National CineMedia(NCMI) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Unaudited financial statements for July 1, 2021, reflect COVID-19 impact, showing weakened balance sheet, Q2 revenue rebound, but expanded losses and negative operating cash flow Unaudited Condensed Consolidated Balance Sheets As of July 1, 2021, total assets decreased to $851.0 million, liabilities increased to $1,200.0 million, and equity deficit worsened to $(349.0) million Condensed Consolidated Balance Sheet Data (in millions) | Metric | July 1, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $175.5 | $199.9 | | Total Assets | $851.0 | $886.2 | | Total Current Liabilities | $53.4 | $50.0 | | Long-term Debt, net | $1,093.8 | $1,049.6 | | Total Liabilities | $1,200.0 | $1,154.8 | | Total Equity/(Deficit) | $(349.0) | $(268.6) | Unaudited Condensed Consolidated Statements of Income and Comprehensive Income Q2 2021 revenue rose to $14.0 million, but operating loss widened; YTD revenue fell to $19.4 million, with net loss expanding to $(42.1) million Condensed Consolidated Statements of Income (in millions, except per share data) | Metric | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $14.0 | $4.0 | $19.4 | $68.7 | | Operating Loss | $(29.6) | $(23.8) | $(57.9) | $(18.9) | | Consolidated Net Loss | $(46.9) | $(33.4) | $(88.9) | $(41.6) | | Net Loss Attributable to NCM, Inc. | $(22.7) | $(13.8) | $(42.1) | $(17.5) | | Basic & Diluted EPS | $(0.28) | $(0.18) | $(0.53) | $(0.22) | Unaudited Condensed Consolidated Statements of Cash Flows Six months ended July 1, 2021, saw negative operating cash flow of $(61.6) million, with cash and cash equivalents decreasing by $32.9 million Condensed Consolidated Statements of Cash Flows (in millions) | Metric | Six Months Ended July 1, 2021 | Six Months Ended June 25, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(61.6) | $107.4 | | Net cash (used in) provided by investing activities | $(2.9) | $15.5 | | Net cash provided by financing activities | $31.6 | $66.6 | | Change in cash and cash equivalents | $(32.9) | $189.5 | | Cash and cash equivalents at end of period | $147.4 | $245.4 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail COVID-19 impact, Q2 revenue rebound, significant debt, credit agreement amendments, related-party transactions, and subsequent dividend declaration - As of July 1, 2021, approximately 97.0% of the theaters in the company's network were open, leading to the highest attendance since the start of the COVID-19 pandemic. However, advertising revenue remained significantly below historical levels[27] - AMC redeemed its membership units in exchange for NCM, Inc. common stock on March 23, 2021, reducing its ownership in NCM LLC to 0.0% as of July 1, 2021[26] Disaggregation of Revenue (in millions) | Revenue Type | Q2 2021 | Q2 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | National and regional | $8.9 | $1.7 | $12.6 | $51.5 | | Local | $3.0 | $2.3 | $4.2 | $11.7 | | Founding member beverage | $2.1 | $0.0 | $2.6 | $5.5 | | Total Revenue | $14.0 | $4.0 | $19.4 | $68.7 | Total Outstanding Debt (in millions) | Borrowings | July 1, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Revolving credit facility | $167.0 | $167.0 | | Term loans - first tranche | $261.9 | $263.3 | | Term loans - second tranche | $49.9 | $0.0 | | Senior unsecured notes due 2026 | $230.0 | $230.0 | | Senior secured notes due 2028 | $400.0 | $400.0 | | Total borrowings | $1,108.8 | $1,060.3 | - On March 8, 2021, NCM LLC amended its Credit Agreement, incurring a new $50.0 million term loan and obtaining a waiver of non-compliance with key financial covenants through the quarter ending June 30, 2022 (Extended Covenant Waiver Holiday)[76][78][82] - On August 9, 2021, the company declared a cash dividend of $0.05 per share, payable on September 6, 2021[111] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19 impact, Q2 revenue rebound, weak H1 performance, cost-saving measures, and liquidity efforts, while remaining optimistic about industry recovery - As of July 1, 2021, approximately 97.0% of the company's network theaters were open, resulting in the highest attendance since the start of the pandemic, though advertising revenue remained significantly below historical levels[119] - To ensure liquidity, the company has reduced headcount by over 30% compared to pre-pandemic levels and secured board approval for a new $20.0 million unsecured revolving loan agreement between NCM Inc. and NCM LLC[120][121] Q2 2021 vs Q2 2020 Results of Operations (in millions) | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $14.0 | $4.0 | 250.0% | | Total Operating Expenses | $43.6 | $27.8 | 56.8% | | Operating Loss | $(29.6) | $(23.8) | 24.4% | | Adjusted OIBDA | $(18.7) | $(12.7) | 47.2% | YTD 2021 vs YTD 2020 Results of Operations (in millions) | Metric | YTD 2021 | YTD 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $19.4 | $68.7 | (71.8)% | | Total Operating Expenses | $77.3 | $87.6 | (11.8)% | | Operating Loss | $(57.9) | $(18.9) | 206.3% | | Adjusted OIBDA | $(34.9) | $1.7 | (2152.9)% | - The company has implemented numerous cost-saving measures, including employee furloughs and salary reductions, suspension of the 401K match, deferral of capital expenditures, and a reduction in the quarterly dividend to $0.05 per share[173][178] - Under its amended credit agreement, NCM LLC must maintain a minimum liquidity of $55.0 million and is restricted from making cash distributions to its members (including NCM, Inc.) until at least the third quarter of 2022, subject to meeting certain leverage covenants[176][181] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate fluctuations on variable-rate debt, where a 100-basis point increase would raise annual interest expense by $4.8 million - The company's primary market risk is interest rate risk related to its $175.0 million revolving credit facility and term loans[189] - A 100-basis point fluctuation in market interest rates would change the company's annual cash interest expense by approximately $4.8 million based on outstanding balances as of July 1, 2021[189][190] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of July 1, 2021, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of July 1, 2021, the Chief Executive Officer concluded that the company's disclosure controls and procedures were effective[192] - No changes occurred during the quarter ended July 1, 2021, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[194] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not aware of any pending litigation that would have a material adverse effect on its operating results or financial condition - The company reports no material legal proceedings[196] Item 1A. Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - No material changes to risk factors were reported since the last Form 10-K filing[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 64,251 shares from employees during the quarter to satisfy tax withholding obligations upon restricted stock vesting Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2 - April 29, 2021 | 3,711 | $4.52 | | April 30 - May 27, 2021 | 60,540 | $4.27 | | May 28 - July 1, 2021 | — | $— | Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[200] Item 5. Other Information The company reports no other information - None[203] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including employment agreements and required certifications