Reading International, Inc. — Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
Reading International operates cinema exhibition and real estate businesses in the United States, Australia, and New Zealand. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021. The company operated 63 cinemas with 515 screens at quarter-end.
All cinemas were open during the quarter, except for two locations closed for non-pandemic reasons. Management stated that attendance remained below pre-pandemic levels; cinema revenue was approximately 65% of the comparable 2019 period.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $40.2 million | $21.3 million | +89% |
| Cinema revenue | $37.3 million | $18.1 million | More than doubled |
| Real estate revenue | $4.2 million | $3.3 million | +25% |
| Operating income (loss) | $(11.8) million | $(14.0) million | Improved by $2.2 million |
| Operating margin | (29.3%) | (65.6%) | Improved |
| Net income (loss) | $(15.5) million | $22.1 million | Declined $37.5 million |
| Net loss attributable to RDI | $(15.4) million | $19.0 million | Declined $34.3 million |
| Basic and diluted EPS | $(0.70) | $0.87 basic; $0.86 diluted | Unfavorable |
| Net cash used in operating activities | $(14.1) million | $(3.8) million | More cash used |
Cinema exhibition generated a segment operating loss of $7.2 million, or approximately 19% of cinema revenue, compared with an $8.3 million loss in the prior-year quarter. Real estate generated segment operating income of $0.1 million, compared with a $1.4 million loss.
Cash, cash equivalents, and restricted cash totaled $71.8 million at March 31, 2022, including $67.3 million of unrestricted cash. Cash and restricted cash decreased by $16.8 million during the quarter. Capital expenditures and additions to operating and investment properties were $1.7 million.
Total borrowings were $238.1 million net of deferred financing costs, compared with $234.0 million at December 31, 2021. Gross debt was $238.1 million, and the debt-to-equity ratio was 2.55 compared with 2.26 at year-end. Current debt and subordinated debt totaled approximately $41.7 million. Operating lease liabilities totaled $244.6 million. Working capital was negative $55.6 million, with a current ratio of 0.60.
Material Changes Versus the Prior Comparable Period
- Revenue increased primarily because most U.S. cinemas were closed during January and February 2021, while the cinema portfolio operated substantially throughout Q1 2022. Improved film releases, including The Batman and Uncharted, also supported results.
- Cinema operating losses narrowed by approximately $1.1 million despite higher film rent, operating costs, and resumed occupancy costs in Australia and New Zealand.
- Real estate results improved by approximately $1.5 million, supported by U.S. live-theatre rental income and the resumption of certain internal rents.
- Net income swung to a loss because Q1 2021 included a $46.5 million gain on asset sales, principally related to Manukau and Coachella real estate transactions. No comparable asset-sale gain occurred in Q1 2022.
- Interest expense declined by $1.2 million due to debt repayments and refinancing activity, while other expense increased by $2.4 million, primarily from foreign-exchange losses.
- Operating cash flow deteriorated by $10.3 million, reflecting working-capital movements, including changes in taxes payable, accrued expenses, accounts payable, and film rent.
Guidance, Outlook, Risks, and Unusual Items
The company did not provide formal quantitative earnings guidance. Management expects the global cinema industry to continue recovering during 2022 and 2023, but emphasizes that forecasts remain highly uncertain. Management believes current resources are sufficient to meet obligations due within one year after issuance of the filing and stated that prior substantial doubt regarding going concern was alleviated after refinancing and real estate monetization actions completed by June 2021.
- Key risks include renewed COVID-19 variants, delayed or reduced film releases, shortened theatrical windows, streaming competition, inflation, higher fuel prices, labor shortages, and weaker discretionary spending.
- Liquidity remains a significant concern because the company is operating at a loss, used $14.1 million of cash in operations, has negative working capital, and has material debt maturities beginning in 2022 and 2023.
- The Cinemas 1, 2, 3 term loan maturity was extended to October 1, 2022. Bank of America, NAB, and Westpac facilities remain subject to specified covenants; Westpac waived the March 31, 2022 covenant testing requirement.
- The company may need to reduce or defer capital spending, sell additional assets, or restructure debt if cash flow is insufficient or borrowing capacity is constrained.
- The company entered into a long-term lease for portions of its 44 Union Square property in New York and expects tenant occupancy in 2022 after tenant improvements. Leasing of the remaining space is not assured.
- No impairment charges were recorded for long-lived assets, goodwill, or indefinite-lived intangible assets during the quarter, but impairment conclusions depend on uncertain recovery forecasts.
- A $4.0 million settlement of California employment litigation was accrued in 2021 and remains subject to final court approval. A New Zealand arbitration involving General Distributors Limited seeks specific performance rather than damages; no reserve was recorded.
- Foreign exchange and interest-rate exposure remain material. Management estimated that a 1% change in short-term interest rates would affect quarterly interest expense by approximately $0.5 million.
Facts Investors Should Verify
- Progress of cinema attendance and revenue recovery relative to pre-pandemic levels, including whether the reported 65% of 2019 cinema revenue improves.
- Availability of cash to fund operating losses and approximately $31.6 million of scheduled 2022 debt payments, before interest and other obligations.
- Refinancing, extension, or repayment plans for debt maturing in 2022 and 2023, and ongoing compliance with lender covenants.
- Timing, cost, and occupancy of the 44 Union Square tenant improvements and the ability to lease the remaining space.
- Final court approval and payment schedule for the $4.0 million California employment settlement.
- Potential impairment or liquidity effects if cinema recovery, film availability, tenant collections, or foreign exchange conditions deteriorate.