Reading International, Inc. — Q3 2023 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2023. Reading operates cinema exhibition businesses in the United States, Australia and New Zealand, plus real estate and live-theatre assets. The company operated 62 cinemas with 507 screens at quarter-end.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $66.6 million | $51.2 million | $177.4 million | $155.9 million |
| Operating income/(loss) | $1.0 million | $(6.7) million | $(5.1) million | $(20.1) million |
| Net income/(loss) | $(4.5) million | $(5.3) million | $(18.7) million | $(23.2) million |
| Net loss attributable to RDI | $(4.4) million | $(5.2) million | $(18.3) million | $(23.0) million |
| Diluted loss per share | $(0.20) | $(0.23) | $(0.82) | $(1.04) |
| Operating cash flow | Not separately reported for the quarter | $(6.4) million | $(26.1) million |
Q3 consolidated operating margin was approximately 1.5%, compared with negative 13.1% in the prior-year quarter. The nine-month operating margin was approximately negative 2.9%, compared with negative 12.9% in 2022. Segment operating income improved to $5.3 million in Q3 and $7.5 million for the nine months, from losses of $2.3 million and $6.0 million, respectively.
- Cinema revenue rose 30% in Q3 to $62.7 million and 12% for the nine months to $165.7 million. Cinema segment operating income was $4.4 million in Q3 and $4.3 million for the nine months, versus losses in both comparable periods.
- Real estate revenue increased 24% in Q3 to $5.1 million and 25% for the nine months to $15.3 million, primarily because of rent from the 44 Union Square Petco lease. Real estate segment operating income was $0.9 million in Q3 and $3.2 million for the nine months.
- Interest expense increased 37% for the nine months to $14.1 million, reflecting higher borrowing costs. Other income declined to $0.4 million from $8.4 million, primarily because the prior-year period included a significant foreign-currency-related gain.
- Cash and cash equivalents were $11.9 million at September 30, 2023, compared with $29.9 million at December 31, 2022. Including restricted cash, liquidity was $17.6 million.
- Total borrowings were $206.9 million net of deferred financing costs, compared with $213.7 million at year-end 2022. Total liabilities were $490.5 million and total equity was $42.1 million.
- Working capital deficit was $85.7 million and the current ratio was 0.33. The debt-to-equity ratio was 4.96 at September 30, 2023, compared with 3.41 at year-end 2022.
- Capital expenditures and property additions were $6.2 million in the first nine months, and cash used in investing activities was $6.2 million.
Material changes versus the prior comparable period
- The stronger film slate, particularly Barbie and Oppenheimer, increased attendance, admissions revenue, food and beverage sales and advertising revenue.
- U.S. cinema revenue increased 39% in Q3 and 24% for the nine months; Australia increased 21% and 1%, respectively; New Zealand increased 16% and 2%, respectively.
- Operating results benefited from improved cinema performance, 44 Union Square rent, lower depreciation and amortization, and the absence of the $1.5 million impairment charge recorded in the first nine months of 2022.
- Revenue growth did not translate into profitability because film-rent expense, labor, occupancy and other operating costs increased. Interest expense also rose materially.
- Cash declined by $17.3 million, including restricted cash, during the first nine months, an improvement from the $42.7 million decline in the prior-year period.
- The company opened cinemas in South City Square, Brisbane, and Busselton, Australia, while closing or electing not to renew several underperforming locations. Rohnert Park, California closed on November 1, 2023.
- Properties classified as held for sale included 5995 Sepulveda Boulevard, Williamsport, Pennsylvania, and Maitland Centre. The Maitland property was sold on October 25, 2023 for AU$2.8 million and leased back for two years.
Guidance, outlook, risks and unusual items
Management expects continued improvement in the cinema industry based on increasing film supply, strong audience demand and expanded food and beverage offerings. However, management states that the Hollywood writers’ and actors’ strikes are likely to affect the 2024 release schedule because of production delays and shifted release dates. No formal quantitative earnings guidance was provided.
Management concluded that its liquidity plans are probable of implementation and alleviate substantial doubt about going concern. Those plans depend on refinancing or extending maturing debt, continued revenue and earnings improvement, rent reductions, and asset monetizations. The filing identifies approximately $58.6 million of debt maturing within twelve months in the going-concern discussion and separately reports $41.5 million due within twelve months in the MD&A; investors should reconcile the different presentations.
- Key near-term maturities include the Westpac New Zealand facility, the Santander Minetta and Orpheum loan, the Bank of America facility, the Cinemas 1, 2, 3 term loan and portions of other debt. Several facilities were extended, including the Cinemas 1, 2, 3 loan to October 1, 2024 and the NAB Australian facility to July 31, 2025.
- Interest rates remain elevated; management estimates that a 1% change in short-term rates would affect quarterly interest expense by approximately $396,000.
- Major risks include film availability and release timing, streaming competition, consumer demand, inflation, labor shortages and costs, fixed cinema rents, debt refinancing, covenant compliance, foreign exchange, seismic issues affecting New Zealand property, and the ability to lease remaining space at 44 Union Square.
- No impairment charges were recorded in the first nine months of 2023, but management continues to identify impairment indicators and relies on forecasts that may be affected by cinema recovery, interest rates, inflation and film release patterns.
- The company reported no material litigation contingencies and no material off-balance-sheet arrangements. Disclosure controls and procedures were assessed as effective.
Important facts for investors to verify
- Progress and pricing of refinancing or extensions for debt maturing through 2024, including the Santander and Westpac facilities.
- Whether cinema cash flow becomes consistently positive enough to fund debt service and operating needs without additional asset sales.
- Actual effects of the Hollywood strikes on the 2024 and 2025 film slate and attendance.
- Execution and net proceeds from planned asset monetizations, including the two U.S. properties held for sale and other potential real estate sales.
- Leasing progress and required investment for the vacant portions of 44 Union Square.
- Trends in attendance, average ticket price, food and beverage spend per patron, film-rent expense, labor costs and cinema occupancy costs.
- Potential impairment of cinema, goodwill and real estate assets if operating recovery or management forecasts do not materialize.