The Marcus Corporation 2023 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
The filing covers the unaudited 13 weeks ended March 30, 2023, compared with the 13 weeks ended March 31, 2022. The company operates primarily through its Theatres and Hotels/Resorts segments. The first quarter is seasonally weakest for hotels and resorts because of reduced winter travel. Management stated that COVID-19 did not materially affect first-quarter 2023 results.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $152.3 million | $132.2 million | 15.1% increase |
| Operating loss | $9.0 million | $16.8 million | $7.8 million improvement |
| Net loss attributable to Marcus | $9.5 million | $14.9 million | $5.4 million improvement |
| Diluted loss per common share | $0.31 | $0.48 | $0.17 improvement |
| Adjusted EBITDA | $9.5 million | $3.4 million | 182.2% increase |
| Net cash from operating activities | $(7.7) million | $6.5 million | $14.2 million decrease |
| Capital expenditures | $8.9 million | $6.6 million | $2.4 million increase |
The income tax benefit was $2.8 million, compared with $6.5 million in the prior-year quarter. The effective tax rate was 23.1%, compared with 30.5%.
Theatres generated revenue of $96.4 million, up 21.2%, and operating income of $1.5 million, compared with an $8.0 million operating loss. Theatre operating margin improved to 1.6% from negative 10.1%. Hotels/Resorts revenue increased 6.0% to $55.8 million, but the segment operating loss widened to $5.0 million from $3.0 million, with margin declining to negative 9.0% from negative 5.6%.
Theatre attendance increased 13.9%, average ticket price increased 8.8%, and average concession revenue per person increased 5.0%. Comparable hotel occupancy increased to 50.8% from 46.1%, ADR increased to $155.35 from $145.68, and RevPAR increased to $78.95 from $67.19.
Liquidity, Debt, and Cash Flow
- Cash and cash equivalents were $10.1 million at March 30, 2023, compared with $21.7 million at December 29, 2022. Cash, cash equivalents, and restricted cash totaled $12.8 million.
- Debt, net of issuance costs, was $189.3 million, including $9.0 million drawn on the revolving credit facility. Long-term debt was $178.9 million.
- The revolving facility had stated commitments of $225.0 million and availability of $212.8 million after outstanding letters of credit.
- The debt-to-capitalization ratio, excluding finance and operating lease obligations, was 0.30 at quarter-end versus 0.28 at December 29, 2022.
- Cash used in operations was $7.7 million, while investing cash use was $9.5 million. Financing activities provided $5.6 million, primarily reflecting a net $9.0 million increase in revolving credit borrowings, partially offset by dividends and other payments.
- The company paid $1.5 million of dividends during the quarter and repurchased 19,858 shares for approximately $0.3 million. Approximately 2.5 million shares remained available under repurchase authorizations.
On February 10, 2023, the company amended its credit agreement to replace LIBOR with SOFR. The company stated that it had returned to compliance with previously waived financial covenants, including the fixed charge coverage ratio, and that quarterly dividend and repurchase limitations were removed.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven by stronger film availability and attendance, higher ticket and concession pricing, and improved comparable hotel occupancy and ADR.
- Theatre results improved substantially because the quarter had 21 wide-release films versus 12 in the prior-year quarter and benefited from greater labor productivity.
- Hotels/Resorts operating performance declined despite higher comparable-property demand, primarily because The Skirvin Hilton was sold on December 16, 2022, certain other revenue declined, and labor costs increased as staffing levels were restored.
- Interest expense declined to $3.0 million from $4.1 million, while investment income of $0.3 million replaced prior-year investment losses of $0.3 million.
- Operating cash flow declined because the prior-year period included a $22.7 million income-tax refund and $4.3 million of government grants that did not recur.
- The company closed one owned theatre early in the quarter. At quarter-end it operated 84 theatres with 1,053 company-owned screens, compared with 85 theatres and 1,064 screens a year earlier.
Guidance, Outlook, Risks, and Unusual Items
- Management expects fiscal 2023 theatre results to improve but remain below comparable 2019 levels.
- Management estimated a fiscal 2023 effective tax rate of approximately 24% to 28%, excluding further tax-rate changes, valuation allowance adjustments, or other one-time benefits.
- Management expects more films to become available during 2023 and 2024 and identified several scheduled releases with potential to perform well. Film release timing, audience appeal, studio marketing, and theatrical release windows remain outside the company’s control.
- Hotels/Resorts group room revenue bookings for fiscal 2023 were approximately 7% ahead of the comparable prior-year pace, while fiscal 2024 group bookings were approximately 5% behind the comparable prior-year pace. Management cited improving leisure, business, group, banquet, and catering trends.
- Management believes available cash, operating cash generation, and unused credit capacity will support obligations, covenant compliance, and longer-term capital needs for at least 12 months from issuance of the financial statements. It cautioned that weaker theatre recovery, future pandemics, economic conditions, labor and supply costs, weather, competition, and financing conditions could affect liquidity and covenant compliance.
- The $100.1 million of 5.00% convertible senior notes mature in September 2025. They remained eligible for holder conversion during the quarter, although no notes had been converted and management did not expect conversions within the following 12 months.
- No indicators of long-lived asset or goodwill impairment were identified during the quarter. The filing reports no material changes in market risk exposures or risk factors from the 2022 Form 10-K.
Investor Verification Checklist
- Verify the sustainability of theatre attendance, pricing, concession spending, and the expected film-release pipeline.
- Monitor Hotels/Resorts occupancy, RevPAR, labor costs, and the effect of the Skirvin Hilton sale on year-over-year comparisons.
- Confirm compliance with the credit agreement’s debt-to-capitalization and fixed charge coverage covenants in subsequent quarters.
- Assess liquidity and refinancing needs ahead of the 2025 maturity of the convertible notes and other debt.
- Reconcile adjusted EBITDA to GAAP results and evaluate the recurring nature of its adjustments.
- Track operating cash flow, capital expenditures, dividends, and share repurchases because first-quarter operating cash flow was negative.
- Review the company’s stated 24%–28% tax-rate expectation against actual quarterly tax benefits and valuation allowance changes.