The Marcus Corporation — Q1 2022 Form 10-Q Summary
Business context and reporting period
The filing covers the 13 weeks ended March 31, 2022, compared with the 13 weeks ended April 1, 2021. The company operates two primary segments: Theatres and Hotels/Resorts. Results continued to reflect recovery from COVID-19 disruptions, with all company-owned theatres and eight company-owned hotels open during the quarter.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenues | $132.2 million | $50.8 million | Up 160.4% |
| Operating loss | $16.8 million | $35.7 million | Improved by $18.9 million |
| Net loss attributable to Marcus | $14.9 million | $28.1 million | Improved by $13.2 million |
| Diluted loss per common share | $0.48 | $0.93 | Improved by $0.45 |
| Adjusted EBITDA | $3.4 million | $(17.5) million | Improved by $20.8 million |
| Net cash from operating activities | $6.5 million | $(13.0) million | Improved by $19.5 million |
Consolidated operating margin improved to approximately negative 12.7% from negative 70.2%, while net margin improved to approximately negative 11.3% from negative 55.4%. The income tax benefit was $6.5 million, compared with $10.8 million in the prior-year quarter; the effective tax rate was 30.5% versus 27.7%.
Theatre revenue was $79.5 million, up 252.3%, and the theatre operating loss narrowed to $8.0 million from $25.6 million. Theatre attendance increased 238.3% year over year, but theatre revenue remained 30.8% below Q1 2019. Hotels/Resorts revenue was $52.7 million, up 87.2%, and the operating loss narrowed to $3.0 million from $5.7 million. Hotel occupancy was 48.0%, ADR was $147.10, and RevPAR was $70.59.
Capital expenditures were $6.6 million, compared with $1.5 million in the prior-year period. Cash proceeds from asset disposals were $3.4 million. Cash, cash equivalents and restricted cash totaled $24.3 million at March 31, 2022, including $19.4 million of unrestricted cash.
Debt, liquidity and balance sheet
Total debt and short-term borrowings, net of issuance costs, were $261.5 million at March 31, 2022, compared with $262.5 million at December 30, 2021. Long-term debt was $203.9 million and short-term borrowings were $46.6 million. The company had no outstanding revolving-credit borrowings and reported $221.4 million of availability under its $225 million revolving facility, after letters of credit.
The debt-to-capitalization ratio, including short-term borrowings and excluding lease obligations, was 0.37, unchanged from December 30, 2021. The company received a $23.0 million federal tax refund, including interest, and $4.3 million of state theatre grants during the quarter. Management stated that liquidity should be sufficient to meet obligations and comply with debt covenants for at least 12 months from the financial statement issuance date.
Material changes versus the prior comparable period
- Revenue and operating performance improved substantially as theatres operated normally and travel activity recovered from pandemic lows.
- Theatres generated positive segment Adjusted EBITDA of $4.8 million, compared with negative $13.7 million in Q1 2021. Hotels/Resorts generated $2.4 million, compared with negative $0.3 million.
- Interest expense declined to $4.1 million from $4.8 million.
- The prior-year quarter included an approximately $1.3 million nonrecurring state government grant that benefited theatre results.
- Gain on disposition of property and other assets declined to $0.4 million from $2.2 million, primarily because the prior-year period included a $2.1 million gain on the sale of a joint-venture investment.
- Share-based compensation increased to $2.9 million from $1.5 million, contributing to higher corporate operating costs.
- The company ceased management of two El Paso hotels effective February 28, 2022, and reported its first full quarter operating the Kimpton Hotel Monaco Pittsburgh, in which it has a minority equity interest.
Outlook, management commentary and risks
Management expects theatre performance to continue improving during fiscal 2022 but to remain below comparable 2019 levels, with a return closer to normal performance expected to progress into fiscal 2023. Management cited an improving film slate, higher consumer comfort with public gatherings and strong titles scheduled for the remainder of 2022. The company expects hotels and resorts to improve sequentially and year over year, but does not expect pre-pandemic occupancy levels during fiscal 2022 because business travel remains below normal.
Fiscal 2022 real estate sale proceeds are estimated at approximately $5 million to $15 million, subject to market demand and transaction execution. Management expects an effective tax rate of approximately 24% to 28% for the remaining quarters of fiscal 2022, excluding changes in tax rates or one-time benefits.
Key risks include renewed COVID-19 restrictions or reduced consumer confidence, film release timing and audience appeal, shortened theatrical distribution windows, slower recovery in business and group travel, labor and supply-cost inflation, adverse economic conditions, weather, competition, access to financing and compliance with debt covenants. The company’s liquidity and covenant compliance depend materially on continued operating recovery and the timing of new movie releases. Management stated that covenant waivers or amendments might be required if performance deteriorates, with no assurance of success.
The Credit Agreement includes minimum liquidity and EBITDA requirements, debt and capital-expenditure restrictions, and a term loan balance of $46.6 million due September 22, 2022. Dividend payments and share repurchases are restricted; no dividends were paid during the quarter.
Investor verification checklist
- Verify the pace of theatre attendance and revenue recovery against 2019 levels, including reliance on a limited number of blockbuster films.
- Monitor hotel occupancy, RevPAR, business travel and group booking pace; fiscal 2022 group room revenue bookings were approximately 12% below the comparable 2019 position.
- Reconcile reported liquidity with the $100 million covenant minimum applicable at March 31, 2022 and subsequent covenant thresholds.
- Track the September 2022 term-loan maturity, interest-rate exposure and compliance with EBITDA and debt-to-capitalization requirements.
- Assess whether anticipated real estate sale proceeds of $5 million to $15 million are realized.
- Distinguish GAAP losses from non-GAAP Adjusted EBITDA and review the effects of share-based compensation, grants, tax refunds and asset-disposition gains.
- Review future developments involving COVID-19 variants, government restrictions, film release windows and consumer demand.