National CineMedia(US:NCMI)2021-11-08 21:19PART I - Financial Information Item 1. Financial Statements The unaudited financial statements reflect a significant net loss and total deficit, with management expressing substantial doubt about the company's ability to continue as a going concern Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Data (As of September 30, 2021 vs. December 31, 2020) | Balance Sheet Item | Sep 30, 2021 (in millions) | Dec 31, 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $110.1 | $180.3 | ▼ $70.2 | | Total current assets | $153.6 | $199.9 | ▼ $46.3 | | Total assets | $820.1 | $886.2 | ▼ $66.1 | | Long-term debt, net | $1,093.6 | $1,049.6 | ▲ $44.0 | | Total liabilities | $1,205.3 | $1,154.8 | ▲ $50.5 | | Total equity/(deficit) | $(385.2) | $(268.6) | ▼ $116.6 | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income Q3 2021 vs Q3 2020 Performance (Three Months Ended) | Metric | Q3 2021 (in millions) | Q3 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $31.7 | $6.0 | ▲ 428.3% | | Operating Loss | $(18.7) | $(21.3) | Improved | | Net Loss Attributable to NCM, Inc. | $(15.2) | $(12.7) | Worsened | | Basic and Diluted EPS | $(0.19) | $(0.16) | Worsened | YTD 2021 vs YTD 2020 Performance (Nine Months Ended) | Metric | YTD 2021 (in millions) | YTD 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $51.1 | $74.7 | ▼ 31.6% | | Operating Loss | $(76.6) | $(40.2) | Worsened | | Net Loss Attributable to NCM, Inc. | $(57.3) | $(30.2) | Worsened | | Basic and Diluted EPS | $(0.72) | $(0.39) | Worsened | Unaudited Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Nine Months Ended) | Cash Flow Activity | Sep 30, 2021 (in millions) | Sep 24, 2020 (in millions) | Change | | :--- | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(92.5) | $85.9 | ▼ $178.4 | | Net cash (used in) provided by investing activities | $(3.6) | $15.5 | ▼ $19.1 | | Net cash provided by financing activities | $25.9 | $60.4 | ▼ $34.5 | | Change in Cash and Cash Equivalents | $(70.2) | $161.8 | ▼ $232.0 | - Financing activities in the first nine months of 2021 included proceeds from issuing $50.0 million in term loans, offset by dividend payments of $12.9 million and debt issuance costs of $7.2 million17 Notes to Unaudited Condensed Consolidated Financial Statements - The company's business was significantly impacted by the COVID-19 pandemic, with advertising revenue remaining significantly below historical levels27 - Management has concluded that conditions raise substantial doubt about the Company's ability to continue as a going concern36 - As of September 30, 2021, NCM LLC had total outstanding debt of $1.108 billion79 - On November 8, 2021, the company declared a quarterly cash dividend of $0.05 per share, totaling approximately $4.0 million116 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a Q3 revenue recovery alongside ongoing financial strain, highlighting liquidity management efforts and reiterating substantial doubt about continuing as a going concern Results of Operations Q3 2021 vs. Q3 2020 Revenue Breakdown (in millions) | Revenue Category | Q3 2021 | Q3 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | National and regional | $22.9 | $3.5 | $19.4 | 554.3% | | Local | $5.4 | $2.3 | $3.1 | 134.8% | | Founding member beverage | $3.4 | $0.2 | $3.2 | NM | | Total Revenue | $31.7 | $6.0 | $25.7 | 428.3% | - The dramatic increase in Q3 2021 revenue was driven by a significant rise in theater attendance, from 5.2 million in Q3 2020 to 75.7 million in Q3 2021, as theaters reopened138140 - For the first nine months of 2021, total revenue decreased by 31.6% to $51.1 million, primarily due to the inclusion of a pre-pandemic first quarter in the 2020 results155 - Total operating expenses for the nine months ended September 30, 2021 increased 11.1% to $127.7 million, driven by higher theater access and administrative costs as operations resumed159 Financial Condition and Liquidity - The company has implemented significant cost-saving measures to preserve cash, including furloughs, salary reductions, and a reduction in the quarterly dividend to $0.05 per share180 Liquidity Summary (in millions) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash, cash equivalents and marketable securities | $111.3 | $181.8 | | NCM LLC revolving credit facility availability | $6.8 | $4.4 | | Total liquidity | $118.1 | $186.2 | - The company does not expect to meet its financial covenants within one year, raising substantial doubt about its ability to continue as a going concern182 - Operating cash flow for the first nine months of 2021 was a net use of $92.5 million, a sharp reversal from the $85.9 million of cash provided in the same period of 2020186188 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on its variable-rate debt, with a 1% change impacting annual interest expense by approximately $4.8 million - The company is exposed to interest rate risk on its variable-rate debt, with 43% of total borrowings at variable rates as of September 30, 2021196184 - A 100-basis point (1%) fluctuation in market interest rates would change annual cash interest expense by approximately $4.8 million196197 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls during the quarter - Based on an evaluation as of September 30, 2021, management concluded that the company's disclosure controls and procedures were effective200 - No material changes occurred during the third quarter of 2021 that are reasonably likely to materially affect the company's internal control over financial reporting202 PART II - Other Information Item 1. Legal Proceedings The company is not aware of any pending litigation that would materially affect its financial condition or operations - The company is not aware of any pending litigation that would materially and adversely affect its financial condition or results of operations204 Item 1A. Risk Factors The company highlights the critical risk of failing to meet financial covenants, which raises substantial doubt about its ability to continue as a going concern - A significant risk is that the company does not expect to meet its financial covenants under its Senior Secured Credit Facility within the next year206 - Failure to meet covenants could allow lenders to accelerate debt repayment, which the company would be unable to satisfy with current liquidity206 - These conditions raise substantial doubt about the company's ability to continue as a going concern, which could lead to investors losing all or part of their investment207208 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company discloses shares repurchased from employees to satisfy tax withholding obligations on vested restricted stock - The company repurchased a total of 92,589 shares from employees during Q3 2021 to fund tax withholding obligations on vested restricted stock209210 Item 6. Exhibits This section lists filed exhibits, including a new CFO employment agreement, executive certifications, and XBRL data files - Exhibits filed with the report include the employment agreement for CFO Ronnie Y. Ng, certifications from the CEO and CFO, and XBRL financial data214