Marcus Corporation (The)

Good morning and welcome to the Marcus Corporation first quarter earnings conference call. My name is Stephanie and I will be your operator for today. At this time, our participants are in a listen-only mode. We will conduct a question and answer session at the end of the conference. If at any time during the call you require assistance, please and I will be happy to assist you. As a reminder, this conference is being recorded. Joining us today is Greg Marcus, President and CEO of and Doug Nice, Executive Vice President and Chief Financial Officer and Treasurer of the Markets Corporation. At this time, I'd like to turn the program over to Mr. Nice for his opening remarks. Please go ahead, sir.

Thank you, Stephanie, and good morning, everybody. Welcome to the Fiscal 2020 First Quarter Conference Call. As usual, I do need to begin by stating that we plan on making a number of forward-looking statements on our call today, all of which we intend to J.D. J.D. J.D. including assumptions about our ability to manage difficulties associated with or related to the COVID-19 pandemic, the assumption that our theater closures, hotel closures, and restaurant closures are not expected to be permanent or to reoccur, the continued availability of our workforce following the temporary layoffs we have implemented as a result of the COVID-19 pandemic, and the temporary and long-term effects of the COVID-19 pandemic on our business. Listeners are cautioned not to place undue reliance on our forward-looking statements. Additional factors, risks, and uncertainties which can impact our ability to achieve our expectations identified in our forward-looking statements are included under the heading forward-looking statements in the press release we issued this morning announcing our fiscal 2020 first quarter results and in the risk factors section of our fiscal 2019 annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. and the current report on Form 8K that we filed this morning, all of which you can access on the SEC's website. We'll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com. With that behind us, let's begin. Under normal circumstances, we'd now proceed to spend 80% of our time during our initial remarks looking backwards and talking about the quarter we just reported, with only about 20% of the time dedicated to looking ahead. Well, as I think we can all agree, these are not normal circumstances, so our plan today is to flip that 80-20 rule around. I'll still begin by spending a few minutes looking back at this past quarter and briefly sharing a few numbers with you, but then I'm going to pivot to more current topics such as the balance sheet and liquidity. And once I do that, I'll turn the call over to Greg, who will focus his prepared remarks on where our businesses are today, what we've done to date and are continuing to do to manage through this crisis, and what some of our plans are for the future. When we open up the call for questions, we certainly would be happy to revisit the quarter and answer any follow-up questions if needed. I also want to note that today we filed a Form 8K which extends the SEC filing deadline for our first quarter Form 10Q by up to 45 days, although we're hopeful that the delay will be no more than a week or less. The SEC provided this filing deadline relief recognizing that companies such as ours, J.D. J.D. Many with numbers that require this enhanced tagging, our SEC filing service needs a little more time to complete all of the necessary work required to get the Form 10-Q ready to be filed. And we need more time to review their work. What I can tell you, however, is that we believe strongly that the numbers we're reporting today will not change in any material respect between today and the date that we file our Form 10-Q. So you've seen the numbers, and with all the theaters closed for the last nine-plus days of the quarter, J.D. J.D. J.D. J.D. The vast majority of these expenses represented payroll continuation payments made to associates temporarily laid off in order to bridge the gap between their last day working and their eligibility for unemployment benefits. We've always said our associates are our most important asset, and this was just the right thing to do under very difficult circumstances. In addition, with almost all our theater and hotel properties closed as of March 26, 2020, the ending date of our first quarter, Accounting guidance required us to review virtually all of our assets for impairment as of that date. The way the accounting rules work, this becomes a point-in-time, almost completely mathematical analysis that relies heavily on projections of future revenues and cash flows. For most of our long-lived assets, with many years of useful lives left, we were able to quickly conclude that future cash flows in each asset support the carrying value of that respective asset. But for assets that have shorter lives, particularly leased assets with lease termination dates that are approaching, the mathematical impact of near-term negative cash flow impacts the impairment analysis. As such, we concluded that an impairment charge of approximately $6.5 million was necessary for several theater properties. We also carry a trade name intangible asset on our books. The value of which is determined mathematically using a discounted cash flow methodology based upon future revenues. With no revenues projected for several months subsequent to the March 26th date, we were required to recalculate the discounted cash flow value of this intangible asset, and the result was an additional $2.2 million impairment charge on this asset. In total, we reported $8.7 million of impairment charges this quarter. We included a non-GAAP reconciliation of our net loss and our adjusted net loss and our adjusted EBITDA with our press release in order to show you the impact these non-recurring items had on our reporting results. Now, in the midst of the current situation, it would be easy to just focus on the challenges we face at the end of the quarter, but there were several positive trends during the quarter that should bode well for us when we begin reopening. Our press release highlights several of these items, including the fact that both our theaters and hotels once again outperformed their respective industries during the quarter. And that includes significant outperformance for our movie tavern theaters. Our theater division also continued their positive trend of reporting meaningful increases in their average ticket price and average concessions in food and beverage revenues per person. It's also worth noting that spending a minute on income taxes for a couple of reasons. J.D. J.D. Preliminary review of the provisions of this legislation, we believe we'll be eligible to receive an income tax refund in the $15 to $25 million range in fiscal 2020 related to new rules for qualified improvement property expenditures and net operating loss carrybacks. We would also be able to apply any net tax loss incurred in fiscal 2020 to prior year income for what may be a significant refund in fiscal 2021 when our fiscal 2020 tax returns filed. Shifting gears away from the earnings statement just for a moment, our total cash capital expenditures during the first quarter of fiscal 2020 totaled approximately $10 million, compared to approximately $43 million last year, which included the cash component of the movie tavern acquisition. Most of this year's dollars are spent in our theater division on several projects, as noted in our release, and of course, as also previously disclosed, we have placed most future capital expenditures on hold for the time being. Before I turn the call over to Greg, let me also briefly comment on last week's announcement regarding our new financing. I don't need to tell you that the Marcus Corporation has been a conservatively run company for its entire 85 years of existence. Two of our core philosophies have been owning our own real estate whenever we can and maintaining a strong balance sheet. Well, I would suggest that those core values have never been more important. As a result of these longstanding management philosophies, J.D. J.D. J.D. With the new $90.8 million term loan aid, we've provided for an additional insurance policy to further enhance our liquidity, which we believe positions the Marcus Corporation to weather this current storm well into 2021 if needed. With that, I'll now turn the call over to Greg.

Thanks, Doug. As Doug noted earlier, I'm going to focus my remarks on where we are today, what we've done to date, and continuing to do to manage through this crisis. J.D. J.D. J.D. J.D. J.D. J.D. J.D. Our executive team faced the challenges head on and has worked literally night and day to develop and execute strategies that will get us through this crisis and put us in a strong position for continued growth over the long term. We're very fortunate to have such an experienced and dedicated leadership team. We're working to strike a balance between taking care of our people and helping to slow the spread of the coronavirus while at the same time making decisions that are in the best long-term interest of the company, our associates, customers, and shareholders. This is a delicate balance but vital. The hardest part of all these decisions is the impact the temporary closings have had on our associates, many of whom have been laid off. Caring for and valuing our associates has been a foundation of our culture since the day my grandfather opened his first movie theater back in 1935, and it's more important today than ever before. As Doug noted, we provided short-term compensation to these associates who were laid off in order to bridge the gap until they could receive unemployment benefits. We are also continuing to provide health insurance for those who are on our plan. Thank you for joining us. J.D. J.D. Reducing my salary and that of my dad's by 50%, as well as reducing the salary of all other executives and remaining divisional corporate staff. Temporarily eliminating all Board of Directors cash compensation. Actively working with landlords and major suppliers to modify the timing and terms of certain contractual payments. Evaluating the provisions of the CARES Act and utilizing the benefits, relief, and resources under those provisions as appropriate, and evaluating the provisions of any subsequent federal or state legislation enacted as a response to the COVID-19 pandemic. J.D. J.D. J.D. Thank you very much. J.D. J.D. J.D. particularly among business transient and group business travelers as travel budgets tightened in uncertain economic times. Whether the return to more normal demand is relatively rapid as it was after 9-11 or occurs over the course of one or more years as it was after the 2008 financial crisis is unknown at this time. Conversely, we now anticipate that hotel supply growth will be limited for the foreseeable future, which can be beneficial for our existing hotels. As we speak today, it is still uncertain what it will look like J.D. J.D. Some of which may be temporary and some of which might become the new operating standards in the future. Regardless of how this unfolds, I am confident that our hotel division president, Michael Evans, and his outstanding team will effectively manage this reopening process. And we look forward to welcoming guests through our hotel, restaurant, and bar doors as soon as safely possible and delivering services that align with demand at that time. The timing for when all our theaters will reopen is uncertain as well. J.D. J.D. J.D. This is what happened when we pioneered recliner seating in our theaters. Capacity was reduced as a result. We believe that the exhibition industry has historically fared well during the recession should one occur as a result of the COVID-19 pandemic. And we remain optimistic that the industry will rebound and benefit from pent-up social demand as home sheltering subsides and people seek togetherness in an attempt to return to normalcy. A return to a new normal may span multiple months driven by staggered theater openings due to governmental limits, reduced operating hours, lingering social distancing requirements, and a gradual ramp up of consumer comfort with public gatherings. J.D. J.D.