Reading International, Inc. — Form 10-Q Summary
Business context and reporting period
Reading International, Inc. operates cinema exhibition and real estate businesses in the United States, Australia, and New Zealand. The filing covers the quarter and six months ended June 30, 2023, with unaudited U.S. GAAP financial statements. The company operated 62 cinemas with 508 screens at quarter-end.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $65.1 million | $64.5 million | $110.9 million | $104.7 million |
| Cinema revenue | $61.1 million | $61.8 million | $103.0 million | $99.1 million |
| Real estate revenue | $5.2 million | $4.0 million | $10.3 million | $8.2 million |
| Operating income (loss) | $1.8 million | $(1.6) million | $(6.1) million | $(13.3) million |
| Net income (loss) | $(2.9) million | $(2.4) million | $(14.2) million | $(17.9) million |
| Net loss attributable to RDI | $(2.8) million | $(2.4) million | $(13.9) million | $(17.8) million |
| Diluted loss per share | $(0.12) | $(0.11) | $(0.63) | $(0.81) |
| Operating margin | 2.8% | (2.4%) | (5.5%) | (12.8%) |
Cinema segment operating income was $4.5 million in Q2, up from $3.5 million, but the segment reported a six-month operating loss of $0.1 million versus a $3.8 million loss in the prior-year period. Real estate segment operating income was $1.3 million in Q2 and $2.3 million for six months, compared with a Q2 loss of $0.1 million and six-month income of $0.02 million in 2022.
Interest expense increased to $4.9 million in Q2 and $9.0 million for six months, from $3.3 million and $6.5 million, respectively. The company recorded no impairment expense in 2023, compared with $1.5 million in Q2 2022. Other income declined to an expense of $0.1 million in Q2 from $3.8 million of income in the prior-year quarter.
Cash flow, debt, and liquidity
- Cash and cash equivalents were $15.5 million at June 30, 2023, down from $29.9 million at December 31, 2022. Cash plus restricted cash was $21.8 million.
- Operating cash flow was negative $8.8 million for the first six months, improving from negative $17.6 million in 2022.
- Investing cash use was $3.4 million, primarily for operating and investment properties. Financing cash use was $0.7 million.
- Total borrowings were $213.8 million, compared with $215.6 million at year-end 2022. Current borrowings, including subordinated debt, were approximately $48.0 million.
- The debt-to-equity ratio was 4.49 at June 30, 2023, compared with 3.41 at December 31, 2022. Working capital was negative $81.9 million and the current ratio was 0.36.
- Debt maturities and scheduled obligations include approximately $48.5 million of debt maturing within twelve months of the filing date, including $22.2 million due October 3, 2023 under the Cinemas 1, 2, 3 term loan.
- Management stated that the company’s ability to avoid substantial doubt about going concern depends on refinancing or extending maturing debt, improving revenue and net income, and monetizing assets. Management concluded that these plans were probable of implementation and alleviated substantial doubt as of the issuance date.
Material changes versus the prior comparable period
- Q2 revenue increased 1%, while six-month revenue increased 6%, primarily from stronger U.S. cinema performance and new rental income from the Petco lease at 44 Union Square.
- U.S. cinema revenue increased 12% in Q2 and 17% for six months. Australia and New Zealand cinema revenue declined 14% and 11%, respectively, in Q2.
- Real estate revenue increased 29% in Q2 and 25% for six months, largely because 44 Union Square rental income began in November 2022.
- Consolidated operating results improved due to stronger segment performance, lower general and administrative expense, lower depreciation and amortization, and the absence of the 2022 impairment charge.
- Net loss attributable to RDI worsened modestly in Q2 because higher interest expense and lower other income more than offset improved segment results; the six-month loss improved by $3.9 million.
- Foreign currency translation reduced other comprehensive income by $1.4 million for the six months, reflecting weaker Australian and New Zealand currencies against the U.S. dollar.
Guidance, outlook, risks, and unusual items
Management expects the global cinema industry to continue recovering during 2023 and into 2024 and 2025, supported by a stronger film slate and renewed consumer interest in theatrical releases. Management cited the Q2 success of films including The Super Mario Bros. Movie, Guardians of the Galaxy Vol. 3, The Little Mermaid, and Spider-Man: Across the Spider-Verse, and noted strong July results associated with Barbie and Oppenheimer. The filing does not provide formal quantitative revenue or earnings guidance.
- The Writers Guild of America strike began May 2, 2023, and the SAG-AFTRA strike began July 14, 2023. Management warned that production stoppages could delay film releases in late 2023, 2024, and 2025.
- Post-pandemic cinema profitability remains pressured by lower film supply, inflation, labor costs, supply-chain issues, higher interest rates, fixed rent escalations, and repayment of deferred rents.
- The company is pursuing cost reductions, lease terminations at underperforming cinemas, limited capital spending, and potential asset sales.
- Two U.S. properties, with a combined book value of $11.7 million, were classified as held for sale: the Culver City administrative building and a Williamsport, Pennsylvania property.
- In July 2023, the company closed the Koko Marina and Ka’ahumanu cinemas in Hawaii and classified its Maitland, Australia cinema as held for sale. In August 2023, the NAB facility maturity was extended to July 31, 2025, with certain covenant modifications.
- 44 Union Square remains only partially leased; the office leasing market in New York City and the slow return to office could impair future leasing and liquidity plans.
- Interest-rate exposure is material: management estimated that a 1% change in short-term rates would change quarterly interest expense by approximately $0.4 million.
- The company’s California employment litigation settlement was accrued in 2021. A $1.4 million payment was made in May 2023, with remaining installments due in February and December 2024.
Important facts for investors to verify
- Progress and final terms of refinancing or extending the $48.5 million of near-term debt maturities, particularly the $22.2 million Cinemas 1, 2, 3 loan.
- Actual cash generation, unrestricted liquidity, covenant compliance, and access to cash held in Australia and New Zealand.
- Timing and proceeds from the planned sale of the Culver City and Williamsport properties and any additional asset monetizations.
- Film release delays and attendance, pricing, food-and-beverage spending, and margins following the Hollywood strikes.
- Leasing progress and valuation of the vacant portion of 44 Union Square.
- Potential impairment of cinema, real estate, goodwill, and other assets if operating forecasts or cinema recovery assumptions weaken.
- Execution and capital requirements for planned Australian and New Zealand cinema additions and other development projects.