The Marcus Corporation: FY2020 Form 10-K Summary
Business context and reporting period
The filing covers the 53-week fiscal year ended December 31, 2020, compared with the 52-week fiscal year ended December 26, 2019. The Marcus Corporation operates two primary segments: movie theatres and hotels and resorts. At year-end, it operated 89 theatres with 1,097 screens across 17 states and owned, operated or managed approximately 5,100 hotel and resort rooms.
Fiscal 2020 was dominated by the COVID-19 pandemic. All theatres closed on March 17, 2020; approximately 52% were reopened at December 31, 2020, rising to approximately 69% at the filing date. All eight company-owned hotels had reopened by year-end, but at substantially reduced occupancy and revenue levels.
Financial performance and key metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $237.7 million | $820.9 million | Down 71.0% |
| Operating income (loss) | $(178.4) million | $68.2 million | Down $246.6 million |
| Net income (loss) attributable to Marcus | $(124.8) million | $42.0 million | Down $166.8 million |
| Diluted EPS | $(4.13) | $1.35 | Down $5.48 |
| Cash flow from operations | $(68.6) million | $141.5 million | Down $210.1 million |
| Capital expenditures | $21.4 million | $64.1 million | Down 66.7% |
| Debt-to-capitalization | 37% | 26% | Up 11 points |
The income tax benefit was $70.9 million, compared with $12.3 million of tax expense in FY2019. The benefit included CARES Act-related tax benefits and accounting method changes. Excluding those favorable items, management reported a FY2020 effective tax rate of approximately 26.0%.
Fiscal 2020 operating results included approximately $11.5 million of nonrecurring expenses, $24.7 million of impairment charges, $7.0 million of state COVID-19 grants and $1.8 million of net insurance proceeds. The 53rd week contributed approximately $5.1 million of revenue without a material impact on operating loss or net loss.
Segment results
| Segment | FY2020 revenue | FY2019 revenue | FY2020 operating income (loss) | FY2020 margin |
|---|---|---|---|---|
| Theatres | $132.6 million | $557.1 million | $(121.4) million | (91.6%) |
| Hotels and resorts | $104.6 million | $263.4 million | $(43.9) million | (41.9%) |
- Theatre attendance declined 77.1%, admission revenue declined 77.2%, and concession revenue declined 75.5%. Average ticket price declined 0.4%, while average concession revenue per patron increased 6.8%.
- Comparable company-owned hotel occupancy declined to 38.2% from 73.6%; ADR declined 11.6% to $136.52 and RevPAR declined 54.1% to $52.12.
- Theatres recorded approximately $24.7 million of impairment charges related to theatre properties and the Movie Tavern trade name. Goodwill of approximately $75.2 million was not impaired.
Liquidity, debt and cash flow
- Cash and cash equivalents were $6.7 million at December 31, 2020; cash, cash equivalents and restricted cash totaled $14.1 million.
- The company had $220 million of availability under its $225 million revolving credit facility.
- Short-term borrowings totaled $87.2 million, primarily reflecting a $90.8 million Term Loan A that matures September 22, 2021.
- Total long-term debt before current maturities was $193.0 million, including $100.1 million of 5.00% convertible senior notes due 2025 and $100.0 million of senior notes due 2025 through 2027, net of debt issuance costs and discount.
- The company received $13.5 million of PPP loans; approximately $10.0 million was used for qualifying expenses and management expects the qualifying portion to be forgiven. Approximately $3.4 million remained expected to be repaid at year-end.
- Contractual obligations totaled $782.0 million, including $226.0 million of long-term debt, $338.0 million of operating lease obligations, $27.5 million of finance lease obligations and $87.2 million of short-term borrowings.
- Dividends were suspended after $5.1 million was paid during FY2020. Debt agreements restrict dividends and open-market share repurchases until specified covenant and Term Loan A conditions are satisfied.
Management stated that available liquidity, expected tax refunds, government grants and potential real estate proceeds should support operations and debt compliance for at least 12 months from issuance of the financial statements. The filing nevertheless emphasizes that covenant compliance depends on the pace of recovery, film releases and government restrictions.
Material changes versus the prior comparable period
- Revenue fell 71.0% and the company moved from operating and net profit to substantial operating and net losses because of closures and reduced demand.
- Operating cash flow shifted from a $141.5 million inflow to a $68.6 million outflow.
- Debt-to-capitalization increased from 26% to 37%, while the company added the Term Loan A and convertible notes to strengthen liquidity.
- Capital spending fell from $64.1 million to $21.4 million, and planned growth projects were deferred or abandoned, including the Tacoma theatre project.
- The company closed one Movie Tavern theatre, sold a seven-screen budget cinema and sold two land parcels and a former budget theatre for approximately $3.0 million.
- Hotel and resort available rooms declined to 5,132 from 5,385, primarily because of changes in managed properties.
- The company early adopted ASU 2020-06 on January 1, 2021, eliminating the separate equity component accounting model for convertible debt and increasing reported long-term debt by approximately $21.4 million on adoption.
Guidance, outlook, risks and unusual items
- Management expects FY2021 cash capital expenditures of approximately $15 million to $25 million, including approximately $10 million to $15 million for theatres and $5 million to $10 million for hotels and resorts.
- Management expects theatres to significantly underperform in the first quarter of FY2021, improve in the second quarter and progressively recover toward more normal performance in the second half. Pre-COVID occupancy levels are not expected to return during FY2021.
- The company expects the FY2021 film slate to improve, particularly in the second half, but release dates and distribution models remain uncertain. Certain studios have shortened theatrical windows or used simultaneous streaming releases.
- Hotel recovery is expected to rely initially on drive-to leisure demand. Business travel, group bookings and banquet activity remained materially below prior-year levels, and FY2021 group pace was significantly behind the comparable prior-year position.
- Potential real estate sales over the next 12 to 18 months were estimated at approximately $10 million to $40 million, depending on market demand. Properties with a $4.1 million carrying value were subject to letters of intent or contracts at year-end.
- Key risks include prolonged or renewed COVID-19 restrictions, weak consumer demand, insufficient film supply, shorter theatrical windows, streaming competition, hotel occupancy and rate pressure, covenant breaches, refinancing risk, impairment charges and the ability to service or refinance debt.
- The filing identifies liquidity and going-concern forecasting, long-lived asset impairment, theatre goodwill valuation and convertible note accounting as critical audit matters. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Actual theatre openings, attendance, film availability and capacity restrictions during FY2021, including the sustainability of any recovery.
- Compliance with minimum liquidity, EBITDA and other debt covenants, particularly the September 2021 Term Loan A maturity.
- Receipt and use of expected tax refunds, state grants, PPP forgiveness and proceeds from planned real estate sales.
- The pace of hotel occupancy, RevPAR, group bookings and business travel recovery.
- The effect of shortened theatrical windows and simultaneous streaming releases on admission revenue and theatre-level margins.
- Potential additional impairments of theatre properties, the Movie Tavern trade name or theatre goodwill if recovery assumptions weaken.
- The timing and conditions for reinstatement of dividends or open-market share repurchases.