Marcus Corporation (The)

Good morning everyone and welcome to the Marcus Corporation first quarter earnings call. My name is Ruby and I will be your moderator for today's call. At this time all participants are in listen only mode. We will conduct a question and answer session toward the end of this conference. If at any time during the call you require assistance please press star zero and an operator will be happy to assist you. As a reminder this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer, Doug Nice, Executive Vice President and Chief Financial Officer, and Chad Paris, Corporate Controller and Treasurer of the Marcus 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 very much and good morning, everybody. Welcome to our fiscal 2022 first quarter conference call. As usual, I do need to begin by stating that we plan to make a number of forward-looking statements in our call today, all of which we intend to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act. Our forward-looking statements may generally be identified by our use of words such as we believe, anticipate, expect, or words of similar import. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected. Listeners are cautioned not to place undue reliance on our forward-looking statements. The risks and uncertainties which could 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 2022 first quarter results, and in the risk factors section of our fiscal 2021 annual report in Form 10-K, 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. The forward-looking statements made during this conference call are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, we routinely post news releases and other information regarding developments at our company that impact our investors, customers, vendors, and other shareholders. You can look to our website, www.marcuscorp.com, as an important source of information regarding our company. We also refer you to the disclosures we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP measure used in evaluating our performance and its limitations. A reconciliation of adjusted EBITDA to the nearest GAAP measure is provided in today's release. So with that behind us, let's begin. This morning, Chad Paris, our corporate controller and treasurer, and our next CFO, effective May 15th, following my retirement, and I will start by spending a few minutes sharing the results from our first quarter with you and discuss our balance sheet and liquidity. We'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we're seeing ahead, and then we'll open the call up for questions. This morning, we reported another solid quarter that continues our post-pandemic recovery trend of significant improvement in year-over-year revenues in adjusted EBITDA. We also continued our sequential streak of positive adjusted EBITDA in both of our businesses and on a consolidated basis for the third straight quarter. We were able to deliver these results despite the fact that the outbreak of the Omicron variant negatively impacted both of our businesses. On the theater side, we had a lighter film release calendar than originally anticipated as studios waited out this most recent surge. On the hotel side, office reopenings were delayed on top of our normal seasonal winter headwinds at our predominantly Midwestern portfolio of owned hotel properties. Given the significant changes in the state of the business today compared to the environment we were operating in a year ago, Chad will provide comparisons to our pre-pandemic fiscal 2019 first quarter as he gets into the results of each business. But at a consolidated level, revenues increased more than two and a half times over the prior year, growing from 50 million last year to over 132 million in the first quarter this year. As a result, adjusted EBITDA increased by nearly 21 million, improving from negative 17 million last year to positive 4 million this year. We provided a breakdown of these numbers by operating segment in our press release, where you can see that our theater division again contributed the majority of our first quarter adjusted EBITDA. We ended the quarter with the divisions contributing a combined $7 million in adjusted EBITDA prior to unallocated corporate expenses. Below operating income, our first quarter interest expense decreased by $750,000, primarily benefiting from lower short-term debt and reduced borrowings, resulting from our improved operating results. The reduction in interest expense was partially offset by reduced gains from disposition of property, equipment, and other assets this quarter compared to last year. I'll now have Chad provide some brief financial comments on our operations for the first quarter, beginning with theaters.

Thanks, Doug. We continue to experience increased per capita spending by our customers in our theater division. Our average admission price increased by 6.4% during the first quarter of fiscal 2022 compared to last year, and increased by 18% compared to fiscal 2019. Continued strong customer demand for our large format premium screens was the primary driver of this overall increase in our average admission price, as well as more new films compared to last year when a limited supply of new films resulted in a higher mix of legacy library titles shown at discounted ticket prices. Meanwhile, Our average concession and food and beverage revenues per person at our comparable theaters increased by 5.7% during the first quarter of fiscal 2022 compared to last year, and has increased by 36.1% compared to fiscal 2019. We believe our industry leading mix of non-traditional food and beverage options, the mix of films, shorter lines at the concession stand, The emphasis we are placing on encouraging guests to purchase their concessions and food and beverage ahead of time, either online or using our mobile app, on top of what we believe to be pent up demand for a return to normal, likely continues to contribute to our increased per capita revenues. As a significant number of theaters in both our circuit and the industry as a whole were closed during large portions of the first quarter last year, We believe a comparison of our results to pre-pandemic results in fiscal 2019 may be the best way to compare our performance to the industry this quarter. When you compare our first quarter fiscal 2022 admission revenues to fiscal 2019, our admission revenues were down 39.4% during the quarter, including the pro forma impact of the movie tavern acquisition, which was part of our results for two of the three months in the first quarter of fiscal 2019. According to data received from Comscore and compiled by us to evaluate our fiscal 2022 first quarter results, United States box office receipts decreased 44.1% during our fiscal 2022 first quarter, compared to U.S. box office receipts during fiscal 2019. As a result, we believe our admission revenue decline once again outperformed the industry average by 4.7 percentage points during the first quarter of fiscal 2022. Due to the impact of two strong blockbusters released or showing during the first quarter of fiscal 2022, which were the Batman and Spider- No Way Home, The first quarter box office was more weighted towards our top movies as compared with the first quarter of fiscal 2021 and fiscal 2019. These films drove significant PLF sales, but at the same time resulted in higher film costs as a percentage of admission revenues. With that said, we are thrilled with the success of these films and their contribution to our improved results. During the quarter, we were impacted by several labor challenges, including increasing hourly wages and a ramp-up in staffing levels as we prepared to better serve the growing number of customers returning to theaters for the upcoming movie slate following a busy holiday season in which we operated well below our targeted staffing levels. While we made progress adding and training new associates and retaining many of our loyal associates, the shifting and uneven movie release schedule further complicated our ability to efficiently manage our labor costs. While we were better positioned with our staffing levels entering the second quarter, we know we can do better and we expect our labor efficiency to improve as we move to a more steady release of new films. Shifting to our hotels and resorts division, comparisons of our total revenue and total revenue per available room, or REVPAR, to last year does not provide particularly meaningful numbers. We believe comparing to pre-pandemic levels in fiscal 2019, however, does help provide perspective on the pace of the current recovery. First quarter total revenue for the division was over 95% of 2019 levels, which was a post-pandemic high. Now, to be fair, the St. Kate was closed for the majority of the 2019 first quarter during its conversion from a branded property, but even if you take the St. Kate out of both years' numbers, Our fiscal 2022 adjusted first quarter revenues were still a very healthy 91% of adjusted 2019 levels. Greg will further discuss some of the differences between the mix in the business then and where we are today in his remarks, but we are encouraged by the overall continued progress in the recovery of the business. Our rev par for our seven comparable owned hotels decreased just under 16% during the first quarter compared to the same quarter during fiscal 2019. According to data received from Smith Travel Research for the fiscal 2022 and fiscal 2019 periods and compiled by us in order to compare our results, our hotels outperformed comparable upper upscale hotels throughout the United States during the first quarter by 2.1 percentage points. The data also indicates that our hotels outperformed competitive hotels in our markets by approximately 8.6 percentage points during the first quarter, again compared to fiscal 2019 results. Breaking out the first quarter numbers for the seven comparable hotels more specifically, our overall REVPAR decreased during the fiscal 2022 first quarter compared to fiscal 2019 was due to an overall occupancy rate decrease of approximately 15.7 percentage points offset by an 11.5% increase in our average daily rate or ADR. Our average fiscal 2022 first quarter occupancy rate for our own hotels was 48.9%. Shifting the cash flow in the balance sheet, our cash flow from operations was $6.5 million in the quarter and benefited from two significant non-recurring items. First, as we shared on our last call, we received an income tax refund of approximately $23 million in the first quarter, as well as state government grants of $4.3 million accrued during our fiscal 2021 fourth quarter and received early in fiscal 2022. As a reminder, our cash flow from operations in the first fiscal quarter is historically impacted by seasonal changes in working capital resulting from the slowdown in our businesses following the peak holiday season and by the timing of various year-end accounts payable and compensation payments. Total cash capital expenditures during the first quarter of fiscal 2022 were $6.6 million. A large portion of these dollars were spent on the first phase of a guest room renovation project at our Grand Geneva Resort and Spa. with the rest going toward normal maintenance projects in both of our businesses. We also had proceeds from the sale of non-core real estate of $3.4 million during the first quarter. We continue to take advantage of opportunities within our substantial real estate portfolio. We believe we may receive additional sales proceeds from real estate sales during the remainder of fiscal 2022, totaling approximately $5 to $15 million, depending upon demand. Finally, before I turn the call over to Greg, let me also briefly comment on our balance sheet and liquidity position. As our press release notes, our liquidity remains extremely strong with nearly $241 million in cash and revolving credit availability at the end of the first quarter of fiscal 2022. At the end of the quarter, we had no borrowings on our $225 million revolving credit facility. We ended the first quarter with a debt to capitalization ratio of 37%. As we head into the busy summer months for both businesses, we expect this ratio to continue to improve. We remain committed to our philosophy of owning our real estate whenever possible and keeping the balance sheet strong. With that, I will now turn the call over to Greg.