National CineMedia, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 30, 2023, compared with March 31, 2022. The request metadata references 2022 Q1, but the supplied filing is the first-quarter 2023 Form 10-Q, filed May 9, 2023.
Business context
NCM, Inc. is a holding company that manages National CineMedia, LLC, a cinema advertising network operating through long-term exhibitor services agreements and network affiliate agreements. The business sells advertising in theaters, digital properties, mobile applications and complementary out-of-home venues. The weighted-average remaining term of the founding-member ESAs was approximately 16.5 years, and the weighted-average remaining term of the ESAs and affiliate agreements combined was 13.7 years as of March 30, 2023.
During the quarter, AMC, Regal and Cinemark completed redemptions of their NCM LLC membership units in exchange for NCM, Inc. common stock. As of March 30, 2023, NCM, Inc. owned 100% of NCM LLC.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $34.9 million | $35.9 million | Down 2.8% |
| Operating loss | $(30.6) million | $(22.5) million | Loss increased $8.1 million |
| Net loss attributable to NCM, Inc. | $(45.5) million | $(25.2) million | Loss increased $20.3 million |
| Basic and diluted loss per share | $(0.31) | $(0.31) | No change |
| Adjusted OIBDA | $(10.9) million | $(6.8) million | Loss increased $4.1 million |
| Adjusted OIBDA margin | (31.2%) | (18.9%) | Down 12.3 percentage points |
| Operating cash flow | $10.4 million | $(23.6) million | Improved $34.0 million |
- National advertising revenue declined 14.4% to $22.5 million, driven by a 4.9% decrease in national CPMs and a 12.2% decrease in national inventory utilization.
- Local and regional advertising revenue increased 31.1% to $8.0 million, while founding-member beverage advertising revenue increased 25.7% to $4.4 million.
- Theater attendance increased 18.4% to 90.0 million, but revenue per attendee declined 17.8% to $0.388.
- Total operating expenses increased 12.2% to $65.5 million. Administrative and other costs more than doubled to $20.8 million, primarily due to $9.8 million of additional legal and professional fees related to the Cineworld proceeding and Chapter 11 case, along with retention-related costs.
- Interest expense increased 39.5% to $24.0 million, primarily reflecting higher borrowing rates. The weighted-average interest rate increased from 5.7% to 7.5%.
- Cash, cash equivalents and marketable securities totaled $70.0 million at March 30, 2023, including $54.7 million held by NCM LLC. Total reported liquidity, including $7.2 million of revolving-credit availability, was $77.2 million.
- Cash used in investing activities was $0.7 million, and cash used in financing activities was $2.4 million. The Company paid no quarterly dividend and stated that dividend distributions were suspended.
Balance sheet, debt and material changes
- Total assets were $740.2 million, down from $792.4 million at December 29, 2022. Net receivables declined to $39.2 million from $92.0 million, largely reflecting collections.
- Total borrowings were $1.128 billion, or $1.121 billion net of issuance costs and discounts. All debt was classified as current following the subsequent Chapter 11 filing and related acceleration provisions.
- Debt included $167.0 million outstanding under the 2018 revolving facility, $50.0 million under the 2022 revolving facility, $307.0 million of term loans, $374.2 million of senior secured notes due 2028 and $230.0 million of senior unsecured notes due 2026.
- As of March 30, 2023, the 2018 revolving facility had $7.2 million of availability; the 2022 revolving facility had no availability.
- Stockholders’ deficit increased to $(531.8) million from $(515.3) million. The Company had 174.1 million common shares outstanding at March 30, 2023, compared with 128.4 million at December 29, 2022, primarily reflecting membership-unit redemptions.
- The Company recorded no income tax expense and maintained a full valuation allowance on its net deferred tax assets.
Guidance, outlook, risks and unusual items
- Chapter 11: On April 11, 2023, NCM LLC filed for voluntary Chapter 11 reorganization under a prearranged plan. The filing accelerated outstanding debt, triggered an event of default and created substantial doubt about the Company’s ability to continue as a going concern.
- The proposed restructuring would cancel existing NCM LLC equity interests, provide secured creditors with substantially all of the reorganized NCM LLC’s common membership units subject to dilution and provide general unsecured creditors only a pro rata share of $250,000, subject to the plan’s terms. NCM, Inc. was projected to hold approximately 13.8% of reorganized NCM LLC under the restructuring support agreement.
- NCM LLC expects to fund operations with operating cash flow and use of cash collateral while operating as debtor in possession. The Company stated that it does not expect NCM LLC to make interest payments on its debt during the remainder of 2023. Emergence was contemplated for around September 2023, but the filing emphasizes that timing and completion are uncertain.
- NCM, Inc. concluded that it will no longer control NCM LLC for accounting purposes as of the petition date and expects to deconsolidate NCM LLC prospectively, recording a material gain. Future financial statements may therefore differ materially from the March 30, 2023 consolidated statements.
- Regal/Cineworld: Regal had sought to reject its ESA in the Cineworld bankruptcy proceeding. On May 5, 2023, NCM LLC and Regal agreed to stay litigation while negotiating a new arrangement. Rejection or unfavorable renegotiation could materially reduce operations, revenue and financial condition.
- NASDAQ: Nasdaq determined that NCM, Inc. was a public shell and that continued listing was not warranted. Trading suspension and delisting were scheduled for April 28, 2023, but stayed pending the Company’s appeal hearing scheduled for May 25, 2023.
- Network screens declined from 20,095 at December 29, 2022 to 19,642 at March 30, 2023, including the loss of three affiliates and 299 net screen closures.
- The Company disclosed potential future payments of up to $134.3 million under minimum revenue guarantees to network affiliates, although only $0.3 million was accrued at March 30, 2023.
- Management cited continuing risks from below-historical theater attendance, post-production and movie-release delays, inflation, rising interest rates, recessionary pressure and advertiser demand volatility.
Investor verification points
- Confirm the final Chapter 11 plan, treatment of secured and unsecured claims, emergence timing and the resulting ownership and capitalization of reorganized NCM LLC.
- Assess the accounting and valuation effects of deconsolidating NCM LLC, including the expected gain and any impairment or liability reclassification.
- Monitor liquidity, cash collateral usage, operating cash flow and the availability or terms of any exit financing.
- Track the outcome of the Regal ESA negotiations and the potential effect on advertising inventory, revenue and intangible-asset values.
- Verify the status of NCM, Inc.’s NASDAQ appeal, trading suspension and any alternative trading or listing arrangements.
- Reconcile Adjusted OIBDA with GAAP operating loss and consider the significance of the $10.6 million of fees and expenses related to the Cineworld proceeding and Chapter 11 case.