The Marcus Corporation: Q3 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the 13 weeks and 39 weeks ended September 30, 2021, compared with the periods ended September 24, 2020. The Marcus Corporation operates two primary segments: Theatres and Hotels/Resorts. Results remained materially affected by the COVID-19 pandemic, although operations improved as properties reopened, restrictions eased, vaccination increased, and film releases resumed.
- Approximately 97% of theatres were open at the end of the third quarter, compared with approximately 52% at the beginning of fiscal 2021.
- All eight company-owned hotels were open during the quarter; most managed hotels and restaurants were also operating.
- The company ended the quarter with 1,091 company-owned screens in 88 theatres.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | First 39 Weeks 2021 | First 39 Weeks 2020 |
|---|---|---|---|---|
| Total revenue | $145.9 million | $33.6 million | $289.2 million | $201.0 million |
| Operating income (loss) | $6.3 million | $(48.0) million | $(55.5) million | $(123.2) million |
| Net income (loss) attributable to Marcus | $1.8 million | $(39.4) million | $(49.7) million | $(85.8) million |
| Diluted EPS | $0.06 | $(1.30) | $(1.66) | $(2.84) |
| Operating margin | Approximately 4.3% | Approximately (142.9)% | Approximately (19.2)% | Approximately (61.3)% |
| Adjusted EBITDA | $24.5 million | $(25.8) million | $5.8 million | $(43.8) million |
| Cash flow from operating activities | Not separately presented for the quarter | Not separately presented for the quarter | $2.1 million | $(80.6) million |
Theatre revenue was $80.0 million in Q3 and $154.9 million for the first 39 weeks. Theatre operating loss improved to $2.6 million in Q3 and $46.5 million for the first 39 weeks. Hotels/Resorts revenue was $65.8 million in Q3 and $134.1 million for the first 39 weeks, while segment operating income was $13.5 million and $5.5 million, respectively.
- Q3 theatre revenue increased 987.8% versus the severely disrupted 2020 comparison period but remained 41.5% below Q3 2019.
- First 39-week theatre revenue increased 30.8% versus 2020 but remained 62.6% below 2019.
- Q3 Hotels/Resorts revenue increased 151.4% versus 2020 but remained 11.8% below 2019.
- First 39-week Hotels/Resorts revenue increased 63.0% versus 2020 but remained 32.8% below 2019.
- Hotels/Resorts Q3 operating margin was 20.5%, compared with (26.5)% in 2020; first 39-week margin was 4.1%, compared with (39.5)%.
- Company-owned hotel Q3 occupancy was 65.9%, ADR was $189.08, and RevPAR was $125.10, versus 83.0%, $172.12, and $142.84, respectively, in Q3 2019.
Liquidity, debt and cash flow
- Cash and cash equivalents were $8.6 million; restricted cash was $6.3 million, for total cash, cash equivalents and restricted cash of $15.0 million.
- Revolving credit facility availability was approximately $188.4 million under the $225 million facility, with $33.0 million outstanding.
- Total debt and short-term borrowings, net of issuance costs, were $298.1 million, compared with $313.2 million at December 31, 2020.
- Debt-to-capitalization, including short-term borrowings and excluding lease obligations, was 0.40 versus 0.37 at December 31, 2020.
- Operating cash flow was $2.1 million, compared with an $80.6 million use in the prior-year period. Investing activities provided $9.2 million, including asset-sale proceeds and a $11.4 million insurance-policy reimbursement. Financing activities used $10.4 million.
- Capital expenditures were $9.1 million, compared with $18.7 million in the prior-year period.
Material changes versus the prior comparable period
- Revenue and profitability improved substantially as theatres and hotels reopened. The company reported its first consolidated positive Adjusted EBITDA quarter since the beginning of the pandemic.
- Theatre attendance increased 18.7% for the first 39 weeks versus 2020, while average ticket price increased 6.1% and average concession revenue per person increased 15.7%.
- Hotels benefited from stronger drive-to-leisure demand, higher occupancy and ADR, and improved cost controls.
- Q3 and first 39-week results included approximately $2.0 million and $3.3 million, respectively, of government grants. First 39-week results also included $3.7 million of impairment charges.
- Interest expense increased to $4.6 million in Q3 and $14.4 million for the first 39 weeks, compared with $4.1 million and $10.2 million, respectively.
- The company early adopted ASU 2020-06 for convertible debt, increasing reported long-term debt and reducing equity through a cumulative adjustment of approximately $15.8 million.
- No dividends were paid during the first 39 weeks, compared with $5.1 million in the prior-year period. The amended credit agreement temporarily suspended dividends and open-market share repurchases for the remainder of fiscal 2021.
Guidance, outlook, risks and unusual items
- Management expects theatre performance to improve during the fourth quarter and early fiscal 2022 but remain below 2019 levels before progressively recovering as fiscal 2022 develops.
- Management expects Hotels/Resorts results to improve sequentially and year over year but does not expect a return to pre-pandemic occupancy levels during fiscal 2021 and may not fully recover in fiscal 2022 because business and group travel are expected to lag.
- Fiscal 2022 group room revenue bookings were approximately 20% behind the comparable 2019 pace as of the filing date, although booking activity had improved.
- Management expected to receive additional state grants of approximately $4.6 million, remaining tax refunds from a $24.2 million fiscal 2020 claim, and approximately $15 million to $30 million of real-estate sale proceeds over the following 12 to 15 months. These amounts were subject to timing, approval and market conditions.
- Management stated that available liquidity was expected to support obligations and covenant compliance for at least 12 months from issuance of the financial statements, but acknowledged substantial uncertainty.
- Debt agreements impose EBITDA, liquidity, leverage, capital-expenditure and distribution restrictions. Minimum consolidated liquidity requirements included $100 million at several testing dates, subject to reduction if the initial term loans were repaid.
- Key risks include renewed COVID-19 restrictions or variants, weaker consumer demand, film delays or unfavorable theatrical release windows, reduced business and group travel, labor shortages and higher labor costs, impairment charges, asset-sale execution, refinancing risk and potential covenant noncompliance.
- The company recorded a $3.7 million impairment charge during the first 39 weeks and received $8.2 million of state grants. It also recorded gains from asset and investment dispositions, including a $2.1 million gain on an equity investment sale.
Most important facts for investors to verify
- Whether theatre attendance, film availability and theatrical release windows continue improving without renewed restrictions.
- Whether Hotels/Resorts occupancy, group bookings and business travel recover sufficiently to support covenant compliance.
- The timing and collectability of expected tax refunds, state grants and real-estate sale proceeds.
- Compliance with the amended credit agreement and senior-note covenants, particularly liquidity and EBITDA thresholds.
- The maturity and refinancing implications of the $49.8 million term loan due September 2022, senior notes, convertible notes and other debt.
- Whether labor shortages, wage inflation, impairment risks and reduced capital spending could constrain the recovery.
- The sustainability of positive Adjusted EBITDA, given that Q3 results benefited from approximately $2.0 million of government grants and other unusual items.