Reading International, Inc.
Q4 2020 Earnings Call Transcript

Published: 8 Apr 2021

[Andrzej Matyczynski:]

Thank you for joining Reading International's earnings call to discuss our 2020 full year and fourth quarter results. My name is Andrzej Matyczynski, and I'm 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. Such statements are subject to risks, uncertainties and other factors that may cause our actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are clearly set out in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements.

[Ellen Cotter:]

Thanks, Andrzej, and thank you, everyone, for listening to the call today. Over a year ago, our business was totally disrupted as all of our global cinemas were forced to close by government order due to the unprecedented COVID-19 pandemic. Now more than a year later, we're poised for recovery. The smash hit opening of Godzilla vs. Kong, coupled with the ongoing vaccine rollout in the U.S. and the continued measure approach to COVID by Australia and New Zealand, give us reasons to be optimistic about Reading's future and the viability of the movie theater experience. Notwithstanding the fact that 10% of our global circuit remains closed, and many open theaters operated with capacity restrictions in place. In each of our U.S., Australian and New Zealand circuits, the opening weekends of Godzilla vs. Kong generated the highest gross box office weekend since the pandemic began. Regarding our U.S. circuit, this past weekend's box office grew 77% more than the next highest weekend box office since March 18, 2020. And the box office for the Godzilla vs. Kong opening weekends in Australia and New Zealand grows 48% and 58% more, respectively, than the next highest box office weekend since the pandemic began.

[Gilbert Avanes:]

Thank you, Ellen. Consolidated revenues for the fourth quarter 2020 decreased by 78% and to $15 million compared to the same period last year. For the year ended December 31, 2020, revenues decreased by 72% to $77.9 million from the year ended December 31, 2019. These decreases are primarily driven by the continued temporary closure of a portion of our cinemas and our 3 live theaters as a result of COVID-19 pandemic. We were able to recover some of our revenue losses in the second, third and fourth quarter due to reopening of most of our Australia and New Zealand theater since June 2020, and partially reopening of our U.S. cinemas. Additionally, the fourth quarter of 2020, the Australian dollar and the New Zealand dollar strengthened by 6.9% and 6. 5%, respectively, against the U.S. dollar. Net loss attributable to RDI common stockholders decreased by $10.1 million to a net loss of $17.4 million for the fourth quarter of 2020 compared to a net loss of $27.5 million in the same period of the prior year. Basic loss per share for the quarter ended December 31, 2020 decreased by $0. 41 from the prior year quarter to a loss of $0.80 for the year ended December 31, 2020. Net loss attributable to RDI common stockholders increased by $38.8 million to a loss of $65.2 million compared to the year ended December 31, 2019. Basic loss per share increased by $1.83 to a loss of $3 compared to the same period of last year. Nonsegment G&A expense for the fourth quarter and the year ended December 31, 2020 decreased by 66% and 32% to $1.6 million and $12.8 million, respectively, mainly attributable to

[A - Andrzej Matyczynski:]

Thanks, Gilbert. First, I'd like to thank our stockholders for forwarding questions to our Investor Relations email. In addition to addressing some of your questions in Ellen's discourse, we've also compiled a set of questions and answers representing the most common questions and recurring themes e-mailed to us. The first question we received were quite a few regarding our former railroad property owned by Reading, adjacent to Reading Viaduct in Philadelphia, which has been the subject of a lawsuit filed by certain groups in the city of Philadelphia. What are our plans with respect to the demolition and the future? Ellen, would you like to take that?

[Ellen Cotter:]

Yes. Yes. For background, the Reading Viaduct and certain adjacent properties are legacy assets from Reading's days as a railroad. The Viaduct itself is an interconnected raised right-of-way stretching through blocks of downtown Philadelphia. The Viaduct is in a core urban area, and the neighborhood surrounding the Viaduct have seen positive change in recent years, including the creation of the Rail Park, a usable and beautiful public space. We are contesting the lawsuit filed and we'll continue to explore all available options for these assets.

[Andrzej Matyczynski:]

Thanks, Ellen. Now we have a couple of questions that, Gilbert, perhaps you can fill it for us. The first one, can you give us a sense of the post-tax amount for the 2 divestitures? And what is the company's current tax estimate or NOL balance?

[Gilbert Avanes:]

Sure. On March 4, 2021, we sold our land in Manukau, New Zealand for NZD 77 million or USD 56 million. And our available cash after tax is approximately NZD 70 million and USD 50 million. On March 5, 2021, we sold our land in Coachella, California for $11 million. And as a 50% owner of the land, our available cash after tax for the sale is approximately $5 million. At December 31, 2020, we have approximately $46 million of federal NOLs and $13 million of New Zealand NOLs or NZD 19 million.

[Andrzej Matyczynski:]

Thanks, Gilbert. And while you're there, at what point were returning CapEx to normalized levels make sense? And what are your priorities?

[Gilbert Avanes:]

Returning capital expenditures to normalized level makes sense only after our cinema and real estate business segments stabilize and begin returning to pre-COVID-19 operating levels. Until this happens, the company's primary focus continues to be effectively manage liquidity, conserve cash and defer capital expenditures.

[Andrzej Matyczynski:]

And expanding on that managing of liquidity, understanding that the current environment requires cash conservation, can you remind us of your capital allocation priorities in a post-COVID world, Gilbert?

[Gilbert Avanes:]

As part of our overall liquidity management practices that dealt with the impact on our business of COVID-19 pandemic-related closure, we postponed or reprioritized capital expenditures based on assessments of conditions and liquidity requirements during this time. With our long-term diversified business plan, which features 2 business in 3 countries, we have different approaches and exposures to this worldwide pandemic as the world reopens for business. We continue to improve our operating efficiencies, negotiate with our landlords to defer or abate rents, work with our lenders from loan amendments and waivers, if needed, and defer capital improvement, except for costs related to completing 44 Union Square, our Kahala Theatre renovation in Hawaii, our new Reading Cinema in Jindalee and funding our second floor tenants at Culver City office building. These measurements continue to be impacted by restriction placed in operating capacity and the availability of uninterrupted film product. As we return to full operations, we will continue to review and update, as needed, our capital allocation priorities.

[Andrzej Matyczynski:]

Thanks, Gilbert. What has been your experience so far with Angelika Anywhere PVOD platform? Do you have Angelika Anywhere a similar offering or no offerings down in New Zealand or Australia? Can you provide some metrics to measure the success and goals for future growth? Do you contemplate this as a temporary offering? Or will you continue it postpandemic? Ellen?

[Ellen Cotter:]

Since its soft launch in December of 2020, Angelika Anywhere has been well received by our core Angelika Film Center customers. Based on customer surveys, our audience appreciates the curation element, the functionality and the library of amazing content, which we're continually adding to. While our theaters were closed, Angelika Anywhere was an easy and seamless way for our core audience to access signature Angelika programming. And for the future, the platform will be a logical extension to our theatrical brand. We anticipate that it will be constantly woven into our strategic approach to the extension of the Angelika brand. Today, this initiative is in its infancy stages. And due to our liquidity issues, we've not dedicated any funds other than internal resources to its promotion and marketing. So we won't share today any hard metrics or goals. But our current plan is to launch Angelika Anywhere in Australia and New Zealand later in 2021.

[Andrzej Matyczynski:]

Thanks, Ellen. Most larger chains have a recurring payment subscription program for movie attendance and consumption discounts. While they are on hold during the pandemic, how do you view the long-term viability of the subscription model for theater exhibition postpandemic? Since such a program could be integrated with a change PVOD streaming platforms like Angelika Anywhere, creating a mini Netflix, what thought have you given to establishing a subscription plan in general for Reading in your 3 countries and also to integrate such a program with Angelika Anywhere or other streaming offerings? If not, why do you feel such a plan won't work for Reading? Ellen?

[Ellen Cotter:]

Well, pre-COVID, we had not launched a dedicated subscription plan as we wrestled with the economics of those plans, and with respect to the U.S., the diversity of our geographic footprint. However, pre-COVID, our company did offer both loyalty programs and comprehensive value pricing schemes as a way to generate increased attendance to our theaters and dedication to our brands. In a post-COVID environment and at a time when we have launched a streaming service in the U.S., and have plans for international expansion of that service, we'll again look holistically at our various guest offers and programs to determine the most creative ways to both increase the tenants to our theaters and now, increase users to our platform. Over the next 12 months, we anticipate announcing new initiatives that we feel will be attractive to both our guests and build further loyalty to our brands while also taking into account our bottom line.

[Andrzej Matyczynski:]

Thanks, Ellen. And I filled this final question myself. Explain how the related party transactions with certain low capital and affiliate of the Cotter family interest that were called out in the 10-K with respect to both Cinemas, 1, 2 and 3 and Village East are fair to Reading and its independent shareholders. Well, both of these transactions relate back to an agreement made way in July 2000, which gave us access to both of these properties, which were, at the time, subject to long-term leases by Sutton Hill Capital. With the Cinemas 1, 2 and 3, we ultimately acquired the leasehold interest under this agreement and with our 25% partner, Sutton Hill Capital, then went on to acquire the freehold interest. Something that would have not been possible without the Sutton Hill agreement. We are pleased by the interest shown in this property by our stockholders as we believe this asset will provide them significant long-term value. The Village East is following a similar path with a currently delay due to COVID-19 exercise of the final $5.9 million option to acquire the leasehold interest in that property. This will provide Reading stockholders with interest in 2 strategic New York properties. More specifically, during 2020 and the year-to-date, we've carefully managed our liquidity. The 2020 and 2021 transaction described in the related party transaction footnote, assisted us in meeting our domestic liquidity requirements. Each transaction was reviewed and approved by a Conflicts Committee, comprised entirely of independent directors. More specifically, on March 13, 2020, we refinanced our Cinemas 1, 2 and 3 loan with Valley National Bank, increasing the availability on that facility from $20 million to $25 million. This increase in capacity enabled us to make a $1 million distribution, $750,000 to us and $250,000 to our 25% minority member in October of 2020. In November 2020, we closed out our right to receive certain incremental management fees with respect to the Cinema 1, 2 and 3 in consideration of a onetime cash payment of $112,500. We also transferred all of our right, title and interest in certain personal property and equipment at that cinema. We considered tax benefits of the continued depreciation of these assets to be of no practical value. On March 29, 2021, we extended the closing of our acquisition of the ground lease underlying our Village East Cinema to January 1, 2023, thereby deferring our obligation to pay the $5.9 million acquisition price. In the interim, we continue to lease this property. We are grateful that we have a -- we have a good relationship with our minority member, Sutton Hill Capital, without whose cooperation, we would not have had the flexibility we enjoyed in meeting these liquidity challenges. So with that, that marks the conclusion of the call. We appreciate, as always, you listening to the call today. Thank you for your attention and wish everyone good health and safety.