Reading International, Inc.
Q1 2021 Earnings Call Transcript

Published: 24 May 2021

[Andrzej Matyczynski:]

Thank you for joining Reading International’s earnings call to discuss our 2021 first quarter results. My name is Andrzej Matyczynski, and I am Reading’s Executive Vice President of Global Operations. With me, as usual, are Ellen Cotter, our President and Chief Executive Officer; and Gilbert Avanes, our Executive Vice President, Chief Financial Officer and Treasurer. Before we begin the substance of the call, I will just run through the usual caveats. In accordance with the safe harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that will be addressed in this earnings call may constitute forward-looking statements.

[Ellen Cotter:]

Thanks, Andrzej. I wanted to start our call today by thanking Edward Kane, who has retired from our Board of Directors effective as of today. As a trusted colleague of my father, James J. Cotter Sr., Ed has served not only as a Director, Lead Independent Director and Vice Chair of the company but also as the past President of Craig Corporation and of Reading Company, two of our corporate predecessors. There is no doubt that Ed Kane, has been an integral part of the growth and evolution of Reading International, and his contributions have helped shape the company into what it is today. On behalf of Reading, Margaret Cotter and the Board of Directors, I want to express my deepest gratitude to Ed Kane for his leadership and insightful guidance.

[Gilbert Avanes:]

Thank you, Ellen. Consolidated revenues for the first quarter of 2021 decreased by 57% to $21.3 million compared to the same period last year. This decrease was attributable to the ongoing temporary closure of some of our cinemas in the first quarter of 2021 compared to the first quarter of 2020 when our global cinemas closed during the last half of March 2020 due to the COVID-19 pandemic; reduced seating occupancy as a result of social distancing measures and changes to the release schedule by some distributors, which collectively led to a significant drop in attendance compared to the first quarter of 2020. This was further impacted by the ongoing temporary closure of our U.S. theaters and the rent abatement period to a handful of our third-party tenants as a result of COVID-19 pandemic. This was partially offset during the first quarter of 2021 by the Australia and New Zealand dollar strengthening against the U.S. dollar by 17.5% and 13.3%, respectively, compared to the same prior – same period prior year. Net income attributable to RDI common stockholders for the quarter ended March 31, 2021, increased by $24.8 million to $19 million when compared to the same period of prior year. Basic earnings per share increased by $0.14 to $0.87 for the quarter ended March 31, 2021. These increases were due to the sale of our non-income-producing land in Manukau, New Zealand and Coachella, California. Non-segment general and administrative expenses for the quarter ended March 31, 2021, decreased by 6% or $0.3 million to $4.1 million compared to the quarter ended March 31, 2020, due to savings in payroll costs as a result of Wage Subsidy Program in Australia, which expired on March 27, 2021, and a reduction in corporate staff; reduced costs related to corporate airfare and travel as a result of COVID-19 restriction; and decreases in professional and legal services. This was partially offset by strengthening of Australia and New Zealand dollar against the U.S. dollar. For the first quarter of 2021, income tax expenses increased by $10.7 million to $7.7 million compared to the equivalent prior year period. The change between 2021 and 2020 is primarily related to the increase in pretax income in 2021 due to the sale of our Manukau and Coachella properties. For the first quarter of 2021, our adjusted EBITDA increased by $38.5 million compared to the same prior year period to an adjusted EBITDA of $36.7 million. This increase was also primarily the result of our gain on sale of our assets relating to the sale of our Manukau and Coachella properties. Shifting to cash flow. For the quarter ended March 31, 2021, the net cash used in operating activities decreased by $4.9 million to a net cash used of $3.8 million when compared to the same prior year period. This was primarily driven by a $20.9 million decrease in cash inflow from operating activities, offset by a $20.8 million increase in net change in operating assets and liabilities resulting from savings from rent abatement and taxes payable. Cash provided by investing activities during the quarter ended March 31, 2021, was $63.9 million, mainly related to $65.6 million proceeds from the sale of our Manukau and Coachella properties and an $8.1 million decrease in capital expenditures. Cash used in financing activities was $40.7 million during the quarter ended March 31, 2021, mainly related to $42.6 million of loan repayment related to 44 Union Square and $5.3 million of Coachella’s non-controlling interest distributions, offset by $2.3 million of new borrowings related to Jindalee. Turning now to our financial position. Our total assets on March 31, 2021, were $668 million compared to $690.2 million at December 31, 2020. This decrease was primarily driven by the $36 million decrease in operating property due to the sale of our Manukau and Coachella properties and the use of a portion of those proceeds to pay down debt or to satisfy other outstanding obligations, offset by a $14.1 million increase in cash and cash equivalent, which was also mainly due to our sale of our assets. Management drew down the available operating borrowing capacity in the first quarter of 2020 and implemented an immediate program to reduce cost and cash outlay. As our cinemas have reopened, a portion of these borrowings have now been repaid. On March 31, 2021, we paid down $1.3 million on our Bank of America revolving credit facility, bringing the total to $5.1 million available to be drawn under this facility. On March 31, 2021, our total outstanding borrowings were $243 million. Our cash and cash equivalent as of March 31, 2021, were $40.9 million, which included approximately $70.6 million in the U.S., $9.2 million in Australia and $14.1 million in New Zealand. Further, we have successfully negotiated certain modifications to our loan agreements with Bank of America, NAB and Westpac. These loan modifications include changes to some of our covenant compliance terms and waivers to certain covenant testing periods. We believe that our lenders understand that the current situation is not of our making, that we are doing everything that can reasonably be done and that as a result, our relationship with our lenders is good. As of March 31, 2021, we were in compliance with all of our covenants under these loans. As we have previously mentioned, on December 31, 2020, to fund the completion of our relative – recently opened cinema in Jindalee, Queensland, we increased the core portion of our revolver corporate market loan facility with NAB by AUD 3 million. As of April 30, 2021, we repaid the first AUD 500,000, and these repayments will continue every six months until fully repaid on October 31, 2023. This amendment increases the facility limit to AUD 123 million, which will be reduced back to AUD 120 million as the Jindalee funding is repaid. On April 29, 2021. Westpac waived the requirement to test certain covenants as of March 31, 2021. On May 7, 2021, we repaid $11.2 million of this debt as a permanent reduction of that facility by the same amount. As Ellen noted in regards to our 44 Union Square property, on March 26, 2021, we repaid the $40.6 million construction loan, which was secured by that property. On May 7, 2021, we closed on a new 3-year $65 million loan facility with Emerald Creek Capital. Proceeds were immediately drawn, subject to certain customary reserves. The facility bears a variable interest rate of 1-month LIBOR plus 6.9% with a floor of 7% and has two 12-month options to extend. This loan may be repaid with notice after 12 months without the payment of any premium. As we continue to be focused on preserving our liquidity, we did not repurchase any of our shares in the first quarter of 2021. Through March 31, 2021, we have repurchased 1,792,000 shares of Class A common stock at an average price of $13.39 per share, excluding transaction costs. The last shares repurchased made by our company was made on March 5, 2020, at which time, 25,000 shares were purchased at an average cost per share of $7.30. This leaves $26 million available under the March 2, 2017, program as extended to March 2, 2022. With the COVID-19 impact on our overall liquidity, our stock repurchase program has and will likely continue to take a lower capital allocation priority for the foreseeable future. With that, I will now turn it over to Andrzej.

[Andrzej Matyczynski:]

Thanks, Gilbert. As usual, I’d like to thank our stockholders for forwarding questions to our Investor Relations e-mail. In addition to addressing some of your questions in Ellen’s disclosure, we’ve also compiled a set of questions and answers representing the most common questions and recurring themes e-mailed to us. Our first question, which would go to Ellen, are the non-core asset sales complete? Or could the company continue to use this route to add cash to the balance sheet?

[Ellen Cotter:]

Assuming that the vaccination rollout continues apace in the U.S., Australia and New Zealand continue to demonstrate global leadership and approaching COVID and the film company support the theatrical release of their major movies in our theaters, we believe we will have raised enough liquidity with the strategic real estate sales that have been completed or in the process of being completed that I’ve mentioned in the call today to cover our cash needs for the next 18 months. So we believe we’re substantially finished culling our property portfolio for assets to be sold. However, there is one remaining non-core property asset in New Zealand that we are considering for sale at this time.

[Andrzej Matyczynski:]

Thanks, Ellen. We have another question. What is the current monthly cash burn rate in the cinema division as of March 31, 2021, excluding government subsidies? Gilbert, how about you?

[Gilbert Avanes:]

As detailed in our Form 10-Q Cinema Exhibition result, the operating results for each business have been provided on a quarterly basis. As we have mentioned in our previous earnings call, we are hesitant to quote a monthly burn rate as it may not be appropriate due to the cyclical nature of the industry as well as the current COVID-19 pandemic. Regarding our expenses, we’re continuously negotiating with our landlords regarding deferrals and/or abatement. And while Australia did receive some funds through the reduced JobKeeper Payment Program, which expired on March 27, 2021, the U.S. and the New Zealand circuits did not receive any government wage subsidies in Q1 2021. With 66 of our global theaters now being opened, we are seeking a positive momentum within our cinema circuits due to the pent-up demand combined with the stronger film titles scheduled to be released in 2021 and beyond. We are encouraged by the tentpole lineup for 2021, which includes Fast & Furious 9, Black Widow, Space Jam 2, Jungle Cruise. All four of these titles are scheduled to be released over the next two months.

[Andrzej Matyczynski:]

Thanks, Gilbert. For when it makes sense to restart the refurbishment program, how many more theaters are left in our CapEx plans for U.S. theaters? Ellen, could you address that?

[Ellen Cotter:]

As of today and with the completion of the consolidated theater at the Kahala Mall in Hawaii, nine of our 24 theaters or about 38% feature luxury recliner seating and an elevated F&B offering. Subject to successfully reformulating our capital allocation strategy in 2021 and 2022, we have about seven U.S. theaters that would require substantial investment over the next few years to remain competitive. Those renovations would need to include conversions to luxury recliner seating and F&B upgrades. Assuming the industry continues to perform along the improvement trends demonstrated in the last few months, we’d expect the theater level cash flow of those seven theaters to favorably respond to a substantial renovation.

[Andrzej Matyczynski:]

Thanks, Ellen. Is the $19.3 million in deferred rent payables that we mentioned included on the balance sheet? If so, in what specific liability accounts? And regarding these rent deferrals that we will have to pay, can you update us on total amount of rent you are obligated to pay in the next 12 to 18 months?

[Gilbert Avanes:]

Our deferred rent payments of $19.3 million is split on our balance sheet based on the repayment information available at March 31, 2021. Amounts repayable within 12 months at that date are presented in accounts payable and liabilities, $16.5 million; and amounts due beyond March 31, 2022, are recorded in other liabilities, $1.2 million. These amounts are classified and are subject to change due to our ongoing negotiations with our landlords.

[Andrzej Matyczynski:]

Great, Gilbert. The next question, confirm that the City Cinemas brand has been retired by being replaced by Angelika. In addition to Cinemas 1, 2 and 3, Village East and Tower, what additional theaters are slated to be rebranded, example, Angelika or other? Ellen?

[Ellen Cotter:]

Yes. We can confirm that the City Cinemas brand has been retired and replaced by Angelika at the Cinema 1, 2 and 3 and the Village East in New York. We did this in an effort to improve efficiencies across expenses and staffing and to expand the reach of the Angelika brand through marketing and social media and potentially improve the users visiting our Angelika Anywhere streaming platform. The Cinema 1, 2 and 3, Village East and the Tower in Sacramento had historically always relied in our house programming, similar to the Angelika brand. So this seemed a natural fit or extension for our circuit. Today, in the U.S., other than potentially one theater in San Diego, there are no other theaters that we would consider rebranding to Angelika. However, as we’ve mentioned in previous stockholder calls or communications, we are actually considering adding the Angelika name or branding to a new theater in the Australian portfolio.

[Andrzej Matyczynski:]

Okay. So moving on, food and beverage, what are our expectations with food and beverage trends when admissions improve? Do we believe there’ll be hesitation around these products until the consumer is more comfortable? Ellen, can you handle that as well?

[Ellen Cotter:]

As of the end of the first quarter, the F&B spend per patron in each country set quarterly records again. In the United States, Australia and New Zealand, we don’t see any hesitation around purchasing and consuming F&B in our theaters. For instance, in the U.S., our year-to-date 2021 F&B spend per person was $7.92 versus $5.39 for the first four months of 2019. Okay. So moving on, food and beverage, what are our expectations with food and beverage trends when admissions improve, we anticipate that our F&B sales will continue to improve. For instance, transaction times allowing lines to move quickly will foster improved sales when government restrictions are lifted and our F&B services, such as self-serve soda, condiment counters and grab-and-go water and candy displays, are allowed to reactivate. Due to a variety of COVID-related issues, such as labor, food cost or supply, some of our global cinemas are not consistently offering 1000% of our pre-COVID F&B menu. Though our staff works hard to save those sales by converting guests over to a substitute product, inevitably being able to again offer our full menu will generate improved sales. Restarting our Spotlight dine-in service at our Reading Cinemas in Murrieta, California will support our overall U.S. F&B revenues. And we anticipate incremental sales from new and renovated cinemas like Millers Junction Village in Victoria and our consolidated theater at Kahala Mall. And lastly, as we refine the F&B ordering functionality of our new mobile app, we anticipate increased sales from the app. In sum, our company globally has performed really well in the F&B arena over the past few years, and we expect those trends to continue as our admissions continue to return.

[Andrzej Matyczynski:]

Thanks, Ellen. So we turn to our last question. The company has attended a declining number of investment conferences and offers only those earnings audio casts. What additional proactive steps will the company take to attract both sell-side analysts and buy-side investors to the company to obtain a lower cost of capital and higher valuation? With the current pandemic, virtual investor conferences eliminate travel time and costs to participate. What of the increasing number of online conferences being offered is Reading pursuing? Well, as of today, the company is scheduled to participate in a fireside chat presentation at the Gabelli Funds 30th Annual Broadcast and Entertainment Symposium to be held virtually on Thursday, June 3rd of this year. Also, through an increase in the use of non-deal road shows, the company hopes to attract additional sell-side and buy-side analyst coverage. And in addition, the company will continue to participate in investor conference presentations that are appropriate. With that, we’ll call the call to an end. And we appreciate, as always, your listening to the call today. Thank you for sending in your questions and your attention, and we wish everyone good health and safety. Thank you.

[Ellen Cotter:]

Thank you.

[Q -:]