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spk01: 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.
spk05: 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.
spk04: 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.
spk09: Thanks, Chad. We entered the quarter expecting it to be our most challenging of the year. facing our normal seasonal headwinds during the winter months in hotels, uncertainty as the Omicron variant ran its course, and a limited new film release calendar. I'm pleased to report that we navigated these challenges to deliver results that outperformed the industry and continued our trend of significant year-over-year improvement in both businesses as the recovery from the impact of the pandemic continued. More importantly, we exited the quarter with exciting momentum in both businesses as we head into the spring and summer. As you know, we view the world through a long-term lens. Our recovery path is not a straight line and our rate of improvement will vary from quarter to quarter, but we continue to make consistent progress. It's particularly gratifying to see our team shifting their focus from navigating through a pandemic to accelerating our recovery and looking ahead to once again growing our businesses in the future. The first quarter that we're reporting today is yet another step in our recovery, and we're pleased to be sharing these results with you. So let me start my divisional remarks with our hotel division. Chad shared some of the numbers with you, including comparisons to our pre-pandemic fiscal 2019 numbers and the fact that the data indicates that we once again outperformed both the industry and our competitive sets this quarter. Chad mentioned it earlier, but it bears repeating. Total revenues for the division were over 91% of 2019 levels for the quarter after adjusting for the St. Kate. The composition of the revenue is different than it was three years ago, with higher ADR, lower occupancies, and a different mix of customers. There is more recovery still in front of us, but in aggregate, we are getting closer to where we were. As expected, occupancies were at the seasonal low point for our hotels, but overall, it was a solid quarter in which the division contributed over $2 million in adjusted EBITDA. Leisure customers continued to lead the way, particularly on weekends. We were pleased with the continued strength of our average daily rate during the first quarter, growing more than 10% over the last year. Omicron's impact on the quarter was mitigated by this being our seasonally slowest time of the year. We did have some cancellations early in the quarter, resulting in rebookings for later in the year and in general, it resulted in delay and a more robust reopening of offices. However, in the last 60 days, there's been a noticeable change compared to where we were at the beginning of the quarter with more large companies now implementing their return to office plans. We continue to believe that in order for the business traveler to return to pre-pandemic levels, it begins with employees returning to offices. That then can lead to businesses getting comfortable with their employees getting back on the road to see clients, potential clients, remote offices and plants, et cetera, et cetera, as well as going to group events and conferences. While we are still in the early innings of the business travel recovery, our view seems to be playing out in the data. Recent industry surveys have indicated rising expectations for business travelers to take at least one trip to attend conferences, conventions, or trade shows in the next six months. Industry meetings volume grew significantly from February to March, and the average number of attendees per meeting continues to increase, nearly returning to its pre-pandemic level in March. These indicators align with a significant improvement in our group room booking activity, which accelerated during late February through today. Our group room revenue bookings for fiscal 2022, commonly referred to in the hotels and resorts industry as group PACE, are now running within 15% of where we would historically be at this time in pre-pandemic years. Pardon me. Let me pick up where we were. We are running now within 15% of where we would historically be at the same time in pre-pandemic years. and are up significantly from where we were at this time last year. We are encouraged by the increased amount of activity and leads we are experiencing, and our sales teams remain focused on continuing to close the gap as business travel activity recovers. Banquet and catering revenue pace for fiscal 2022 is also trending, similar to the improvement in group pace, running behind where we would typically be at this time in prior years but closing the gap. We continue to experience very strong wedding bookings, and some of the bigger clients of the past are once again booking for 2022 and beyond. Overall, we generally expect our revenue trends to track or hopefully continue to exceed the overall industry trends for our segment of the industry, particularly in our respective markets. As in the past, our results from this division will vary by quarter due to the seasonality our properties historically experience. But on a relative year-over-year basis, we look for continued improvement during this ongoing recovery. And as I've said in the past, we believe we have special assets that make our portfolio unique. These assets have allowed us to successfully pivot to serve an increasing number of leisure customers during the pandemic. And we will continue to pivot to optimize revenue management and deliver outstanding service to returning business travelers and group events. So now let's shift to our theater division, chaplain over the numbers, including our continued increases in per person revenues, our outperformance in the industry, and our third straight quarter of positive cash flow with nearly $5 million of adjusted EBITDA in the quarter. We delivered these results despite a limited film release calendar that was impacted by Omicron, with several films shifting out of January and February to later in the year. The Batman delivered a blockbuster performance leading our box office results for the quarter, with the balance of the box office resulting from a mix of continuing strong runs from several films that debuted in September, including Spider-Man No Way Home and Sing 2, as well as several films debuting in the quarter that performed well, such as Uncharted, Scream, and Dawn. All of the top five films in the quarter debuted with an exclusive theatrical run prior to release on streaming services, compared to where we were a year ago, when four of the top five films in the first quarter were released day and date. Growing audiences and a widening variety of genres for films released to exclusive theatrical runs reinforced several themes related to our customers. First, our customers are increasingly comfortable coming back. Survey data released by the National Association of Theater Owners regarding consumer sentiment towards moviegoing is now indicating the percentage of those surveyed saying they are, very, or somewhat comfortable going to the movies is at 87%. As the comfort levels have increased, our customer base has broadened. Second, we believe the question of whether our customers would return to watch movies on the big screen has been answered. There is strong consumer demand for affordable out-of-home entertainment, and customers are coming back for the immersive theatrical experience they simply cannot get in their living room. The blockbuster performances of Spider- No Way Home and The Batman illustrated that big movies will bring back huge audiences. But beyond these big movies, solid performances from an increasing number of films are showing, There is demand for the theatrical experience for more than just the tentpoles, and we continue to see more customer segments returning to moviegoers. A growing number of family films have returned to theatrical success, with Sin 2, Sonic the Hedgehog 2, Fantastic Beasts, The Secrets of Dumbledore, and more recently, The Bad Guys, all delivering solid performances. Films such as The Lost City and Everywhere All at Once are seeing women and older adult audiences return to the movies. So while everything is certainly not yet back to normal, particularly as it relates to the quantity of films being released theatrically, we continue to gain confidence as we see more of our audiences return. In short, to borrow a line from Field of Dreams, the performances of these films are reinforcing that if you build it, or in this case, release it, they will come. Last week, I joined our theaters team at CinemaCon and was able to get a firsthand look at some of the exciting films on the slate for many of our studio partners. The strength of the release schedule for the rest of this year and into 2023 continues to improve with a fantastic mix of films from not only the major franchises, but exciting new original stories as well, with the next few months being particularly strong. Tickets for this weekend's debut of Doctor Strange and the Multiverse of Madness have pre-sold at a post-pandemic pace, second only to Spider-Man No Way Home. And while they are still several weeks away from their premiere, early advance ticket sales for Top Gun, Maverick, and Jurassic World Dominion are also starting out strong. But beyond the strength of the film slate, what was extremely important to hear was a commitment to theatrical exhibition from our film studio partners. You've heard me talk before about our belief that no other distribution channel for film content matches the experience of watching a movie on the big screen, and our belief in the importance of an exclusive theatrical exhibition window as a means of maximizing the performance and monetization of film content over its life cycle. Last week, we heard our belief echoed by film studios as the data is beginning to prove out that an exclusive theatrical exhibition window sets up strong subsequent windows, including premium video on demand and streaming platforms. The magic and gravitas of exclusive theatrical exhibition delivers an experience that elevates the perceived quality for a movie. building long-lasting demand for its brand that other channels of distribution did not. This has long been our belief, and it was encouraging to hear several film studios reaffirm their commitment to exhibition and announce exclusive theatrical exhibition windows for films beyond just the tentpoles. The length of exclusive theatrical windows may vary from film to film. While many windows are settling in around 31 to 45 days, there will also be some films that run shorter and others that may run much longer, such as Spider-Man No Way Home, which ran for an 88-day exclusive theatrical window. So as we look forward, we continue to believe 2022 will be the year of the return to an exclusive theatrical release window for the vast majority of new films. And our film and our view was confirmed last week. As an industry, we will also continue to encourage our studio partners to increase the number of films released theatrically, as well as encourage additional content providers to take advantage of the unique theatrical experience as a means to showcase some of their best content. Chad mentioned earlier our opportunity to improve labor efficiencies as the business continues to ramp up. Our response to cost inflation is being addressed on multiple fronts, including improving labor efficiency, continuing the cost management discipline we implemented during the pandemic, and growing higher margin concessions in food and beverage revenues. In the second quarter, we are also implementing targeted price increases for our premium large format screens on certain days of the week. This is an area where our customers continue to show a strong preference and willingness to pay for this premium entertainment experience. While delivering magical movie experiences to our customers, we will remain at the core of our theater business. We continue to develop additional entertainment options within our theater locations. This quarter, we launched our sports viewing auditorium, The Wall, at our theater in Gurney Mills. This one-of-a-kind sports viewing experience combined with industry-leading food and beverage offerings debuted during March Madness to positive customer feedback, and we continue to refine the customer experience and develop the promotional strategy. We're still in the early innings of this project, of this concept experiment, but personally, there's no place I'd rather watch the games than the experience I get at the wall. This quarter, we also launched testing in select markets for new subscription models known as MovieFlex and MovieFlex+. We believe these subscription programs are a way to drive recurring traffic through our theaters, and we're testing a unique approach designed to promote attendance for some of the smaller films that play an important supporting role around tenfold features. While we are in the early stages of testing with these programs, we believe they represent potential seeds for future growth in our theaters. Finally, I want to briefly remark on the strength of our balance sheet and liquidity position. We've always maintained a core philosophy of owning our real estate. limiting our exposure to leases, and managing our debt at levels that we believe are prudent for the businesses that we own. We've informed this view with our 86-plus years of experience owning and operating these businesses, and we believe it has served us well, providing operational flexibility and effective risk management for when the unexpected occurs. We believe we entered 2022 for a position of competitive strength with less debt and relative leverage, a minimal amount of deferred rent, and a great deal more flexibility than our peers. As opportunities for investment and growth in both businesses develop, we will be well positioned to execute. For me, it is incredibly exciting to get back to focusing on growth, our strategic priorities, and the exciting opportunities that lie ahead. Before I wrap up my prepared remarks, on behalf of our Board of Directors and our Chairman and my dad, Steve Marcus, I want to express my thanks and gratitude to Doug Nice, our Executive VP and CFO, who will retire next week after 36 years of service with the Marcus Corporation and 25 years as our CFO. Many of you may have gotten to know Doug over the years, but for those of you who haven't had the privilege of working with him closely, as I have for so long, we could not have asked for a stronger leader to navigate the changes and challenges we've faced over his tenure. In particular, his steady leadership over the last two years has been critical to our successful recovery. I'm happy to note that Doug has agreed to continue to provide advisory services to the company after his official retirement date in order to ensure the transition to Chad is seamless. He will very much be missed. We wish Doug, his wife Sue, and their family the very best in his well-earned retirement. Doug, you have not only been a great asset to our company, you have and will continue to be a good friend. I could not ask for more out of a work relationship. I was always grateful for what you brought to our company, but the last two years really highlighted that impact even more. Meanwhile, we're extremely pleased to welcome Chad as our new CFO upon Doug's retirement. Upon joining us last October, Chad has worked closely with Doug and quickly immersed himself in our businesses, systems, and culture. We're fortunate to have found someone with Chad's knowledge and experience, and I'm confident that he will be a great addition to our executive team, and I expect he too will become a good friend as well. I would also like to provide a reminder that our annual shareholder meeting is next week, May 10th at 9 a.m. Central Time. We are excited to hold our first in-person annual shareholder meeting in three years and we hope you can join us at the Movie Tavern in Brookfield. Further details regarding the meeting can be found in our proxy statement, which can be accessed on our investor relations website, investors.marcuscorp.com. Finally, I'd like to once again express my appreciation for our dedicated associates at the Marcus Corporation. Your outstanding work and commitment to serving our customers is responsible for our success and we appreciate all that you do every day. So on behalf of our board of directors and the entire executive team, thank you to all of our associates. With that at this time, Doug, Chad, and I will be happy to answer any questions you may have.
spk01: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure you are unmuted locally. If you change your mind, please press star followed by two. Our first question is from Mike Hickey of Benchmark Company. Your line is now open. Please go ahead.
spk06: Hey, Greg, Doug, Chad. Congrats, guys, on a strong quarter in a difficult market. Thanks, Mike. Thanks for taking my questions. Doug, good luck, man. It's been great. I miss you. Thank you.
spk02: Thank you, Mike. I really appreciate that. Right back at you.
spk06: We appreciate you. Yep.
spk02: All right.
spk06: Welcome, Chad. So first question for me, I guess, you know, at CinemaCon, one of the, no doubt, a lot of compelling products and some big budget movies coming out, obviously attendance is going to reflect that. But when you look at the total scope of film, primarily sort of wide releases, it looks like we're sort of still at a disconnect between in terms of the volume of live releases where we were pre-pandemic. So just sort of curious your thoughts on how the industry closes that gap and whether or not you think some of the OTT providers that are creating experiences that would be great in theater, namely Amazon, Netflix, and Apple can start to sort of get product into your theaters, especially on sort of a more agreeable film window that's sort of selling at 45 days. Another follow-up. Thanks, guys.
spk09: You know, Mike, look, you're exactly right. We are not back to where we were from a content perspective yet. And, you know, look, it's one of those things where it's really, I think there's a bit of a lag time, you know, that you bump into in this business, when someone, even if they plan to change their mind, and I think it's been great to see some minds changing. I think we all know there was this, well, streaming is the be-all, end-all of everything. We never understood it. I think if you've been listening to our calls long enough, you would know that we've said that. We can't see that actually making sense, and I think that that is being borne out. Streaming is here, but as I've said a million times, streaming, the real battle, is streaming versus linear TV. Yeah, it is competitive because the more product being pumped into the home, the more competitive it is for the theater business. But at the end of the day, the theater is a differentiated experience. And so I'm being repetitive, but I think it's important to repeat that whole thing. But if you look at movies put into production, there's a great set I saw recently, and you would see that in 2019, or I'm sorry, 2020, production just slowed down too. I think the pandemic really You know, just slowed down a lot of production. One of the things we're bumping into right now, in addition to that, is the post-production houses are really busy. They face the same labor issues as everybody else, and they're running behind. And so, you know, as we've said a bunch of times, this is not a straight-line path. The road will be a little bumpy from time to time. But the trend, and I guess I learned from your industry, the trend is your friend. The trend is really positive. Everybody is talking and saying, you know what, we understand. that a film is better. It performs better on streaming. It performs better in all the markets when it opens up in theatrical. And that's what we've heard the studios saying. We're seeing it being written about. And so that bodes well for business because we do provide that unique experience, that ability to spotlight and highlight a film. And, you know, production has moved back up again, just generally film production in general. I don't know what the number ultimately shakes out for all of us, but I think we're going to be moving in a positive direction.
spk05: Greg, do you want to touch on Netflix, Amazon, Apple, or your thoughts on that?
spk09: You know, look, we talk to all these guys. We're in discussions with them. We're trying to figure out how to work with their models, and I don't have anything to report today on the phone call. But, yeah, we're talking to them, and we continue to think about it. Look, we've been testing different ideas. Different exhibitors have tried some different things through the pandemic. I guess the best I can think of is to say that, as has been reported in the press, we are open to playing their films. One of the statistics, it's a great statistic that people, I don't know if they talk about it enough, is that The number of people who go to the, there's a huge overlap between people that go to the movies and people who stream content. That is a, that is a, that's a very big group. And so, you know, because consumers of media just tend to be, you know, big consumers of media. And so we, that's where we make the cases and look at, we're not competitive in a way, we're complimentary consumers. And we're working – these guys, I think there's – and look, they are – I think they're going to want – at the end of the day, they're going to want to maximize the revenue from their IT because they are in these very competitive segments. You know, it's getting more competitive in the streaming business every day, and it's expensive. And so, you know, they've got to get that money back, and there's multiple ways to get that money back. And I think all too often people treat their content – they said that certain people talk about content like it's a widget Or it's a screwdriver. Now, I'm sorry. If I go to this hardware store, I couldn't tell you. I'm sorry to the screwdriver manufacturers that might be on our call. Probably none. But if there are, I apologize up front. But I couldn't tell you what screwdriver I was buying and which one was better than the other. But film's content is not like a screwdriver. It's intellectual property, and it is unique. And I'm sorry. If you want to see a movie that you liked, If you want, you know, when Doctor Strange is going to be out this weekend, when it comes out on stream, there will only be one place to go see it on Disney+. It is unique. It is not a widget. It is not an interchangeable screwdriver. And the people that want to go see that. will have the ability, and they will have to be in the Disney Plus family to be able to see that. And that's true for something that would be on Netflix or on Amazon. To the extent that they make content that people want to see, they can only go to that streaming service when it runs exclusively. And that will be a benefit to their members, and only their members. And yet it will have that patina of having played in a theater, that halo. And... We think that for certain films that could be mutually beneficial, and also that will drive incremental revenue and probably not drive any, you know, any decrease in revenue on their streaming side. So I think it's a winning combination for them. History is borne out that theatrical is complementary and serves the ancillary markets, not competitive to the ancillary markets. And I think we're heading in that direction. They're starting to see that too.
spk06: Nice. I'm sorry for the second question. Love the passion, man. It's great. Second question for me, I mean, it's, you know, obviously we've got some uncertainty here, economic and otherwise. I see that in the markets this morning, but clearly you're confident here and Your business, you're bouncing back strong. Product is coming back strong. And cash flow, I think you're sort of flattish for the quarter, but, you know, sort of three quarters in a row of flat to up. And you look back pre-pandemic, you know, you lost $11 million in pre-cash flow in the first quarter. So you're way higher than that. So all that being said, how do you think – about um potentially reinstating your dividend and how would you approach that i'm guessing you sort of inch into it but i guess just given your confidence you know and your cash flows you know the dividend was such a nice piece to your return profile and i think obviously the market is somewhat rewarding uh capital return here in value stocks thanks guys yeah that's a really good question mike and and i will i will certainly
spk05: confirm that we're having lots of discussions about that. We have been, really for most of our entire history, a dividend-paying stock, and we certainly anticipate returning to being a dividend-paying stock. We're considering the timing very carefully. We've got several puts and takes to think about regarding that, but that certainly So I can't sit here today on this call and tell you which quarter that might in turn become a reality, but it is on our radar. We expect to return to being paying dividend. I can say with certainty that when we do first return, it won't be at the same levels that we left when the pandemic hit. We still have some restrictions that we're operating under with our bank agreements. until we get back to our old covenants. We're on our way back to getting back to our old covenants, and so that comes into the consideration in all this. But it does allow us to start paying a dividend. It just won't be at a level that you saw previously initially. And then hopefully we'll be able to, as things normalize, continue to focus on that. It's an important part of who we are, and I would expect that it will be in the future as well.
spk06: Nice. Thanks, Doug. Thanks, guys. Good luck.
spk01: Our next question is from Eric Wald of B. Reilly Securities. Your line is now open. Please go ahead.
spk08: Thank you. Good morning, everyone. Great working with you, Doug, over the years. Definitely started a few years ago. Thank you, Eric. A couple questions. I guess one... Obviously, a lot of the focus on inflationary pressures, wages, labor has been the case for a while. What have you seen over the past maybe 12 months or even more recent in terms of how price sensitive consumers have been both in the theaters and in your hotels? still continue ability to completely cover increased costs through price? Is there a risk that may not be the case? Where have you seen some pushback, if at all, from your moves around that?
spk09: We have, each business is different. I think that we've seen We have seen a fair amount of elasticity. I mean, as we're reporting, you know, our rates on the hotel side, when I say the hotel side, I'm really in both areas, but our rates on the hotel side have been, you know, very, very aggressive like the rest of the hotel world. And so we've been able to manage that. You know, we will continue to react to the market as we can and test the waters and continue to work the price there. Theater side, we've been able to selectively, we're being tactical with what we do there, mainly because of that we're trying to rebuild the business and bring people back to the theaters. They're not as far along the curve as the hotels are. So with that, we're being more selective. But that doesn't mean we're not doing it. But it just means that, I can tell you right now, the guys on 20th, they're sitting around 20, that's our 20th, that's where the theater guys are. They're sitting around, Rolando and his team are sitting around trying to figure out how to manage that labor as tightly as they can manage it. And yet at the same time, they are taking selective price increases where they can. Again, it's just not, I'm doing it across the board, but we, like for example, like on a Tuesday, We've instituted a dollar upcharge for our PLFs, for our premium large format screens, but we didn't have one in the past for those who aren't members of our loyalty club. It's tactical things like that that we're doing. We are not doing things like raising the price of an individual film like some of our competitors are doing, but we're taking price increases during different day parts, and there's elasticity in that as well. Because at the end of the day, I don't know about you, but the last time I went to any professional sports league, those tickets are pricey. And that's, you know, that's what you talk about. Six out of the last eight recessions, the theater business got better because people start to trade down because they still want to go out. And we know this. I saw an article and there was an article in the Wall Street Journal today that talked about how bananas people are to get out of their houses and how the world is trying to go back to people don't want to be at home anymore. And that bodes well for our travel business. But if the economy were to start to, I've always said theaters are an uncorrelated asset, you know, as we go, if the economy were to have any struggles, you know, that tends to bode well for the theater business because people want to go out and they're looking for, you know, less pricey entertainment. And so we will have room to move on that pricing as well too.
spk08: Got it. And then, um, second question, um, What are your views on the acquisition environment on the feeder side right now? Obviously, we've seen some moves by some of the competitors. Are you seeing anything that fits your criteria? Do you think we get increased inventory and potential targets as funding sources change? Have some of the acquisitions that have been done not checked on the box? How attractive are you to the environment and how could that change over the next 12 months in your favor?
spk09: You know, there has not been a lot of activity. We've seen, you know, we saw a small transaction just recently. Not us, but the market. We saw it in the market that was announced. But it was a relatively small transaction. You know, we'll look at anything. You know, at the end of the day, we're going back to the core precepts of our balance sheet needs to be in great shape. You know, it's a business where scale is helpful, but it's not paramount. And so I don't have anything to tell you today. The activity is pretty quiet. There's not much happening yet. But, you know, as you know, Eric, we could see that environment change as the business stabilizes and continues to stabilize. There may be people who say, okay, now I know where it is. I've written this out, and it's time to sail off into sunset, and we can potentially be available. We'll have to look at it as it comes about.
spk08: Got it. Thank you.
spk01: Our next question is from Jim Goss of Barrington Research. Your line is now open. Please go ahead.
spk10: All right. Thanks. And I will also begin offering congratulations to Doug. It's been great to be able to work with you for many years. You're a fine executive and a fine human being. Chad, you've got a tough act to follow, so good luck to you, too.
spk02: Thank you, Jim.
spk10: Thanks. I would actually like to start with the exclusive theatrical window comment. Are there any holdouts, notably? I think most of the major studios have conformed to a 45-day type exclusive window, haven't they?
spk09: I can't think of anybody who hasn't. We don't have... Again, we don't discuss strict, you know, the conversations we're having with people. But I – most everybody's got a window because I think they know. You know, I've explained this before. It's like, you know, why do you want to create an unlimited number of seats on the first day? You want to talk about the laws of supply and demand? You know, why would you want to – why would you want to on day one create an unlimited – basically an unlimited inventory? The whole concept of windowing is selling the same thing to the same person over and over again. And you go into your highest per capita channels first. And all you do is destroy that. And when you go to a window situation, and again, going back to now, you need to maximize the value of your IP and the revenue coming off your IP. It's counterproductive. And I've always said, and I guess if anybody from Apple is listening, they can come back and tell me I'm wrong. It was never lost on me that on day one when Apple would release a new iPhone, historically, and you go back to when they were just really in the earlier years, people were lined up around the building. I find it hard to believe how many iPhones they would sell on day one, and yet they created that demand. They restricted the supply, and it worked so beautifully to their advantage. We should all take a lesson from that.
spk10: Right. with the issues netflix has faced lately have has there been any change in the tone of conversation with it in terms of potentially introducing um having some sort of window i think mike was bringing us this up before but also i'm wondering if you were to do a a theatrical window for some of the streamed content would it be day and date or would there be a any chance that you'd have at least a week or a few days of exclusivity in that?
spk09: I'm not going to get into what we discussed with the different distributors. We've never done that in the past, so we're not really going to go through that now. We're open to whatever. We're open to different models. We've tested different things. We think what's best for us and for everybody is to have some sort of window It helps the Mac. Again, we think it's counterproductive. Day-to-day doesn't seem to work very well, but we're open to anybody's good ideas.
spk10: Okay, and I know you've said in the past sometime that certainly the films tend to play in your markets better than others. Are there any of the major releases coming up that you think will be particularly good or bad in the markets, Midwestern-type markets?
spk09: Um, I can't think of anything that that's going to be particularly challenging in our markets. I can think, you know, like family, we perform very well on family films. So, you know, we'll tend to overperform there. So I think like light year will be one where we can overperform. Um, you know, uh, the, uh, I'm trying to think off the top of my head of any of the new stuff that's, I, um, I don't see stuff that I think we'd naturally underperform on. I don't know, Doug, can you think of anything off the top of your head? Or Chad?
spk05: You know, the odd couple for us is that, as you said, we perform very well on family films. We also tend to perform pretty well on horror and kind of scary stuff. And so I'm trying to think, there's a few pictures coming out that might kind of fit that category as well. But as I was kind of mentally thinking about the Slate, I'd echo what Greg said. There's nothing jumping out at me that in turn says, oh, this is a bad mix for us. Or that's an unusual mix for us. I don't think it's material.
spk10: Okay. And on the hotel side, I know business travel has lagged somewhat. Are there any... additional specials you're trying to provide for leisure travels, combining stays with food and beverage or anything like that to make the most out of that opportunity?
spk09: You know, it's not one where I think we have to do much discounting. We do that during softer times. You can see us packaging golf in Lake Geneva with our resort we will do it selectively where we have quieter periods to drive some demand, but we haven't had to do too much of it because knock on some wood, the leisure travelers have been out in force.
spk10: Okay. Last thing, the searchlight relationship. Is there any way you might frame out what sort of broader expectations we should have in terms of frequency of investment opportunities you can get out of that relationship. I know it's going to be very uneven, but is there anything you might say that might point us in that direction?
spk09: I wish I could give you a frequency number, Jim. I really don't have one. We are actively looking for things to do and for transactions to do with our investment partners. But You know, I mean, look, at the end of the day, the thing that we do is we are about quality, not quantity. I mean, we're not trying to just put money out for the sake of putting out money. We want to make sure our investors do well. And we're certainly going to do our best. You know, we make mistakes occasionally. Yeah, I wish we were perfect, but we're not perfect. But we want to find them. So we're going to, you know, be careful and be thoughtful about what we do. You know, the transaction market at our end hasn't been crazily robust. There's stuff happening, but it hasn't been huge. But we're actively looking for stuff, and we have the capital available to do it from our partners when it becomes so.
spk10: Okay. Thank you very much.
spk01: Our next question is from Andrew Shapiro of Lawndale Capital Management. Your line is now open. Please go ahead.
spk07: Hi, thank you. Can you hear me okay?
spk05: Yes, we can. How are you, Andrew?
spk07: Awesome. Hi. So first off, Doug, congratulations on a retirement well-deserved. It's been more than a decade, I think, we've engaged with you, and I've really enjoyed that over the years and look forward to continuing you know, continued discussions with you on the industry, et cetera, and maybe, you know, having you on one of the boards that we do stuff with in the future. I think it would be great.
spk05: Thank you very much, Andrew.
spk07: With respect to some of the comments that were made, I agree with your comments that big event premiere, the red carpet, and box office run success drives the streaming's popularity. And you also spoke of the uniqueness of studio IP. Now that IP and promotion cost studios hundreds of millions of dollars. And at the point that when that IP streams, it has to be decrypted to be seen. And it's at that point when there's a perfect high quality pirated versions emerge. Can you comment on what you have heard from the studios in your private discussions and at CinemaCon and just what you know in general about the impact of the increased piracy that studios have experienced during this COVID period and day and date? a period of putting out their IP that way. I mean, we had heard that like matrix four was like one of the most pirated movies of all time within four days. Are you, have you heard and seen things like that? And what's the, what's the takeaway on, on all this?
spk09: You know, Andrew, that is a great question. And I'm not saying it's a great question to stall because that's usually what people do. No, that's just simply a great question. And you reminded me of something I didn't talk about with Day and Date because, yes, piracy is a gigantic problem. And, yes, they're talking about it and they know about it. And, yes, the minute you put it on, you stream it digitally, you create the opportunity for that pristine copy. You know, as opposed to the guy with a camcorder in a theater, which, you know, where somebody maybe is walking in front of the thing and is not in focus all the time. And it's just clearly not like being able to grab that pristine copy. And they are seeing it the minute they put it on a PVOD or streaming. Anytime they go digitally into the home. And it's been, every film just sees a gigantic pop when they do that. And they know that it's really a negative. So it's just another reason. to, again, grab as much revenue as you can from theatrical first and then move it into your ancillary markets. So thank you for that great question.
spk07: Did you get, have you gotten feedback from studio execs that, you know, in recognition of this, I mean, this proved to be a really big change and hit and, you know, impacted their models such that that's one of the motivators, not only for them to return to exclusive windows, but in a sense, they've learned their lesson and they probably won't be leaving those exclusive windows so quickly.
spk09: I can't say that I've had those conversations. I might not have them anyway, because it would be, our theater team might be having them more directly than I'm having them, but no, I, but, but, but, but look, it's, it's the, we know the MPAA is focused on piracy. They talked about it. That's what, uh, what charlie rifkin that would be his speech a big a big topic in his speech was the problems of piracy and how they're working to try to fight it but you know it's like you know it's like radar detectors with the police i think i hate to say it you know it's unfortunate there are people who are it's hard to stop them but they want to steal it's really hard to stop them from stealing right okay thanks thank you andrew
spk01: Our next question is from Ryan Hamilton of Morgan Dempsey Capital Management. Your line is now open. Please go ahead.
spk05: Hey, Ryan. Say we're coming to the top of the hour. So give us your best shot. Give us your best one.
spk03: Yeah, I'm at the end of the line here. So most of my questions have already been answered. Just real quick on price increases. You talked about on the theater side. Any comments on the concessions, food, beverages? Any comments on price increases on the food and beverage side?
spk05: I'm sorry. What price increases? I basically would echo what Greg said earlier about, and the context was primarily in the admission pricing when he was answering it, but it's the same approach on the concession side too. It's very tactical. I mean, we have taken some selected increases. Just like we're seeing the labor cost challenges, We're seeing some rising costs in our cost of product. And so we're trying to be smart and tactical about any price increases that we take. I mean, you go to any restaurant or anywhere else, go to the ballgame, you're going to see those same prices going up. We have the unique challenge of, as Greg indicated, we're trying to rebuild the business as well. So we want to be careful and smart about it. But it's another issue that our team is watching and working very carefully on.
spk03: Sounds good. I'll follow up with the call later. Doug, congrats on a successful career. Fantastic working with you over the years.
spk05: Thank you. Thank you, Ryan.
spk01: Thank you. At this time, it appears there are no other questions. I'd like to turn the call back to Mr. Knight for any additional or closing comments.
spk05: Thank you very much. I want to thank everybody for joining us here today, Greg and all of you that were on the call as well. Thank you for your kind words. I personally would like to thank everyone listening to the call for your interest and support of the Marcus Corporation over the years and certainly during my time here with Marcus. I am particularly grateful for the relationships I've built with many of you during my time here. It has been an honor and a privilege to work for such an amazing company and an incredible family for over 36 years. So while I look forward to this next stage in my life, I will most definitely miss all of you and my second family here at Marcus. Greg and Chad will look forward to talking to you once again in early August when we release our fiscal 2022 second quarter results. Until then, thank you and have a great day.
spk01: That concludes today's call. You may disconnect your line at any time.
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