National CineMedia(US:NCMI)2022-03-03 21:19Part I Business NCM operates North America's largest cinema advertising network, leveraging its Noovie® pre-show and expanding digital offerings amidst post-pandemic recovery - NCM, Inc. is a holding company that manages NCM LLC, holding a 48.3% interest as of December 30, 2021, with founding members Cinemark and Regal holding the remaining 51.7% and former founding member AMC holding 0.0% ownership at year-end28 - The company's primary business is its cinema advertising network, featuring the Noovie® pre-show, which includes over 20,700 screens in more than 1,600 theaters across 195 Designated Market Areas® (DMAs)30 - The COVID-19 pandemic caused most network theaters to close for approximately six months in 2020, with revenue and attendance remaining below pre-pandemic levels despite all theaters reopening by Q3 2021 and improved attendance with major film releases3435 - The Noovie® pre-show includes a "Classic" version and a "Post-Showtime Inventory" format, with the latter present in theaters representing approximately 57% of the network's attendance as of year-end 202137 - NCM is expanding its digital footprint with products like Noovie Trivia, Noovie ARcade, and the Noovie Audience Accelerator, with mobile apps downloaded approximately 6.5 million times and contributing to a data set of over 274 million records for targeted advertising as of December 30, 2021556162 Advertising Revenue Mix (FY 2021 vs. FY 2020) | Revenue Source | FY 2021 | FY 2020 | | :--- | :--- | :--- | | National Clients | 75% | 74% | | Regional & Local Advertisers | 16% | 19% | - The company's growth strategy involves increasing the value of cinema media through premium Post-Showtime Inventory and affiliate network expansion, diversifying its revenue model with branded content and digital/data solutions, and optimizing operational effectiveness by enhancing technology infrastructure101106111 Risk Factors The company faces significant business and industry risks, including pandemic impacts and competition, alongside corporate structure risks from debt and founding member influence - Business & Industry Risks: - COVID-19 Pandemic: The pandemic continues to disrupt business, with potential for new variants, government restrictions, and permanent changes in consumer behavior (e.g., adoption of streaming) posing significant threats - Theater Attendance: Declines in attendance, whether from competition with alternative film delivery methods or changes in patron behavior like reserved seating, could reduce the value of cinema advertising - Dependence on Founding Members: The business is critically dependent on the ESAs with Cinemark and Regal, where termination, lack of cooperation, or bankruptcy of a founding member could have a material negative impact - Competition: The company competes with all other forms of advertising, including larger and better-known platforms like television and digital media, for a share of the estimated $265 billion U.S. advertising market11812313585 - Corporate Structure Risks: - Holding Company Structure: NCM, Inc. has no operations and depends on cash distributions from NCM LLC, which are subject to restrictions under NCM LLC's debt agreements - Substantial Debt: NCM LLC's significant debt contains restrictive covenants that limit its ability to make investments, acquisitions, and distribute cash, potentially impairing financial condition - Influence of Founding Members: Cinemark and Regal can designate directors and hold veto power over certain major corporate actions, potentially creating conflicts of interest - Tax Receivable Agreement (TRA): The obligation to pay 90% of realized tax benefits to founding members reduces cash flow that would otherwise be available to the company171174178200 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None203 Properties The company owns no material real property, leasing its corporate headquarters in Centennial, Colorado, and additional offices in major cities - The Company's headquarters are located in Centennial, Colorado, with additional leased advertising sales offices in New York, Los Angeles, and Chicago, and development offices in Los Angeles, New York, and Minneapolis204 Legal Proceedings The company is not aware of any pending legal proceedings expected to materially affect its financial condition or operating results - The company is not currently involved in any litigation that is expected to have a material adverse effect on its financial condition or results of operations205 Mine Safety Disclosures This item is not applicable to the company - Not applicable206 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "NCMI", with a dividend policy subject to Board discretion and debt covenants, and includes details on Q4 2021 equity purchases - The company's common stock ($0.01 par value) is traded on The Nasdaq Global Market under the symbol "NCMI"213 - The company intends to pay a regular quarterly dividend, but the declaration and amount are at the sole discretion of the Board of Directors and are dependent on business conditions, financial health, and restrictions under NCM LLC's credit agreements214 Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 29 - Dec 2, 2021 | 40,128 | $3.18 | Reserved This item is reserved and contains no information - This item is reserved218 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 revenue increased to $114.6 million driven by attendance recovery, but operating losses continued, with liquidity managed through credit facility amendments Fiscal Year 2021 vs. 2020 Performance Summary (in millions) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $114.6M | $90.4M | 26.8% | | Operating Loss | $(68.6)M | $(61.0)M | 12.5% | | Net Loss Attributable to NCM, Inc. | $(48.7)M | $(65.4)M | (25.5)% | | Adjusted OIBDA | $(24.7)M | $(19.4)M | 27.3% | | Total Theater Attendance | 250.7M | 138.2M | 81.4% | - The increase in total revenue was primarily driven by the 81.4% increase in network attendance and a 48.0% increase in impressions sold as theaters reopened and major films were released252 - Operating expenses rose 21.0% to $183.2 million, largely due to a 107.7% increase in theater access fees paid to founding members, which are tied to active screens and attendance255257 - The company's liquidity position decreased, with total liquidity (cash plus revolver availability) at $109.3 million at year-end 2021, down from $186.2 million in 2020, and operating activities used $95.2 million in cash in 2021, a significant shift from providing $55.3 million in 2020277281282 - Subsequent to year-end, in January 2022, NCM LLC amended its credit agreement to suspend financial covenants through Q4 2022 and entered into a new $50.0 million revolving credit agreement to bolster liquidity231232 - A key critical accounting estimate is the valuation allowance against deferred tax assets, with the company maintaining a valuation allowance of $223.8 million due to a three-year cumulative loss, which significantly reduces the corresponding payable to founding members under the Tax Receivable Agreement (TRA)309310 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its variable-rate debt, which constituted 43% of total borrowings at year-end 2021 - The company is exposed to interest rate risk on its variable-rate debt, which constituted 43% of total borrowings at year-end 2021301 - A hypothetical 100 basis point (1%) change in market interest rates would increase or decrease annual cash interest expense by approximately $4.8 million based on the debt levels outstanding at December 30, 2021314 Financial Statements and Supplementary Data This section presents audited consolidated financial statements for fiscal years 2021 and 2020, highlighting a $48.7 million net loss, a $383.5 million total deficit, and $95.2 million net cash outflow from operations Consolidated Balance Sheets As of December 30, 2021, total assets were $817.4 million, total liabilities $1,200.9 million, and a total stockholders' deficit of $383.5 million Consolidated Balance Sheet Summary (in millions) | | Dec 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $101.2 | $180.3 | | Receivables, net | $53.0 | $16.2 | | Intangible assets, net | $606.3 | $627.8 | | Total Assets | $817.4 | $886.2 | | Liabilities & Equity | | | | Long-term debt, net | $1,094.3 | $1,049.6 | | Payable to founding members under TRA | $16.4 | $33.5 | | Total Liabilities | $1,200.9 | $1,154.8 | | Total Equity/(Deficit) | $(383.5) | $(268.6) | Consolidated Statements of Income Fiscal 2021 revenue reached $114.6 million, but $183.2 million in operating expenses resulted in a $68.6 million operating loss and a $48.7 million net loss attributable to NCM, Inc Consolidated Statement of Income Summary (in millions) | | Year Ended Dec 30, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Revenue | $114.6 | $90.4 | | Operating Loss | $(68.6) | $(61.0) | | Net Loss Attributable to NCM, Inc. | $(48.7) | $(65.4) | | Net Loss Per Share (Basic & Diluted) | $(0.61) | $(0.84) | Consolidated Statements of Cash Flows Fiscal 2021 saw $95.2 million net cash used in operating activities, a reversal from 2020, with overall cash and cash equivalents decreasing by $79.1 million Consolidated Cash Flow Summary (in millions) | | Year Ended Dec 30, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(95.2) | $55.3 | | Net cash (used in) provided by investing activities | $(5.4) | $15.6 | | Net cash provided by financing activities | $21.5 | $53.5 | | Change in Cash and Cash Equivalents | $(79.1) | $124.4 | Notes to Consolidated Financial Statements The notes detail accounting policies and balances, covering revenue recognition, intangible assets, income taxes, related-party transactions, debt, and commitments - Note 2 (Revenue): Revenue is disaggregated by customer type: National/regional, Local, and Founding Member beverage revenue, with a provision for potential "make-goods" (undelivered ad impressions) of $2.4 million at year-end 2021396399 - Note 5 (Intangible Assets): The company's intangible assets, primarily related to ESAs with founding members, had a net book value of $606.3 million, with no impairment charges recorded in 2021 despite triggering events due to adverse macroeconomic trends408409412 - Note 10 (Borrowings): Total outstanding debt was $1.108 billion as of Dec 30, 2021, with the company securing amendments to its credit agreement to waive non-compliance with financial covenants and provide liquidity, and entering a new $50 million revolving credit agreement subsequent to year-end449451452 - Note 13 (Commitments): The ESAs and affiliate agreements are considered short-term leases under ASC 842, exempting them from balance sheet recognition as ROU assets/liabilities, and the company has minimum revenue guarantees to network affiliates of up to $126.3 million over the agreements' remaining terms485489 - Note 16 (Subsequent Events): In January 2022, the company further amended its credit agreement, extending the covenant waiver holiday through Q4 2022, and in March 2022, declared a quarterly cash dividend of $0.05 per share504508 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable, indicating no changes in or disagreements with the company's accountants - Not applicable509 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 30, 2021, with no material changes identified - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 30, 2021511 - Management concluded that the Company's internal control over financial reporting was effective as of December 30, 2021, based on the COSO framework512 - The company's independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting514518 Other Information The company reports no other information for this item - None525 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item is incorporated by reference from the Company's 2022 Proxy Statement528 Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement530 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement531532 Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement533534 Principal Accounting Fees and Services Information on fees paid to independent auditors for accounting and other services is incorporated by reference from the company's 2022 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement535 Part IV Exhibits, Financial Statement Schedules This section indexes all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications, referencing financial statements and schedules - This item refers to the Index to Financial Statements on page 55 and the Exhibit Index beginning on page 92 of the report537 Form 10-K Summary This item is not applicable to the company's filing - Not applicable544