Reading International, Inc. — Form 10-Q Summary
Business context and reporting period
Reading International, Inc. operates 63 cinemas with 515 screens in the United States, Australia, and New Zealand, and owns or operates retail, commercial, live-theatre, and development properties. This filing covers the quarter and nine months ended September 30, 2022, compared primarily with the corresponding 2021 periods.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $51.2 million | $31.8 million | $155.9 million | $89.1 million |
| Cinema revenue | $48.4 million | $28.8 million | $147.5 million | $79.6 million |
| Operating income (loss) | $(6.7) million | $(11.0) million | $(20.1) million | $(37.5) million |
| Operating margin | Approximately (13.1%) | Approximately (34.4%) | Approximately (12.9%) | Approximately (42.0%) |
| Net income (loss) attributable to RDI | $(5.2) million | $(10.1) million | $(23.0) million | $31.6 million |
| Basic EPS | $(0.23) | $(0.46) | $(1.04) | $1.45 |
| Cash used in operating activities | Not separately provided | Not separately provided | $(26.1) million | $(17.8) million |
Cinema revenue increased 68% in the quarter and 85% for the nine months. Real estate segment revenue increased 28% in the quarter and 23% for the nine months. Cinema segment operating loss improved to $2.1 million in the quarter and $5.9 million for the nine months, while real estate segment operating loss improved to $0.1 million for both periods.
At September 30, 2022, cash and cash equivalents were $39.6 million, restricted cash was $6.2 million, total assets were $589.7 million, and total stockholders’ equity was $69.2 million. Total borrowings were $219.4 million, including $57.2 million classified as current debt and $161.5 million of non-current debt and subordinated debt. The current ratio was 0.42 and the debt-to-equity ratio was 3.17.
Material changes versus the prior comparable period
- Revenue rose $19.4 million, or 61%, in Q3 and $66.8 million, or 75%, for the nine months, primarily due to stronger film product, higher attendance, eased COVID-19 restrictions, and the Millers Junction and Traralgon cinema openings.
- The Q3 net loss attributable to RDI narrowed by $4.9 million from the prior year. The nine-month comparison moved from $31.6 million of income to a $23.0 million loss, principally because the 2021 period included substantial gains from real estate monetizations that did not recur.
- Operating losses improved despite higher film-rent, labor, utility, occupancy, and other operating costs. A $1.5 million impairment charge was recorded during the nine months; no additional impairment was recorded in Q3.
- Cash, cash equivalents, and restricted cash declined by $42.7 million during the nine months to $45.9 million, compared with a $70.2 million increase in the prior-year period. The prior year included $133.7 million of asset-sale proceeds.
- Total borrowings declined by $17.6 million from December 31, 2021, but the current portion increased to $57.2 million from $11.3 million due to upcoming maturities.
- Accumulated other comprehensive income declined to a $(9.0) million balance, driven largely by $15.3 million of foreign-currency translation losses for the nine months.
Guidance, outlook, risks, contingencies, and unusual items
Management expects continued recovery in cinema attendance and revenue as restrictions remain lifted and film releases improve. Management identified fourth-quarter releases including Black Panther: Wakanda Forever, Avatar 2: The Way of Water, and Strange World as potential drivers of admissions and revenue. The company does not provide formal quantitative earnings or revenue guidance.
Management stated that current forecasts and liquidity are expected to provide sufficient resources to meet obligations for at least one year after issuance of the report, but emphasized that forecasts remain uncertain. Liquidity could require reduced or delayed capital spending, additional asset sales, or debt restructuring if operating cash flow or borrowing capacity is insufficient.
- Major risks include inconsistent film supply, streaming competition, inflation, labor shortages, rising film rents and operating costs, changing consumer behavior, and potential future COVID-19 variants.
- Debt maturities and covenant compliance remain significant concerns. Bank of America debt matures in March 2023; other significant debt facilities mature in 2023 and 2024. Westpac waived certain covenant testing requirements through the first quarter of 2023, with testing scheduled to resume in the second quarter.
- Approximately $127.5 million of debt principal is scheduled for repayment in 2023 based on the contractual-obligations table. The filing states that the Village East ground-lease purchase closing was extended after quarter-end to July 1, 2024, for a $5.9 million purchase price.
- The 44 Union Square property is partially leased to a national retailer, while the remaining space remains in lease-up. Courtenay Central in Wellington remains affected by seismic issues, and redevelopment timing is not fixed.
- A $4.0 million California employment litigation settlement was accrued in 2021 and remained subject to final court approval. A separate New Zealand arbitration was settled in August 2022 with no settlement payment by either party.
- Other income included $5.5 million in Q3 and $8.4 million for the nine months, while the 2021 nine-month period included a $92.3 million gain on asset sales. These items make period-to-period net income comparisons less representative of recurring performance.
Investor verification points
- Verify the timing and refinancing or repayment plans for 2023 debt maturities and the status of lender covenant waivers.
- Assess whether cinema attendance, film availability, and revenue recovery can offset higher film rents, labor costs, occupancy costs, and inflation.
- Monitor cash burn, operating cash flow, unrestricted liquidity, and the potential need for asset sales or debt restructuring.
- Review impairment sensitivity for cinema assets and goodwill, particularly if recovery assumptions weaken.
- Track leasing progress at 44 Union Square and the timing and funding requirements for Courtenay Central and other development projects.
- Consider the effect of Australian and New Zealand currency movements on reported revenue, assets, equity, and debt service capacity.