The Marcus Corporation — Q2 2022 Form 10-Q Summary
Business context and reporting period
The Marcus Corporation operates movie theatres and hotels and resorts. The filing covers the 13 and 26 weeks ended June 30, 2022, compared with the comparable periods ended July 1, 2021. All theatres and eight company-owned and managed hotels were open during the first half of fiscal 2022, although activity remained below pre-pandemic levels in several areas.
Financial performance and key metrics
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $198.6 million | $92.5 million | $330.8 million | $143.3 million |
| Operating income (loss) | $18.9 million | $(26.1) million | $2.1 million | $(61.8) million |
| Net earnings (loss) | $9.0 million | $(23.4) million | $(5.9) million | $(51.5) million |
| Diluted EPS | $0.24 | $(0.76) | $(0.19) | $(1.71) |
| Adjusted EBITDA | $37.3 million | $(1.2) million | $40.7 million | $(18.7) million |
| Operating cash flow | Not separately provided | Not separately provided | $55.2 million | $(9.7) million |
Q2 revenue increased 114.5%, while first-half revenue increased 130.8%. Q2 operating margin was approximately 9.5%, versus negative 28.2% in the prior-year quarter. First-half operating margin was approximately 0.6%, versus negative 43.1% in the prior-year period. The Q2 improvement reflected stronger theatre attendance, increased hotel activity and the absence of the prior-year impairment charge.
- Theatres: Q2 revenue was $129.4 million, up 147.5%, with operating income of $16.4 million versus a $18.2 million loss. First-half revenue was $208.9 million, up 179.1%, with operating income of $8.4 million versus a $43.9 million loss.
- Hotels and resorts: Q2 revenue was $69.0 million, up 71.9%, with operating income of $6.8 million versus a $2.2 million loss. First-half revenue was $121.7 million, up 78.2%, with operating income of $3.8 million versus a $7.9 million loss.
- Pre-pandemic comparison: Q2 theatre revenue remained 20.3% below Q2 2019, while hotel and resort revenue was 1.4% below Q2 2019. First-half theatre revenue was 24.6% below 2019 and hotel and resort revenue was 2.7% below 2019.
- Hotel operating statistics: Q2 occupancy was 66.3%, ADR was $177.87 and RevPAR was $118.00. First-half occupancy was 57.2%, ADR was $164.95 and RevPAR was $94.29.
Cash flow, debt and liquidity
- Cash, cash equivalents and restricted cash totaled $63.4 million at June 30, 2022, including $57.7 million of unrestricted cash.
- Operating cash flow was $55.2 million in the first half, compared with cash used of $9.7 million in the prior-year period. The improvement included a $23.0 million federal income tax refund and favorable working-capital timing.
- Capital expenditures were $16.3 million, including approximately $5.0 million for theatres and $11.3 million for hotels and resorts.
- Total debt and short-term borrowings were $261.4 million, net of debt issuance costs. The debt-to-capitalization ratio, including short-term borrowings and excluding lease obligations, was 0.37.
- The company had $221.8 million of availability under its $225 million revolving credit facility and no revolving borrowings outstanding at quarter-end. The $46.6 million term loan was repaid in full on July 29, 2022.
Material changes, outlook and risks
- Management reported continued recovery from COVID-19 impacts, with improving theatre attendance, hotel occupancy and customer comfort with public gatherings.
- Theatre revenue was supported by Top Gun: Maverick, Doctor Strange in the Multiverse of Madness and Jurassic World: Dominion. Management expected near-term pressure from a limited blockbuster release schedule during August through October, followed by a stronger slate later in 2022 and in 2023.
- Hotel recovery continued to be led by leisure travel. Business and group travel were improving but remained below pre-pandemic levels; fiscal 2022 group room revenue bookings were approximately 8% behind the comparable 2019 position.
- Management expected the theatre division to improve during fiscal 2022 but remain below 2019 results, with a closer return to normal performance expected progressively in fiscal 2023. The company did not expect pre-COVID hotel occupancy levels during fiscal 2022.
- Management estimated a 24%–28% effective tax rate for the remaining quarters of fiscal 2022, excluding changes in tax rates or one-time benefits.
- Key risks include renewed COVID-19 restrictions or weaker consumer demand, film release timing and quality, shortened theatrical windows, labor and supply-cost inflation, business-travel recovery, economic conditions, covenant compliance and access to financing.
- The company recorded no impairment charges in the first half of 2022, compared with $3.7 million in the prior-year period. It sold three land parcels for approximately $4.8 million of net proceeds and expected potential additional real-estate proceeds of approximately $1 million to $5 million during the remainder of fiscal 2022.
- On July 29, 2022, the credit agreement was amended to reduce the future minimum fixed-charge coverage ratio from 3.0-to-1.0 to 2.5-to-1.0 beginning with the quarter ending March 30, 2023. The board also declared quarterly dividends of $0.05 per Common Stock share and $0.045 per Class B share.
Important facts for investors to verify
- Whether theatre attendance, film availability and theatrical release windows support the projected fiscal 2022 recovery.
- Whether business and group travel recover sufficiently to close the company’s remaining hotel occupancy and RevPAR gap to 2019.
- Compliance with debt covenants, particularly EBITDA and liquidity requirements, after repayment of the term loan and the July 2022 covenant amendment.
- The sustainability of positive Adjusted EBITDA and operating cash flow, given that first-half GAAP net earnings remained negative.
- The effect of labor, food, energy and other inflationary costs on margins, despite pricing actions.
- The timing and amount of additional surplus real-estate sales and the company’s use of resulting proceeds.