Reading International, Inc. — Q1 2023 Form 10-Q
Business Context and Reporting Period
Reading International, Inc. operates cinema exhibition businesses in the United States, Australia and New Zealand, together with retail, commercial and live-venue real estate assets. The filing covers the three months ended March 31, 2023, and is unaudited. The company operated 63 cinemas with 511 screens at period-end.
Financial Results and Key Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $45.8 million | $40.2 million | +14% |
| Cinema revenue | $42.0 million | $37.3 million | +12% |
| Real estate revenue | $5.1 million | $4.2 million | +22% |
| Operating loss | $(7.9) million | $(11.8) million | Improved $3.9 million |
| Net loss | $(11.3) million | $(15.5) million | Improved $4.1 million |
| Net loss attributable to RDI | $(11.1) million | $(15.4) million | Improved $4.2 million |
| Loss per diluted share | $(0.50) | $(0.70) | Improved $0.20 |
| Net cash used in operating activities | $(11.6) million | $(14.1) million | Improved $2.5 million |
Cinema segment operating loss improved to $4.6 million from $7.2 million, while real estate segment operating income increased to $1.0 million from $0.1 million. Consolidated operating margin was approximately negative 17.2%, compared with negative 29.3% in the prior-year quarter.
At March 31, 2023, cash and cash equivalents were $14.6 million, restricted cash was $5.7 million, total assets were $560.2 million and total stockholders’ equity was $51.0 million. Total borrowings were $213.4 million, including $48.1 million classified as current. Operating lease liabilities totaled $216.8 million.
Material Changes Versus the Prior Comparable Period
- Revenue benefited from a stronger and more diversified film slate, including Avatar: The Way of Water, Ant-Man and the Wasp: Quantumania and Creed III.
- U.S. cinema revenue increased 25%, while Australia and New Zealand cinema revenue increased 1% and 4%, respectively.
- Real estate revenue and segment income benefited from rental income from the Petco lease at 44 Union Square, which was not recognized in the first quarter of 2022.
- Cinema operating expenses increased 8% to $42.9 million, driven by higher film rent, operating costs and the discontinuation of virtual print fees.
- General and administrative expense decreased, partly because of recovery of previously written-off doubtful debt and lower U.S. depreciation and amortization.
- Interest expense increased to $4.1 million from $3.2 million, reflecting higher borrowing costs.
- Cash and cash equivalents declined by $15.3 million from December 31, 2022, while total borrowings declined by $2.3 million.
- Foreign currency translation losses and cash-flow-hedge losses reduced comprehensive income by $1.3 million during the quarter.
Liquidity, Debt and Going-Concern Considerations
The company used $11.6 million of cash in operating activities, $1.5 million in investing activities and $1.4 million in financing activities. Cash and restricted cash declined to $20.4 million from $35.0 million at December 31, 2022. Working capital was negative $94.2 million, and the current ratio was 0.26.
The company disclosed $48.1 million of debt maturing within twelve months of the filing date, including $22.3 million due July 3, 2023. Additional facilities include an $8.0 million loan due in November 2023 and an $8.7 million Westpac facility due in January 2024. Management expects to refinance or extend maturing debt, improve operating results and monetize assets to support liquidity.
Management concluded that its plans were probable of implementation and alleviated substantial doubt about the company’s ability to continue as a going concern. This conclusion depends materially on refinancing, asset monetizations, improved cinema attendance and the anticipated film release schedule. The company listed its Culver City office building for sale on May 12, 2023.
Outlook, Commentary, Risks and Unusual Items
- Management expects continued cinema-industry recovery in 2023 and 2024, supported by releases including Guardians of the Galaxy Vol. 3, Spider-Man: Across the Spider-Verse, Barbie, Oppenheimer and other scheduled titles. The success of The Super Mario Bros. Movie was cited as a positive early-Q2 development.
- Attendance remains below pre-COVID levels, while film license fees, labor, utilities, insurance, rent and borrowing costs have increased. Streaming and shortened theatrical exclusivity periods remain structural risks.
- Management continues cost reductions, automation, labor-hour controls and selective cinema closures. Two additional cinemas were being evaluated for potential closure, and the Wellington cinema remained closed because of seismic concerns.
- The company recorded no impairment charges in Q1 2023 and identified no new goodwill impairment-triggering events, but asset recoverability remains sensitive to attendance, film availability, inflation, interest rates and projected cash flows.
- The $4.0 million California employment litigation settlement is payable in installments beginning May 18, 2023, with further payments in 2024. The settlement was accrued in 2021.
- Real estate risks include the slow New York office market, continued vacancy and redevelopment uncertainty at 44 Union Square, seismic issues at Courtenay Central, and higher construction and financing costs.
- A 1% change in short-term interest rates would affect quarterly interest expense by approximately $0.4 million, based on the company’s disclosed sensitivity.
Investor Verification Checklist
- Verify refinancing or extension of the $22.3 million Cinemas 1, 2, 3 term loan and other 2023–2024 maturities.
- Monitor unrestricted cash, operating cash burn, working-capital deficits and progress on asset sales.
- Assess whether cinema attendance, film availability and food-and-beverage spending can support sustained positive segment cash flow.
- Review covenant compliance, lender waivers and the terms of the Bank of America facility amendment.
- Track leasing progress and rent collections at 44 Union Square and the potential sale of the Culver City office building.
- Evaluate exposure to interest rates, foreign currency movements, labor and insurance costs, film-rental rates and lease obligations.
- Confirm the timing and funding of the California employment settlement payments and any material litigation developments.