THE MARCUS CORPORATION Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") and elsewhere in this
Form 10-Q are "forward-looking statements" intended to qualify for the safe
harbors from liability established by the Private Securities Litigation Reform
Act of 1995. These forward-looking statements may generally be identified as
such because the context of such statements include words such as we "believe,"
"anticipate," "expect" or words of similar import. Similarly, statements that
describe our future plans, objectives or goals are also forward-looking
statements. Such forward-looking statements are subject to certain risks and
uncertainties which may cause results to differ materially from those expected,
including, but not limited to, the following: (1) the adverse effects of the
COVID-19 pandemic on our theatre and hotels and resorts businesses, results of
operations, liquidity, cash flows, financial condition, access to credit markets
and ability to service our existing and future indebtedness; (2) the duration of
the COVID-19 pandemic and related government restrictions and the level of
customer demand following the relaxation of such requirements; (3) the
availability, in terms of both quantity and audience appeal, of motion pictures
for our theatre division (particularly following the COVID-19 pandemic, during
which the release dates for certain motion pictures have been postponed), as
well as other industry dynamics such as the maintenance of a suitable window
between the date such motion pictures are released in theatres and the date they
are released to other distribution channels; (4) the effects of adverse economic
conditions in our markets, including but not limited to, those caused by the
COVID-19 pandemic; (5) the effects of adverse economic conditions, including but
not limited to, those caused by the COVID-19 pandemic, on our ability to obtain
financing on reasonable and acceptable terms, if at all; (6) the effects on our
occupancy and room rates caused by the COVID-19 pandemic and the effects on our
occupancy and room rates caused by the relative industry supply of available
rooms at comparable lodging facilities in our markets; (7) the effects of
competitive conditions in our markets; (8) our ability to achieve expected
benefits and performance from our strategic initiatives and acquisitions; (9)
the effects of increasing depreciation expenses, reduced operating profits
during major property renovations, impairment losses, and preopening and
start-up costs due to the capital intensive nature of our business; (10) the
effects of changes in the availability of and cost of labor and other supplies
essential to the operation of our business; (11) the effects of weather
conditions, particularly during the winter in the Midwest and in our other
markets; (12) our ability to identify properties to acquire, develop and/or
manage and the continuing availability of funds for such development; (13) the
adverse impact on business and consumer spending on travel, leisure and
entertainment resulting from terrorist attacks in the United States , other
incidents of violence in public venues such as hotels and movie theatres or
epidemics (such as the COVID-19 pandemic); and (14) a disruption in our business
and reputational and economic risks associated with civil securities claims
brought by shareholders. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, including
developments related to the COVID-19 pandemic, some of which are beyond our
control and difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
Our forward-looking statements are based upon our assumptions, which are based
upon currently available information, including assumptions about our ability to
manage difficulties associated with or related to the COVID-19 pandemic; the
assumption that our theatre closures, hotel closures and restaurant closures are
not expected to be permanent or to re-occur; the continued availability of our
workforce; and the temporary and long-term effects of the COVID-19 pandemic on
our business. Shareholders, potential investors and other readers are urged to
consider these factors carefully in evaluating the forward-looking statements
and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are made only as of the
date of this Form 10-Q and we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
RESULTS OF OPERATIONS
General
We report our consolidated and individual segment results of operations on a 52- or 53-week fiscal year ending on the last Thursday in December. Fiscal 2022 is a 52-week year beginning onDecember 31, 2021 and ending onDecember 29, 2022 . Fiscal 2021 was a 52-week year that began onJanuary 1, 2021 and ended onDecember 30, 2021 . We divide our fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. The first quarter of fiscal 2022 consisted of the 13-week period beginning onDecember 31, 2021 and ended onMarch 31, 2022 . The first quarter of fiscal 2021 consisted of the 13-week period beginningJanuary 1, 2021 and ended onApril 1, 2021 . Our primary 20
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operations are reported in the following two business segments: movie theatres and hotels and resorts. Within this MD&A amounts for totals, subtotals, and variances may not recalculate exactly within tables due to rounding as they are calculated using the unrounded numbers. For discussion regarding the impact of COVID-19 and related economic conditions on our results for the year endedDecember 30, 2021 , see "Part II-Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Annual Report. For further discussion regarding the impacts of COVID-19 and related economic conditions on our results for the first quarter of fiscal 2022 and potential future impacts, see immediately below, and also refer to the discussion of our operational risks and financial risks found in "Part I-Item 1A-Risk Factors" in our 2021 Annual Report.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has had an unprecedented impact on the world and both of our business segments. As an operator of movie theatres, hotels and resorts, restaurants and bars, each of which consists of spaces where customers and guests gather in close proximity, our businesses were significantly impacted by protective actions that federal, state and local governments have taken to control the spread of the pandemic, and our customers' reactions or responses to such actions. The extent of these protective actions and their impact on our businesses has continued to dissipate during the first quarter of fiscal 2022. We began fiscal 2022 with all of our theatres open with normal operating days and hours. While still below pre-COVID-19 levels, attendance has continued to gradually improve as the number of vaccinated individuals increased, more films are released, and customers indicate increasing willingness to return to movie theatres. We remain optimistic that the theatre industry is in the process of rebounding and will continue to benefit from pent-up social demand now that a greater percentage of the population is vaccinated, the majority of state and local restrictions have been lifted, and people seek togetherness with a return to normalcy. We still expect a return to "normalcy" to span multiple months driven by an increase in the quality and quantity of new films released in theatres and a gradual ramp-up of consumer comfort with public gatherings. The appearance of first, the Delta variant and subsequently the Omicron variant of the disease has resulted in changing government guidance on indoor activities in some communities, which impacted consumer comfort early in fiscal 2022. Industry customer surveys indicate that consumer comfort is once again increasing, reaching a post-pandemic high comfort level inApril 2022 . We believe the approval of vaccines for children ages 5-11 has contributed to parents feeling more comfortable to visit a movie theatre, which should bolster the market for films aimed at children and families, a genre in which we have historically performed very well. We were very encouraged by the performance of multiple films released during the second half of fiscal 2021 and over the holiday season into fiscal 2022. Sony's Spider-Man: No Way Home, which was released in mid-December and continued its strong performance during the first quarter of fiscal 2022, became the best performing film since the onset of the pandemic and has generated the 3rd highestU.S. admission revenues of all time. Total theatre division revenues, expressed as a percentage of fiscal 2019 revenues, increased every quarter of fiscal 2021, increasing from 20% in the first quarter to 32% in the second quarter, 59% in the third quarter and 82% in the fourth quarter. Total theatre division revenues in the first quarter of fiscal 2022 expressed as a percentage of fiscal 2019 revenues was 69%. There was a limited number of new films released during the first quarter of fiscal 2022 as studios waited for the Omicron variant to subside. We began fiscal 2022 with all eight of our company-owned and managed hotels open. The majority of our restaurants and bars in our hotels and resorts were open during the first quarter of fiscal 2022, operating in some cases with reduced operating hours. The majority of our hotels and restaurants are generating reduced revenues as compared to pre-COVID-19 pandemic years, although hotel occupancy continues to improve as the travel activity increases. The primary customer for hotels during the first quarter of fiscal 2022 continued to come from the leisure travel market. While business travel remained limited during the first quarter of fiscal 2022, we continued to see an increase in travel from this customer segment, particularly from small and mid-size group activity. As of the date of this report, our group room revenue bookings for fiscal 2022-commonly referred to in the hotels and resorts industry as "group pace"-is running behind where we would typically be at this same time in prior years (pre-pandemic), but group pace has improved from earlier in the fiscal year and we have experienced increased booking activity in recent months for fiscal 2022 and beyond. With companies beginning to implement return to office plans, we remain optimistic that business travel will continue to increase during fiscal 2022. Total hotel division revenues, expressed as a percentage of fiscal 2019 revenues, have also increased throughout fiscal 2021 and into fiscal 2022, including an increase during fiscal 2021 from 51% in the first quarter 21
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to 57% in second quarter, 88% in the third quarter, 82% in the fourth quarter and 96% in the first quarter of fiscal 2022. The future economic environment will also have a significant impact on the pace of our return to "normal" hotel operations. Maintaining and protecting a strong balance sheet has always been a core philosophy ofThe Marcus Corporation during our 87-year history, and, despite the COVID-19 pandemic, our financial position remains strong. As ofMarch 31, 2022 , we had a cash balance of approximately$19.4 million ,$221.4 million of availability under our$225 million revolving credit facility, and our debt-to-capitalization ratio (including short-term borrowings) was 0.37. With our strong liquidity position, combined with cash generated from operations and proceeds from the sale of surplus real estate (discussed below), we believe we are positioned to meet our obligations as they come due and continue to sustain our operations throughout fiscal 2022 and 2023, even if our properties continue to generate reduced revenues during these periods. During the first quarter of fiscal 2022 we received a$23.0 million federal income tax refund (including$0.7 million of interest) related to our fiscal 2020 tax return, with the primary benefit derived from net operating loss carrybacks to prior years. We also received$4.3 million in state theatre grants during the first quarter of fiscal 2022 that were awarded and accrued during the fourth quarter of fiscal 2021. Both the receipt of the income tax refund and grant funds contributed to our current strong liquidity position. We also continue to pursue sales of surplus real estate and other non-core real estate to further enhance our liquidity. During the first quarter of fiscal 2022, we sold two land parcels, generating net proceeds of approximately$3.4 million . We believe we may receive additional sales proceeds from real estate sales during the remainder of fiscal 2022 totaling approximately$5 -$15 million , depending upon demand for the real estate in question. We cannot assure that the impact of the COVID-19 pandemic will not continue to have a material adverse effect on both our theatre and hotels and resorts businesses, results of operations, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness.
Overall Results
The following table sets forth revenues, operating income (loss), other income
(expense), net earnings (loss) and net earnings (loss) per diluted common share
for the first quarter of fiscal 2022 and fiscal 2021 (in millions, except for
per share and variance percentage data):
First Quarter
Variance
F2022 F2021 Amt. Pct.
Revenues $ 132.2 $ 50.8 $ 81.5 160.4 %
Operating income (loss) (16.8) (35.7) 18.9 52.9 %
Other income (expense) (4.7) (3.2) (1.4) (44.2) %
Net earnings (loss) attributable to
47.0 %
Net earnings (loss) per common share - diluted:
48.4 %
Revenues increased and operating income (loss), net earnings (loss) attributable
to The Marcus Corporation and net earnings (loss) per diluted common share
improved significantly during the first quarter of fiscal 2022 compared to the
first quarter of fiscal 2021. Increased revenues and reduced operating losses
from both our theatre division and hotels and resorts division contributed to
the improvement during fiscal 2022 compared to fiscal 2021, during which some of
our theatres were closed for portions of the first quarter and travel was
significantly reduced due to the impact of the COVID-19 pandemic.
Operating losses from our corporate items, which include amounts not allocable
to the business segments, increased during the fiscal 2022 first quarter
compared to the fiscal 2021 first quarter due primarily to increased non-cash
long-term incentive compensation expenses. Net earnings (loss) attributable to
The Marcus Corporation during the first quarter of fiscal 2022 was favorably
impacted by decreased interest expense compared to the first quarter of fiscal
2021, offset by lower gains on disposition of property, equipment and other
assets during the fiscal 2022 first quarter as compared to the first quarter of
fiscal 2021. Our operating loss during the first quarter of fiscal 2021 was
favorably impacted by state government grants of approximately $1.3 million , or
approximately $0.03 per diluted common share.
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Our interest expense totaled$4.1 million for the first quarter of fiscal 2022 compared to$4.8 million for the first quarter of fiscal 2021, a decrease of approximately$0.8 million , or 15.5%. The decrease in interest expense during the first quarter of fiscal 2022 was primarily due to decreased borrowings and a decrease in non-cash amortization of deferred financing costs. Changes in our borrowing levels due to variations in our operating results, capital expenditures, acquisition opportunities (or the lack thereof) and asset sale proceeds, among other items, may impact, either favorably or unfavorably, our actual reported interest expense in future periods, as may changes in short-term interest rates. We did not have any significant variations in investment income or other expenses during the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021. We reported net gains on disposition of property, equipment and other assets of$0.4 million during the first quarter of fiscal 2022, compared to net gains on disposition of property, equipment and other assets of$2.2 million during the first quarter of fiscal 2021. The net gain on disposition of property, equipment and other assets during the first quarter of fiscal 2022 was due primarily to the sale of surplus land. The net gain on disposition of property, equipment and other assets during the first quarter of fiscal 2021 included the sale of an equity investment in a joint venture. The timing of periodic sales and disposals of our property, equipment and other assets varies from quarter to quarter, resulting in variations in our reported gains or losses on disposition of property, equipment and other assets. We anticipate additional disposition gains or losses from periodic sales of property, equipment and other assets during fiscal 2022 and beyond. We reported an income tax benefit for the first quarter of fiscal 2022 of$6.5 million compared to an income tax benefit of$10.8 million during the first quarter of fiscal 2021. The larger income tax benefit during the fiscal 2021 period was primarily the result of the significant losses before income taxes incurred as a result of the reduction in our operating performance due to the impact of the COVID-19 pandemic as described above. Our fiscal 2022 first quarter effective income tax rate was 30.5%. Our fiscal 2021 first quarter effective income tax rate was 27.7%. We anticipate that our effective income tax rate for the remaining quarters of fiscal 2022 may be in the 24-28% range, excluding any potential changes in federal or state income tax rates or other one-time tax benefits. Our actual fiscal 2022 effective income tax rate may be different from our estimated quarterly rates depending upon actual facts and circumstances. Theatres The following table sets forth revenues, operating loss and operating margin for our theatre division for the first quarter of fiscal 2022 and fiscal 2021 (in millions, except for variance percentage and operating margin): First Quarter Variance F2022 F2021 Amt. Pct. Revenues$ 79.5 $ 22.6 $ 56.9 252.3 % Operating income (loss) (8.0) (25.6) 17.6 68.8 % Operating margin (% of revenues) (10.1) % (113.6) % Our theatre division revenues increased and operating loss decreased significantly during the first quarter of fiscal 2022 with all of our theatres open and new films released by movie studios, compared to the first quarter of fiscal 2021 in which a significant number of our theatres were temporarily closed in response to the COVID-19 pandemic and new film releases were limited. We began the first quarter of fiscal 2021 with approximately 52% of our theatres open. As state and local restrictions were eased in several of our markets and several new films were released by movie studios, we gradually reopened theatres, ending the fiscal 2021 first quarter with approximately 74% of our theatres open. The majority of our reopened theatres operated with reduced operating days (Fridays, Saturdays, Sundays and Tuesdays) and reduced operating hours during the fiscal 2021 first quarter. Our theatres were open with normal operating days and hours at all of our theatres during the first quarter of fiscal 2022. Our fiscal 2021 first quarter operating loss would have been even larger if not for a nonrecurring state government grant of approximately$1.3 million that favorably impacted our theatre division operating loss. 23
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The following table provides a further breakdown of the components of revenues
for the theatre division for the first quarter of fiscal 2022 and fiscal 2021
(in millions, except for variance percentage):
First Quarter
Variance
F2022 F2021 Amt. Pct.
Admission revenues $ 38.4 $ 10.7 $ 27.7 259.5 %
Concession revenues 35.5 9.9 25.5 257.5 %
Other revenues 5.6 1.9 3.7 193.0 %
79.5 22.5 57.0 253.0 %
Cost reimbursements - - - (100.0) %
Total revenues $ 79.5 $ 22.6 $ 56.9 252.3 %
As described above, revenues were significantly reduced during the first quarter
of fiscal 2021 due to the temporary closures and reduced operating days and
hours at our theatres in response to the COVID-19 pandemic. As a result, we
believe it is also beneficial to compare our revenues to pre-pandemic levels.
The following table compares the components of revenues for the theatre division
for the first quarter of fiscal 2022 to the first quarter of fiscal 2019 (in
millions, except for variance percentage):
First Quarter
Variance
F2022 F2019 Amt. Pct.
Admission revenues(1) $ 38.4 $ 59.0 $ (20.6) (34.9) %
Concession revenues 35.5 47.2 (11.7) (24.8) %
Other revenues 5.6 8.6 (3.0) (34.5) %
79.5 114.7 (35.2) (30.7) %
Cost reimbursements - 0.2 (0.2) (100.0) %
Total revenues $ 79.5 $ 114.9 $ (35.4) (30.8) %
1.We acquired
According to data received from Comscore (a national box office reporting service for the theatre industry) and compiled by us to evaluate our fiscal 2022 first quarter,U.S. box office receipts decreased 44.1% during our fiscal 2022 first quarter compared to the same comparable weeks in fiscal 2019, indicating that our pro forma decrease in admission revenues during the first quarter of fiscal 2022 of 39.4% outperformed the industry by 4.7 percentage points. Based upon this metric, we believe we were once again one of the top performing theatre circuits during the first quarter of fiscal 2022 compared to the top 10 circuits in theU.S. Additional data received and compiled by us from Comscore indicates our admission revenues during the first quarter of fiscal 2022 represented approximately 3.4% of the total admission revenues in theU.S. during the period (commonly referred to as market share in our industry). This represents a notable increase over our reported market share of approximately 3.1% during the comparable fiscal 2019 period, prior to the pandemic. Our goal is to continue our past pattern of outperforming the industry, but with the majority of our renovations now completed, our ability to do so in any given quarter will likely be partially dependent upon film mix, weather and the competitive landscape in our markets. Sales attributable to our Marcus Private Cinema ("MPC") program contributed significantly to our admissions revenues during the first quarter of fiscal 2021. At its peak during the majority of the weeks during our fiscal 2021 first quarter, we averaged over 1,500 MPC events per week, accounting for approximately 21% of our admission revenues during those weeks. As customers have continued to become more comfortable with traditional movie attendance and as an increasing number of new films have been released, the impact of this program lessened significantly during the first quarter of fiscal 2022. Total theatre attendance increased significantly during the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021, when a significant portion of our theatres were temporarily closed. Total theatre attendance increased 238.3% during 24
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the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021, resulting in increases in both admission revenues and concession revenues. Conversely, a decrease in the number of new films and lingering customer concerns regarding visiting indoor businesses negatively impacted attendance during the first quarter fiscal 2022 as compared to the same period in fiscal 2019. Our highest grossing films during the fiscal 2022 first quarter included The Batman, Spider-Man: No Way Home, Uncharted, Sing 2 and Scream. All of these five films debuted with an exclusive theatrical run prior to release on streaming services. This compares with four of the top five films in the first quarter of fiscal 2021 that were released "day-and-date" on streaming services. We believe such "day-and-date" releases negatively impact theatrical revenues, particularly in week two and beyond of a films' release. We also believe "day-and-date" releases increase piracy, further impacting potential revenues. We believe our theatre circuit outperformed its competition on two of our top five revenue producing films during the first quarter of fiscal 2022. In addition, we believe our overall admission revenue outperformed the industry due in part to the fact that we believe our theatre circuit outperformed its competition on the next tier of films. Due to the impact of two particularly strong blockbusters released or showing during the first quarter of fiscal 2022 (The Batman, Spider-Man: No Way Home), the film slate during the first quarter of fiscal 2022 was weighted more towards our top movies compared to the first quarter of fiscal 2021 and fiscal 2019, as evidenced by the fact that our top five films during our fiscal 2022 first quarter accounted for 66% of our total box office results, compared to 59% and 39% for the top five films during the first quarter of fiscal 2021 and fiscal 2019 (prior to the pandemic), respectively, both expressed as a percentage of the total admission revenues for the period. An increased reliance on just a few blockbuster films during a given quarter often has the effect of increasing our film rental costs during the period, as generally the better a particular film performs, the greater the film rental cost tends to be as a percentage of box office receipts. As a result of a more concentrated film slate our overall film rental cost increased during the first quarter of fiscal 2022 compared to the same period in the prior year. Our average ticket price increased 6.4% during the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 and increased by 18.0% compared to the first quarter of fiscal 2019. A larger proportion of admission revenues from our proprietary premium large format screens (with a higher ticket price) and a lower mix of films targeted at children and family audiences contributed to the increase in our average ticket price during the first quarter of fiscal 2022. During portions of the first quarter of fiscal 2021 we also offered older "library" film product for only$5.00 per ticket when there was limited availability of new films resulting in a lower average ticket price in the same period in the prior year. Our average concession revenues per person increased by 5.7% during the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021 and increased by 36.1% compared to the first quarter of fiscal 2019. In addition, as customers have returned to "normal" activities such as going to the movie theatre, they have demonstrated a propensity to spend at a higher rate than before the pandemic closures. We also believe a portion of the increase in our average concession revenues per person during the first quarter of fiscal 2022 may be attributed to shorter lines at our concession stand due to reduced attendance (during periods of high attendance, some customers do not purchase concessions because the line is too long). A small portion of the increase in our average concession revenues per person is attributable to inflationary increases in concessions prices in response to increases in food and labor costs. Finally, we believe that an increased percentage of customers buying their concessions in advance using our website, kiosk or our mobile app likely contributed to higher average concession revenues per person, as our experience has shown that customers are more likely to purchase more items when they order and pay electronically. We expect to continue to report increased average concession revenues per person in future periods, but whether our customers will continue to spend at these current significantly higher levels in future periods is currently unknown. Other revenues increased by approximately$3.7 million during the first quarter of fiscal 2022 compared to the first quarter of fiscal 2021. This increase was primarily due to the impact of increased attendance on internet surcharge ticketing fees and preshow and in-app advertising income. Several films have performed well in the early weeks of our fiscal 2022 second quarter, including Sonic the Hedgehog 2, Fantastic Beasts: The Secrets of Dumbledore, and The Bad Guys. The film product release schedule for the remainder of fiscal 2022 remains strong, with several new films scheduled to be released during the remainder of the fiscal 2022 second quarter that have potential to perform very well including Doctor Strange in the Multiverse of Madness,Downton Abbey : A New Era, Top Gun: Maverick,Jurassic World : Dominion, Lightyear and The Black Phone. The film slate for the second half of fiscal 2022 also appears very strong. We believe that with a greater percentage of the population now vaccinated and consumer comfort now at post-pandemic highs, and assuming that concerns over the Delta, Omicron or any new variants of COVID-19 do not result in significant new restrictions, demand for out-of-home entertainment will continue to 25
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increase during the remainder of fiscal 2022. The early list of films scheduled to be released during fiscal 2023 also appears quite strong.
Revenues for the theatre business and the motion picture industry in general are
heavily dependent on the general audience appeal of available films, together
with studio marketing, advertising and support campaigns and the maintenance of
appropriate "windows" between the date a film is released in theatres and the
date a motion picture is released to other channels, including premium
video-on-demand ("PVOD"), video on-demand ("VOD"), streaming services and DVD.
These are factors over which we have no control. We currently believe that
"day-and-date" film release experiments such as those tested by Warner Brothers
and Disney during 2021 will not become the normal plan of distribution as the
pandemic fully subsides. Warner Brothers has already indicated that it is
returning to an exclusive 45-day theatrical window with a significant number of
its films during fiscal 2022, beginning with the recently released film, The
Batman. Disney announced in early 2022 that they will retain flexibility for
future film distribution, particularly for family films, which have been
impacted more significantly by the pandemic, but has already committed to
exclusive theatrical releases for its upcoming second quarter films, Doctor
Strange in the Multiverse of Madness and Lightyear.
We ended the first quarter of fiscal 2022 with a total of 1,064 company-owned
screens in 85 theatres, compared to 1,091 company-owned screens in 88 theatres
and six managed screens in one theatre at the end of the first quarter of fiscal
2021. As of the end of the first quarter of fiscal 2022 and the date of this
report, all of our company-owned theatres are operating. As of the end of the
first quarter of fiscal 2021 approximately 74% of our theatres were open and
operating.
Hotels and Resorts
The following table sets forth revenues, operating income (loss) and operating
margin for our hotels and resorts division for the first quarter of fiscal 2022
and fiscal 2021 (in millions, except for variance percentage and operating
margin):
First Quarter
Variance
F2022 F2021 Amt. Pct.
Revenues $ 52.7 $ 28.1 $ 24.5 87.2 %
Operating income (loss) (3.0) (5.7) 2.7 47.9 %
Operating margin (% of revenues) (5.6) % (20.3) %
Our first quarter is typically the seasonally weakest quarter of our fiscal year
for our hotels and resorts division due to the traditionally reduced level of
winter travel at our predominantly Midwestern portfolio of owned properties. Our
hotels and resorts division operating loss during the first quarter of fiscal
2022 decreased compared to the first quarter of fiscal 2021, due to
significantly increased revenues during the fiscal 2022 first quarter. All of
our company-owned hotels and resorts contributed to the improved operating
results during the first quarter of fiscal 2022.
The following table provides a further breakdown of the components of revenues
for the hotels and resorts division for the first quarter of fiscal 2022 and
fiscal 2021 (in millions, except for variance percentage):
First Quarter
Variance
F2022 F2021 Amt. Pct.
Room revenues $ 17.4 $ 9.0 $ 8.4 92.7 %
Food/beverage revenues 14.5 5.9 8.6 145.4 %
Other revenues 13.1 9.9 3.2 32.6 %
45.0 24.8 20.2 81.4 %
Cost reimbursements 7.6 3.3 4.3 131.4 %
Total revenues $ 52.7 $ 28.1 $ 24.5 87.2 %
Division revenues increased significantly during the first quarter of fiscal
2022 compared to the first quarter of fiscal 2021. While all eight of our
company-owned hotels and all but one of our managed hotels were open during the
first quarter of fiscal 2021, the majority of these properties were generating
significantly reduced revenues and operating under applicable state and local
restrictions and guidelines, and, in some cases, reduced operating hours. In
addition, our two SafeHouse
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restaurants and bars were temporarily closed during the first quarter of fiscal 2021 (one of our SafeHouse restaurants and bars has subsequently reopened).
We believe it is also beneficial to compare our revenues to pre-pandemic levels.
The following table compares the components of revenues for the hotels and
resorts division for the first quarter of fiscal 2022 to the first quarter of
fiscal 2019 (in millions, except for variance percentage):
First Quarter
Variance
F2022 F2019 Amt. Pct.
Room revenues $ 17.4 $ 18.9 $ (1.5) (8.0) %
Food /beverage revenues 14.5 15.8 (1.3) (8.1) %
Other revenues 13.1 12.2 0.9 7.7 %
45.0 46.9 (1.8) (3.9) %
Cost reimbursements 7.6 8.2 (0.6) (6.9) %
Total revenues $ 52.7 $ 55.1 $ (2.4) (4.4) %
A decline in transient and group business contributed to our reduced revenues
during the first quarter of fiscal 2022 compared to the same quarter of fiscal
2019. A decrease in group business subsequently led to a corresponding decrease
in banquet and catering revenues, negatively impacting our reported food and
beverage revenues compared to the same period in fiscal 2019. Other revenues
increased during the first quarter of fiscal 2022 compared to the first quarter
of fiscal 2019, primarily due to increased revenues from one of our condominium
hotels and increased ski and spa revenues at the Grand Geneva® Resort & Spa
("Grand Geneva"), partially offset by decreased management fees. Cost
reimbursements decreased slightly during the first quarter of fiscal 2022
compared to the first quarter of fiscal 2019 due to reduced revenues and
subsequent operating costs at our managed hotels.
The following table sets forth certain operating statistics for the first
quarter of fiscal 2022 and fiscal 2021, including our average occupancy
percentage (number of occupied rooms as a percentage of available rooms), our
average daily room rate, or ADR, and our total revenue per available room, or
RevPAR, for company-owned properties:
First Quarter
Variance
F2022 F2021 Amt. Pct.
Occupancy pct. 48.0 % 28.3 % 19.7 pts 69.6 %
ADR $ 147.10 $ 133.12 $ 13.98 10.5 %
RevPAR $ 70.59 $ 37.66 $ 32.93 87.4 %
Note: These operating statistics represent averages of our eight distinct
comparable company-owned hotels and resorts, branded and unbranded, in different
geographic markets with a wide range of individual hotel performance. The
statistics are not necessarily representative of any particular hotel or resort.
The statistics exclude days during fiscal 2021 where individual hotels may have
been closed.
RevPAR increased at all eight of our company-owned properties during the first
quarter of fiscal 2022 compared to the first quarter of fiscal 2021. Leisure
travel customers provided the most demand during the fiscal 2022 first quarter,
with weekend business relatively strong at the majority of our properties.
During the first quarter of fiscal 2022, our non-group business represented
approximately 73% of our total rooms revenue, compared to approximately 70%
during the first quarter of fiscal 2019 prior to the pandemic. Although group
business continues to lag prior years, it has historically been a smaller
component of our rooms revenue during the winter months. Non-group retail
pricing was very strong in the majority of our markets, with significant leisure
demand contributing to increased occupancy percentages and ADR.
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We believe it is also beneficial to compare our operating statistics to
pre-pandemic levels. The following table sets forth certain operating statistics
for the first quarter of fiscal 2022 and fiscal 2019, including our average
occupancy percentage, our ADR, and our RevPAR, for company-owned properties:
First Quarter
Variance
F2022 F2019 Amt. Pct.
Occupancy pct. 48.9 % 64.6 % (15.7) pts (24.3) %
ADR $ 144.99 $ 130.05 $ 14.94 11.5 %
RevPAR $ 70.95 $ 84.05 $ (13.10) (15.6) %
Note: These operating statistics represent averages of our seven distinct
comparable company-owned hotels and resorts, branded and unbranded, in different
geographic markets with a wide range of individual hotel performance. The
statistics are not necessarily representative of any particular hotel or resort.
The statistics for both the 2022 and 2019 periods exclude the Saint Kate, which
was closed during the majority of the fiscal 2019 period presented.
According to data received from Smith Travel Research and compiled by us in
order to evaluate our fiscal 2022 first quarter results, comparable "upper
upscale" hotels-hotels identified as our industry- throughout the United States
experienced a decrease in RevPAR of 17.7% during our fiscal 2022 first quarter
compared to the same period during fiscal 2019, leading us to believe we
outperformed the industry during the fiscal 2022 first quarter by approximately
2 percentage points. Data received from Smith Travel Research for our various
"competitive sets"-hotels identified in our specific markets that we deem to be
competitors to our hotels-indicates that these hotels experienced a decrease in
RevPAR of 24.2% during our fiscal 2022 first quarter, again compared to the same
period in fiscal 2019. Therefore, we also believe we outperformed our
competitive sets during the 2022 first quarter by approximately 9 percentage
points. Higher class segments of the hotel industry, such as luxury and upper
upscale (with an increased reliance on business travel), continue to experience
lower occupancies compared to lower class hotel segments such as economy and
midscale.
Looking to future periods, overall occupancy in the U.S. has slowly increased
since the initial onset of the COVID-19 pandemic in March 2020 , reaching its
highest level since the start of the pandemic in recent months. In the near
term, we expect most demand will continue to come from the leisure travel
segment. Leisure travel in our markets has a seasonal component, peaking in the
summer months and slowing down as children return to school and the weather
turns colder. We are beginning to experience increases in business travel as
corporate travel bans are beginning to be lifted and downtown offices are
reopening. Our company-owned hotels have experienced a decrease in group
bookings compared to pre-pandemic periods. As of the date of this report, our
group room revenue bookings for fiscal 2022 - commonly referred to in the hotels
and resorts industry as "group pace" - is running approximately 12% behind where
we were at the same time in fiscal 2019, but despite our reduced group pace as
compared to the first quarter of fiscal 2019, our current group pace is an
improvement from recent quarters and we are experiencing increased booking
activity for fiscal 2022 and beyond. Banquet and catering revenue pace for
fiscal 2022 is also running behind where we were at the same time in fiscal
2019, but not as much as group pace, due in part to increases in event and
wedding bookings. Overall, we generally expect our revenue trends to track or
exceed the overall industry trends for our segment of the industry, particularly
in our respective markets.
During the first quarter of fiscal 2022, we ceased management of The DoubleTree
by Hilton El Paso Downtown and the Courtyard by Marriott El Paso
Downtown/Convention Center effective February 28, 2022 . Conversely, the first
quarter of fiscal 2022 was our first full quarter of operating the Kimpton Hotel
Monaco Pittsburgh , a hotel acquired in mid-December 2021 in which we have a
minority equity interest.
Adjusted EBITDA
Adjusted EBITDA is a measure used by management and our board of directors to
assess our financial performance and enterprise value. We believe that Adjusted
EBITDA is a useful measure for us and investors, as it eliminates certain
expenses that are not indicative of our core operating performance and
facilitates a comparison of our core operating performance on a consistent basis
from period to period. We also use Adjusted EBITDA as a basis to determine
certain annual cash bonuses and long-term incentive awards, to supplement GAAP
measures of performance to evaluate the effectiveness of our business
strategies, to make budgeting decisions, and to compare our performance against
that of other peer companies using similar measures. Adjusted EBITDA is also
used by analysts, investors and other interested parties as a performance
measure to evaluate industry competitors.
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Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net earnings (loss) as a measure of financial performance, or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of liquidity or free cash flow for management's discretionary use. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. We define Adjusted EBITDA as net earnings (loss) attributable toThe Marcus Corporation before investment income or loss, interest expense, other expense, gain or loss on disposition of property, equipment and other assets, equity earnings or losses from unconsolidated joint ventures, net earnings or losses attributable to noncontrolling interests, income taxes and depreciation and amortization, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine Adjusted EBITDA, such as acquisition expenses, preopening expenses, accelerated depreciation, impairment charges and other adjustments. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments. Definitions and calculations of Adjusted EBITDA differ among companies in our industries, and therefore Adjusted EBITDA disclosed by us may not be comparable to the measures disclosed by other companies. The following table sets forth our reconciliation of Adjusted EBITDA (in millions): First Quarter F2022 F2021 Net earnings (loss) attributable to The Marcus Corporation$ (14.9) $ (28.1) Add (deduct): Investment income 0.3 - Interest expense 4.1 4.8 Other expense 0.6 0.6
Loss (gain) on disposition of property, equipment and other assets
(0.4) (2.2)
Equity losses from unconsolidated joint ventures, net 0.1 -
Net (earnings) loss attributable to noncontrolling interests - -
Income tax expense (benefit) (6.5) (10.8)
Depreciation and amortization 17.2 18.0
Share-based compensation expenses (1) 2.9 1.5
Government grants (2) - (1.3)
Total Adjusted EBITDA $ 3.4 $ (17.5) The following tables sets forth our reconciliation of Adjusted EBITDA by reportable operating segment (in millions):
First Quarter, F2022
Theatres Hotels & Resorts Corp. Items Total
Operating loss $ (8.0) $ (3.0) $ (5.8) $ (16.8)
Depreciation and amortization 12.2 5.0 0.1 17.2
Share-based compensation (1) 0.6 0.4 1.9 2.9
Government grants (2) - - - -
Total Adjusted EBITDA $ 4.8 $ 2.4 $ (3.8) $ 3.4
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First Quarter, F2021
Theatres Hotels & Resorts Corp. Items Total
Operating loss $ (25.6) $ (5.7) $ (4.3) $ (35.7)
Depreciation and amortization 12.8 5.1 0.1 18.0
Share-based compensation (1) 0.4 0.3 0.8 1.5
Government grants (2) (1.3) - - (1.3)
Total Adjusted EBITDA $ (13.7) $ (0.3) $ (3.4) $ (17.5) (1)Non-cash expense related to share-based compensation programs.
(2)Reflects a nonrecurring state government grant awarded to our theatres for COVID-19 pandemic relief.
The following table sets forth Adjusted EBITDA by reportable operating segment
for the first quarter of fiscal 2022 and fiscal 2021 (in millions, except for
variance percentage):
First Quarter
Variance
F2022 F2021 Amt. Pct.
Theatres $ 4.8 $ (13.7) $ 18.5 134.8 %
Hotels and resorts 2.4 (0.3) 2.7 908.1 %
Corporate items (3.8) (3.4) (0.4) (10.7) %
Total Adjusted EBITDA $ 3.4 $ (17.5) $ 20.8 119.2 %
During the first quarter of fiscal 2022, our theatre division reported its third
straight quarter with positive Adjusted EBITDA since the start of the COVID-19
pandemic due to increased attendance and increased revenues per person, as
described in the Theatres section above. During the first quarter of fiscal
2022, our hotels and resorts division reported its fourth straight quarter with
positive Adjusted EBITDA due to improved occupancy percentages and ADR, and
strong cost controls, as described in the Hotels and Resorts section above. Our
first quarter of fiscal 2022 is our third straight quarter with consolidated
positive Adjusted EBITDA since the start of the pandemic.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our movie theatre and hotels and resorts businesses, when open and operating normally, each generate significant and consistent daily amounts of cash, subject to previously-noted seasonality, because each segment's revenue is derived predominantly from consumer cash purchases. Under normal circumstances, we believe that these relatively consistent and predictable cash sources, as well as the availability of unused credit lines, would be adequate to support the ongoing operational liquidity needs of our businesses. Maintaining and protecting a strong balance sheet has always been a core value ofThe Marcus Corporation during our 87-year history, and, despite the COVID-19 pandemic, our financial position remains strong. As ofMarch 31, 2022 , we had a cash balance of approximately$19.4 million ,$221.4 million of availability under our$225 million revolving credit facility, and our debt-to-capitalization ratio (including short-term borrowings) was 0.37. With our strong liquidity position, combined with cash generated from operations and proceeds from the sale of surplus real estate (discussed above), we believe we are positioned to meet our obligations as they come due and continue to sustain our operations throughout fiscal 2022 and fiscal 2023, even if our properties continue to generate reduced revenues during these periods. We will continue to work to preserve cash and maintain strong liquidity to endure the impacts of the global pandemic, even if it continues for a prolonged period of time. We believe that the actions we have taken during the past two years will allow us to have sufficient liquidity to meet our obligations as they come due and to comply with our debt covenants for at least 12 months from the issuance date of the consolidated financial statements. However, future compliance with our debt covenants could be impacted if we are unable to continue operations as currently expected, which could be impacted by matters that are not entirely in our control, such as the reinstatement of protective actions that federal, state and local governments have taken and the timing of new movie 30
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releases (as described in the Impact of the COVID-19 Pandemic section of this MD&A and in our Annual Report for the year endedDecember 30, 2021 ). Future compliance with our debt covenants could also be impacted if the speed of recovery of our theatres and hotels and resorts businesses is slower than currently expected. For example, our current expectations are that our theatre division will continue to improve during the fiscal 2022 (but still report results below comparable periods in fiscal 2019), before beginning to progressively return to closer-to-normal performance in fiscal 2023. Our current expectations for our hotels and resorts division are that we will continue to show improvement in each succeeding quarter compared to the prior year, but continue to underperform compared to pre-COVID-19 pandemic years. We do not expect to return to pre-COVID-19 occupancy levels during fiscal 2022 due to an expected lag in business travel. It is possible that the impact of COVID-19 may be greater than currently expected across one or both of our divisions such that we may be unable to comply with our debt covenants in future periods. In such an event, we would either seek covenant waivers or attempt to amend our covenants, though there is no certainty that we would be successful in such efforts.
Financial Condition
Net cash provided by operating activities totaled$6.5 million during the first quarter of fiscal 2022, compared to net cash used in operating activities of$13.0 million during the first quarter of fiscal 2021. The$19.5 million increase in net cash provided by operating activities was due primarily to a reduced net loss and the favorable timing in the collection of accounts receivable and receipt of refundable income taxes of$22.7 million , partially offset by unfavorable timing in the payment of accounts payable, accrued compensation, taxes other than income taxes and other accrued liabilities during the first quarter of fiscal 2021. Net cash used in investing activities during the first quarter of fiscal 2022 totaled$3.1 million , compared to net cash provided by investing activities of$2.6 million during the first quarter of fiscal 2021. The increase in net cash used in investing activities of$5.7 million was primarily the result of an increase of$5.0 million in capital expenditures, partially offset by lower proceeds from disposals of property, equipment and other assets during the first quarter of fiscal 2022. Total cash capital expenditures (including normal continuing capital maintenance and renovation projects) totaled$6.6 million during the first quarter of fiscal 2022 compared to$1.5 million during the first quarter of fiscal 2021. Fiscal 2022 first quarter cash capital expenditures included approximately$2.8 million incurred in our theatre division, primarily related to normal maintenance capital projects. We also incurred capital expenditures in our hotels and resorts division during the first quarter of fiscal 2022 of approximately$3.8 million , including costs related to rooms renovations at theGrand Geneva Resort and Spa and normal maintenance capital projects. Net cash used in financing activities during the first quarter of fiscal 2022 totaled$3.2 million compared to net cash provided by financing activities of$9.2 million during the first quarter of fiscal 2021. During the first quarter of fiscal 2022, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As short-term revolving credit facility borrowings became due, we replaced them as necessary with new short-term revolving credit facility borrowings. As a result, we added$22.0 million of new short-term revolving credit facility borrowings, and we made$22.0 million of repayments on short-term revolving credit facility borrowings during the first quarter of fiscal 2022 (net zero borrowings on our credit facility). We ended the first quarter of fiscal 2022 with no outstanding borrowings under our revolving credit facility. During the first quarter of fiscal 2021, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As a result, we added$36.0 million of new short-term revolving credit facility borrowings, and we made$22.0 million of repayments on short-term revolving credit facility borrowings during the first quarter of fiscal 2021 (net increase in borrowings on our credit facility of$14.0 million ). During the first quarter of fiscal 2022 we repaid$0.8 million of short-term term loan borrowings, compared to$4.2 million of such repayments during the first quarter of fiscal 2021. Principal payments on long-term debt were approximately$0.4 million during the first quarter of fiscal 2022 compared to payments of$0.1 million during the first quarter of fiscal 2021. Our debt-to-capitalization ratio (including short-term borrowings but excluding our finance and operating lease obligations) was 0.37 atMarch 31, 2022 , compared to 0.37 atDecember 30, 2021 . During the first quarter of fiscal 2022 and the first quarter of fiscal 2021 we did not repurchase any shares of our common stock in the open market. As ofMarch 31, 2022 , approximately 2.6 million shares remained available for repurchase under prior Board of Directors repurchase authorizations. Under these authorizations, we may repurchase shares of our common 31
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stock from time to time in the open market, pursuant to privately-negotiated transactions or otherwise, depending upon a number of factors, including prevailing market conditions.
We did not make any dividend payments during the first quarter of fiscal 2022 and the first quarter of fiscal 2021. Our Credit Agreement, as amended, required us to temporarily suspend our quarterly dividend payments and prohibited us from repurchasing shares of our common stock in the open market during fiscal 2021. The Credit Agreement also limits the total amount of quarterly dividend payments or share repurchases during the four subsequent quarters beginning with the first quarter of fiscal 2022 to no more than$1.55 million per quarter, unless we are in compliance with prior financial covenants under the Credit Agreement (specifically, the consolidated fixed charge coverage ratio), at which point we have the ability to declare quarterly dividend payments and/or repurchase shares of our common stock in the open market as we deem appropriate.
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