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Communication Services - Entertainment - NASDAQ - US
$ 1.4
-3.45 %
$ 40.6 M
Market Cap
-0.8
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2022 - Q4
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Andre Matyczynski

Thank you for joining Reading International Earnings Call to discuss our 2022 Year-end and Fourth Quarter Results. My name is Andre Matyczynski, and I'm Reading's Executive Vice President of Global Operations.

With me 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 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, and our remarks today are qualified in their entirety by the more detailed disclosures in our recently filed annual report on SEC Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements.

In addition, we will discuss non-GAAP financial measures on this call. Reconciliations and definitions of non-GAAP financial measures, which are segment operating income, EBITDA and adjusted EBITDA, are included in our recently issued 2022 fourth quarter earnings release on the company's website.

We have adjusted, where applicable, the EBITDA items we believe to be external to our business and not reflective of our cost of doing business or results of operations.

Such costs include legal expenses relating to extraordinary litigation and any other items that we can consider to be nonrecurring in accordance with the 2-year SEC requirement for determining when an item is nonrecurring, infrequent or unusual in nature. We believe adjusted EBITDA is an important supplemental measure of our performance.

In today's call, we also use an industry-accepted financial measure called Theater Level Cash Flow, TLCF, which is theater level revenue less direct theater level expenses. ATP, average ticket price is also used as an accepted industry acronym.

We also use a measure referred to as F&B spend per patron, SPP, which is a key performance indicator for our cinemas. The F&B SPP is calculated by dividing a cinema's revenues generated by food and beverage sales by the number of admissions at that cinema.

Please note that our comments are necessarily summary in nature, and anything we say is qualified by the more detailed disclosure set forth in our Form 10-K and other filings with the U.S. Securities and Exchange Commission.

So with that behind us, I'll turn it over to Ellen, who will review our 2022 full year and fourth quarter results and discuss our strategy for continuing to navigate Reading International through the lingering effects of the COVID-19 pandemic and into the post-COVID era, followed by Gilbert, who will provide a more detailed financial review.

Ellen?.

Ellen Cotter

Afterlife Life 2 and DC Comics', Aquaman and the Lost Kingdom. We're also encouraged by the recent announcement from major streaming platforms, Amazon and Apple that they're committed to fund movies with the theatrical window.

The first significant movie from Amazon is Air from Ben Affleck and Matt Damon, which opens tomorrow and has been generating amazing word-of-mouth and critical acclaim.

As we faced inflationary headwinds and cost pressures, we adjusted our ticket pricing such that our Q4 2022 average ticket price or ATPs, which were $13 in the U.S., $14.24 in Australia and $12.33 in New Zealand were the highest for any quarter in each country. And for the full year 2022, we set also new ATP levels in the United States and Australia.

However, management will continue to evaluate our ATP levels to ensure we don't create price barriers for our core guests. During the quarter and over the course of the full year, our global cinema team continued to deliver impressive food and beverage results.

At $7.87 in the U.S., $7.81 in Australia, $6.94 in New Zealand, our Q4 2022 F&B SPPs all set record highs for any fourth quarter. And our Q4 2022 F&B SPP was an all-time record for highest quarter ever for Australia and New Zealand.

And at $7.60 in the U.S., $7.33 in Australia and $6.24 in New Zealand, our 2022 F&B SPPs for each country set an all-time F&B SPP record. Our 2022 F&B SPP record results were driven not only by strategic price increases but also by adding 3 liquor licenses in the U.S. in '22, leaving only 2 targeted locations left in our U.S. circuit.

The addition of one liquor license in Australia, offering collectible movie themed cups and tubs driving fountain drinks and popcorn sales, our new Gold Lounge offering at LynnMall and the Q4 2022 launch of our Reading app that facilitates online F&B ordering in Australia and New Zealand. And now turning specifically to our U.S. cinemas.

Our Q4 2022 U.S. cinema revenue decreased by $1.5 million or 6% to $24.6 million compared to Q4 of '21. Our U.S. cinema segment operating income decreased to a loss of $4.8 million from income of $438,000 in Q4 of '21. However, for the year 2022, U.S. cinema revenue increased by $37.9 million to $97.1 million versus '21. And our U.S.

cinema operating loss decreased by $4 million to a loss of $17.2 million for the year of '22. A couple of points about our U.S. cinemas. In 2022, our U.S. specialty cinemas continued to show signs of recovery. Our 2022 box office at the Angelika in New York City increased by almost 45% compared to '21.

In 2022, the Angelika New York returned to delivering noteworthy box office milestones. The gross box office engagements of Oscar winners, The Whale and multiple Oscar nominee, The Banshees of Inisherin at the Angelika New York ranked as the highest in the U.S. for each film.

And the gross box office engagements of international films, The Worst Person in the World and Decision to Leave at the Angelika New York also ranked as the highest gross in the United States. During 2022, our curated reparatory programs delivered a record box office year with popular original series such as Hitchcocktober and Pajama Party.

To bring audiences back to our specialty cinemas, we also launched our free to join Angelika membership program on April 29 of '22 in 9 theaters. As of today, we have about 60,000 registered members and in the sign of guest loyalty to the Angelika brand, attendance tied to membership continues to increase month over month.

Membership as a percentage of overall paid attendance for the 9 Angelika locations is currently at 22% for the month of March of '23 compared to just under 8% in May of '22.

The program's continued growth and impact on our specialty cinema circuit is a testament to its qualities as well as a clear indicator of patrons' growing enthusiasm for theatrical moviegoing and specialty content.

In terms of 2022 CapEx, we completed the renovation of our consolidated theater in Kapolei, which now features recliner seating in 8 auditoriums and elevated F&B menu and a renovated lobby area.

In '23, we will commence a full renovation of the Angelika Film Center in Dallas, which will include conversion to recliner seating, F&B upgrades and adding a premium screen like TITAN LUXE. Also in 2023, we're completing a review of underperforming theaters for potential closure to improve the overall profitability of our U.S. circuit.

Turning to our theaters in both Australia and New Zealand. Our Q4 2022 Australian cinema revenue decreased by $1.6 million or 9% to $16.1 million compared to Q4 of '21. Operating income decreased by $2.4 million to a loss of $891,000 from operating income of $1.5 million in Q4 of 2021.

For the 2022 year, our Australian cinema revenue increased materially by $24.6 million or 44% to $79.9 million compared to the '21 year. Operating income increased by $2.9 million to $4.9 million compared to an operating income of $2.9 million for the 2021 year.

Our Q4 2022 New Zealand cinema revenue decreased by $307,000 to $3.2 million compared to Q4 of '21. Our operating income for Q4 of '22 decreased by $197,000 to a loss of $80,000 from an operating income of $117,000 in Q4 of '21. For the 2022 year, our New Zealand cinema revenue increased by $2.7 million to $14.3 million.

Our operating income increased by $72,000 to $526,000 compared to the operating income of $454,000 for the year of 2021. In Australia and New Zealand, our cinema operations benefited from the launch of our Reading app.

In addition, we delivered the following technological advances in 2022, all of which support increased F&B spending and positions us for a solid 2023 and beyond.

The ability to purchase F&B online while purchasing a ticket, ticketless F&B ordering at the cinema via QR codes, retrospective F&B ordering, we launched the new State Cinema by Angelika website in '22, and we added Apple and Google Pay to our online offerings.

In 2022, we progressed our design plans for our new 8-screen cinema at South City Square in the Brisbane area, which will be our first new Angelika in Australia, and we look forward to opening in the second half of 2023. We progressed our plans for a new state-of-the-art 5-screen Reading Cinema with TITAN LUXE in Busselton, Western Australia.

And in Western Australia, we also took over an existing 6-screen cinema and Armadale at the end of '22. In New Zealand, on November 24, 2022, we reopened our Reading Cinema in Invercargill with a premium screen featuring recliner seating, a lobby renovation and an upgraded F&B offering that includes the sale of liquor.

Now let's turn to our global real estate business. Our resilient dual and diversified business strategy was key to our viability during the COVID-19 pandemic. While our cinema business experienced a temporary drop in cash flows, our real estate operations remained robust, enabling us to capitalize on our real estate portfolio to offset the decline.

Our Q4 2022 global real estate revenue increased 62% to $4.6 million compared to 2021. We've reported a Q4 2022 operating income of $631,000, which was 144% increase from Q4 of '21. Our global real estate revenue for the full year of '22 increased by 32% or $4.1 million to $16.8 million compared to '21.

We've reported an operating income of $506,000, which increased by 109% or $5.9 million compared to 2021. The improved quarter and full year 2022 segment operating results were due to a variety of factors, including our decision to restart charging intercompany cinema rent to our Reading Cinemas in properties where we own the underlying land.

This intercompany charge was abated during '21 due to the pandemic.

Additional factors supporting these real estate metric improvements include less tenant vacancies across our global real estate divisions, increased percentage rent revenue received from Australian third-party tenants and improved operational results from our New York City live theaters, which were both open and holding public performances for the full year of '22.

In the U.S., our Q4 2022 real estate revenue increased by 79% to $1.2 million, partly due to rent starting for Petco at our 44 Union Square property. In '22, we entered a long-term lease with Petco, a national credit tenant for 42% of the buildings leasable area.

We expect that the new flagship store will open in mid-2023 with a full marketing push to begin in the next few months. As we have mentioned before, we began receiving cash rent in December 2022.

We're also excited about the prospects for the new show at the Orpheum Theatre in New York City, The Empire Strips Back, which has successfully run in Los Angeles and San Francisco and will open in New York City on May 10. Since going on sale, the show has generated impressive advanced ticket sales.

Our Australian real estate revenue increased by 57% to $2.9 million during the fourth quarter compared to the fourth quarter of '21. And in New Zealand, our fourth quarter 2022 real estate revenue increased by 49% to just under $400,000.

In each case, these increases were primarily due to intercompany rent income, which was abated in '21 and restarted in '22. I'm focusing on the Australia, New Zealand real estate portfolio. At December 31, of '22, we had 75 third-party tenants in our combined Australia and New Zealand real estate portfolio.

And we reported a total third-party occupancy rate of 96%. During 2022, we signed 12 new leases or lease renewals. And our third-party tenant sales from our Australian real estate portfolio was a total of $113 million. That's in functional currency.

I'll finish by noting that as we continue to strengthen our foundation and regain our footing in our cinema divisions, we're confident about the potential of our retained real estate assets.

We have a diverse portfolio of properties, including 44 Union Square in the Cinema 1, 2 and 3 in New York City and our Viaduct properties in the Arts District of Philadelphia as well as assets in Wellington, New Zealand and our Australian assets, Newmarket Village in Brisbane, Cannon Park in Townsville and the Belmont Common in Perth.

These assets provide us with substantial opportunities to create long-term value for our stockholders through their redevelopment, financing or potential sales. That wraps up my business overview for the full year and Q4 2022 results.

But before I turn it over to Gilbert, on behalf of Margaret, our Board and myself, we again want to extend our sincerest appreciation to the global Reading team. Your dedication and hard work, particularly over the last 3 years has been instrumental in sustaining our company through these difficult times. And with that, I'll turn it over to Gilbert..

Gilbert Avanes

No Way Home being released in December 2021, which was the highest performing title of the year in 2021. For the year ended December 31, 2022, net income attributable to Reading decreased by $68.1 million to a net loss of $36.2 million compared to the same period in the prior year.

Basic earnings per share for the year ended December 31, '22, decreased by $3.10 per basic loss per share of $1.64 compared to the year ended December 31, 2021. Decreases were largely due to the onetime gain on sale of assets, which accounted for $92.2 million of gain on sale of asset that occurred in 2021 and were not repeated in 2022.

Non-segment G&A expense for the quarter ended December 31, 2022, and the year ended December 31, 2021, decreased by $1.7 million and $0.4 million to $3 million and $16.2 million, respectively, compared to the same period in prior year.

For the quarter of 2022, income tax expense decreased by $5.8 million to $0.7 million compared to the equivalent prior year period. We experienced an income tax expense of $0.8 million for the year ended December 31, 2022, a decrease of $5.1 million when compared to the same period of prior year.

The change between '21 and '22 was mainly related to the increased income tax expense in 2021 as a result of monetization of our 5 assets. For the fourth quarter of 2022, our adjusted EBITDA decreased by $7.4 million compared to the same prior year period to a loss of $4.6 million.

For the year ended December 31, 2022, our adjusted EBITDA decreased by $74.3 million to a loss of $55,000 compared to the year ended December 31, 2021. This decrease was primarily the result of our gain on sale of assets, which occurred in 2021 and was not repeated in 2022. Shifting to cash flows.

For the year ended December 31, 2022, net cash used in operating activities increased by $12.9 million to net cash used of $26.4 million when compared to the same prior year period.

This was primarily driven by a $26.1 million increase in net changes in operating assets and liabilities, primarily resulting from taxes payable, accounts payable, film rents payable offset by $13.2 million decrease mainly attributed to an improved cinema operating performance compared to the prior year period.

Cash used in investing activities during the 12 months ended December 31, 2022, was $9.5 million compared to the cash provided by investing activities of $129.6 million for the 12 months ended December 31, 2021. This change was primarily due to the asset monetization of certain assets that occurred during 2021 and was not repeated in 2022.

Cash used in financing activities during the 12 months ended December 31, 2022, was $16.6 million, which was a decrease of $33.7 million. This decrease was primarily due to the large debt repayment that occurred in the prior year. Turning now to our financial position.

Our total assets on December 31, 2022, were $587.1 million compared to $687.7 million on December 31, 2021. This decrease was partly driven by a $53.3 million decrease in cash and cash equivalents by which we funded our ongoing business operation and paid down debt, asset depreciation and amortization of leases.

The increase in cash in 2021 was primarily related to a onetime monetization of 5 of our real estate assets during 2021. As of December 31, 2022, our total outstanding borrowings were $215.6 million compared to $236.9 million on December 31, 2021.

Our cash and cash equivalent as of December 31, 2022, were $29.9 million, which includes approximately $24 million in the U.S., $4.9 million in Australia and $1.1 million in New Zealand.

Further to address the impact of COVID-19 on our business, we sought and obtained certain modification to our loan agreement with the Bank of America, NAB and Westpac. These loan modifications include change to some of our covenant compliance terms and waivers of certain covenant testing period.

We are currently in compliance with our loan covenants as so modified. To date, it has not been necessary for us to seek modification or waivers with respect to our other loan agreement as we continue to be in compliance with the terms of such loan agreement with the need for any of such modifications or waivers.

During the full year and the fourth quarter of 2022 and in the first quarter of 2023, we exercised the first of two 6-month options to extend the Cinemas 123 Term Loan on March 3, 2022, and then exercise the second extension option on September 1, 2022, taking the maturity to April 1, 2023.

On March 15, 2023, the maturity was further extended by 90 days to July 3, 2023, and are currently working with our existing lender to complete a longer-term refinancing of Cinemas 123 Loan. We repaid and retired $12.7 million of our line of credit with Bank of America throughout 2022.

On November 29, 2022, we further modified our credit agreement with Bank of America, which extended the term by 1 year to March 1, 2024, and an amended the scheduled repayment. And on March 30, 2023, we further modified this facility, which extended the maturity date to September 4, 2024, and created a modified repayment schedule.

We repaid and retired AUD 1 million of our revolving corporate material loan facility with National Australia Bank throughout 2022, on December 15, 2022. We extended the term of our NAB facility to June 30, 2024.

Westpac has waived the requirement to test certain covenants for each quarterly since the third quarter of 2022, including the fourth quarter of 2022. Our waiver also removes the requirement to test certain covenants up to and including the first quarter of 2023, with testing resuming for the second quarter of 2023.

Certain covenant ratios were also adjusted. As we continue to focus on preserving our liquidity, no shares were purchased during the year ended December 31, 2022, and our stock repurchase program has and will likely continue to take lower capital allocation priority for the foreseeable future. With that, I will now turn it over to Andre..

A - Andre Matyczynski Executive Vice President of Global Operations

Thanks, Gilbert. Firstly, I'd like to thank those stockholders for forwarding questions to our Investor Relations e-mail. As usual, in addition to addressing many of your questions in the prepared remarks from Ellen and Gilbert, we've selected a few additional questions to offer additional insights from management. The first such question.

Now that the proposed grocery tenancy obligation has been completely removed, what is the timing and/or milestones toward finalizing a larger redevelopment plan for Courtenay Central in New Zealand.

Ellen?.

Ellen Cotter

In the first instance, we continue to work with various stakeholders on the reactivation of Courtenay Central. Reactivating our Reading Cinemas is our priority goal.

However, we're also evaluating the future feasibility of developing the wider Courtenay Central precinct, which encompasses all of our Wellington real estate assets and development must be economically feasible for our company.

Our goal is to create a dynamic addition to Wellington's vibrant Te Aro district that now offers both [indiscernible] domestic and international travelers, cultural destination that includes the renovated St.

James Theatre, the newly completed Takina Convention and Exhibition Center, New Zealand's National Te Papa Museum and the beautiful Wellington Harbor. As of today, we don't have a concrete schedule of redevelopment start or finish dates to report, and I'll note that we make no assurances that such a strategy will be completed..

Andre Matyczynski

Thanks, Ellen. And perhaps you could handle the next question, which revolves around the 10-K mentioning a fee interest in a 23-acre industrial site with rail access in Williamsport, Pennsylvania. Please provide some more information on the property.

As an industrial site, how or why is this property not presently at near optimal value that it shouldn't be monetized for higher return generating capital deployments like debt pay down, stock buyback, et cetera.

Ellen?.

Ellen Cotter

This industrial site in Williamsport is a Reading railroad legacy asset, which has been in our portfolio for decades. Currently, this space is occupied by Transco, a company in repair business and a subsidiary of Marmon Rail & Leasing, which is part of Marmon Holdings, the global industrial organization with diverse business lines.

This particular area in Williamsport is industrial as our property abuts the Chance Aluminum production facility. And we're currently reviewing this category of assets for potential monetization opportunities..

Andre Matyczynski

Thanks, Ellen. Gilbert, perhaps you can handle this next one. Has the March $5 million principal payment on the costly 10% BofA U.S. cinema term loan being made? And what is the loan's present outstanding balance specified as of what date versus the $26.7 million year-end '22 balance sheet date.

Is the plan to retire this loan via its updated principal paydown schedule or refinance some remaining balance into longer-term U.S.

cinema financing? Given the current variable rate on this loan, do you feel refinancing will be at similar, higher or lower interest rate spreads?.

Gilbert Avanes

In accordance with the new loan amendment signed on March 30, 2023, that was disclosed in our recently filed 10-K, our principal payment schedule has been modified and the $5 million payment originally due in March was no longer required. As of end of March 2023, our new loan balance has been reduced to $26 million.

As we have mentioned, we continue to closely manage our liquidity. And as a result of that, we focus on the paydowns for our amendments.

Regarding refinancing, while we cannot predict the future as we get closer to the maturity of our loan, we'll be evaluating our cash balances and interest rates, and we'll make a decision that's in the best interest of our company and our stockholders..

Andre Matyczynski

Thanks, Gilbert. And our last question here regarding the $9.4 million deferred rent obligation mentioned in our 10-K outstanding as of March 30.

What is the timing for payoff? Are these extra amounts a drag on EBITDA or were they already expensed when deferred? The whole of the potential $9.4 million deferred rent obligation mentioned in the 10-K, an outstanding actually on December 31, 2022, have been accrued through the income statement, and therefore, will not be a drag on future EBITDA.

Most of the $9.4 million is payable within the next 12 months with the remaining amounts payable based on existing documentation over future periods. However, we continue to work with most of our landlords in the U.S. to seek further occupancy relief to alleviate the severe hardships caused by the COVID pandemic and its impact to our U.S.

cinema cash flow. That marks the conclusion of our question-and-answer session and the conclusion of the call. We appreciate you listening to the call today. Thank you for your attention, and we wish everyone good health and safety..

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