Earnings Transcript for RDIB - Q2 Fiscal Year 2024

Andrzej Matyczynski: Thank you for joining Reading International's Earnings Call to discuss our 2024 Second 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 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 2024 second 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 costs of doing business or results of operations. Such costs could include legal expenses relating to extraordinary litigation and any other items that we consider to be non-recurring in accordance with the two-year SEC requirement for determining when an item is non-recurring, infrequent, or unusual in nature. We believe that adjusted EBITDA is an important supplemental measure of our performance. In today's call, we also use an industry accepted financial measure called theatre level cash flow TLCF, which is Theatre Level Revenue Less Direct Theatre Level Expenses. Average ticket price, ATP, which is calculated by dividing cinema box office revenue by the number of cinema admissions, is also used as an accepted industry acronym. We'll 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 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-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 2024 second quarter results and discuss our business strategy going forward, followed by Gilbert who will provide a more detailed financial review. Ellen?

Ellen Cotter: Thank you, Andrzej. Welcome everyone to the call today, and thanks for listening in. During the first six months of 2024, our company continued to be negatively impacted by the 2023 Hollywood Strikes. For those of you knew to Reading, about 90% of our total revenue is generated by our global cinema division. So, like the rest of the cinema industry, the prolonged strikes have had an adverse effect on our key financial metrics. Each of our cinema divisions in Australia, New Zealand and the United States felt the blow of release date shifts and a film slate that included not only fewer titles, but a number of underperforming titles. Though during this challenging six-month period, the industry did enjoy some very strong picture-by-picture engagements like Godzilla x Kong, Kingdom of the Planet of the Apes and Bad Boys

Gilbert Avanes: Thank you, Ellen. Consolidated revenue for the quarter ended June 30, 2024 decreased by $18.2 million to $46.8 million when compared to the second quarter of 2023. Consolidated revenue for the six months ended June 30, 2024 decreased by $19 million to $91.9 million when compared to the same period of 2023. These decreases are attributable to lower cinema performance in all countries due to weaker film slate and negative impact from 2023 Hollywood strike, reduced rent income in U.S. and New Zealand, and the softening of our Australia and New Zealand currency against the U.S. dollar. Net loss attributable to Reading International Inc. for the quarter in the June 30, 2024 was $9.3 million compared to a loss of $2.8 million for the same period in the prior year. Basic loss per share increased by $0.30 to a loss of $0.42 compared to a loss of $0.12 for Q2 2023. These results were primarily due to weakened cinema and real-state performance along with increased interest expense. Net loss attributable to Reading International Inc. for six months in the June 30, 2024 increased by $8.7 million for a loss of $13.9 million to a loss of $22.6 million when compared to the same period in the prior year. Basic loss per share increased by $0.38 to a loss of $1.01 compared to a loss of $0.63 for the first six months of 2023. These results were primarily due to weakened cinema and real-state performance along with increased interest expense and a loss on sale of our Culver City Corporate Office building. Our total company depreciation, amortization, impairment, and G&A expense for the quarter in the June 30, 2024 decreased by 516,000 to $9.3 million when compared to the same quarter in the prior year. For the six months ended June 30, 2024, it decreased by 708,000 to $18.9 million compared to the same period in the prior year. These decreases were due to decrease in depreciation and amortization as a result of delay in CapEx spending and the softening of our Australian and New Zealand currency against the U.S. dollar. For the second quarter of 2024, income tax benefit increased by $53,000 to an income tax benefit of $156,000 compared to the equivalent prior year period. The change between '24 and '23 is primarily related to an increase in pre-tax loss in 2024 offset by an increase in reserves for the valuation allowance in 2024. Income tax benefit for the six months in the June 30, 2024 decreased by 204,000 to an income tax benefit of 379,000 compared to the equivalent prior year period. This is primarily related to an increase in reserve for valuation allowance in 2024 partially offset by an increase in pre-tax loss in 2024. For the second quarter of 2024 our adjusted EBITDA loss increased by $6.9 million from an income of $6.7 million to a loss of $0.2 million compared to Q2 of 2023. For the six months in the June 30, 2024 our adjusted EBITDA loss increased by $8 million to a loss of $4.2 million compared to the same prior year period. These results were primarily the result of weakened cinema and real estate performance as mentioned previously. Shifting to cash flow for the six months in the June 30, 2024, net cash used in operating activity increased to $13.2 million compared to the cash used in the same period of the prior year of $8.8. This was primarily driven by an increase in net loss and offset by an increase in operating liability from accounts payable. Cash provided in investing activities during the six months ended June 30, 2024 was $7.4 million compared to the cash used in the same period prior year of $3.4 million. This was primarily due to $9.7 million proceeds from the sale of the Culver City office building in February of 2024. Cash provided in financing activities for the six months ended June 30, 2024 increased by $1.8 million to $1.1 million compared to the cash used in the same period of the prior year. This was primarily due to the new bridge loan of $13 million from NAB on April 10, 2024, partially offset by a payoff of the citizens loan of $8.4 million following the sale of Culver City office building and an additional $275,000 debt repayment that was required when our Bank of America credit facility was amended on March 27, 2024. Turning now to our financial position. Total asset in June 30, 2024 were $494.9 million compared to $533.1 million on December 31, 2023. This decrease was driven by a $3.7 million decrease in cash and cash equivalent from which we founded our ongoing business operation, a $10 million decrease in operating properties from sale of our Culver City office, a $13 million decrease in operating lease right of use asset, and an $8 million increase of depreciation. As of June 30, 2024, our total outstanding gross borrowings were $210.4 million compared to $210.3 million on December 31, 2023. Our cash and cash equivalent as of June 30, 2024 were $9.2 million which includes approximately $3.8 million in the U.S., $5.2 million in Australia and $210,000 in New Zealand. In addition, to address the liquidity pressure on our businesses, we are working with our lenders to amend certain debt facilities and we have selected certain real estate asset in our portfolio for potential monetization. As Ellen mentioned, during the first quarter of 2024, we completed the monetization of our Culver City, LA office building for $10 million and fully discharged the related mortgage. Through the second quarter of 2024, we have worked with our banking partners on the following financial arrangements. On March 27, 2024, we further extended our Bank of America loan maturing date to August 18, 2025, together with the modification of certain financial covenants. On April 4, 2024, with respect to our loan from NAB, we extended the maturity date to July 31, 2026 and negotiated a bridge facility AUD20 million due on March 31, 2025. This is required to be prepaid upon the sale of certain assets. On April 23, 2024, we closed the one-year extension option with Emerald Creek Capital on our 44 Union Square loan to extend the maturity date to May 6, 2025. We have one remaining one year extension option. On June 28, 2024, we entered into an interest rate collar hedge agreement with NAB Bank for AUD50 million, where the cap rate is 4.78% and a flow rate of 4.18%. The termination date on the agreement is July 31, 2026. With that, I will now turn it over to Andrzej.

A - Andrzej Matyczynski: Thanks, Gilbert. First, I'd like to thank, as usual, our stockholders for forwarding questions to our investor relations e-mail. As usual, in addition to addressing 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 question is regarding our CapEx. The CapEx was down quite a bit this quarter. What can we expect going forward in 2024 and beyond? Ellen?

Ellen Cotter: Anticipating the drop in revenue due to the 2023 Hollywood strikes and the hit to income from increased interest rates, we continue to significantly curtail our growth CapEx spending in 2024 to take into account these serious industry headwinds. Certain theaters that we have, especially in the U.S., need upgrades. They need conversion to recliner seats and the addition of premium screens. Over the last quarter, we've been working with certain landlords to strategize how to include recliners and premium screens in light of our liquidity circumstances. Fortunately, some of our landlords recognize that a brighter future for the cinema industry is on the horizon. We don't anticipate spending significant CapEx in 2025. However, with the support of some of our landlords, we anticipate getting between two and three theaters upgraded over the next 14 to 16 months. In addition, we've got one Reading Cinema in Queensland, Australia, that's in the pipeline. And with respect to our real estate assets, we expect to increase our CapEx to take into account a potentially new tenant for the upper floors of 44 Union Square. And those required funds will come from either our existing financing or a replacement mortgage loan. So, into 2025, we expect that certain assets will be improved, but we'll remain disciplined in how those improvements will be funded.

Andrzej Matyczynski: Thanks, Ellen. We also received a question about the status of our Santander, Minetta & Orpheum Theatres secured term loan, Gilbert?

Gilbert Avanes: Our Santander loan matured on June 1, 2024. We're in the process of finalizing a one-year extension with Santander.

Andrzej Matyczynski: Great. Thanks, Gilbert. The next question regarding U.S. admission revenue, which declined more than the market in the second quarter. What caused this and should we expect the U.S. market share to recover in 2024 and beyond, Ellen?

Ellen Cotter: Yes, our box office in the U.S. did decline to a greater degree compared to the market. And we attribute this unfavorable performance to a few things. First, our screen count reduced by 15% due to the closure of four movie theaters I mentioned earlier. While our overall income will be enhanced due to the elimination of these theaters, we did eliminate the box office or admission revenues on the top line. Secondly, our theaters in Hawaii, which in 2023 represented just over 35% of our US circuit's overall box office didn't perform as well as the industry. We think that the inflationary pressures around the globe are more pronounced on the island of Oahu compared to some of our other markets. Also, the Angelika New York, which is a strong theater for us, had a weaker quarter compared to the second quarter in 2023 when we had phenomenal box office success from Asteroid City and Past Lives. But let me just make one note on an overall basis, our U.S. circuit, which is comparatively much smaller than the U.S. divisions of our publicly traded competitors did on a box office basis for the first six months of ‘24, it generated box office dollars per screen higher than the U.S. divisions of our publicly traded competitors. So, while we're much smaller and we have a mix of commercial and specialty theaters, the strength of some of our screens has us outperforming on a box office per screen basis. And with respect to the future, we expect that some of our planned initiatives like the paid rewards program that I mentioned earlier and future CapEx upgrades should elevate our comparable box office performance on a circuit wide basis in the U.S.

Andrzej Matyczynski: Thanks, Ellen. And that brings us to our last question, which, I will field, regarding a shareholder asking, why would we not reauthorize a buyback program even if it's not going to happen today? Well, under our previous stock repurchase program which expired on March 10th this year, we bought back almost 1.8 million shares of Class A stock based on the headwinds that we have faced over the last few years that you've heard about from Ellen and Gilbert today, and not least of which were the COVID pandemic, the Hollywood strikes, the interest rate hikes, our cash and debt positions prevented us from using a buyback program. Over the last four years, sustaining the business and reducing our debt has been the priority. That is not to say that capital allocation and returning capital to our stockholders is not a regular discussion with our Board. Since March 2020 when the pandemic began and whilst navigating all the challenges faced by our two industries, Cinema and Real Estate, our management team and Board have ensured that our existing stockholders have been protected by not conducting any new equity raises. With all that said, we expect to be in a much stronger position in 2025 and beyond, and we'll continue those regular capital allocation discussions with our board.

Andrzej Matyczynski: This marks the conclusion of the Q&A and also of the call. As usual, we appreciate the time you have allocated to listening to the call today. Thank you for your attention, and we wish everyone good health and safety.