The Marcus Corporation: Q1 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the 13 weeks ended April 1, 2021, compared with the 13 weeks ended March 26, 2020. The Marcus Corporation operates movie theatres and hotels/resorts. Results remained heavily affected by the COVID-19 pandemic, including government restrictions, reduced attendance, delayed film releases, lower travel demand and temporary business closures.
- Theatres open increased from approximately 52% at the start of the quarter to 74% at quarter-end and approximately 89% by the filing date.
- All eight company-owned hotels and all but one managed hotel were open during the quarter, although most generated significantly reduced revenue.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $50.8 million | $159.5 million | Down 68.2% |
| Operating loss | $35.7 million | $22.2 million | Loss increased $13.5 million |
| Net loss attributable to Marcus | $28.1 million | $19.4 million | Loss increased $8.7 million |
| Diluted loss per Common share | $0.93 | $0.64 | Loss increased $0.29 |
| Net cash used in operating activities | $13.0 million | $16.6 million | Improved $3.6 million |
| Capital expenditures | $1.5 million | $10.0 million | Down $8.5 million |
| Net cash from financing activities | $9.2 million | $132.4 million | Down $123.2 million |
- The income tax benefit was $10.8 million, compared with $6.6 million in the prior-year quarter. The effective tax rate was 27.7%, compared with 25.3%; management stated that the 2021 rate benefited from nonrecurring first-quarter adjustments.
- Interest expense increased to $4.8 million from $2.5 million, primarily because of higher borrowings, higher average interest rates and increased amortization of debt issuance costs.
- Operating margin was approximately negative 70.2% based on total revenue and operating loss.
- Theatres generated $22.6 million of revenue and a $25.6 million operating loss, compared with $109.2 million of revenue and a $7.1 million operating loss.
- Hotels/resorts generated $28.1 million of revenue and a $5.7 million operating loss, compared with $50.2 million of revenue and a $10.9 million operating loss.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $6.0 million at April 1, 2021; cash, cash equivalents and restricted cash totaled $12.9 million.
- The company had approximately $207.2 million of availability under its $225 million revolving credit facility, after letters of credit.
- Short-term borrowings were $83.3 million, including a $90.8 million Senior Term Loan A classified as short-term borrowings before related adjustments. Long-term debt was $227.8 million.
- Total debt excluding lease obligations was approximately $322.4 million, and management reported a debt-to-capitalization ratio of 0.41, versus 0.37 at December 31, 2020.
- Total assets were $1.23 billion and shareholders’ equity was $457.9 million at April 1, 2021, compared with $1.25 billion and $498.7 million, respectively, at December 31, 2020.
- The company received $5.9 million of remaining fiscal 2019 tax refunds, $4.9 million of prior-year government grants and an additional $1.3 million of theatre grants during the quarter. It filed claims for approximately $24.2 million of fiscal 2020 tax refunds.
Material changes versus the prior comparable period
- Theatre attendance fell 81.4%; admission revenue declined 80.7% and concession revenue declined 78.4%. Average ticket price increased 3.7%, while average concession revenue per person increased 16.0%.
- Hotel occupancy declined to 28.3% from 54.2%, and RevPAR declined 46.4% to $37.66. ADR increased 2.6% to $133.12.
- Hotels/resorts operating loss improved despite lower revenue, primarily because the prior-year quarter included approximately $2.7 million of pandemic-related closure costs and the company implemented stronger cost controls.
- The prior-year quarter included approximately $8.7 million of impairment charges and approximately $5.5 million of pandemic-related expenses. No impairment indicators were identified in Q1 2021.
- The company recorded a gain of approximately $2.2 million on dispositions, primarily from selling an equity investment for approximately $4.2 million.
- Capital spending was reduced substantially, and no dividend was paid in Q1 2021 versus $5.1 million in Q1 2020. The amended credit agreement requires suspension of dividends during the first two quarters of fiscal 2021.
- The company early adopted ASU 2020-06, increasing reported long-term debt by $21.4 million and reducing capital in excess of par by $16.5 million at adoption, with related balance-sheet adjustments.
Guidance, outlook, risks and unusual items
- Management expected the majority of remaining closed theatres to open and most theatres to return to standard operating days and hours by the end of May 2021.
- Management expected theatre results to improve in Q2 2021, remain materially below fiscal 2019, and progressively approach normal performance during the second half of fiscal 2021 and Q1 2022.
- Management did not expect hotels to return to pre-COVID occupancy levels during fiscal 2021. Near-term demand was expected to be driven primarily by drive-to leisure travel, while group and business travel remained weak.
- Management estimated potential real estate sale proceeds of approximately $10 million to $40 million over the next 12 to 18 months, subject to market demand and execution.
- The company believed it had sufficient liquidity to meet obligations and comply with debt covenants for at least 12 months from the financial statement issuance date. However, covenant compliance depends on the pace of reopening, movie releases, consumer demand and recovery in both business segments.
- If recovery is slower than expected, the company may need covenant waivers or amendments; there is no assurance that these would be obtained.
- Key risks include continuing pandemic effects, government restrictions, customer reluctance to gather indoors, film availability and release timing, changes in theatrical release windows, weak business travel, economic conditions, access to financing and the company’s ability to service debt.
Important facts for investors to verify
- Reopening progress, attendance trends, film release schedules and the sustainability of recent theatre performance.
- Hotel occupancy, RevPAR, group bookings and business-travel recovery.
- Actual cash burn, tax refund receipts, grant proceeds and real estate sale proceeds.
- Compliance with debt covenants and the September 2021 maturity of the $90.8 million Term Loan A.
- Availability under the revolving credit facility and the effect of higher interest expense.
- Timing and conditions for resuming dividend payments and open-market share repurchases.
- The filing states that no material changes occurred in previously disclosed risk factors, but pandemic-related assumptions remain subject to substantial uncertainty.