The Marcus Corporation: Fiscal 2021 Second-Quarter Form 10-Q Summary
Business context and reporting period
The Marcus Corporation operates movie theatres and hotels/resorts. Fiscal 2021 second quarter covered the 13 weeks ended July 1, 2021; the first half covered 26 weeks ended July 1, 2021. Comparisons are to the 13 and 26 weeks ended June 25, 2020, when most properties were closed or operating under severe COVID-19 restrictions.
Key financial metrics
| Metric | Second quarter 2021 | Second quarter 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Total revenues | $92.5 million | $7.9 million | $143.3 million | $167.4 million |
| Operating loss | $26.1 million | $53.1 million | $61.8 million | $75.3 million |
| Net loss attributable to Marcus | $23.4 million | $27.0 million | $51.5 million | $46.4 million |
| Diluted loss per common share | $0.76 | $0.89 | $1.71 | $1.53 |
| Adjusted EBITDA | $(1.2) million | $(30.0) million | $(18.7) million | $(18.0) million |
| Net cash used in operating activities | Not separately presented | Not separately presented | $9.7 million | $55.0 million |
- Second-quarter revenue increased 1,066.6% year over year because the comparable 2020 quarter largely reflected pandemic closures. First-half revenue declined 14.4% because fiscal 2020 operations were relatively normal before mid-March.
- The second-quarter operating margin was approximately negative 28.2%; the theatre segment margin was negative 34.8% and the hotels/resorts margin was negative 5.6%. First-half theatre and hotels/resorts margins were negative 58.6% and negative 11.6%, respectively.
- Second-quarter interest expense was $4.9 million, up from $3.5 million; first-half interest expense was $9.8 million, up from $6.0 million.
- At July 1, 2021, cash and cash equivalents were $8.7 million and restricted cash was $6.5 million. Revolver availability was approximately $201.4 million under a $225 million facility.
- Debt outstanding, excluding lease obligations, totaled approximately $328.8 million, including $33.7 million of short-term borrowings and $295.1 million of long-term debt before current maturities. Management reported a debt-to-capitalization ratio of 0.43, compared with 0.37 at December 31, 2020.
- Total shareholders’ equity was $437.5 million at July 1, 2021, compared with $498.7 million at December 31, 2020.
Material changes versus comparable periods
- Theatres: approximately 95% of theatres were open at the end of the quarter, compared with widespread closures in the prior-year quarter. First-half theatre revenue decreased 32.6% from 2020 and was 73.0% below the comparable 2019 period. Theatre attendance declined 40.4% from the first half of 2020.
- Hotels and resorts: second-quarter revenue rose to $40.2 million from $5.9 million, while first-half revenue increased 21.8% to $68.3 million. First-half revenue remained 45.4% below 2019. First-half comparable-property occupancy was 39.9%, ADR was $139.73, and RevPAR was $52.93.
- Both operating divisions improved materially in the second quarter. Hotels and resorts generated positive Adjusted EBITDA of $3.3 million, while theatres were approximately breakeven at negative $0.4 million. Consolidated Adjusted EBITDA was positive in June 2021, according to management.
- Operating cash outflow improved by $45.3 million year over year, primarily due to tax refunds, government grant collections and working-capital timing.
- Capital expenditures declined to $6.2 million from $15.9 million in the first half. No dividends were paid, compared with $5.1 million in the prior-year period.
- The company early adopted ASU 2020-06 for convertible debt, increasing reported long-term debt by $21.4 million and reducing capital in excess of par by $16.5 million at adoption.
Guidance, outlook, commentary and risks
- Management expects theatres to continue improving during the third and fourth quarters of fiscal 2021 but remain below 2019 levels, with a closer-to-normal recovery expected during the first half of fiscal 2022. Management does not expect hotels to return to pre-COVID occupancy levels during fiscal 2021.
- The company cited a strong scheduled film slate, improving vaccination levels and increased consumer willingness to return to theatres. Theatre revenue as a percentage of fiscal 2019 revenue improved from 16% in January 2021 to 48% in June 2021.
- Hotel group room revenue bookings for fiscal 2021 were approximately 20% behind the comparable 2019 pace, although bookings for late 2021 and 2022 were improving. Near-term demand was led by drive-to leisure customers, while business and group travel remained weak.
- Management expects an effective tax rate of approximately 24% to 26% for the remaining fiscal 2021 quarters, excluding changes in tax rates or one-time benefits.
- The company expects potential real-estate sale proceeds of approximately $20 million to $40 million over the next 12 to 18 months, subject to market demand and closing conditions. Assets held for sale totaled $10.4 million at July 1, 2021.
- On July 13, 2021, after quarter-end, the company amended its credit agreement and senior note agreements. The term-loan balance was reduced from approximately $83.5 million to $50.0 million and its maturity was extended to September 22, 2022.
- Debt agreements impose liquidity, EBITDA, leverage, capital-expenditure and other covenant requirements. The company stated that it expects sufficient liquidity for at least 12 months, but future compliance depends on recovery timing, film releases, government restrictions and consumer demand.
- The credit agreement temporarily suspends quarterly dividends and open-market share repurchases for the remainder of fiscal 2021. Future quarterly dividends and repurchases are generally limited to $1.55 million per quarter until specified covenant conditions are met.
- Principal risks include renewed COVID-19 restrictions or Delta-variant impacts, weaker-than-expected theatre attendance, film-release delays or shortened theatrical windows, slow recovery in group and business travel, labor shortages and higher labor costs, impairment charges, inability to sell surplus real estate, and potential covenant breaches or refinancing difficulty.
Most important facts for investors to verify
- Actual theatre attendance, film availability and revenue trends versus 2019 as fiscal 2021 progresses.
- Hotel occupancy, RevPAR, group-booking pace and the recovery of business and event travel.
- Compliance with minimum liquidity and EBITDA covenants, including the scheduled covenant thresholds beginning in late 2021 and 2022.
- Execution and proceeds from planned surplus-real-estate sales and collection of the remaining approximately $24.2 million fiscal 2020 tax refund claim.
- Cash burn, interest expense and debt maturities, particularly the $50 million term loan due September 2022 and the $100 million convertible notes due September 2025.
- Whether labor shortages, renewed restrictions or changes in theatrical release windows delay the company’s projected recovery.