The Marcus Corporation: Form 10-Q Summary
Business context and reporting period
The Marcus Corporation operates movie theatres and hotels/resorts. This filing covers the 13 and 26 weeks ended June 25, 2020, compared with the periods ended June 27, 2019. Fiscal 2020 is a 53-week year. Results were severely affected by COVID-19-related closures and restrictions.
Key financial metrics
| Metric | 13 weeks ended June 25, 2020 | 13 weeks ended June 27, 2019 | 26 weeks ended June 25, 2020 | 26 weeks ended June 27, 2019 |
|---|---|---|---|---|
| Total revenues | $7.9 million | $232.5 million | $167.4 million | $402.5 million |
| Operating income (loss) | $(53.1) million | $27.5 million | $(75.3) million | $32.4 million |
| Net income (loss) attributable to Marcus | $(27.0) million | $18.1 million | $(46.4) million | $19.9 million |
| Diluted EPS, Common Stock | $(0.89) | $0.58 | $(1.53) | $0.64 |
| Net cash provided by (used in) operating activities | Not separately reported | Not separately reported | $(55.0) million | $59.7 million |
- Second-quarter revenue declined 96.6%; first-half revenue declined 58.4%.
- Theatre revenue was $1.9 million in the second quarter, down 98.9%, and $111.1 million in the first half, down 59.9%.
- Hotels/resorts revenue was $5.9 million in the second quarter, down 91.5%, and $56.1 million in the first half, down 55.2%.
- Second-quarter operating margins were not meaningful because both segments reported substantial operating losses. First-half consolidated operating margin was approximately negative 45.0%, compared with approximately 8.1% in the prior-year period.
- Income tax benefits were $29.9 million in the second quarter and $36.5 million in the first half, primarily reflecting losses and CARES Act-related tax provisions. The first-half adjusted effective tax rate was 44.0%; excluding a favorable approximately $17.6 million tax adjustment, management reported approximately 22.8%.
- Cash, cash equivalents and restricted cash totaled $88.0 million at June 25, 2020, including $79.6 million of cash and cash equivalents and $8.4 million of restricted cash.
- Cash used in investing activities was $9.1 million in the first half, including $15.9 million of capital expenditures.
- Cash provided by financing activities was $126.5 million, driven by increased revolver borrowings, a new term loan and PPP proceeds.
Balance sheet, debt and liquidity
- Total assets were $1.405 billion at June 25, 2020, compared with $1.359 billion at December 26, 2019. Shareholders' equity declined to $573.0 million from $621.5 million.
- Debt excluding finance and operating lease obligations included $90.2 million of short-term borrowings, $259.7 million of long-term debt before current maturities and debt issuance costs, and approximately $352.1 million in total reported debt balances before considering lease obligations.
- The company entered into a $90.8 million, 364-day Senior Term Loan A in April 2020 and amended its $225 million revolving credit facility. Management reported $89.8 million of revolver availability at June 25, 2020.
- Debt-to-capitalization increased to 38% at June 25, 2020 from 26% at December 26, 2019; net debt-to-capitalization was 32%.
- Eleven subsidiaries received approximately $13.5 million of PPP loans. Approximately $10.2 million had been used for qualifying expenses, while $3.2 million remained expected to be repaid. The company believed the qualifying portion would be forgiven, but forgiveness remained subject to program requirements.
- The company stated that it expected sufficient liquidity to meet obligations and comply with covenants for at least 12 months from the financial statement issuance date, but warned that slower-than-expected recovery could cause covenant pressure.
Material changes versus the prior comparable period
- All theatres closed March 17, 2020, except for limited operations at six theatres opened in June, five parking-lot cinemas and selected online or curbside food sales.
- Five of eight company-owned hotels closed March 24, 2020; the remaining three closed in early April. Four company-owned hotels and several restaurants and bars reopened during June at substantially reduced activity levels.
- Hotel occupancy for comparable company-owned properties was 18.8% in the second quarter versus 77.9% in the prior-year quarter. First-half occupancy was 52.3% versus 71.2%.
- First-half impairment charges totaled $8.7 million, including $6.5 million for certain theatre asset groups and $2.2 million for the Movie Tavern trade name. No additional impairment charges were recorded in the second quarter.
- First-half nonrecurring expenses were approximately $8.5 million; second-quarter nonrecurring expenses were approximately $3.0 million, including employee-related costs, bad-debt allowances, cleaning, supplies and reopening-related training.
- Operating cash flow shifted from a $59.7 million inflow to a $55.0 million outflow, while capital expenditures were reduced from $30.5 million to $15.9 million.
- Quarterly dividend payments were suspended under the amended debt agreements. Share repurchases were also restricted.
Guidance, outlook, commentary and risks
- Management expected the majority of theatres to reopen in late August 2020, subject to government restrictions and film availability, generally with approximately 50% auditorium capacity and enhanced health and safety protocols.
- Management expected theatre results to materially underperform the prior year in the third quarter, improve in the fourth quarter and fiscal 2021 first quarter, and approach more normal performance during the second half of fiscal 2021.
- Management did not expect hotels and resorts to return to pre-COVID occupancy levels during the remainder of fiscal 2020 or fiscal 2021. Near-term demand was expected to be concentrated in drive-to leisure travel, with business and group travel remaining weak.
- Film release delays, possible changes to theatrical distribution windows, renewed COVID-19 outbreaks, capacity restrictions, consumer reluctance to gather, labor availability, rent obligations and hotel demand were identified as significant risks.
- Debt amendments suspended certain fixed-charge coverage tests and added EBITDA, liquidity and capital-expenditure covenants. Required consolidated liquidity thresholds ranged from $67.0 million to $103.5 million at specified future testing dates, subject to reductions if term loans were repaid.
- Fiscal 2020 capital expenditures were reduced to an expected $20 million to $30 million range from the previously anticipated $65 million to $85 million.
- Management planned to file approximately $37.4 million of income-tax refund claims in the third quarter and expected a possible additional refund of approximately $21.0 million in fiscal 2021.
Important facts for investors to verify
- Whether theatre reopenings and film releases occurred on the expected timetable and whether attendance recovered sufficiently under capacity restrictions.
- Compliance with the amended debt agreements' EBITDA and liquidity covenants, including the April 2021 and July 2021 thresholds.
- Actual cash burn, revolver availability, term-loan repayment requirements and the effect of deferred rent and other contractual payments.
- Whether PPP loans and anticipated tax refunds were forgiven or received as expected.
- Subsequent impairment testing for goodwill, theatre assets and the Movie Tavern trade name if operating recovery was weaker than forecast.
- The pace of hotel occupancy recovery, group bookings and the impact of delayed or canceled events, including the Democratic National Convention and Ryder Cup.