Reading International, Inc. (NASDAQ: RDI) today announced record revenue for the quarter ended September 30, 2018. Our Company reported Basic Earnings per Share (“EPS”) of $0.06 and $0.41, for the quarter and nine months ended September 30, 2018, respectively. Cinema segment revenues for the three and nine months of 2018 were particularly strong at $70.7 million and $223.1 million, compared to $62.1 million and $196.1 million for the three and nine months of 2017.
Ellen Cotter, Chair, President and Chief Executive Officer, said, “The third quarter represented another growth period for Reading as we continued to build on our strong momentum from the second quarter. Our results were driven by the continued execution of our strategic plan and we achieved superior operational execution. Ongoing capital improvements and refurbishments continue to elevate the guest experience in our cinema business. The strong film product and successful launch of our first dine-in concept, ‘Spotlight,’ contributed to our results and increased interest in our enhanced U.S. food and beverage offerings.”
Consolidated revenue for the third quarter of 2018, increased by 12%, or $8.1 million, compared to the third quarter of 2017, primarily driven by: (i) increases in attendance in our U.S., Australian and New Zealand Cinemas, (ii) the U.S. Cinema’s increase in average ticket price, and (iii) the opening of our new state-of-the-art eight screen Reading Cinema on December 14, 2017 at Newmarket Village located in a Brisbane suburb in Australia. These results were achieved notwithstanding a 7.4% decline in the Australian Dollar and an 8.5% decline in the New Zealand Dollar for the quarter ended September 30, 2018, compared to the quarter ended September 30, 2017.
The following table summarizes the third quarter and first nine months results of the year 2018 and 2017:
Quarter Ended | Nine Months Ended | |||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||
September 30, | Favorable/ | September 30, | Favorable/ | |||||||||||||||||||
(Dollars in millions, except EPS) | 2018 | 2017 | (Unfavorable) | 2018 | 2017 | (Unfavorable) | ||||||||||||||||
Revenue | $ | 74.3 | $ | 66.1 | 12 | % | $ | 234.4 | $ | 208.0 | 13 | % | ||||||||||
- US | 40.8 | 28.5 | 43 | % | 124.9 | 105.1 | 19 | % | ||||||||||||||
- Australia | 26.0 | 28.0 | (7 | )% | 84.9 | 80.6 | 5 | % | ||||||||||||||
- New Zealand | 7.5 | 9.6 | (22 | )% | 24.6 | 22.3 | 10 | % | ||||||||||||||
Operating expense | $ | (69.7 | ) | $ | (62.4 | ) | 12 | % | $ | (215.5 | ) | $ | (191.0 | ) | 13 | % | ||||||
Segment operating income (1) | $ | 9.5 | $ | 8.3 | 14 | % | $ | 35.9 | $ | 31.3 | 15 | % | ||||||||||
Net income(2) | $ | 1.3 | $ | 1.6 | (19 | )% | $ | 9.4 | $ | 23.7 | (60 | )% | ||||||||||
EBITDA (1) | $ | 10.4 | $ | 8.1 | 28 | % | $ | 35.9 | $ | 49.4 | (27 | )% | ||||||||||
Adjusted EBITDA (1) | $ | 10.9 | $ | 8.2 | 33 | % | $ | 39.0 | $ | 41.3 | (6 | )% | ||||||||||
Basic EPS (2) | $ | 0.06 | $ | 0.07 | (14 | )% | $ | 0.41 | $ | 1.02 | (60 | )% | ||||||||||
(1) |
Aggregate segment operating income, earnings before interest expense (net of interest income), income tax expense, depreciation and amortization expense (“EBITDA”) and adjusted EBITDA are non-GAAP financial measures. See the discussion of non-GAAP financial measures that follows. |
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(2) |
Reflect amounts attributable to stockholders of Reading International, Inc., i.e. after deduction of noncontrolling interests. |
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COMPANY HIGHLIGHTS
We achieved a record third quarter in our online ticket sales in Australia and the United States led by “Crazy Rich Asians” and “Ant-Man and the Wasp” exceeding previous third quarter records by as much as 149% in the U.S. With the continued improvements of our websites and apps in the U.S. and improved online sales infrastructure to better serve high sales volume, we set a third quarter record with online sales consisting of 20% of our global box office revenue, which is a 25% increase from our last third quarter.
DEFENSE JUDGMENT IN DERIVATIVE LITIGATION
Since 2015, our Company and our directors (other than Mr. James J. Cotter, Jr.) have been the target of two purported derivative actions, one brought by Mr. Cotter, Jr., (the “Cotter, Jr., Derivative Action”) and the other brought by a group of outside stockholders (the “T2 Derivative Action”). These actions are described in detail in our quarterly report filed on form 10-Q for the quarter ended September 30, 2018.
The plaintiffs in the T2 Derivative Action, after detailed discovery, dismissed their claim in mid-2016, noting in a joint press release with our Company in July of that year that: "We are pleased with the conclusions reached by our investigations as Plaintiff Stockholders and now firmly believe that the Reading Board of Directors has and will continue to protect stockholder interests and will continue to work to maximize shareholder value over the long-term. We appreciate the Company's willingness to engage in open dialogue and are excited about the Company's prospects. Our questions about the termination of James Cotter, Jr., and various transactions between Reading and members of the Cotter family-or entities they control-have been definitively addressed and put to rest. We are impressed by measures the Reading Board has made over the past year to further strengthen corporate governance. We fully support the Reading Board and management team and their strategy to create stockholder value.”
Mr. Cotter, Jr., determined to continue with his action. The Nevada District Court in July, 2018, dismissed all of the remaining claims asserted by Mr. Cotter, Jr., in the Cotter, Jr., Derivative Action and on October 1, 2018 awarded our Company costs. While the Nevada District Court’s final cost order has not been issued, we estimate that such cost judgment, as articulated by the Nevada District Court from the bench, is in excess of $1.5 million.
SEGMENT RESULTS
The following table summarizes the third quarter and first nine months of the year segment operating results for 2018 and 2017:
Quarter Ended | Nine Months Ended | |||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||
September 30, | Favorable/ | September 30, | Favorable/ | |||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | (Unfavorable) | 2018 | 2017 | (Unfavorable) | ||||||||||||||||
Segment revenue | ||||||||||||||||||||||
Cinema |
||||||||||||||||||||||
United States | $ | 40,038 | $ | 32,199 | 24 | % | $ | 122,437 | $ | 101,858 | 20 | % | ||||||||||
Australia | 23,659 | 22,902 | 3 | % | 77,513 | 73,284 | 6 | % | ||||||||||||||
New Zealand | 6,974 | 6,958 | — | % | 23,159 | 20,921 | 11 | % | ||||||||||||||
Total | $ | 70,671 | $ | 62,059 | 14 | % | $ | 223,109 | $ | 196,063 | 14 | % | ||||||||||
Real estate |
||||||||||||||||||||||
United States | $ | 805 | $ | 1,179 | (32 | )% | $ | 2,410 | $ | 3,223 | (25 | )% | ||||||||||
Australia | 3,847 | 3,823 | 1 | % | 12,305 | 11,312 | 9 | % | ||||||||||||||
New Zealand | 1,119 | 1,063 | 5 | % | 3,489 | 3,016 | 16 | % | ||||||||||||||
Total | $ | 5,771 | $ | 6,065 | (5 | )% | $ | 18,204 | $ | 17,551 | 4 | % | ||||||||||
Inter-segment elimination | (2,181 | ) | (2,008 | ) | (9 | )% | (6,918 | ) | (5,575 | ) | (24 | )% | ||||||||||
Total segment revenue | $ | 74,261 | $ | 66,116 | 12 | % | $ | 234,395 | $ | 208,039 | 13 | % | ||||||||||
Segment operating income | ||||||||||||||||||||||
Cinema |
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United States | $ | 2,310 | $ | 693 | 233 | % | $ | 10,008 | $ | 4,790 | 109 | % | ||||||||||
Australia | 4,678 | 4,896 | (4 | )% | 16,642 | 16,812 | (1 | )% | ||||||||||||||
New Zealand | 1,214 | 1,114 | 9 | % | 4,333 | 3,979 | 9 | % | ||||||||||||||
Total | $ | 8,202 | $ | 6,703 | 22 | % | $ | 30,983 | $ | 25,581 | 21 | % | ||||||||||
Real estate |
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United States | $ | (154 | ) | $ | 55 | (380 | )% | $ | (514 | ) | $ | 350 | (247 | )% | ||||||||
Australia | 980 | 1,474 | (34 | )% | 4,071 | 4,487 | (9 | )% | ||||||||||||||
New Zealand | 434 | 49 | 786 | % | 1,339 | 847 | (58 | )% | ||||||||||||||
Total | $ | 1,260 | $ | 1,578 | (20 | )% | $ | 4,896 | $ | 5,684 | (14 | )% | ||||||||||
Total segment operating income (1) | $ | 9,462 | $ | 8,281 | 14 | % | $ | 35,879 | $ | 31,265 | 15 | % | ||||||||||
“nm” – not meaningful for further analysis |
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(1) |
Aggregate segment operating income is a non-GAAP financial measure. See the discussion of non-GAAP financial measures that follows. |
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Cinema Exhibition
Third Quarter Results:
Cinema segment operating income increased by 22%, or $1.5 million, to $8.2 million for the quarter ended September 30, 2018 compared to September 30, 2017, primarily driven by increased operating income in the U.S. due to increased attendance, higher average ticket price (“ATP”) and higher spend per patron (“SPP”).
The top three grossing films for the third quarter of 2018 were “Crazy Rich Asians,” “Ant-Man and the Wasp,” and “Mission Impossible - Fallout,” representing approximately 24% of Reading’s worldwide admission revenues for the quarter. The top three grossing films in the third quarter of 2017 for Reading’s worldwide cinema circuits were “Spider-Man: Homecoming,” “It,” and “Dunkirk,” which represented approximately 29% of Reading’s admission revenues for the third quarter of 2017.
Nine-Month Results:
Cinema segment operating income increased 21%, or $5.4 million, to $31.0 million for the nine months ended September 30, 2018 compared to September 30, 2017, primarily driven by cinema operating income growth of 109%, or $5.2 million in the U.S. market. In addition, the re-opening of our Courtenay Central Cinema in Wellington, New Zealand, contributed to the overall operating income as well as increases in ATP and SPP across all three countries. Operating income was adversely impacted by the declining value of the Australian and New Zealand Dollar compared to the U.S. Dollar.
The top three grossing films for the nine months of 2018 were “Avengers: Infinity War,” “Black Panther,” and “Incredibles 2,” representing approximately 18% of Reading’s worldwide admission revenues, compared to the top three grossing films a year ago: “Beauty and the Beast,” “Wonder Woman,” and “Guardians of the Galaxy Vol. 2,” which represented approximately 14% of our admission revenues for the same period in 2017.
Real Estate
Third Quarter and Nine-Month Results:
Real estate segment operating income decreased by 20%, or $0.3 million, to $1.3 million for the quarter ended September 30, 2018 compared to September 30, 2017. For the nine months ended September 30, 2018, the real estate segment operating income decreased by 14%, or $0.8 million, to $4.9 million, compared to the same period in 2017. This was primarily attributable to our lower Live Theater revenue compared to prior year when we recorded the settlement payment related to the STOMP arbitration ($1.1 million), as well as the absence of the business interruption insurance proceeds, which were recorded in the second quarter of 2017 in New Zealand. These decreases were offset by increases in operating revenue from (i) our Newmarket ETC, which is mainly related to our new tenants, and (ii) Courtenay Central ETC due to the full year of operations in 2018 compared to only two quarters of operation in 2017.
CONSOLIDATED AND NON-SEGMENT RESULTS
The third quarter and first nine-month consolidated and non-segment results for 2018 and 2017 are summarized as follows:
Quarter Ended | Nine Months Ended | |||||||||||||||||||||
% Change | % Change | |||||||||||||||||||||
September 30, | Favorable/ | September 30, | Favorable/ | |||||||||||||||||||
(Dollars in thousands) | 2018 | 2017 | (Unfavorable) | 2018 | 2017 | (Unfavorable) | ||||||||||||||||
Segment operating income | $ | 9,462 | $ | 8,281 | 14 | % | $ | 35,879 | $ | 31,264 | 15 | % | ||||||||||
Non-segment income and expenses: | ||||||||||||||||||||||
General and administrative expense |
(4,831 | ) | (4,506 | ) | (7 | )% | (16,717 | ) | (13,931 | ) | (20 | )% | ||||||||||
Interest expense, net | (1,748 | ) | (1,663 | ) | (5 | )% | (5,132 | ) | (5,310 | ) | 3 | % | ||||||||||
Gain on sale of assets | — | — | n/a | — | 9,417 | 100 | % | |||||||||||||||
Gain on insurance recoveries | — | — | n/a | — | 9,217 | 100 | % | |||||||||||||||
Other | (142 | ) | 117 | nm | 81 | 1,270 | 94 | % | ||||||||||||||
Total non-segment income and expenses |
$ | (6,721 | ) | $ | (6,052 | ) | (11 | )% | $ | (21,768 | ) | $ | 663 | 3,383 | % | |||||||
Income before income taxes | 2,741 | 2,229 | 23 | % | 14,111 | 31,927 | 56 | % | ||||||||||||||
Income tax expense | (1,482 | ) | (750 | ) | (98 | )% | (4,618 | ) | (8,316 | ) | 44 | % | ||||||||||
Net income | $ | 1,259 | $ | 1,479 | (15 | )% | $ | 9,493 | $ | 23,611 | (60 | )% | ||||||||||
Less: net income attributable to noncontrolling interests |
(38 | ) | (98 | ) | nm | 88 | (66 | ) | nm | |||||||||||||
Net income attributable to RDI common stockholders |
$ | 1,297 | $ | 1,577 | (18 | )% | $ | 9,405 | $ | 23,677 | (60 | )% | ||||||||||
“nm” – not meaningful for further analysis |
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Third Quarter and First Nine-Month Net Results
Net income attributable to RDI common stockholders decreased by 18% or $0.3 million to $1.3 million. Basic EPS for the quarter ended September 30, 2018 decreased by $(0.01) to $0.06 from the prior-year quarter, mainly attributable to an increase in income tax expense and general and administrative expenses.
Net income attributable to RDI common stockholders decreased by 60%, or $14.3 million, to $9.4 million for the nine months ended September 30, 2018 compared to the same period prior year. Basic EPS for the first nine-months of 2018 decreased by $0.61 to $0.41 from the prior-year period, mainly attributable to the one-time gain on Wellington insurance recoveries and Burwood gain on sale of assets recognized for the nine-months ended September 30, 2017.
Non-Segment General & Administrative Expenses
Non-segment general and administrative expense for the quarter and nine months ended September 30, 2018 compared to the same period of the prior year increased by 7% or $0.3 million and 20% or $2.8 million, respectively. The quarterly increase mainly relates to higher payroll and bonus related expenses (attributable to reversals in 2017 for prior year incentive compensation accruals not deemed necessary), offset by a reduction in total legal fees for the quarter ending September 30, 2018 compared to the same period last year. For the nine months ending September 30, 2018 compared to the same period in 2017, the increase is related to payroll and legal expenses incurred on the Derivative Litigation, the Cotter Employment Arbitration and other Cotter litigation matters and higher compensation costs, due to headcount and the timing of annual salary increases as well as timing of recording increases in variable compensation costs.
Litigation
Costs of the Cotter, Jr., Derivative Action, the Cotter, Jr., Employment Arbitration and other related Cotter, Jr., litigation matters for the nine months ended September 30, 2018, ended were $3.1 million, compared to $1.1 million for the same period in 2017, as our Company and our directors prepared for trial in 2018 and prepared motions for summary judgment which were subsequently granted. For the quarter ended September 2018, there was a similar increase in legal fees ($505,000 compared to $82,000) to the same period last year, due principally to costs associated with taking final depositions and preparing for the hearing (held in October, 2018) of the Cotter, Jr., Employment Arbitration, and our motions to recover costs and attorney’s fees in the derivative action. Going forward, the costs with regard to the Cotter, Jr., Derivative Action will, at least in the near term, be limited to the defense of Mr. Cotter, Jr.’s appeal of the Nevada District Courts’ determinations and the costs of any appeals that we may bring.
Gain on Sale of Assets
$9.4 million represented our full recognition of the transaction gain triggered by the installment payment from the buyer of our Burwood property in Australia, which was recognized in the second quarter of 2017.
Gain on Insurance Proceeds
$9.2 million represented the gain recognized in 2017 on the final insurance settlement proceeds relating to the earthquake damage to our Courtenay Central parking structure (excluding business interruption insurance payments).
Income Tax Expense
Income tax expense for the quarter ended September 30, 2018, increased $0.7 million compared to the same quarter prior year. A large part of the increase in tax expense for the third quarter 2018 compared to the same quarter of the prior year is due to increases in the taxes related to recently released IRS guidance regarding the Global Intangible Low-taxed Income (GILTI). Income tax expense for the nine months ended September 30, 2018 decreased by $3.7 million compared to the equivalent prior-year period. The decrease for the nine months ended September 30, 2018 is primarily related to lower pretax income and the reduction of U.S. statutory corporate tax rate as the result of the Tax Act, partially offset by higher tax rates overseas and non-taxable insurance proceeds received in 2017.
OTHER FINANCIAL INFORMATION
Balance Sheet and Liquidity
Total assets increased by $12.3 million, to $435.7 million at September 30, 2018, compared to $423.4 million at December 31, 2017. This was primarily driven by increases in our operating and investment properties relating to capital enhancements in our existing cinemas and capital investments relating to major real estate projects, primarily (i) the redevelopment of our Union Square property in New York, and (ii) the expansion of our Newmarket Village in Brisbane, Australia. These were offset by a reduction in our foreign-operation asset values due to a decrease in the foreign exchange rates relative to the U.S. dollar. Available cash resources generated from operations and proceeds received from borrowings funded these capital investments.
Cash and cash equivalents at September 30, 2018 were $15.7 million, including approximately $8.5 million in the U.S., $2.9 million in Australia, and $4.3 million in New Zealand. We manage our cash, investments and capital structure so we are able to meet short-term and long-term obligations for our business, while maintaining financial flexibility and liquidity.
As part of our operating cycle, we collect cash from (i) our cinema business when selling tickets and food and beverage items, and (ii) rental income typically received in advance; we utilize these collections, to reduce our long-term borrowings and realize savings on interest charges. We then settle our operating expenses generally with a lag within traditional trade terms. This cash management generates a temporary working capital deficit, which is positive for the Company. We review the maturities of our borrowings and negotiate for renewals and extensions, as necessary for liquidity purposes. We believe the cash flow generated from our operations coupled with our ability to renew and extend our credit facilities will provide sufficient liquidity in the upcoming year.
The table below presents the changes in our total available resources (cash and borrowings), debt-to-equity ratio, working capital and other relevant information addressing our liquidity for the nine months ended September 30, 2018 and preceding four years:
As of and | ||||||||||||||||||||
for the | ||||||||||||||||||||
9-Months | ||||||||||||||||||||
Ended | Year Ended December 31 | |||||||||||||||||||
($ in thousands) | 9/30/2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
Total Resources (cash and borrowings) | ||||||||||||||||||||
Cash and cash equivalents (unrestricted) | $ | 15,714 | $ | 13,668 | $ | 19,017 | $ | 19,702 | $ | 50,248 | ||||||||||
Unused borrowing facility | 101,086 | 137,231 | 117,599 | 70,134 | 45,700 | |||||||||||||||
Restricted for capital projects(1) | 43,591 | 62,280 | 62,024 | 10,263 | — | |||||||||||||||
Unrestricted capacity | 57,495 | 74,951 | 55,575 | 59,871 | 45,700 | |||||||||||||||
Total resources at period end | 116,800 | 150,899 | 136,616 | 89,836 | 95,948 | |||||||||||||||
Total unrestricted resources at period end | 73,209 | 88,619 | 74,592 | 79,573 | 95,948 | |||||||||||||||
Debt-to-Equity Ratio | ||||||||||||||||||||
Total contractual facility | $ | 268,176 | $ | 271,732 | $ | 266,134 | $ | 207,075 | $ | 201,318 | ||||||||||
Total debt (gross of deferred financing costs) | 167,090 | 134,501 | 148,535 | 130,941 | 164,036 | |||||||||||||||
Current | 3,175 | 8,109 | 567 | 15,000 | 38,104 | |||||||||||||||
Non-current | 163,915 | 126,392 | 147,968 | 115,941 | 125,932 | |||||||||||||||
Total book equity | 179,863 | 181,618 | 146,890 | 138,951 | 133,716 | |||||||||||||||
Debt-to-equity ratio | 0.93 | 0.74 | 1.01 | 0.94 | 1.23 | |||||||||||||||
Changes in Working Capital | ||||||||||||||||||||
Working capital (deficit) | $ | (24,626 | ) | $ | (46,971 | ) | $ | 6,655 | $ | (35,581 | ) | $ | (15,119 | ) | ||||||
Current ratio | 0.55 | 0.42 | 1.10 | 0.51 | 0.84 | |||||||||||||||
Capital Expenditures (including acquisitions) | $ | 50,118 | $ | 76,708 | $ | 49,166 | $ | 53,119 | $ | 14,914 | ||||||||||
(1) |
This relates to the construction facilities specifically negotiated for: (i) Union Square redevelopment project, obtained in December 2016, and (ii) New Zealand construction projects, obtained in May 2015. |
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Below is a summary of the available credit facilities as of September 30, 2018:
As of September 30, 2018 | |||||||||||||||
Available | Restricted | ||||||||||||||
Contractual | Capacity | Unused | for Capital | Unrestricted | |||||||||||
(Dollars in thousands) | Capacity | Used | Capacity | Projects | Capacity | ||||||||||
Bank of America Credit Facility (USA) | $ | 55,000 | $ | 34,000 | $ | 21,000 | $ | — | $ | 21,000 | |||||
Bank of America Line of Credit (USA) | 5,000 | 1,500 | 3,500 | — | 3,500 | ||||||||||
Union Square Construction Financing (USA) | 57,500 | 25,852 | 31,648 | 31,648 | — | ||||||||||
NAB Corporate Term Loan (AU) (1) |
48,133 | 38,361 | 9,772 | — | 9,772 | ||||||||||
Westpac Bank Corporate (general/ non-construction) Credit Facility (NZ) (1) |
23,223 | — | 23,223 | — | 23,223 | ||||||||||
Westpac Bank Corporate (construction) Credit Facility (NZ) (1) |
11,943 | — | 11,943 | 11,943 | — | ||||||||||
Total | $ | 200,799 | $ | 99,713 | $ | 101,086 | $ | 43,591 | $ | 57,495 | |||||
(1) |
The borrowings are denominated in foreign currency. The contractual capacity and capacity used were translated into U.S. dollars based on the applicable exchange rates as of September 30, 2018. |
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The $43.6 million representing borrowings restricted for capital projects is composed of the $31.7 million and $11.9 million unused capacity for the Union Square development and construction funding for New Zealand operations, respectively.
Our overall global operating strategy is to conduct business mostly on a self-funding basis by country (except for funds used to pay an appropriate share of our U.S. corporate overhead). However, we may, from time to time, move funds between jurisdictions where circumstances merit such action as part of our goal to minimize our cost of capital.
Trust Preferred Securities - On October 11, 2018, Reading secured a waiver that provides significant additional financial flexibility through the elimination of financial covenants with respect to our Trust Preferred Securities through the end of the term loan in consideration of payments totaling $1.6 million, consisting of an initial payment of $1.1 million paid on October 31, 2018, and a contractual obligation to pay $270,000 in October 2021 and $225,000 in October 2025.
Minetta/Orpheum Loan - On October 12, 2018, the Minetta and Orpheum Theatres loan of $7.5 million has increased to $8.0 million and the maturity extended to November 1, 2023.
Non-GAAP Financial Measures
This earnings release presents aggregate segment operating income, and EBITDA, which are important financial measures for the Company, but are not financial measures defined by U.S. GAAP.
These measures should be reviewed in conjunction with the relevant U.S. GAAP financial measures and are not presented as alternative measures of EPS, cash flows or net income as determined in accordance with US GAAP. Aggregate segment operating income and EBITDA, as we have calculated them, may not be comparable to similarly titled measures reported by other companies.
Aggregate segment operating income – we evaluate the performance of our business segments based on segment operating income, and management uses aggregate segment operating income as a measure of the performance of operating businesses separate from non-operating factors. We believe that information about aggregate segment operating income assists investors by allowing them to evaluate changes in the operating results of the Company’s business separate from non-operational factors that affect net income, thus providing separate insight into both operations and the other factors that affect reported results. Refer to “Consolidated and Non-Segment Results” for a reconciliation of segment operating income to net income.
EBITDA – we present EBITDA as a supplemental measure of its performance, which is commonly used in our industry. We define EBITDA as net income adjusted for interest expense (net of interest income), income tax expense, depreciation and amortization expense, and an adjustment of interest expense, depreciation, and amortization for discontinued operations, if any. EBITDA is a non-GAAP financial measure commonly used in our industry and should not be construed as an alternative to net earnings (loss) as an indicator of operating performance or as an alternative to cash flow provided by operating activities as a measure of liquidity (as determined in accordance with U.S. GAAP). We have included EBITDA in this Earnings Release, as we believe that it provides management and our investors with additional information necessary to properly measure our performance and liquidity, estimate our value and evaluate our ability to service debt.
Adjusted EBITDA – using the principles we consistently apply to determine our EBITDA, we further adjusted the EBITDA for certain items we believe are appropriate adjustable items, described as follows:
In cases of property sales, we have not made adjustments for any gains, in line with our overall business strategy that at any time, we may decide to dispose of any property when we believe that an asset has reached the highest value that we could reasonably achieve without investing substantial additional sums for land use planning, construction and marketing.
Reconciliation of EBITDA to net income is presented below:
Quarter Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(Dollars in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||
Net Income | $ | 1,297 | $ | 1,577 | $ | 9,405 | $ | 23,677 | |||||
Add: Interest expense, net | 1,748 | 1,663 | 5,132 | 5,310 | |||||||||
Add: Income tax expense | 1,482 | 750 | 4,618 | 8,316 | |||||||||
Add: Depreciation and amortization | 5,829 | 4,137 | 16,705 | 12,124 | |||||||||
Adjustment for infrequent events and discontinued operations |
— | — | — | — | |||||||||
EBITDA | $ | 10,356 | $ | 8,127 | $ | 35,860 | $ | 49,427 | |||||
Adjustments for: | |||||||||||||
Gain on insurance recoveries | — | — | — | (9,217 | ) | ||||||||
Legal expenses relating to the derivative ligation, the Cotter employment arbitration and other Cotter litigation matters |
505 | 82 | 3,146 | 1,115 | |||||||||
Adjusted EBITDA | $ | 10,861 | $ | 8,209 | $ | 39,006 | $ | 41,325 | |||||
Conference Call and Webcast
We plan to post our pre-recorded conference call and audio webcast on our corporate website on November 9, 2018, that will feature prepared remarks from Ellen Cotter, Chief Executive Officer; Dev Ghose, Executive Vice President & Chief Financial Officer; and Andrzej Matyczynski, Executive Vice President - Global Operations.
A pre-recorded question and answer session will follow our formal remarks. Questions and topics for consideration should be submitted to [email protected] on November 8, 2018 by 5:00 p.m. Eastern Standard Time. The audio webcast can be accessed by visiting http://www.readingrdi.com/about/#earnings-call.
About Reading International, Inc.
Reading International, Inc. (NASDAQ: RDI) is a leading entertainment and real estate company, engaging in the development, ownership and operation of multiplex cinemas and retail and commercial real estate in the United States, Australia, and New Zealand.
The family of Reading brands includes cinema brands Reading Cinemas, Angelika Film Centers, Consolidated Theatres, and City Cinemas; live theatres operated by Liberty Theatres in the United States; and signature property developments, including Newmarket Village, Auburn Red Yard and Cannon Park in Australia, Courtenay Central in New Zealand and 44 Union Square in New York City.
Additional information about Reading can be obtained from the Company's website: http://www.readingrdi.com.
Forward-Looking Statements
Our statements in this press release contain a variety of forward-looking statements as defined by the Securities Litigation Reform Act of 1995. Forward-looking statements reflect only our expectations regarding future events and operating performance and necessarily speak only as of the date the information was prepared. No guarantees can be given that our expectations will in fact be realized, in whole or in part. You can recognize these statements by our use of words such as, by way of example, “may,” “will,” “expect,” “believe,” and “anticipate” or other similar terminology.
These forward-looking statements reflect our expectation after having considered a variety of risks and uncertainties. However, they are necessarily the product of internal discussion and do not necessarily completely reflect the views of individual members of our Board of Directors or of our management team. Individual Board members and individual members of our management team may have different views as to the risks and uncertainties involved, and may have different views as to future events or our operating performance.
Among the factors that could cause actual results to differ materially from those expressed in or underlying our forward-looking statements are the following:
The above list is not necessarily exhaustive, as business is by definition unpredictable and risky, and subject to influence by numerous factors outside of our control. Such factors can be, changes in government regulation or policy, competition, interest rates, supply, technological innovation, changes in consumer taste and fancy, weather, and the extent to which consumers in our markets have the economic wherewithal to spend money on beyond-the-home entertainment.
Given the variety and unpredictability of the factors that will ultimately influence our businesses and our results of operation, no guarantees can be given that any of our forward-looking statements will ultimately prove to be correct. Actual results will undoubtedly vary and there is no guarantee as to how our securities will perform, either when considered in isolation or when compared to other securities or investment opportunities.
In addition to the forward-looking factors set forth above, we encourage you to review Item 1A. “Risk Factors,” from our Company’s Annual Report on SEC Form 10-K for the Year Ended December 31, 2017.
Finally, we undertake no obligation to publicly update or to revise any of our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable law. Accordingly, you should always note the date to which our forward-looking statements speak.
Additionally, certain of the presentations included in this press release may contain “pro forma” information or “non-U.S. GAAP financial measures.” In such case, a reconciliation of this information to our U.S. GAAP financial statements will be made available in connection with such statements.
Reading International, Inc. and Subsidiaries | ||||||||||||||||
Unaudited Consolidated Statements of Operations | ||||||||||||||||
(Unaudited; U.S. dollars in thousands, except per share data) |
||||||||||||||||
Quarter Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 |
2017(1) |
2018 |
2017(1) |
|||||||||||||
Revenue | ||||||||||||||||
Cinema | $ | 70,671 | $ | 62,059 | $ | 223,109 | $ | 196,062 | ||||||||
Real estate | 3,590 | 4,057 | 11,286 | 11,975 | ||||||||||||
Total revenue | 74,261 | 66,116 | 234,395 | 208,037 | ||||||||||||
Costs and expenses | ||||||||||||||||
Cinema | (54,929 | ) | (49,591 | ) | (170,183 | ) | (153,512 | ) | ||||||||
Real estate | (2,475 | ) | (2,881 | ) | (7,408 | ) | (7,258 | ) | ||||||||
Depreciation and amortization | (5,829 | ) | (4,137 | ) | (16,705 | ) | (12,124 | ) | ||||||||
General and administrative | (6,489 | ) | (5,840 | ) | (21,250 | ) | (18,131 | ) | ||||||||
Total costs and expenses | (69,722 | ) | (62,449 | ) | (215,546 | ) | (191,025 | ) | ||||||||
Operating income | 4,539 | 3,667 | 18,849 | 17,012 | ||||||||||||
Interest expense, net | (1,748 | ) | (1,663 | ) | (5,132 | ) | (5,310 | ) | ||||||||
Gain on sale of assets | — | — | — | 9,417 | ||||||||||||
Gain on insurance recoveries | — | — | — | 9,217 | ||||||||||||
Other (expense) income | (130 | ) | 89 | (273 | ) | 937 | ||||||||||
Income before income tax expense and equity earnings of unconsolidated joint ventures |
2,661 | 2,093 | 13,444 | 31,273 | ||||||||||||
Equity earnings of unconsolidated joint ventures | 80 | 136 | 667 | 654 | ||||||||||||
Income before income taxes | 2,741 | 2,229 | 14,111 | 31,927 | ||||||||||||
Income tax expense | (1,482 | ) | (750 | ) | (4,618 | ) | (8,316 | ) | ||||||||
Net income | $ | 1,259 | $ | 1,479 | $ | 9,493 | $ | 23,611 | ||||||||
Less: net income attributable to noncontrolling interests | (38 | ) | (98 | ) | 88 | (66 | ) | |||||||||
Net income attributable to Reading International, Inc. common shareholders |
$ | 1,297 | $ | 1,577 | $ | 9,405 | $ | 23,677 | ||||||||
Basic earnings per share attributable to Reading International, Inc. shareholders | $ | 0.06 | $ | 0.07 | $ | 0.41 | $ | 1.02 | ||||||||
Diluted earnings per share attributable to
Reading International, Inc. shareholders |
$ | 0.06 | $ | 0.07 | $ | 0.41 | $ | 1.01 | ||||||||
Weighted average number of shares outstanding–basic | 23,006,040 | 22,968,017 | 22,988,227 | 23,101,619 | ||||||||||||
Weighted average number of shares outstanding–diluted | 23,197,924 | 23,212,632 | 23,185,021 | 23,346,234 | ||||||||||||
(1) |
Certain prior period amounts have been reclassified to conform to the current period presentation. |
|
Reading International, Inc. and Subsidiaries | ||||||||
Consolidated Balance Sheets | ||||||||
(Unaudited; U.S. dollars in thousands, except share information) |
||||||||
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | (unaudited) | |||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 15,714 | $ | 13,668 | ||||
Receivables | 7,306 | 13,050 | ||||||
Inventory | 1,231 | 1,432 | ||||||
Prepaid and other current assets | 5,393 | 5,325 | ||||||
Total current assets | 29,644 | 33,475 | ||||||
Operating property, net | 261,139 | 264,724 | ||||||
Investment and development property, net | 80,086 | 61,254 | ||||||
Investment in unconsolidated joint ventures | 5,045 | 5,304 | ||||||
Goodwill | 19,444 | 20,276 | ||||||
Intangible assets, net | 7,484 | 8,542 | ||||||
Deferred tax asset, net | 25,285 | 24,746 | ||||||
Other assets | 7,530 | 5,082 | ||||||
Total assets | $ | 435,657 | $ | 423,403 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 26,258 | $ | 34,359 | ||||
Film rent payable | 6,890 | 13,511 | ||||||
Debt – current portion | 3,175 | 8,109 | ||||||
Taxes payable – current | 1,877 | 2,938 | ||||||
Deferred current revenue | 6,796 | 9,850 | ||||||
Other current liabilities | 9,274 | 11,679 | ||||||
Total current liabilities | 54,270 | 80,446 | ||||||
Debt – long-term portion | 133,231 | 94,862 | ||||||
Subordinated debt, net | 27,584 | 27,554 | ||||||
Noncurrent tax liabilities | 12,437 | 12,274 | ||||||
Other liabilities | 28,272 | 26,649 | ||||||
Total liabilities | 255,794 | 241,785 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Class A non-voting common stock, par value $0.01, 100,000,000 shares authorized, 33,128,463 issued and 21,336,551 outstanding at September 30, 2018 and 33,019,565 issued and 21,251,291 outstanding at December 31, 2017 |
232 | 231 | ||||||
Class B voting common stock, par value $0.01, 20,000,000 shares authorized and 1,680,590 issued and outstanding at September 30, 2018 and December 31, 2017 |
17 | 17 | ||||||
Nonvoting preferred stock, par value $0.01, 12,000 shares authorized and no issued or outstanding shares at September 30, 2018 and December 31, 2017 |
— | — | ||||||
Additional paid-in capital | 147,059 | 145,898 | ||||||
Retained earnings | 42,655 | 33,056 | ||||||
Treasury shares | (23,303 | ) | (22,906 | ) | ||||
Accumulated other comprehensive income | 8,843 | 20,991 | ||||||
Total Reading International, Inc. stockholders’ equity | 175,503 | 177,287 | ||||||
Noncontrolling interests | 4,360 | 4,331 | ||||||
Total stockholders’ equity | 179,863 | 181,618 | ||||||
Total liabilities and stockholders’ equity | $ | 435,657 | $ | 423,403 | ||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20181107005291/en/
Reading International, Inc.
Dev Ghose
Executive Vice President
& Chief Financial Officer
or
Andrzej Matyczynski
Executive
Vice President for Global Operations
(213) 235-2240