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spk01: Good morning everyone and welcome to the Markers Corporation third quarter earnings conference call. My name is Nadia and I'll be your operator for today. At this time all participants are in a listen only mode. We will conduct a question and answer session towards the end of the 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, and Chad Parris, Chief Financial Officer and Treasurer of the Marcus Corporation. At this time, I'd like to turn the program over to Mr. Parris for his opening remarks. Please go ahead, sir.
spk03: Thank you, and good morning, and welcome to our fiscal 2022 third quarter conference call. I need to begin by stating that we plan to make a number of forward-looking statements on 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 third quarter results. and in the risk factors section of our fiscal 2021 annual report on Form 10-K, which you can access on the SEC's website. We will also post all Regulation G disclosures when applicable on our website at 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 stakeholders. You should look to our website, 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 gap measure is provided in today's release. Now, with that behind us, let's begin. This morning, I'll start by spending a few minutes sharing the results from our third quarter with you and discuss our balance sheet and liquidity. I'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we are seeing ahead. We'll then open up the call for questions. This morning we reported another quarter of progress on our recovery path with both businesses generating improved results year over year and both of our businesses outperforming their competition. In hotels, leisure travel remained strong while our group business continued its comeback, a trend we started to see during the second quarter. On the theater side, we continued to see strong enthusiasm from our customers who turned out for the movies that we had but as we expected, we were challenged by a limited number of film releases during the quarter. Consolidated revenues increased nearly 26% over the prior year, growing from $146 million last year to nearly $184 million in the third quarter this year. Consolidated adjusted EBITDA increased from $24 million last year to nearly $28 million this year. We provided a breakdown of our third quarter numbers by segment in our press release, where you can see that in the third quarter, our hotel division provided a majority of the $31 million of adjusted EBITDA from the divisions prior to unallocated corporate expenses. As we will discuss today, our hotels business had a phenomenal quarter that exceeded all of our expectations. The low operating income, our third quarter interest expense, decreased by approximately $900,000, 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 a decrease in gains on sales of assets this quarter compared to last year. Turning to our segment results, our hotels and resorts division revenues were $82 million for the third quarter of fiscal 2022 as we continue to see strong seasonal demand for leisure travel and improving conditions for group events and business travel. The division delivered 19.1 million of adjusted EBITDA, which is a record third quarter for any fiscal year. Total revenue before cost reimbursements increased over 12 million, or 20.4% over the third quarter of 2021. REVPAR for our eight owned hotels grew 19.8% during the third quarter compared to the prior year. We continue to believe comparing our results to pre pandemic levels in fiscal 2019 helps provide perspective on the recovery of the business. And after two years on this journey, we are pleased to now be reporting growth over pre pandemic levels. Third quarter total revenue before cost reimbursements for the division grew 8.9% above 2019 levels, a post pandemic high. Similarly, RevPAR for our owned hotels increased 5.3% during the third quarter compared to the same quarter during fiscal 2019, marking the first quarter of RevPAR growth compared to pre-pandemic periods. Breaking out the third quarter numbers for the eight comparable hotels more specifically, our overall RevPAR increased during the fiscal 2022 third quarter compared to fiscal 2019, was due to a 16.6% increase in our average daily rate, or ADR, partially offset by an overall occupancy rate decrease of approximately 8 percentage points. Our average fiscal 2022 third quarter occupancy rate for our owned hotels was 75%. According to data received from Smith Travel Research, for the fiscal 2022 and fiscal 2019 periods, And compiled by us in order to evaluate our results, comparable competitive hotels in our markets experienced an increase in rev par of 3.9% during our fiscal third quarter compared to the third quarter of fiscal 19, indicating that our hotels once again outperformed by approximately 1.4 percentage points during the third quarter. Further, when comparing our rev par results to comparable upper upscale hotels throughout the United States, The industry experienced an increase in rev par of 3.5% during our fiscal third quarter compared to the third quarter of fiscal 2019, indicating that our hotels also outperformed the segment by approximately 1.8 percentage points during the third quarter. Finally, as group business returns, our banquet and catering operations continue to drive growth in food and beverage revenues. which were up 28.2% in the third quarter of fiscal 2022 compared to the prior year, and were up 6.3% compared to the third quarter of fiscal 2019. Shifting to theaters, our third quarter fiscal 2022 admission revenues increased 29% compared to the third quarter of 2021, a period that was still impacted by customer comfort concerns with returning to theaters and day and date releases of films. All of the top five movies in the third quarter of 2022 debuted with an exclusive theatrical window compared with three of the top five movies releasing day and date to streaming services in the prior year quarter. When compared to 2019, our third quarter fiscal 2022 admission revenues were down 29.1%. According to data received from Comscore and compiled by us to evaluate our fiscal 2022 third quarter results, United States box office receipts decreased 32.1% during our fiscal 2022 third 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 three percentage points during the third quarter of fiscal 2022. Our average admission price increased by 0.8% during the third quarter of fiscal 2022 compared to last year. This increase was primarily the result of targeted emission price increases implemented during the second quarter in response to cost inflation and was negatively impacted by an unfavorable mix of lower-priced matinee tickets due to a mix of films that played more to family audiences. In addition, on September 3rd, Our circuit participated in the first National Cinema Day in the U.S., an industry celebration of moviegoing that included $3 promotional ticket pricing. While the day was a success in driving attendance with over 8 million customers participating nationally, the promotional pricing from the event resulted in a 3.2 percentage point headwind to our year-over-year average admission price increase for the third quarter. Average admission price during the third quarter grew by 9.3% compared to the third quarter of 2019. Our average concession food and beverage revenues per person at our comparable theaters decreased by 2.6% during the third quarter of fiscal 2022 compared to last year and was also negatively impacted by a higher mix of family films at daytime showings which resulted in purchases of less expensive food items and smaller average tickets compared to the third quarter of 2021. Promotional concessions pricing on National Cinema Day also unfavorably impacted food and beverage per caps compared to the prior year quarter. When compared to fiscal 2019, our per capita average concession food and beverage revenues increased by 21.2%. which we believe is the result of several factors, including our industry-leading mix of non-traditional food and beverage options, generally shorter lines at the concession stand, and the emphasis we are placing on ordering through our mobile app, as well as pricing changes. Due to the impact of three strong blockbusters during the third quarter of fiscal 2022, which were Minions, The Rise of Gru, Thor, Love and Thunder, and Top Gun Maverick, The third quarter box office was more weighted towards our top movies as compared with the third quarter of fiscal 2021 and fiscal 2019. These films resulted in higher overall film costs as a percentage of admission revenues. Film costs as a percentage of admission revenues increased significantly year over year due to a limited number of blockbusters last year, resulting in abnormally low film cost percentages in the prior year. and were generally only slightly higher than our costs in the third quarter of fiscal 2019 prior to the pandemic. Shifting to cash flow in the balance sheet, our cash flow from operations was $5.1 million in the third quarter of fiscal 2022 and $60.4 million year to date. Total cash capital expenditures during the third quarter of fiscal 2022 were $11.1 million, And for the first three quarters of fiscal 2022, total capital expenditures were $27.5 million. For both the third quarter and the year to date, the majority of our capital expenditures have gone to renovation projects in the hotels business with the balance going to maintenance projects in both businesses. We ended the third quarter with over $213 million in total liquidity. As previously announced, in July, we repaid $46.6 million of short-term borrowings, repaying in full and retiring early the term loan facility we took on to help manage through the pandemic that was set to mature in September of this year. Following the term loan retirement, at the end of the third quarter, our debt-to-capitalization ratio was 33%, and our net leverage was 2.2 times net debt to adjusted EBITDA. Finally, in September, we paid our first quarterly dividend to shareholders since suspending the dividend at the onset of the pandemic. This morning, we announced that our board of directors has approved our next quarterly dividend, declaring a five cent dividend to common shareholders of record on November 25th to be paid on December 15th. We remain committed to returning capital to shareholders while maintaining the strength of our balance sheet and liquidity. With that, I will now turn the call over to Greg. Thanks, Chad.
spk04: Good morning. In our last update, we reported a quarter where both of our businesses had significant momentum, and we took a big step forward in our recovery. As we entered the third quarter, we saw the opportunity for continued year-over-year improvement. I'm pleased to report that we delivered a quarter that met our overall expectations, and in some cases exceeded them. In hotels, we continue to see group business return and demand from leisure customers remain strong. In theaters, our customers continue to come out to see the movies that we're playing, but our teams had to work hard to navigate a light film slate, particularly during the second half of the quarter. It is quarters like these that highlight the benefits of a diversified business strategy, which allows us to successfully manage around the bumps in the road in any one particular business. Since the pandemic began, I've said several times on these calls that our recovery journey will not be a straight line, but we will continue to make progress over time. Well, not as fast as last quarter, we continue to make progress this quarter and I'm pleased to share these results with you. I'll start 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 outperform both our industry and our competitive sets this quarter. Our hotels team delivered another record quarter with $19.1 million of adjusted EBITDA for the fiscal third quarter. A record for any third quarter, either pre or post pandemic. This follows a record second fiscal quarter, making for a record summer season in which our hotels division delivered nearly $31 million of adjusted EBITDA in the combined second and third fiscal quarters. This level of success speaks to both the high level of execution by our team and the quality of our hotel assets. Our own hotel portfolio includes special assets like the Grand Geneva Resort and Spa, which has performed so well throughout the pandemic by appealing to leisure customers and is now hosting a growing number of returning group events. While I hesitate to declare victory and a full recovery following the pandemic because there are parts of the business where there is still more recovery in front of us, particularly in the business travel segment, it's incredibly encouraging to be focused on growth with both total revenue and rev power growing above 2019 levels this quarter. As we have for the last year, we continue to see strength in leisure travel this quarter. But we're seeing a trend with the lines between leisure and business travel blurring to create a bleasure customer who's filling up weekend shoulder night demand. In addition, our group business, which includes association, corporate, and social events, continues to grow. So far, during the first three quarters in 2022, group customers have represented approximately 35% of our total rooms revenue compared with 29% during the same period last year and 39% in 2019 prior to the pandemic. Our group room revenue bookings for the remainder of fiscal 2022 or group pace in the year for the year is now running within 5% of where it would historically be at the same time in pre-pandemic years. Looking further ahead, Our group pace for physical 2023 compared to where we would historically be at the same time pre-pandemic is running behind our pace compared to this time last year, which we believe is likely due to the trend of shorter booking lead times for events which we have seen over the last year, because our pipeline for next year looks healthy. We're 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 group and business travel activity recovers. The growth in group business continues to drive strong banquet and catering revenue pace. We continue to experience very strong wedding and social event bookings, and some of the bigger events of the past are once again booking for the remainder of this year, 2023 and beyond. The customer segment that continues to lag in its return is the transient business traveler. This customer segment continues to slowly improve month by month, and according to industry data, U.S. business travel in May through July this year was approximately 75% of 2019 levels, with an industry outlook of a recovery to 80% in 2023. In general, the overall demand environment remains supportive of strong average daily rates, and we continue to see occupancy pays build while holding on to higher rates. We were pleased with our average daily rate during the third quarter, which grew approximately 4% over last year. Despite the year-over-year headwind resulting from our three Milwaukee market hotels benefiting from three large event demand drivers at high rates in the third quarter last year that did not recur in 2022, average daily rate for the third quarter increased approximately 17% compared to 2019 rates for the quarter. As we stand here today, we are not yet seeing indications of consumer demand slowing or macroeconomic softness. According to a recent travel industry survey, 91% of surveyed travelers have trips planned in the next six months. And in the same survey, 82% indicated they plan to spend more or about the same on travel this holiday season. Throughout this year, we have made investments in renovation projects at the Grand Geneva Resort and Spa, with preparations now beginning for the final phase of our room renovations coming this winter. We will also begin making significant investments in several of our other hotels to enhance the guest experience And we expect these investments to continue to drive our outperformance in the years to come. My congratulations to Michael Evans and our hotels and resorts team for delivering a great quarter. Shifting to our theaters division, I'd like to begin by congratulating Mark Rams on his promotion to president of Marcus Theaters. Mark brings many years of industry experience and knowledge, a passion for the movies and theatrical exhibition, and an understanding of the Marcus culture to his new role. I know Mark is proud to lead a great team of dedicated theater associates. I'd also like to congratulate Rolando Rodriguez on his retirement and thank him for his many contributions to our company, the movie theater industry, and the communities we serve. Moving to the quarter, Chad went over the numbers with you, including our continued increases in per person revenues and our outperformance of the industry. As I shared on our last call, we expected the third quarter to follow the inverse pattern of the second quarter. starting with a strong film slate in July with several films releasing and others carrying over from the prior quarter and continuing to show well, followed by a softening film slate in the late summer heading into the fall. This lull in the movie release calendar resulted from several films shifting back due to production delays and a post-production backlog. The box office followed the pattern we expected, and while the movies we had played to healthy audiences, the limited quantity of films caused a sidestep in our recovery path. With that said, there are several bright spots that I would like to highlight. First, our audience continues to broaden with family audiences out in force this quarter. Our number one movie for the quarter was Minions, The Rise of Gru, with DC League of Super Pets coming in at number seven. For pundits who don't think families want to go out to the movies, they were our number one customer in theaters this quarter. In addition, Customers showed that when we have movies and genres other than superhero films, they came to theaters to see them too. Films like Elvis, Where the Crawdads Sing, and Nope all resonated with audiences and performed well in the theaters. Top Gun Maverick soared for the entire summer, playing exclusively in theaters for 88 days before its PVOD, Premium Video On Demand, release, and continuing to play in theaters through Labor Day to become the only film in cinema history to secure the number one box office spot domestically. on both Memorial Day and Labor Day. The experience of immersive sound and the big screen cannot be duplicated on the couch in your living room. So customers just kept coming, some to see it a second and third time in the theater, driving Maverick to generate the fifth highest domestic box office gross of all time. I've talked in the past about our belief that exclusive theatrical runs elevate a studio's brands, generating a buzz for a film that sets up subsequent windows and maximizes the value of content. Top Gun Maverick is perhaps the best example of this yet, becoming Paramount's number one best-selling digital sell-through title ever in the U.S. in its first week of PVOD and digital release in late August. This was followed by a DVD and Blu-ray release earlier this week, while Maverick remains the number one movie on iTunes. All of these windows added to Maverick's huge box office success before its eventual streaming release on Paramount+. Earlier this month, our Magical Movie Rewards program added its 5 millionth member. This program has increased customer loyalty and grown sales while providing a range of benefits for ARC members. These perks, combined with the overall movie-going experience, drive attendance and repeat business. In fact, loyalty members make up nearly half, 46%, of our overall attendance and on average visit the theater four times per year. Our loyalty program also provides us with valuable insight into customer preferences. For example, we know that our loyalty members are more than twice as likely to purchase advance tickets to a movie, and we know that the loyalty program encourages e-commerce as 62% of our online ticket sales are purchased by loyalty members. This program has been a great asset to us, and we will continue to develop and leverage our growing member base in the future. As we look forward, The film slate's picked up with several films that have already played well in the fourth quarter, including Black Adam, Smile, Halloween Ends, and Ticket to Paradise. And like so many of our customers, we're excited for the release of Black Panther, Wakanda Forever, one week from today, and Avatar, The Way of Water on December 16th. As Chad discussed in his remarks, today we announced our second quarterly dividend since reinstating the dividend last quarter. The Marcus Corporation has a long history of returning capital to shareholders and and we remain committed to paying a dividend. As you know, we view the world through a long-term lens. Our rate of improvement will vary from quarter to quarter as it did this quarter, but I'm confident that we will continue to make consistent long-term progress. We manage the business day to day, but at the same time look at the overall performance of our investments with a goal of long-term sustained growth and industry outperformance. Finally, I'd like to once again express my appreciation for our dedicated associates at the Marcus Corporation. Their outstanding work and commitment to serving our customers is responsible for our success. They are our most important asset. And we appreciate all that they do every day. So on behalf of our board of directors and our entire executive team, thank you to all of our associates. With that, at this time, Chad and I would be happy to open up the call for any questions you may have.
spk01: Thank you. If you would like to ask a question today, please press star followed by one on your telephone keypads. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question today goes to Jim Goss of Barrington Research. Jim, please go ahead. Your line is open.
spk02: All right. Thank you, and good morning. I'd like to start with a couple of questions about the hotel sector. You've talked about the beginning of a resurgence in business travel. I'd like to get a few more comments on that in terms of what trends you're seeing and the price sensitivity for both business and leisure travel and whether that makes a difference in how you're setting your rates. And then I was also wondering about a couple of the more specialty type hotels that St. Kate and City of Kimpton, Monaco, if you might talk about their experience relative to your group in general.
spk03: Yeah, so maybe I'll start with a question on the business traveler. And Greg talked a little bit about it in his remarks. I mean, over the early part of the summer, we saw the business traveler back at call it 70% of 2019 levels and we've got an outlook that the industry has an outlook that that's gonna go to 80% hopefully for next year. On the rate setting front, I don't know that there's as much sensitivity to rate as there are just a different behavior among business travelers and the trips that they're taking. So the sales people are back out on the road But the group that hasn't come back yet are the consultants and some of the professionals who in the past would go out on the road with a team of four or five people and go out on Sunday night and stay until Friday. Now that anecdotally seems like it's maybe fewer folks and they're going out for a smaller number of days. So that's the piece that's lagging. But what we're seeing instead is that demand is being picked up by first leisure travel, and that's been strong, continues to be strong, and we're not seeing any indication of pushback on rate at this point. And now we've seen this ongoing trend for two quarters with a healthy return of group business, which is, of course, filling up nights during the week. So it's been really encouraging, and I'll let Greg take the second part of the question around the St. Kate assets.
spk04: Yeah, and actually, I'll build a little bit on it. And I have no specific data to point to, Jim. Again, I just don't know how to tip my hands. I can tell you anecdotally, I do know that I heard recently about some corporate rate setting that went on, and look, we're having to pass along the cost to the customers, and they understand that, and so we're not seeing... At least we're not seeing pushback. Look, people negotiate, but we're comfortable with where that's going. As for performance, as I've talked about before, these hotels perform, have been very beneficial. Having these special experiential hotels where we have the overlay of our experience with group business perform well no matter who the traveler is. Whether that's the Kempton or the St. Kate, we attract that leisure customer, but we also are attracting that business customer as well who has central city business and groups and who want to just have something different, to have an experience, to not just be your typical hotel room. And so we're pleased with the strength we're seeing in those hotels. Okay.
spk02: Then on the theater side, and thanks for that, but on the theater side... Going into this year, it seemed like there was an expectation for almost a double up in terms of the slate that we could expect. And it sort of fell apart a little bit in, say, August, September, and has been a little softer toward the end of the year, with the exception of some really big potential movies like Avatar and Black Panther. And I'm just wondering how you're looking at, how you'd evaluate how the year developed relative to your own expectations, and what you're thinking as you move into the new year, maybe including a good start with a rollover from Avatar.
spk04: You know, Jim, this is a business that I don't really set expectations, to be honest. I mean, I just, you know, we deal with what's coming in. We can't, you know, given all that's happened with the pandemic and with what we talked about with post-production backups, You know, I think they're dealing with the same labor issues we're dealing with. And so, you know, look, we're pleased by continued progress. But I'm not going to say, well, this was my, I just don't set expectations. And we, as I said, we managed to what comes in the door to maximize what's coming in at the top line and then to maximize the bottom line after that at two stages, let's play on both sides of the ball. But, you know, offense and defense. And with that, given all that's going on, and then on top of that, it is a business. There's an old saying in this business that every film is R&D except the sequel. So you never know what's going to come in, how something's going to do in any given movie, until it shows up. I mean, I'll tell you right now, if I would have said that Top Gun is going to be the fifth biggest movie of all time that's going to play all summer, If I would have made that better, I would have made a lot of money with people if I would have known that.
spk05: Who would have known?
spk03: We just don't know. The only thing I'd add on, Jim, on the number of films and the slate is there's no doubt it's taken a little bit longer than many have expected to ramp back up the number of films after some of that inventory went to other channels during the pandemic. I do think we are encouraged by what some of the studios are saying about what the pipeline looks like going further out in 2024, but it's going to take a while to get there. It's just going to take some time.
spk02: Maybe just one last addendum to those comments. Has any of this affected your concession strategy or are those just parallel situations in the nature of the box office hasn't really had an impact on what your offerings would be or any of those sort of aspects.
spk04: What are you thinking about? If you have a good idea.
spk02: No, I'm just thinking, you know, would you have been more aggressive in bringing out additional products or something like that if the consistency of the box office was a little greater, or is that really not something that worked into the strategic elements?
spk04: No, I mean, I think, look, our teams are always looking at what we can sell, what we can sell more of, and gearing offers to who's coming in the door. So, no, I don't think that there's anything, but I don't think there's anything that's shifting one way or the other because of what's coming in the door, other than just you know, things that we're trying to do, which is to, you know, like one of the really interesting things we're seeing is, you know, as we move to online ordering, you know, the ability to upsell, you know. And so, you know, we were really ahead of the curve on developing the online ordering. And, you know, we think that benefits us in two ways. And then so now recently we've added actually upselling to the technology. You know, so now you automatically get a, you know, do you want an add-on or do you want to make that medium so to a large? You know, we've got things, technology like that now. You know, you can't, we had sort of two issues just sort of dealing with humans that are sitting behind the concession stand. One is when there's a really long line, they're not thinking about upselling. They're thinking about get the people through the line. Also, when you have, you know, new people and high turnover, which is just natural in this business anyway, training them is harder, making sure that they all, again, upsell to drive more revenue. So having that built-in technology is really helpful. So now as we have that and focus on operationalizing that and building up our percentage of people who order on the app, that's the kind of thing that we're looking at from what are we doing going forward with our food and beverage operations. We think also it should save money at the at the concession stand in terms of labor as well, which is really important in this market. And we're not, I'm not here to give you a prediction on what that number might be, but, you know, we see hotel industry is a great example, and I guess operating in multiple industries is a great way to see something like this. We learned many, many years ago that once you, people actually moved from calling a reservation system and having to have a human being at the other end, you know, put in all the information on their reservation, that they move that work to the customer. And now the customer, when they're making a hotel reservation, does it themselves. They don't get the benefit of calling up a hotel system and doing it. They do all the work. And to the extent that we can also move that work to the customer on the concession side, that should be labor-saving because that just takes a certain percentage of time out of the transaction because now no one has to take your order. No one has to process your credit card. You do that all yourself when you do it on the app.
spk02: Okay. Well, thanks very much for all your thoughts. Appreciate it.
spk03: Thanks, Jim.
spk01: Thank you. And the next question goes to Mike Hickey of the Benchmark Company. Mike, please go ahead. Your line is open.
spk05: Thank you. Hey, Greg, Chad. Good afternoon, guys. Nice quarter. And congratulations on your recovery here. Very impressive. So great job to all of you. I guess you gave some great data, Greg, on the hotel side. And I guess thinking about 23 here, everyone's telling us that we're going to be in a recession. But looking at some of the momentum in your business, clearly there's indications that that will extend into 2023 with a supposed recession. As you sort of look back, maybe it's sort of in a unique position here, given that there's so much of the reopening tailwind that could push you through more difficult economic scenarios. And I know you're cautious on setting expectations, and I respect that. But on the leisure side, I guess specifically, I mean, is this, you know, could we be looking at 23 where normally you'd expect to pull back and leisure travel, but just given, you know, what we've all gone through, I guess, you know, that being at home is so critical to our health and escapism that leisure could actually sustain levels or grow despite a more challenging situation. And then I guess the same question on the business travel. If we're only 70% of where we were pre-pandemic, I think necessity to connect with people is still there. Just curious, broadly speaking, your thoughts there, tailwinds of reopening into a recession. And curious, Greg, what you're hearing just anecdotally from when you talk to other business leaders, the necessity and appetite to continue to travel. Thank you.
spk04: thanks for that question like that's uh it's funny you know I hope you're right and I have to admit okay also I don't I don't know we just don't know but you know yes the same but the same thoughts have crossed my mind you know things because you're right typically you know as if when you get into a recession you know with our hotel business it's really you know again this is about having multiple some diversity you know hotels tend to see that you know be see more GDP impact where theaters tend to actually go the other way because all of a sudden it becomes cheap entertainment instead of going to a concert or going to a game. All of a sudden, well, let's just go out and go see a movie. And so that can work to our benefit. But on the hotel side, yeah, because the mix is so different than we've ever seen, we've sort of wondered, well, what will happen? I wish I could tell you I know. I hope you're absolutely right because, you know, The consumer is in better shape than they've been in a long time going into something like this. And they do want to get out. And they do want to travel. They do want experiences. And that is the... We're seeing... I know anybody who's watching the economy is seeing stuff where there was big pull forward in demand. Goods and services. Not services, goods. You're buying things for your home. There was big pull forward there. And that group is now seeing that sort of reversion to the mean. But then experiences are now. People are saying, okay, I've been stuck at my house. I can't actually buy another bed for my house, or I can't buy another gutter to put on my house. I've done everything I can do to my house. I'm going to get out and do stuff. And that's why I think the travel... has been robust, frankly, while the movies we've played have been people have responded to because they want to get out. So that was a long-winded answer. I'm saying I really don't know.
spk05: But I hope you're right. I guess we'll see. We're almost there, right around the corner. But thanks for that. Second question from me, I guess, you know, recently from the investor website, community you know i think there's been sort of i guess off 3q being weak in the theater side there's been an injection of sort of skepticism that you know maybe 23 won't grow like we think and i think broadly speaking a lot of numbers have come in and taken a more conservative approach on 23 growth um curious uh if that sort of pessimism is also uh held by um theater operators, the industry? I mean, what is sort of the outlook from your peers on the theater side? I mean, is there the feeling that, you know, it's going to be a grind here for a few more years? Maybe there's too many screens and it's going to take a while to get product back. If that's the case, maybe it's healthy optimism and everything's great, but if it's not, do you feel like we're reaching an inflection point here? Obviously, we know Regal's got some screens for sales, all of them probably. Are we reaching a point where maybe there's some incremental motivation here? to maybe do something else, theater operators do something else with their lives and maybe try to sell an asset or two? And is that, given where you are in your recovery and your success historically of building value through M&A, do you think you're also approaching a point here where you could be more inquisitive on the acquisition front? Thanks, Gus.
spk04: You know, again, we wonder the same. There's nothing happening yet. Obviously, the Regal thing going on, which I don't know what's going to happen with them. They've rejected a few leases, but they haven't really even done much that I can even respond to at this point. Those theaters are going to need a lot of work, though. I'm sure that they've had a lot of deferred maintenance, and that's going to need a lot. That's a project. But to your point, I don't know that anybody's actually started saying, you know what, okay, I got through it. I made it to the other side, and now, okay, it is, and I'm ready to go. First of all, I don't think anybody actually necessarily, I think they think, my guess is, well, again, it's a guess. No one's made a decision on what that might mean or have we reached an inflection point. I don't think so. But again, it goes back to sort of like the consumer who's in pretty good shape. There was a lot of money. So the guys, anyone who wasn't public got these shuttered venue operator grants. That was significant money that the government put out to help people get through the pandemic. And So it relieved a lot of pressure to actually do anything and got them to the other side. And so we're not getting, so as again, we're just not seeing it yet where people are saying, okay, I'm ready to hang it up. Let's see what's going on out there.
spk03: Yeah, and on the forecast for the 2023 part portion of your question and the outlook, we don't provide guidance. But I would say we share some of the conservatism that you've heard in the last couple of months from those who follow the space. And I think that really comes from just looking at the film release calendar and the amount of content that we expect to see come through. And the pushouts that we saw during the course of this year have had domino effects on what 2023 looks like. And so there's been a shift in a number of different areas. It just wasn't like all of a sudden we're going to have this surge when they get caught up. I think it extends out the entire release calendar. We're going to be cautious knowing that there's still a lot of movement in the schedule and that will continue to be something that we'll be dealing with until the studios get through their content pipelines. As I said earlier, we'll see when you get further out.
spk02: All right, great, Chad. Thanks, guys. Good luck. Good holidays.
spk03: Thank you.
spk01: Thank you. And as a reminder, if you would like to ask a question today, please press star followed by one on your telephone keypad. And our next question goes to Andrew Shapiro of Lawndale Capital Management. Andrew, please go ahead. Your line is open.
spk06: Hi, thank you. I got a few follow-up questions along the same theme as Mike's questioning here at the end. And it's a takeaway from your discussions with those in the industry, in particular the studios, on whether the hollowing out of the quantity of middle-tier movies is something that's secular or if it is something that's a bit more temporary. Are you getting the takeaway that there's post-production issues um capacity issues or was it a reduced amount of production you know these are multi-year projects was it a reduced amount of production activity that obviously could not take place during the pandemic and that uh that that things will ramp up um or are we seeing a secular shift where economically it makes more sense for the studios to put the middle tier direct into streaming, which I'm not sure it does anymore since the value per subscriber has been greatly readjusted with the decline of Netflix and the rise of interest rates.
spk04: Yeah. I mean, you answered, I think you're exactly right. I'm not even sure if the value per subscriber, you have to make the assumption that, you're not going to have subscribers because somebody saw a movie somewhere. Otherwise, all you're talking about is incremental. And the one thing that's very different now that's happening, if you make a movie, somebody makes a movie, the only incremental cost they have now after the negative cost, which is the cost of making the movie, the only incremental cost they have is marketing. There's no more, the P of P&A is gone or going, virtually gone. And so now your only question is, well, can I at least get my marketing spend back? And you probably will get that and more. And then can I get some benefit? Let's assume all you got was your marketing spend back, at least your marketing for what ultimately is your exclusive IP on your streaming service. And so the only way someone can see it and see it is to see it on the streaming service, is to go to be a subscriber. And we know that there's, I mean, the research has shown over and over again that, you know, the people who are going to the movies tend to be high, you know, high users of all media. And if you think about, you know, The cost of going to a movie, which is the cheapest out-of-form entertainment. I have to admit, when I start comparing movies to streaming, I feel like I'm comparing apples to oranges. If you want to talk about streaming versus something on linear, okay, that's a Macintosh compared to a Gala Apple. I get it. But the cost of going to a movie, I was thinking of a streaming service the other night. For what they charge on a monthly basis, if a family went to the movies, That's like a year of their streaming service. And then whatever they saw at the theater, the kids will watch 1,000 times over at home. And so to me, that just seems like incremental revenue that you get in the theatrical, plus being able to distinguish your product in the theatrical window as opposed to being a tile on a screen that disappears in 14 seconds. Here you become, because we have a limited shelf space, you become part of the zeitgeist, part of the discussion. You know, and part of the water cooler talk. And it can't be for every film. It can only be for a certain limited subset. And I think that for whether it's a rom-com or a drama, you know, I do believe that there is a place for putting them. I actually saw Ticket to Paradise last night. What a fun movie. Fun to see it with some people in the theater laughing. Even if it was a Wednesday night. Not our busiest night of the week, but there were people in the theater with me. And we all laughed together at the jokes. Was it the greatest movie of all time?
spk00: No.
spk04: Was it a great hour and 45 minutes? Yeah, it was a great two-hour escape, two-hour vacation. It was fun. And so I don't get, to your point, Andrew, I don't get the math. I don't get why you would want to take a lot, especially the stuff, in a way. Is the streamer going to take a few big things to try and sort of get some attention? Sure, I get that. But in the stuff that's sort of in the middle, why you wouldn't just try and get your marketing budget back And plus, plus, plus, plus, you know, and I keep thinking about, you know, the streamer who the streaming services, you know, one of the biggest advertisers now in theater is streaming. They know that their customer is sitting in the theater. They know it. And they're advertising to them. Well, and the most effective ad in a theater is the one that plays right before the movie. And if you're a streaming service, the last thing the customer is going to see, probably the highest recall, is going to see this movie brought to you by X. It's like a giant ad for a streaming service in 70 feet of glory for people who are basically captive in their seats. Not going to the bathroom, not getting a sandwich, not taking the dog out. Seems to me there's a lot of value in that.
spk06: You're preaching the choir. We both agree, I think, on the economics and the model. It makes sense. There's a few other reasons. Frankly, you want to milk the money out of the exclusive theater where piracy is a shaky iPhone versus pristine pirated versions that come the moment something hits streaming, etc. The economics are clear to exhibitors. They're clear to us exhibitor investors. Is your takeaway from your contacts with the studios where they're greenlighting films and they're deciding their plans on distribution, is your takeaway that the middle tier will be coming back and that there's just been a kind of production shortage that's existed?
spk04: You know, I don't have so much of a takeaway so much as I just have a, because it's not what do you say, what do you do, and I just look at it. If you just look at what's going on and you're seeing, you know, windows come back and you look year over year and you see, you know, more windows for stuff, is everything windowed? No. You know, but like when you have a great partner who's given a ton of product to theater and then you do something day and day, well, okay, that's what you do for a great partner, you know, You say, okay, I'm going to help your, because again, I think, by the way, I do think that streaming and theatrical should be a virtuous circle in that, again, more money in the kitty for everybody then makes for more movies, and then actually the more movies you make and the more content you make, the more stuff you can play on your streaming service. So again, the bigger the pie, the more robust the whole ecosystem is. And, you know, it goes back to the thing about windows. And I'd say, you know, I think I talked about this in the last call. You know, the definition of windows we used to joke about, you know, that it was sort of joking, you know, the definition of windows is selling the same thing to the same person over and over again. A little subversive, a little humorous. But the truth of the matter is I came to this conclusion recently as I thought more and more about it. The reason that we're able to sell the same thing to the same person over and over again is because they want to buy it. And this idea of just taking one kick at the cat, you know, I'm having trouble seeing the math. I think that if you want to maximize the value of your IP, you want as many kicks at the cat as you can get, sell it to as many people as you can sell it to multiple times because they will buy it from you. And whether it's a rom-com or a tentpole, you know. And by the way, for the ecosystem to work, we need both. We can't just be tentpoles. It has to be, it has to apply to, we need a full slate of films for it to be optimized. And again, that's good for them too because, you know, when you're sitting in that, in maybe that medium-sized film, you're watching a trailer for what the next giant tentpole is. Again, we know the most effective form of advertising, studios know this too, they fight for the trailers, you know, is sitting in that seat as seeing that ad, being captive to it. And so it's good for everybody to have a robust slate.
spk06: Right. And lastly, I noted even the streamers. Well, Amazon's been doing it for a while where they will show the movies exclusive in the theaters. And then they brought it out. Apple, perhaps a little bit. But even now, Netflix, who had abhorred doing that, is doing the knives out. with a modest window of exclusivity into the theaters. Are you participating in that, I guess, Thanksgiving period showing of Knives Out sequel? Yes, we are. Okay. Excellent. All right. Thank you.
spk01: Thank you. At this time, it appears there are no other questions. I'd like to turn the call back to Mr. Parris for any additional or closing comments.
spk03: We would like to thank you once again for joining us today, and we look forward to talking to you again in early March when we release our fourth quarter fiscal 2022 results. Until then, thank you and have a good day.
spk01: Thank you. That concludes today's call. Thank you all for joining. You may now disconnect your lines.
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