MARCUS CORP annual report, FY2022

The Marcus Corporation: Fiscal 2022 Form 10-K Summary

Business context and reporting period

The filing covers the 52-week fiscal year ended December 29, 2022, with comparisons to fiscal 2021 ended December 30, 2021. The Marcus Corporation operates two reportable segments: movie theatres and hotels and resorts. At year-end, it operated 85 theatres with 1,064 screens in 17 states, owned or managed approximately 4,900 hotel and resort rooms, and employed approximately 8,050 people.

Fiscal 2022 reflected continued recovery from COVID-19 disruptions. All theatres were open with normal operating days and hours at the beginning of the year, while hotel and restaurant operations were generally open, in some cases with reduced hours.

Financial performance and key metrics

Metric	Fiscal 2022	Fiscal 2021	Change
Total revenue	$677.4 million	$458.2 million	+47.8%
Operating income (loss)	$8.3 million	$(41.5) million	Improved $49.8 million
Net loss attributable to Marcus	$(12.0) million	$(43.3) million	Improved $31.3 million
Diluted loss per share	$(0.39)	$(1.42)	Improved $1.03
Adjusted EBITDA	$85.1 million	$35.1 million	+142.5%
Cash flow from operations	$93.2 million	$46.3 million	+ $47.0 million
Capital expenditures	$36.8 million	$17.1 million	+115.7%

Reported net loss included $7.1 million of income tax expense, compared with a $15.7 million tax benefit in fiscal 2021. The fiscal 2022 effective tax rate was negative 147.6%, driven primarily by a $7.4 million net valuation allowance impact on state deferred tax assets and other tax items. Excluding specified valuation allowance and compensation-related effects, management reported an effective tax rate of approximately 20.2%.

The company recorded $1.5 million of impairment charges, compared with $5.8 million in fiscal 2021. Fiscal 2021 also benefited from approximately $10.7 million of nonrecurring government grants and federal tax credits.

Segment results and margins

Theatres: Revenue increased 50.3% to $407.7 million, and operating income improved to $8.1 million from a $27.6 million loss. Operating margin was 2.0%, compared with negative 10.2% in fiscal 2021. Attendance increased 47.2% year over year, but theatre revenue remained 26.8% below fiscal 2019. Fiscal 2022 admission revenue was $198.5 million and concession revenue was $180.2 million.
Hotels and resorts: Revenue increased 44.3% to $269.3 million, and operating income increased to $18.7 million from $5.9 million. Operating margin was 6.9%, compared with 3.1% in fiscal 2021. Company-owned hotel occupancy was 61.8%, ADR was $178.41, and RevPAR was $110.33. Revenue exceeded fiscal 2019 by 2.3%, although RevPAR remained 3.5% below fiscal 2019 on the comparable-property analysis.
Adjusted EBITDA: Theatre Adjusted EBITDA was $60.0 million versus $24.9 million; hotels and resorts Adjusted EBITDA was $38.9 million versus $24.4 million; corporate items were $(13.8) million versus $(14.3) million.

Liquidity, debt and capital allocation

Cash and cash equivalents were $21.7 million at December 29, 2022, with $221.8 million available under the $225.0 million revolving credit facility after outstanding letters of credit.
Total debt, net of debt issuance costs, was $180.4 million, compared with $215.1 million at the prior year-end; short-term borrowings declined from $47.3 million to zero.
The debt-to-capitalization ratio was 0.28, compared with 0.37 at December 30, 2021. All outstanding debt was fixed-rate at year-end, with an average interest rate of approximately 5.03%.
Scheduled principal payments were $10.4 million in fiscal 2023, $10.4 million in fiscal 2024, $109.7 million in fiscal 2025 and $50.0 million in fiscal 2027.
The company repaid $46.6 million of pandemic-era term borrowings in July 2022 and ended the year with no revolver borrowings.
Quarterly dividends were reinstated in the third quarter of fiscal 2022 at $0.05 per common share and $0.045 per Class B share. Total fiscal 2022 dividends were $3.1 million. Debt agreements continue to restrict dividends and share repurchases until specified covenant conditions are satisfied.

Material changes versus the prior comparable period

Revenue, operating income and Adjusted EBITDA improved substantially as customers returned to theatres, hotels and resorts and as film availability increased.
The theatre recovery remained incomplete: fiscal 2022 theatre revenue was approximately 71% of fiscal 2019 levels, and the top 15 films generated 63% of admission revenue, reflecting increased dependence on blockbuster content.
Hotels and resorts benefited from stronger leisure demand and returning group business. Occupancy increased 13.7 percentage points and RevPAR increased 40.0% from fiscal 2021.
The company sold The Skirvin Hilton on December 16, 2022, for $36.75 million, generating approximately $31.1 million of net proceeds and a $6.3 million gain. Mortgage debt of approximately $24.1 million was retired in connection with the sale.
Capital expenditures increased to $36.8 million, including theatre premium-format conversions and hotel renovation projects.
The company increased its deferred tax asset valuation allowance to $12.4 million from $2.4 million.
Management closed one owned Minnesota theatre during the first quarter of fiscal 2023 and did not reopen three theatres previously closed during the pandemic.

Guidance, outlook, risks and unusual items

Management expects fiscal 2023 cash capital expenditures of approximately $60 million to $75 million, including $15 million to $20 million for theatres and $45 million to $55 million for hotels and resorts.
The company expects theatre performance to improve in fiscal 2023 but remain below fiscal 2019 levels because wide-release film counts are expected to remain below pre-pandemic levels.
Management expects hotel and resort performance to improve but does not expect pre-COVID occupancy levels to return during fiscal 2023 because of a lag in business travel.
Management estimated a fiscal 2023 effective tax rate of approximately 24% to 26%, excluding further valuation allowance adjustments, tax-rate changes or other one-time items.
Key risks include film release volume and appeal, shorter theatrical windows and streaming competition, labour shortages and wage inflation, inflation and supply-chain disruptions, economic weakness affecting travel and discretionary spending, seasonality, adverse weather, cybersecurity, property impairment, and the ability to maintain debt covenant compliance.
The Credit Agreement requires, among other matters, a maximum debt-to-capitalization ratio of 0.55 to 1.0, a fixed charge coverage ratio of at least 2.5 to 1.0 beginning with the quarter ending March 30, 2023, minimum consolidated EBITDA and liquidity tests, and limits on capital expenditures and shareholder distributions.
After year-end, the company amended its credit and senior note agreements to replace LIBOR with SOFR. The filing states that management believes liquidity is sufficient for at least 12 months from issuance of the financial statements, but future covenant compliance depends on the pace of operational recovery.
Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter involved impairment testing of long-lived assets and the subjectivity of forecasted cash flows.

Important facts for investors to verify

Whether theatre attendance, film supply and theatre revenue continue to recover toward fiscal 2019 levels.
The timing and amount of the $109.7 million of scheduled fiscal 2025 debt maturities, including the $100.1 million convertible notes due September 2025.
Compliance with the fixed charge coverage, EBITDA and liquidity covenants beginning in fiscal 2023.
Whether the planned $60 million to $75 million of fiscal 2023 capital expenditures can be funded while maintaining liquidity and debt service capacity.
The sustainability of hotel occupancy, ADR and group-business recovery, particularly at convention-oriented properties.
Potential additional impairment charges, deferred tax valuation allowance changes, and the realization of state net operating loss carryforwards.
The effect of dividend restrictions and any future share repurchases or additional asset sales on shareholder returns.