Earnings Transcript for RDI - Q1 Fiscal Year 2023

Andrzej Matyczynski: Thank you for joining Reading International’s Earnings Call to discuss our 2023 First Quarter Results. My name is Andrzej 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. 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 2023 first 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 non-recurring in accordance with the two-year SEC requirement for determining whether an item is non-recurring, 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 will also use a measure referred to as food and beverage spend per patron, F&B SPP which is a key performance indicator for our cinemas. The F&B SPP is calculated by dividing a cinemas 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-Q 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 2023 first quarter results and discuss our strategy followed by Gilbert, who will provide a more detailed financial review. Ellen?

Ellen Cotter: Thanks, Andre, and thank you for listening to our call today. We were pleased that our 2023 first quarter results reinforced our view that audiences in the U.S., Australia and New Zealand will continue to embrace the magic of great movies in a big screen shared environment. Audiences across the world love Avatar

Gilbert Avanes: Thank you, Ellen. Consolidated revenues for the quarter ended March 31, 2023, increased by $5.6 million to $45.8 million when compared to the same period in the prior year. This increase was primarily driven by strong cinema performance, which was the result of more robust fun slate, leading to increased attendance compared to Q1 of 2022. Net loss attributable to Reading International Inc. for the quarter ended March 31, 2022, decreased by $4.2 million, a net loss of $11.1 million when compared to the same period in the prior year. Basic loss per share decreased by $0.20 to a basic loss per share of $0.50 for the quarter ended March 31, 2020 – for March 31, 2023 compared to the quarter ended March 31, 2022. These results are due in large part to the increase in our cinema performance in Q1 2023 compared to Q1 2022. Non-segment G&A expenses for the quarter ended March 31, 2023 decreased by $0.3 million compared to the same period in prior year. For the first quarter of 2023, income tax benefit increased by $0.1 million to $0.5 million compared to the equivalent prior year period. The change between 2023 and 2022 is primarily related to the decrease in reserve for valuation allowance. For the first quarter of 2023, our adjusted EBITDA loss decreased by $4.2 million compared to the same prior year period to a loss of $2.8 million. This decrease was primarily the result of stronger cinema operations performance and the rent received from our tenants at our 44 Union Square property. Shifting to cash flow. For the quarter ended March 31, 2023, net cash used in operating activities decreased by $2.5 million to a net cash used of $11.6 million when compared to the same prior year period. This was driven by an improved cinema operating performance compared to the prior year period and recognition of rental income from our tenant at 44 Union Square property which did not occur in the same period of prior year. Cash used in investing activities for the three months ended March 31, 2023, was $1.5 million, a decrease of $0.2 million compared to the same period of prior year. Cash used in financing activity for the three months ended March 31, 2023 decreased by $0.2 million to $1.4 million due to higher debt repayment in Q1 2022 when compared to Q1 2023. Turning now to our financial position. Our total assets on March 31, 2023 were $560.2 million compared to $587.1 million on December 31, 2022. This decrease was driven by a $15.3 million decrease in cash and cash equivalent by which we funded our ongoing business operations. As of March 31, 2023, our total outstanding borrowings were $213.4 million compared to $215.6 million on December 31, 2022. Our cash and cash equivalent as of March 31, 2023 were $14.6 million, which includes approximately $10.9 million in U.S., $3 million in Australia and $0.7 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 Bank of America, NAB and Westpac. These loan modifications include changes to some of the covenant compliance terms and waivers of certain covenant testing periods. We are currently in compliance with our loan covenant as so modified. Today, it has not been necessary for us to seek modifications or waivers with respect to our other loan agreements. As we continue to be in compliance with the terms of such loan agreements without the need for any such modifications or waivers. During the first quarter of 2023, we modified our Bank of America loan, extending the maturity date of the facility to September 4, 2024. And our Cinemas one, two, three term loan was also extended during the first quarter of 2023 and now maturing on July 3, 2023. As we continue to focus on preserving our liquidity, no shares were purchased during the quarter ended March 31, 2023, and 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 Andre.

Q - :

A - Andrzej Matyczynski: Thanks, Gilbert. We’ve tried to include answers to many of the questions received in the prepared remarks from Ellen and Gilbert. And as a result, we only have a few additional questions and answers that will provide additional insights from management. The first question; does the wage and hour claim settlement involved Reading bearing a higher level of wage costs annually. Is that already reflected in our cinema segment cost structure? Ellen?

Ellen Cotter: In our recent 10-Q filing, we reported that the $4 million payments to the plaintiff for the settlement for the wage and hour claim was accrued for in our 2021 Cinema segment administrative expense. Going forward, all of the California labor costs are reflected in our Cinema segment cost structure. Operating in the State of California generally does carry a higher labor cost in other U.S. markets, both in terms of base wages and regulatory compliance costs.

Andrzej Matyczynski: Thanks, Ellen. The next question regards our U.S. cinema term loan. And ask if the payment in kind interest rate being accrued for and part of the current interest expense, if the loan is paid off as its original earlier date and the interest is to give will that be a balloon reversal of interest expense? Is Readings plan to retire this loan via its updated principal paydown schedule or refinance some remaining balance into longer-term U.S. number financing? And lastly, given the current variable rate on this loan, do we feel that refinancing will be a similar, higher or lower interest rate spreads? Gilbert?

Gilbert Avanes: We did not accrue to pick interest. This decision will depend on a number of factors, the resolution of some of which is still uncertain. These factors, including, without limitation, the availability of cash flow from our cinemas over the remaining terms of the loan, interest rates and the appetite in the financial markets for loans secured by cinema leasehold interest. As to the future interest rates, we believe that there is certainly a substantial uncertainty in the marketplace as to the interest rate. The yield curve continues to be inverted, but Fed watchers are split as to whether or not the Fed will continue to push up interest rates. And if they do, the magnitude and timing of such increases. And we expect that lenders seeing the margins erode are going to want protection against future increases in the cost of their borrowings. So we are unable to provide meaningful guidance at this time.

Andrzej Matyczynski: Thanks, Gilbert. And lastly, on our deferred rent obligations. Of the $9.5 million of deferred rent obligations mentioned in the Q1 10-Q, is that as of March 31 or May 15 filing date? What is the timing for the cash payoff of these amounts? Gilbert, can you handle that as well.

Gilbert Avanes: The $9.5 million deferred rent is as of March 31, 2023. The timing varies from lease to lease. Also in our efforts to reduce our cost of occupancy, we’re having ongoing conversations with a number of our landlords, some of whom have previously granted rent deferrals. Accordingly, while no assurance can be given, we are endeavoring to further spread out or to otherwise get relief from the payments of these deferrals.

Andrzej Matyczynski: Thanks, Gilbert. So that marks the conclusion of the call. As usual, we appreciate you listening to the call today. Thank you for your attention and wish everyone good health and safety.