 years for AMC and Cinemark ESAs and 11.7 years for ESAs and affiliate agreements combined.
NCM LLC emerged from Chapter 11 bankruptcy on August 7, 2023. NCM, Inc. regained control and reconsolidated NCM LLC prospectively on that date. The prior-year comparable period was affected by different consolidation and ownership circumstances.
Financial Performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $37.4 million | $34.9 million | 7.2% increase |
| Operating expenses | $60.1 million | $65.5 million | 8.2% decrease |
| Operating loss | $22.7 million | $30.6 million | 25.8% improvement |
| Net loss attributable to NCM, Inc. | $34.7 million | $45.5 million | 23.7% improvement |
| Basic and diluted loss per share | $0.36 loss | $3.13 loss | 88.5% improvement |
| Adjusted OIBDA | $5.7 million loss | $10.9 million loss | 47.7% improvement |
| Adjusted OIBDA margin | (15.2%) | (31.2%) | 16.0 percentage-point improvement |
| Theater attendance | 75.8 million | 90.0 million | 15.8% decrease |
Revenue growth was driven by national advertising revenue of $29.5 million, up 31.1%, primarily from a 61.6% increase in national advertising utilization and a 1.2% increase in national CPMs. Local and regional advertising revenue declined 33.8% to $5.3 million, while ESA beverage advertising revenue declined 40.9% to $2.6 million.
Operating expense reductions were led by lower administrative and other costs, including an $8.4 million reduction in bankruptcy- and Cineworld-related advisor and legal fees. Amortization increased 53.2% to $9.5 million following fair-value adjustments to intangible assets upon reconsolidation. Q1 2024 also included $1.5 million of workforce reorganization costs and $2.3 million of bankruptcy- and Cineworld-related fees in the Adjusted OIBDA reconciliation.
Cash Flow, Liquidity and Capital Structure
| Metric | March 28, 2024 | December 28, 2023 |
|---|---|---|
| Cash and cash equivalents | $57.1 million | $34.6 million |
| Restricted cash | $3.0 million | $3.0 million |
| Receivables, net | $48.6 million | $96.6 million |
| Total assets | $538.6 million | $567.7 million |
| Long-term debt | $10.0 million | $10.0 million |
| Payable under tax receivable agreement | $71.9 million | $59.8 million |
| Total equity | $402.3 million | $434.5 million |
- Operating cash flow was $24.1 million, compared with $10.4 million in Q1 2023.
- Investing cash flow was negative $1.3 million, including $1.5 million of capital expenditures.
- Financing cash flow was negative $0.3 million, primarily reflecting $0.3 million of dividends.
- Cash, cash equivalents and restricted cash increased $22.5 million to $60.1 million.
- The asset-backed revolving facility had $10.0 million outstanding, $44.4 million of availability, and a maximum capacity of $55.0 million. The weighted-average interest rate was 9.19% and maturity is August 7, 2026.
- The Company reported a fixed-charge coverage ratio of 6.6 to 1.0 versus a required 1.1 to 1.0 during applicable covenant periods and was in compliance with its debt covenants.
- Cash held by NCM LLC, approximately $54.8 million, was not available for NCM, Inc. dividends, income taxes, TRA payments and certain other parent-level obligations.
Material Changes and Unusual Items
- Revenue increased despite a 15.8% decline in attendance, reflecting stronger national advertising utilization and pricing.
- Regal terminated its ESA effective July 14, 2023 and entered into a separate advertising agreement. The change reduced related beverage revenue and altered network affiliate fee economics.
- Historical NCM LLC debt was discharged in the 2023 bankruptcy proceedings. The Company now has $10.0 million outstanding under the post-emergence revolving facility.
- The tax receivable agreement payable increased to $71.9 million. Q1 2024 included a $12.3 million non-cash loss from remeasurement, compared with a $0.6 million gain in Q1 2023.
- The Company recorded no income tax expense and maintained a full valuation allowance on net deferred tax assets, resulting in a 0.0% effective tax rate.
- On March 18, 2024, the Board authorized a three-year, $100.0 million share repurchase program. The Company repurchased 8,000 shares for $0.2 million during the quarter. Subsequent to quarter-end, it repurchased an additional 509,348 shares for $2.6 million.
- AMC and Cinemark appeals concerning the bankruptcy Confirmation Order and Regal-related order remained pending in the Southern District of Texas.
Outlook, Risks and Contingencies
Management identified advertising utilization, CPMs, attendance, revenue per attendee, operating expenses, free cash flow, cash balances, covenant compliance and revolver availability as key operating and liquidity measures. The filing does not provide formal revenue, earnings or Adjusted OIBDA guidance.
- Attendance and advertising demand remain sensitive to the movie release slate; management attributed the Q1 attendance decline partly to the 2023 writers’ and actors’ strikes.
- Local and regional advertising demand declined materially, despite higher CPMs.
- The Company faces variable-rate interest exposure because all borrowings bear variable rates.
- Network affiliate agreements include potential minimum revenue guarantees of up to $258.3 million over their remaining terms, although no accrual was recorded at March 28, 2024.
- The Company had approximately $71.9 million payable under the TRA and expects no TRA payment in 2024 for the 2023 tax year, subject to future tax benefits and contractual requirements.
- Future dividends and share repurchases depend on available cash, distributions from NCM LLC, debt-facility restrictions, financial condition and Board discretion.
- Operating results are seasonal and interim results may not be indicative of full-year performance.
Investor Verification Checklist
- Confirm the effect of NCM LLC’s bankruptcy emergence, reconsolidation and provisional fair-value accounting on comparability with prior periods.
- Monitor national advertising utilization and CPM trends against attendance and the movie release slate.
- Assess local and regional advertising demand and the continued reduction in ESA beverage revenue following Regal’s ESA termination.
- Verify cash availability at NCM, Inc. versus cash restricted to NCM LLC operations and creditor-related escrows.
- Track revolver availability, interest rates, fixed-charge coverage and compliance with distribution restrictions.
- Evaluate the $71.9 million TRA payable and potential future cash obligations.
- Review the pending AMC and Cinemark appeals and any impact on the Company’s restructuring or contractual rights.
- Reconcile Adjusted OIBDA to GAAP operating loss, particularly the effects of amortization, share-based compensation, reorganization costs and bankruptcy-related expenses.