Business Context and Reporting Period
Reading International, Inc. operates cinema exhibition and real estate businesses in the United States, Australia, and New Zealand. This Form 10-Q covers the quarter and nine months ended September 30, 2021, compared with the corresponding 2020 periods. The company operated 62 cinemas with 510 screens at quarter-end.
Results continued to be materially affected by COVID-19, although most cinemas had reopened. As of the report date, 57 of 62 cinemas were open; attendance remained below pre-pandemic levels because of restrictions, consumer caution, film-release timing, and competition from streaming services.
Key Financial Metrics
| U.S. dollars in thousands, except per-share data | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $31,803 | $10,191 | $89,142 | $62,841 |
| Cinema revenue | $28,751 | $7,339 | $79,580 | $54,866 |
| Real estate revenue | $3,052 | $2,852 | $9,562 | $7,975 |
| Operating income (loss) | $(10,951) | $(17,375) | $(37,461) | $(46,610) |
| Net income (loss) | $(10,200) | $(19,352) | $34,461 | $(48,195) |
| Net income (loss) attributable to RDI | $(10,095) | $(19,228) | $31,572 | $(47,806) |
| Basic EPS | $(0.46) | $(0.88) | $1.45 | $(2.20) |
- Revenue increased 212% year over year in the third quarter and 42% for the first nine months, primarily because more cinemas were operating and major films were released.
- Operating margins were approximately negative 34% in Q3 and negative 42% for the nine-month period. The company remained unprofitable from operations.
- The nine-month net profit was largely driven by a $92.3 million gain on asset sales, rather than recurring operating performance.
- Cash and cash equivalents were $90.9 million at September 30, 2021, compared with $26.8 million at December 31, 2020. Approximately $8.4 million was held in U.S. operations, $59.8 million in Australia, and $22.7 million in New Zealand.
- Cash used in operating activities was $17.8 million for the nine months, improving from $28.0 million used in the prior-year period.
- Cash provided by investing activities was $127.5 million, including $145.2 million of asset-sale proceeds. Cash used in financing activities was $41.0 million.
- Total borrowings were $242.6 million net of deferred financing costs at September 30, down from $282.6 million at year-end 2020. Gross debt was $245.8 million, excluding deferred financing costs. The debt-to-equity ratio was 2.37 versus 3.51 at December 31, 2020.
- Working capital was positive at $4.8 million, compared with a $64.1 million deficit at December 31, 2020; the current ratio was 1.05 versus 0.47.
Material Changes Versus the Prior Comparable Period
- Cinema segment revenue rose to $28.8 million in Q3 from $7.3 million, while the segment operating loss narrowed to $5.1 million from $13.4 million. For nine months, cinema revenue increased 45% and the segment loss narrowed to $20.7 million from $33.3 million.
- Real estate revenue was relatively stable at $3.2 million in Q3 and $9.9 million for nine months, but the real estate operating loss increased to $1.5 million in Q3 and $3.9 million for nine months, primarily due to 44 Union Square costs, depreciation, and lower Australian rental income after asset sales.
- The company monetized Coachella, Manukau, Royal George, Auburn/Redyard, and Invercargill properties. These transactions generated approximately $139.4 million of net proceeds to the company during 2021 and supported debt reduction and liquidity.
- The company’s accumulated other comprehensive income declined to $4.3 million from $12.5 million, primarily because of an $8.5 million foreign-currency translation loss for the nine months.
- General and administrative expense increased in part because the prior-year period included an $809,000 legal costs award in favor of the company and government wage subsidies that were not repeated to the same extent in 2021.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide formal quantitative earnings or revenue guidance. Management expects the cinema industry to continue recovering during 2021 and into 2022, supported by vaccinations, reopening activity, and anticipated film releases, but emphasized that forecasts remain highly uncertain.
- Management concluded that the company has sufficient resources to meet obligations for at least one year after issuance of the Form 10-Q and stated that substantial doubt regarding going concern had been alleviated after refinancing and asset monetization activities.
- There is no material debt maturity until 2023, but the company remains dependent on continued cinema recovery, asset liquidity, lender accommodations, and covenant compliance.
- COVID-19 variants, renewed closures or capacity restrictions, labor shortages, inflation, supply-chain interruptions, consumer reluctance, streaming competition, and film-release delays remain material risks.
- As of September 30, the company was in compliance with its loan covenants as modified. Subsequent to quarter-end, Bank of America replaced covenants with a liquidity test, converted a line of credit to a term loan, and the company repaid and retired its $5.0 million Bank of America line of credit.
- The company accrued a $4.0 million settlement for California employment-related claims, subject to final settlement documentation and court approval. A hearing was not expected until the first quarter of 2022.
- No long-lived asset or goodwill impairment charges were recorded for the quarter or nine months, although impairment conclusions depend on uncertain recovery assumptions.
- The 44 Union Square property remained in the leasing phase, with no assurance that space will be leased on acceptable terms in the near term. Courtenay Central remains closed because of seismic concerns, and the timing of redevelopment is uncertain.
- The company reported no material off-balance-sheet arrangements and stated that pending litigation was not reasonably likely to have a material adverse effect, although outcomes could affect particular reporting periods.
Investor Verification Items
- Verify the sustainability of liquidity after the $145.2 million of asset-sale proceeds are excluded and operating cash flow remains negative.
- Assess recurring cinema profitability separately from the $92.3 million gain on asset sales and other non-recurring items.
- Review the 2023 debt maturities, interest-rate exposure, covenant requirements, and subsequent Bank of America and NAB amendments.
- Monitor cinema attendance, occupancy restrictions, film-release schedules, food-and-beverage spending, and reopening status by country.
- Evaluate leasing progress and carrying costs for 44 Union Square and other redevelopment properties.
- Confirm the final approval, payment timing, and accounting impact of the $4.0 million California employment settlement.
- Review foreign-currency exposure, especially the Australian and New Zealand dollar impact on assets, cash, debt, and comprehensive income.