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 leases retail, commercial, and live-venue real estate. This filing covers the quarter and six months ended June 30, 2022, compared with the same periods in 2021. The financial statements are unaudited and prepared under U.S. GAAP for interim reporting.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $64.5 million | $36.0 million | $104.7 million | $57.3 million |
| Cinema revenue | $61.8 million | $32.7 million | $99.1 million | $50.8 million |
| Real estate revenue | $4.0 million | $3.4 million | $8.2 million | $6.8 million |
| Operating income (loss) | $(1.6) million | $(12.5) million | $(13.3) million | $(26.5) million |
| Operating margin | (2.4%) | (34.8%) | (12.7%) | (46.2%) |
| Net income (loss) attributable to RDI | $(2.4) million | $22.7 million | $(17.8) million | $41.7 million |
| Basic EPS | $(0.11) | $1.04 | $(0.81) | $1.91 |
| Net cash used in operating activities | Not provided for quarter | Not provided for quarter | $(17.6) million | $(6.0) million |
Q2 revenue increased 79%, while six-month revenue increased 83%. Cinema segment operating income was $3.5 million in Q2 versus a $7.3 million loss in the prior-year quarter; the six-month cinema segment loss narrowed to $3.8 million from $15.6 million. Real estate segment results improved to an $88,000 loss in Q2 and $21,000 of income for the six months.
At June 30, 2022, cash and cash equivalents were $49.9 million, restricted cash was $11.5 million, and total assets were $627.6 million. Total borrowings, gross of deferred financing costs, were $228.6 million, including $61.2 million classified as current. Total liabilities were $545.4 million and stockholders’ equity was $82.2 million. The debt-to-equity ratio was 2.78, compared with 2.26 at December 31, 2021; the current ratio was 0.49.
Material changes versus the prior comparable period
- Improved film availability, including Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, and Sonic the Hedgehog 2, and the reopening of substantially all cinemas drove the increase in cinema attendance and revenue.
- All cinemas were open during the reporting period except locations closed for non-pandemic reasons; approximately one-quarter of the circuit had been closed for at least part of the comparable 2021 period.
- Operating losses improved substantially, but the company remained loss-making for the quarter and six months.
- Prior-year results included $43.2 million of Q2 and $89.8 million of six-month gains on asset sales. No comparable gains occurred in 2022, materially reducing reported net income.
- Cash and restricted cash declined by $27.1 million during the first six months, compared with a $91.6 million increase in the prior-year period, primarily because 2021 included $141.4 million of asset-sale proceeds.
- Operating cash use increased to $17.6 million from $6.0 million, while investing cash use was $3.7 million versus $136.9 million of investing cash inflow in 2021.
- Debt declined from $234.0 million net of deferred financing costs at December 31, 2021, to $226.1 million at June 30, 2022, but current maturities increased materially, including the October 1, 2022 maturity of the Cinemas 1, 2, 3 term loan, which had one remaining six-month extension option.
- The company recorded a $1.5 million impairment charge on certain cinema assets. Goodwill was not impaired.
- Foreign-currency translation reduced comprehensive income by $9.7 million in Q2 and $7.0 million for the six months.
Guidance, outlook, risks, contingencies, and unusual items
Management is cautiously optimistic about continued recovery in the global cinema industry during 2022 and 2023, but provided no quantitative earnings or revenue guidance. Management believes current liquidity, forecasts, and cash-flow estimates provide sufficient resources to meet obligations for at least one year after issuance of the report, while acknowledging substantial forecasting uncertainty.
- Major risks include renewed COVID-19 variants, slower patron recovery, streaming competition, dependence on the quantity and quality of film releases, inflation, labor shortages, rising operating costs, and film-rental economics.
- Management stated that insufficient cash generation or borrowing capacity could require reduced or delayed capital expenditures, additional asset sales, or debt restructuring.
- Debt and liquidity remain significant concerns: total contractual debt was $240.6 million, and scheduled debt principal repayments were $29.2 million in 2022 and $109.8 million in 2023, before estimated interest.
- The Bank of America facility matures in March 2023; other material facilities mature in 2023 and 2024. Covenant waivers or modified testing requirements were in place for certain Australian and New Zealand facilities.
- The 44 Union Square redevelopment is in lease-up and construction for a national retailer’s leased space is underway. The remaining space may not be leased on acceptable terms or within the expected timeframe.
- The company has an accrued $4.0 million settlement related to California employment claims, subject to final court approval; a hearing was not expected before the fourth quarter of 2022.
- A New Zealand arbitration concerning the enforceability of a supermarket lease agreement was scheduled for the fourth quarter of 2022. No damages were sought and no reserve was recorded.
- The company faces foreign-currency exposure in Australia and New Zealand and variable-rate debt exposure; management estimated that a 1% change in short-term rates would affect quarterly interest expense by approximately $446,000.
- No new risk factor was identified in the filing, and management reported effective disclosure controls as of June 30, 2022.
Important facts for investors to verify
- Whether cinema attendance, revenue, and cash flow can return to pre-pandemic levels without further disruption.
- Near-term refinancing, extension, or repayment plans for 2022 and 2023 debt maturities and related covenant compliance.
- The pace and economics of leasing the remaining 44 Union Square space and the timing of tenant occupancy.
- The impact of inflation, labor shortages, film rents, and streaming competition on cinema margins.
- The outcome and cash timing of the California employment settlement and New Zealand arbitration.
- Whether operating cash flow turns positive and whether the company must pursue additional asset sales or other liquidity measures.
- Potential additional impairment charges if cinema recovery or real estate assumptions weaken.