Causes of the iPic bankruptcy: Reclining seats and an IPO

Construction costs and intense competition also hurt the movie theater-restaurant chain.
ipic exterior
Photograph courtesy of iPic

Think the restaurant business is hard? Imagine having your company undone by reclining seats.

That, at least, has been the case with the 16-unit movie theater-restaurant chain iPic Entertainment, which filed for bankruptcy protection earlier this week, hoping to broker a sale and undo some of its $200 million debt burden.

According to its bankruptcy filing, some of its problems can be attributed to those seats.

Early in its 13-year history, iPic opened locations with two types of seating: premium seats with a table, and “Premium Plus” leather recliners with pillows, blankets, and waitstaff.

About a third of the seats were recliners. Customers apparently loved them. And in subsequent years, new locations featured more recliners.

Same-store sales rose in the double digits.

But then other theaters began to notice. Movie theaters eager to get consumers to ditch their sofas and big-screen televisions began adding them.

Those theaters had a lower price point. And many of iPic’s seats did not recline or have wait service. That apparently hurt sales.

“There was a time when we were the only ones that offered the comfort and convenience of recliners,” said Hamid Hashemi, CEO of iPic, during a conference call last year, according to financial services site Sentieo. “So when we had some erosion of attendance because of our nonreclining seats, those people left and went to other sites. Now we’ve got to bring them back.”

That wasn’t the only factor, however. In 2018, the company went public through a smaller, Regulation A+ initial public offering.

The chain initially wanted to raise $40 million, believing that it could raise that not just from customers but also from institutional investors.

But those large investors didn’t come through as promised, and the company ultimately raised just $17 million from an offering, according to bankruptcy court documents. That was not enough to fund continuing development, the filing said.

What’s more, going public requires more operating costs to meet federal securities requirements. That hurt profits.

That IPO was a disaster for both the company, apparently, and investors: The stock was originally priced at $18.50 per share. It is currently trading at 52 cents.

Construction costs also hurt profitability, according to court documents. Those costs increased “significantly” between 2010 and 2019, and delays hurt the company’s cash flow. Over time, according to filings, iPic used more working capital and equity to fund construction projects on time, which hurt finances.

The company delayed payments to vendors, lost discounts or ended up paying penalties, which increased costs further.

And then there is the competition. The chain competes not only with restaurants, which are more established and better known, but also theaters, where customers are concerned more about the location and time of a showing than other factors such as brand name.

Revenue growth decelerated in recent quarters, declining 2.6% in the third quarter of last year and 1.3% in the fourth before plummeting nearly 19% in the first three months of the year.

Last month, Boca Raton, Fla.-based iPic said it missed a payment on its debt. The company has several interested bidders, according to filings, but could also recapitalize its debt and keep going.

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