Q3 2019 Earnings Call

Good morning, everyone and welcome to the Marcus Corporation third quarter Earnings Conference call. My name is Josh and I'll be your operator today at this time all participants are not listen only mode. We will conduct a question 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, we'll be happy to assist you.

As a reminder, this conference is being recorded joining us today or Greg Marcus President and Chief Executive Officer, and Doug Nice Executive Vice President Chief Financial Officer and Treasurer.

At this corporation at this time I'd like to turn the program over to Mr. nice for his opening remarks. Please go ahead Sir.

Thanks, Josh and welcome everybody to our fiscal 2019 third quarter conference call.

As usual you know I need to begin by stating that plan and making a number of forward looking statements our call today.

Forward looking statements could include but not be limited the statements about our future revenue and earnings expectations or future revpar occupancy rates and room rate expectations for hotels and resorts Division.

Expectations, what the quality quantity in audience appeal film products expected to be made available to us in the future.

Some patients what the future trends in the business grew up in leisure travel industry and in our markets.

Expectations and plans regarding growth number and type of our properties and facilities.

Expectations regarding various non operating line items on earnings statement and expectations regarding future capital expenditures.

Of course are actual results could differ materially from those projected or suggested by our forward looking statements.

Factors risks and uncertainties, which could impact your ability to achieve our expectations are included in the risk factor section of our 10-K in 10-Q filings, which can be obtained from the FCC or the company. We'll also post all regulation G. disclosures went up a couple on our website at Www Mark is Corp. dot com.

So that buys let's talk about our fiscal 2019 third quarter in first three quarters overall, a very good quarter, that's masked a little bit by an income tax benefit last year and by the comparisons related to our new hotel opening.

Marcus theaters reported record revenues and a healthy increase in operating income and the hotel side without the nonrecurring preopening expenses anticipated initial startup losses related to the same Kate we would have reported a nice increase in or operating results in that division as well.

As is our usual practice before we get the Gregs comments on the quarter.

I'm going to take you through some of the detail behind the numbers both on a consolidated basis and for each division.

Now there's not much to say about the line items below operating income investment income was down compared to last year, but was offset by another decrease in interest expense due to reduced borrowing levels.

The changes in the other line items were minimal.

So as a result with operating income flat due to the same Kate and other income and expense slightly better than last year, we reported a small increase in pre tax income this quarter.

Income taxes on the other had had a big swing that definitely impacted our comparisons and net earnings.

How to begin with last year during the third quarter, we benefited from a nearly three quarters of a million 1 million dollar onetime reduction in deferred tax liabilities related to changes in tax accounting method that was made last year.

We also had a significant increase during last year's third quarter in tax benefits from excess share based compensation.

So when you put the two together we had an extraordinarily low third quarter effective income tax rate last year.

Year to date, our first three quarters effective income tax rate adjusted for losses from non controlling interest is currently at 23.4%.

Appeared to 21.5% last year.

We continue to anticipate that our effective income tax rate for the remaining quarter fiscal night of 2019 will be in that 24% to 26% range just like a third quarter was depending upon the amount of excess tax benefits, our shared based compensation and any other adjustments that we may recognize in the quarter.

Now shifting gears away from the earnings statement just for a second our total cash capital expenditures during the first three quarters of fiscal 2019 totaled approximately 50 million compared to approximately 45 million last year.

Now that 2019 number does not include the approximately 30 million dollar cash component of our movie Tavern acquisition.

Approximately 22 million of our total spend during the first 2019.

During the fiscal 2018 first three quarters was incurred Netseer division and related primarily to our continuing dreamlounger seating projects and premium large format conversions that we've referenced in our press release.

The approximately $28 million of capital expenditures on our hotels and resorts division. During the first three quarters were primarily related to the two major renovation projects at the same Kate and help Madison plus various normal maintenance projects.

So what the three quarters point of our fiscal year. It appears that we're likely to end the year with total capital expenditures for fiscal 2018 in the $60 million to $70 million range again, excluding the movie tavern cash consideration and recognizing that the timing of several of our planned expenditures are still just estimates at this time.

The actual timing of the various projects currently underway or proposed will certainly impacts or final capital expenditure number as well any currently identified projects or acquisitions that could develop during our fiscal year.

So now I'd like to provide some financial comments in our operations from third quarter and first three quarters and I'll start with a theater division.

As you know, we completed or acquisition in the movie Tavern theaters on February 1st of this year and thus throughout the year Weve in order to make our comparisons to last year more meaningful what we've always been trying to distinguish how our comparable legacy theaters have performed versus the prior year in conjunction with these overall results.

So with that in mind, well I reported admission revenues increased 33.1% and our concession revenues increased 60.8%.

In the third quarter compared to last year. When you exclude movie tavern from the numbers, you'll find that our comparable admission and concession revenues increased 6.3% and 9.4% respectively.

Now year to date once again, excluding the movie tavern theaters are comparable admission of concession revenues have decreased 5.7% and 1.7% respectively do of course to the industry's challenging first quarter.

Now according to data received from rent tracking compiled by us to evaluate our fiscal 2019 third quarter and first three quarters.

The United States spot United States box office receipts, excluding a handful of new builds for the top 10 circuits increased 3% during the fiscal 2019 third quarter and decreased 6.2% for the first three first three quarters our of our fiscal year.

So as a result, we believed that our admission revenues from comparable theaters during the third quarter fiscal 2018 outperform the industry.

Average by 3.3 percentage points.

With our year to date and out results also now running ahead of last year by about 0.5 percentage points.

Greg will address this outperformance as well as the outperformance of our movie theater ever movie Tavern theaters during his prepared remarks.

No attendance at our comparable theaters was up slightly this quarter.

0.2% compared to last year.

But the vast majority of our increases in same store admission and concession revenues were the result of increased for capital revenues.

Our average admission price at a comparable theaters increased 6.2% during the third quarter.

And 2.8% now for the first three quarters of the year compared to the same same period last year.

Our average emission price was favorably impacted by modest price increases taken at the beginning the second quarter as well as a conversion to a sales tax additive or tax on top pricing model that a good was considered is consistent with the majority what our competitors do as well.

We also continue to benefit from our increased number of Pls screens that include include premium pricing.

Conversely, our average emission price likely was negatively impacted from the fact that two of our top three films during the third quarter. The Lion King and toy story four were films that generally appeal to a younger audience, resulting in a higher percentage of lower priced children's tickets sold.

Last year during the third quarter only one of our top five films in parables true was aimed at a younger audience.

We're also pleased to report increasing our average concession food and beverage revenues per person at our comparable theaters of 9.3% for the third quarter and.

And 7.3% for the first three quarters of fiscal 2018.

Our investments in non traditional food and beverage outlets continue to contribute to higher per capita spending.

If you had movie tavern to the numbers, our average concession food and food and beverage revenues per person increased by nearly 32% this quarter.

Our theater Division operating margin declined during the third quarter and first three quarters of fiscal 2019 compare to the same produced last year due in large part to the inclusion movie Tavern operating results.

Our movie Tavern theaters will have a lower operating margin than our legacy theaters due to the fact that all 22 acquired theaters are leased rather then owned and rent expenses generally is significantly higher than depreciation expense.

In addition, the fact that a larger portion of movie Tavern revenues are derived from the sale of in theater food and beverage will also contribute to lower operating margins as food and labor costs are generally higher for those items compared to traditional concession items.

Of course, as you've heard us say before we take dollars for the bank not percentages.

Lastly, our press release and attach table reconciling net earnings to adjusted net earnings in a highlight for you as a significant impact the nonrecurring acquisition and Preopening expenses related to movie Tavern had on a reported year to date results approximately $2 million or five cents per share in fact, there was minimal impact.

Back during the third quarter.

Shifting to a hotels and resorts Division I reported results for the both the third quarter and first three quarters of fiscal 2019 were obviously impacted by the fact that we close the Intercontinental Milwaukee Hotel. After the first week in January in order to begin a major renovation that transform this hotel. It's the same Kate the Arts hotel.

We reopened the new hotel in early June , but even in a portion of the rooms in room and food and beverage outlets didn't really fully open until later in the month.

And our Preopening expenses, including a Grand opening party and other nonrecurring expenses continued into our third quarter.

As expected we also incurred initial startup losses at this hotel during the third quarter as we compare to newly opened independent hotel to the results of the stabilize branded hotel the year before.

As previously reported we also were undergoing a major renovation of our Hilton Madison Hotel during the first half a year and.

And it would negatively impacted.

Pardon results for the first three quarters from this division.

Now on its face we're reporting slightly decreased hotel revenues and decreased operating companies in the third quarter and first three quarters of fiscal 2019 compared to last year same period.

But when you exclude the close former Intercontinental now same Kate hotel.

And cost reimbursements, which have nothing to do with our owned hotels.

Yeah. It was through those from our results you'll find that our comparable hotel revenues actually increased 1.7%.

In the third quarter and 2.7% for the first three quarters of fiscal 2019.

And our operating income our operating income increased by approximately $700000 or 6.2% during the third quarter.

And $1.75 million or 11.4% during the first three quarters of fiscal 2019, all compare to the prior year periods.

Well. These numbers are despite some negative impact that are Hilton Madison, as well, which was due to the aforementioned renovation.

As the table in our press release highlights nonrecurring Preopening expenses and initial startup losses at the scene Kate negatively impacted our reported results by approximately $1.6 million or four cents per share during our fiscal 2019 third quarter and $5.5 million or 13 cents per share during the first.

The quarters in the fiscal 2018 year.

Now what I refer to Preopening expenses, and primarily talking about direct expenditures incurred in conjunction with the six month closing and subsequent reopening of the hotel I refer to initial startup losses I'm addressing that the delta that has occurred as expected between the operating performance of this brand new independent hotel compared to a stabilized.

Branded hotel last year, and Greg will expand on this little bit more in his comments.

The biggest contributor to our same store increase in revenues were increased food and beverage revenues during our fiscal 2019 third quarter.

Our total revenue per available room or Revpar for our seven comparable owned hotels, which excludes the same Kate for the third quarter, yet and the first three quarters increased a 0.6% during third quarter and 0.9% during the first three quarters of the fiscal 2019 again compared to last year's same peer.

Areas.

But even those numbers are a little deceptive because as I mentioned, we also had one hotel hotel that helped Madison significantly impacted during the first half for the fiscal year due to a major renovation.

When you strip that hotel out our true comparable hotels actually reported an increase in revpar year to date of 2.8%.

As we've noted in the past our Revpar performance did vary by market and type of property.

According to data received from Smith travel research and compiled by us in order to compare our fiscal quarter results.

Comparable upper upper upscale hotels throughout the United States experienced an increase in revpar of 1.4% during the third quarter and 1% year to date.

Meanwhile, competitive hotels in our collective markets experienced an increase in revpar, a 3.2% and the third quarter to 3.6% in the first three quarters.

So thus year to date, our numbers essentially match the national numbers.

And the numbers and our numbers without the Hilton Madison or just slightly less than our competition.

Given the amount of new supply and some of our markets that's not necessarily surprising in the short run that we might lose a little bit of our own generally over indexed market share in total we still significantly over index in our markets.

Breaking out the numbers of all seven of our opened hotels more specifically our fiscal 2019 third quarter overall Revpar increase was due to a 1.2% increase in our average daily rate or HDR, partially offset by an overall occupancy rate decrease of 0.5 percentage points.

Year to date, our fiscal 2019 first three quarters Revpar increase was due entirely to a 1.6% increase in our 80 hour.

Page, partially offset by an overall occupancy rate decrease of 0.5 percentage points.

With that I'll now turn the call over to Greg.

Thanks, Doug I'll begin my remarks today with our theater Division.

We're pleased to be reporting another solid quarter for this division and I'll begin by congratulating rollout of Rodriguez and his outstanding team both in our corporate offices and each and every one of our 90 theaters for the hard work and implementation of strategies that effectively converted the same quarterly attendance as last year for our comparable.

Theaters to a sizable increase in operating income this year.

Certainly, adding movie Taberna had a large impact some of our numbers, particularly our record revenues, but the numbers Doug shared with you 3.3 percentage points of outperformance and over 6% increase in average ticket price and over 9% increase in average concession and food and beverage revenues per person were all just for comparable theaters those are great numbers.

And our direct result of long term strategies developed and executed by our theater team.

The film slate during the quarter was particularly good in July and September but weaker in August .

In General I think the slate played pretty well and our legacy Midwestern markets with two of the top three films Lion King and toy story, four, particularly strong with the family audience.

It was a more top heavy slate this quarter with our top five films listed in our press release accounting for approximately 57% of our total admission revenues.

Compared to last year's third quarter, when our top five films accounted for only 38% of our total admission revenues.

That could happen in certain quarters, but over the course of the year it tends even now.

Our top five films over the first three quarters of year have only contributed about two percentage points more than last year to our total admission revenues.

Fortunately quarters when this latest more top heavy we typically we'll see an increase in our average film cost and our fiscal 2019 third quarter was no exception.

Higher film cost did negatively impact our operating margin this quarter and there's you will know the labor market continues to be our other challenge really for both our businesses. We've been very focused on developing tools to help our managers manage their labor cost efficiently while at the same time, introducing technology like the order your food from our App or kiosk innovation.

That we described in our press release at our New movie Tavern by market leader in Brookfield, Wisconsin.

Speaking of which.

We only have two weeks under our belts now, but our first ground up movie Tavern is off to a good start.

As you May know, we built this leader on the side of a former Sears store to major mall here in our home market. We're excited to have all three of our brands on our home turf as it gives us a chance to easily work directly with the business model and oversee adjustments and new innovations, including the new technology I just mentioned.

We're also introducing into service model at this location. The provides three different ways of ordering your food delivery directly to the guest seat.

And if you live in the area. Please stop by and check out the featured bar area or the Taberna as we call it with its indoor and outdoor seating Island Bar fund games and large screen for watching your favorite sports team. We can already tell the tavern will be a great gathering spot for both movie goers not movie goers alike.

As we noted not really the integration of the movie Tabron theaters into our circuit continues on schedule or capital improvements such as the addition of recliner seating to three theaters and conversion of 20 auditoriums and our proprietary a premium large format concepts combined with our innovative pricing marketing and loyalty programs are having a noticeable impact.

In attendance at these theaters.

Based upon data available to us for prior year performance, our movie tempered by market leaders have outperformed the industry during each of the three quarters, we've owned them and I'm happy to tell you by increasing percentages each time.

This is a marathon not a sprint so we still have a lot of work to do to get movie Tavern attendance margins and service levels, we want them to be.

We're not there yet, but I'm confident that our team has up to the challenge.

So now we head into the final quarter fiscal 2019, we all know the first quarter put the movie industry in a whole to start this year and we've been following we've been I'm, sorry been slowly climbing out of that whole now with to improve quarters.

We don't know how the fourth quarter film slate will turn out but on paper the films of good as evidenced by the list of films. We included in our press release I do know that our theater team will continue to focus on our long term strategies that benefited us this past quarter and will benefit us in the quarters years ahead.

With that let's move onto other division hotels and resorts you've seen the segment numbers and Doug gave you some additional detail.

Obviously, our reported results were impacted by the same Kate.

Not only do we have additional preopening expenses that carried into the third quarter.

But we also we also are comparing a brand new independent hotel to a stabilized branded hotel last year.

Then impact us in a number of ways. The same Kate started with a brand new staff and there is a learning curve that goes along with that.

We intentionally overstaffed in these early months as we trained and work to establish the proper service levels. Both in the hotel and all of our food and beverage outlets. In addition.

As an independent hotel, we don't have a brand to rely on to create name recognition. So we are spending ex an extra effort marketing the same Kate in an effort to increase awareness of this very cool new hotel in Milwaukee.

And as a brand new hotel with over 200 rooms group business will play an important role the hotels future success. As you know there is a lead time for booking group business.

And while our sales team is pleased the traction they are gaining as they sell this hotel the future groups. We didn't have much group business on the books when we first open because understandably the groups that won't repeat wanted to see the hotel before committing.

Now they can do that and we're very pleased with the response in fact, we couldn't be happier with reception that hotels received from both travelers and the local community alike.

We have a number of things we are focusing on as we work to get this hotel performing where it needs to be and our entire team is focused on making that happen.

Marketing will be critical we'd increase awareness and tell the syndicate story, but of course, improving operational efficiencies is also the top of our list as well.

That will comfortable increasing revenues and decreasing expenses as the hotel and our team matures. Thus for all these reasons. We felt it was very important to provide investors with the information necessary to understand not only how this particularly hope particular hotel impacted our results, but also a clean look at what our core.

Operating performance was for the rest of our hotels and resorts business, both for the quarter and year to date.

And as Doug shared with you. It was another good quarter for the rest of our hotels and resorts Division, we both both increased revenues and operating income.

Our three largest hotels, the pfister Hilton Milwaukee Grand Geneva led the way this quarter, which was nice to see it was a particularly good quarter for the food and beverage side of our business. Thanks, primarily to increase catering and banquet revenues.

The increase in those revenues was directly related to another increase in group business at several of our hotels during the fiscal 2019 third quarter compared to the prior year period contributing to our increased Revpar performance for our comparable company owned hotels.

Looking to future periods, although our company owned hotels experienced a slight decrease in group bookings during the third quarter fiscal 2019 compared to the same period last year.

Our group room revenue bookings for future periods in fiscal 2019 in fiscal 2020, commonly referred to in the hotels and resorts industry. As group pace is running ahead of our group revenue bookings for future periods last year at this time.

Banquet and catering revenue pace for fiscal 2019 in fiscal Two Q2 020 is also currently ahead of where we were last year at the same time.

Not surprisingly the fact that in a walk you will host a democratic National Convention in 2020, certainly contributing to our increased group pace for next year.

It's likely that our fiscal 2019 fourth quarter comparison of saying Keats operating results to stabilize branded hotel during the prior year will once again be unfavorable although we would expect it to be a lesser amounts and this past quarter. Conversely, you may recall that last year during the fourth quarter, we reported approximately 3.7 billion access.

You should related to the upcoming closing of the Intercontinental Milwaukee, So that will certainly favourably impact comparisons next quarter.

Lastly.

I'd be remiss, if I didn't conclude my remarks about her hotels and resorts division by highlighting the condom NASS Traveler awards several of our hotels recently received noted in our press release.

Hotels continue to be widely recognized by AAA trip advisor and a host of other outlets as well.

These awards are a direct tribute to our people from our executive leadership team at home office personnel to the outstanding management teams and staffing each and every one of our hotels, we own and or manage.

I want to publicly saying our entire hotel team for another strong quarter and for all their efforts each and every day.

To take what might be an ordinary day for us and turn it into an extraordinary day for our guests.

With that at this time, Doug and I'd be happy to open the call for any questions you may have.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.

Well go first to.

Mike Hickey with benchmark company you May proceed with your question.

Hey, Greg.

Congrats guys, Hey, Mike quarter.

Number one question.

Okay, obviously, Greg you added a bunch of color that stuff.

Definitely appreciate that on [noise].

The additional staffing marketing group business, all that didn't make sense and I'm guessing was sort of in your original plans So beautiful hotel.

I guess also.

Matt.

Sure.

Maybe when you look at OCC.

Ray.

Of the swing states are weighing rod.

Yes, Q4, thats sort of inline or better than your thinking in that I'm I think if I heard your right some sort of.

Like the positive contribution not in Q4, but probably.

20.

We had thought.

Yeah.

Yeah.

I think that its I would tell you that it's it's and I. Thank you and your it it is I cant distribute it really didn't turn out beautifully.

You know, it's it's occupancy and rate I would tell you is strong you know it is not as strong as is that it's not exactly where we have where we were expecting just yet but it's close.

But we also expect it to to its going to take some time no I'm I'm not going to lie I think as my team would tell you I'm pretty impatient about the whole thing, but it does take time I know you know if you just if we just Google best hotels in Milwaukee I will tell you right now it is one of the best hotels in Milwaukee I would tell you that in the Pfister I think it's those are the two best hotels, there maybe some people.

Who might disagree with me, but those are our competitors.

[laughter] competitors I think I think I would wouldn't that vote, but if you Google best hotels in Milwaukee right now, it's not any list because it just the lists are made up before we open we've only been opened for 16 weeks and so I have to be patient knowing that it will take time for people to discover what we've created.

And the Pfister has 125 years of brand equity built into it.

So, but but the initial signs are very promising.

No. We one thing that we are we're but weve and I'll tell you.

We could make a shortsighted decisions and it's why sort of hedged a little bit when I talked about sort of where we are right. Now if we wanted to drive business more business into that hotel right. This minute, we could we could really drop rates and we've been very diligent and deliberate about.

Keeping our rate as Ted it at a commensurate with what we're delivery.

And because it's it is an exceptional product and because what our studies tell us is that it will be hard to get rate back. If you drop rate right now to grab business and so we've been very careful we probably sacrifice a little business in the short run.

To maintain the rate integrity, so that people understand in the rate communicates exactly what this product is.

Thanks Al Shannon.

Yes, I appreciate the color.

The I.

I guess Im a theater side.

Congrats on the outperformance.

And obviously it looks like movie cabinet.

Very well sounds like perhaps some integration efforts.

Extraction by but definitely I guess relative wehrenberg seems like your further along the curve.

When I guess, I guess and step back.

Moving to.

Due to successful deals here.

In a market will happen screens are still in private and so.

Curious sort of.

Came along.

Activity, what you're seeing in the market your appetite.

Given how far along you are moving Thailand, and maybe also sort of how the 20 slate.

We plan to.

Two opportunities for for you now given that.

20 slate looks like.

Difficult to pick the Windows I guess.

Well, let's talk about that move out the movie Tavern first and then.

As it relates to.

To to acquisition activity.

And we see in the market.

Yes, I would tell you is relates to moving to ever I will take were well well, while we're not like you know at the end of the meeting of life when he's looking for wafer thin no more wafers that we've had many please [laughter] that's not us [laughter], but but we are digesting the meal and what's most important to us is that we deliver on on on this acquisition. That's that's that's our.

Company, when we say focused on on what we've done and so that's that's where our main focus is right now I would tell you that just as you compare it to wehrenberg I would say that that that it's that the curve is tighter you know wehrenberg had more upside, but because it was had a lot of work to be done. This is this is less.

So you know we aren't we're adding the amenities that we think report we're bringing in our marketing programs. We've done Pls, we're doing that bring we just introduced MMR Marcus.

Magical movie rewards.

And so that that curve is probably a tighter curve and so I just want to make sure that we.

Talk about what that looks like but we still have work to do there and as you pointed out we have integration to do and.

But the good news is is that you know that we're able to drive volume into these leaders as we wanted to do that that was one of the things that we talked about that was one of our thesis in acquiring these leaders.

And that was you know.

Operate the more like theaters think like like we do which is about driving attendance and we did that and we're doing that and we will continue to do that but then the next trick is now converting that attendance to the bottom line and that's what we're focused on it we're going to stay focused on that that may doesn't mean, we're not doing anything else, but and we are looking at other things, but but job number one is do agree.

Job with what we've invested our investors' money.

Thank you I guess last question for me.

On maybe some perspective on 2020 can't back obviously, finishing a couple of big projects on the hotel side.

Peter Your also sort of pretty far along I guess on your on many of these costs.

So it's sort of how you're thinking about capex trending in the twice what you know day.

And maybe how you think about no incremental.

Savings on Capex, whether.

I think about dividend or buyback or how you would think about those additional money. Thank you.

Yes, those are there's some good questions in there.

Mike and I tell you its.

It will will provide some more definitive guidance.

At our next call 'em because.

We'll probably the divisions are working on their capital budgets as we speak and we'll be presenting them to us in the in November and December and we'll be taking them to the board.

But bigger picture just based on looking kind of our broader strategic plan and what and when it's going to be kind of know what's coming.

You know.

Leaving any you know.

Known stuff out of the out of the equation right now things something that could materialize that wouldn't obvious and.

You know rapidly increase our capital expenditures I don't know that next year. The total expenditures will be significantly different from this past year, you know isn't in that.

You know 70 $80 million range I mean, as my current ballpark, but it but that was still some fluctuation that can go either way.

It will it will a there's certainly some.

Some dollars to be spent in a week in a in the theater division still as were as we're doing some additional.

ROI projects and some more is this still feel real dreamlounger projects that we can do there's still some large format screens that were looking at there's a there's a new theater that we've now we've mentioned are with its coming out that that probably 2020 in Tacoma Washington.

There was a small released that went out regarding that that.

We'll be built in metal that will have some dollars associated with it.

And.

So and then what's going to happen even as thinking a little further ahead, Mike is that the.

Couple of years following that in particular, it will start in 2020, but there's a couple of years. Following that we do have some big expenditures ahead of us and our hotel division, particularly our three three largest hotels the pfister the Grand Geneva, then walk Hilton or all due for.

Some some enhancements and and then a regular cycle. So so we do expect some of our capital spending and the hotel division to have an uptick.

But in total I don't I'm, not projecting barring like an acquisition or something like that the total dollar being that dramatically different than what our current our past pace as bad.

Which then leads us to the second half your question, Mike which is so.

As you've seen we've spent a lot of capital and yet our balance sheet is stronger than ever and art and so we certainly have lot of capacity on our balance sheet.

Our our debt ratios are lower than they've ever been.

So it certainly does.

Opened the door for strategies that could include additional acquisitions, but returns of capital to shareholders as well and obviously, we've we've shown that we've been very opportunistic on all those in the past and very thoughtful and disciplined about that and and I would expect that in the course of these next couple of years as we.

No.

Take a look at the environment will be having all those discussions because because the availability of cash is not the issue. It's what do we do with it.

Thanks, guys appreciate it best of luck.

As a reminder to ask a question you'll need to press star one on your telephone.

Our next question comes from Jim Goss <unk>.

With Barrington Research you May proceed with your question.

Good morning, Greg Good morning, Doug.

I was a first wondering a alone next line of questioning about think Kate This is a bold move.

And.

Is there any impact of this move on your stated efforts game management contracts with your creativity and display.

I hope, so [laughter], not yet, but [laughter], but but trust me [laughter] will be pitching that and look at it in a world that is is is moving their toward experience will travel which is what this is and.

And more people sort of taking you know reliance trying going with independent hotels.

We think the experience that we get here will be will be beneficial to us but it would also at this point right now we're really focused on getting that thing right. It's really important.

Okay.

[laughter].

Just as a side note as the 20 plenty of Democratic Convention have any a potential pop for the faster and the syndicates and even the Hilton or is it too just a couple of weeks that doesn't really have that big impact.

Well, here's what I would tell you whether it is probably is probably a more long term impact the okay. Here's the deal that those are going to be it'd be great weak and we get there.

The Ryder Cup coming to the coal or shortly thereafter, we're going to that that that parcels are going to be really big weeks, but specifically around 20 around the convention.

Theres also a challenge and that is that our convention center is gonna be closed for about six or seven weeks around that convention during set up and take down.

And now we're told is that you know in cities.

Like like cities that have these conventions that they do really pretty good business in the years of the convention just even anyway. So even though we face that the week will be great well do other business and it should be a net positive for us.

But not as much as one might think but the bigger thing and the bigger positive is the long term impact on our market.

And that's we I mean, I know because I sit on the board of the condition of the kind of our conventional visitors Bureau, and we already are seeing an increased volume in interest in Milwaukee as as a convention destination and so I think the bigger positive is not so much that one week, but.

Are those 10 days, but really what it will mean for our community for the next number of years.

Okay, and then maybe Doug you were just talking about some of the updates you'll need to with the Pfister Grand Geneva, Milwaukee Hilton, you're just a completed the there.

It's in Madison and I'm wondering is the objectives, there and then the other cases too.

Freshen up the hotel and justify its current position or maintain current position or is it to reshape the image and try to get other pricing justification.

Yes [laughter].

Yes, although the about [laughter] all of the abroad, I mean look you're going to if you're going to if you're going to be in hotel business, you're going on hotel assets, you've got to take care of them and and we.

We do that we have and the markets Corporation has a history of doing that good times and bad if you recall the as it turns out the last time that we refreshed. These three hotels the environment wasn't very great out there and yet we still could do it and and because we've got to balance sheet that allows us to do that and.

We came out of that last recession in great shape, because we were able to invest in our hotels when others couldn't.

Having said that the reason I said, yes. The reason why Greg was about to say, yes. The same thing is because when wherever we make investments like this we're always looking at ways of saying are there ways to reposition these properties and for the next 10 20 years.

Great, great, but we're looking and saying.

Heart as it has for me to believe we've owned it for 25 years.

I think about having brand equity and I was trying to think back on how hard as we think about the same Kate how hard it was opened the Grand Geneva, We really were starting from scratch and a hotel that was closed for chunks of here when it was such as it was in such tough shape. When we bought it as the Americana. It was closed for the winter and so I mean every winter and.

So, but it's been 25 years and this time to think about what is one of the next 25 years look like so somebody investment that we make will be just because it's time the carpet needs to be done softwoods need to be got done, but we're going to also be looking at things, saying, okay. How do we position. This resort as one of the Premier mid western destinations as it is now for the next 25 years.

Yes.

And that will means that we'll have ROI that goes with it.

And maybe just a shift over to the movie sector for a moment the with the opening of Brookfield and everything you're putting into their property. It's like every bells and whistles that's going on in the industry right. Now I'm. Just wondering is is that a unique location and.

A lot of things are not likely to transfer or is it your test kitchen to figure out which of these ideas, especially some of the newer ones or whether it's a atlanta airport ordering or that sort of thing.

Are likely to transfer more broadly to your.

Your platform.

And one way we know what's going on there how are you communicate that.

You know I think it's more the latter it's a but it is a bit of a test kitchen.

In that.

We are we're but it's not it's not like I would call complete R&D like so much. So much R&D you know doesn't just doesn't happen because it wouldn't be are the if you were trying known tested things, but the idea of ordering often app and ordering off kiosks. I mean that is it's our way of it sort of our design test more than I would call Mike.

Research and development operation.

Okay. How are we sequenced the the the ordering.

How we do that how we how the customer uses it it's different than other movie taverns, but we may be taking some of we learned here to other movie taverns.

So it is it is a so yes, it's a bit of a test kitchen, but it's it's not it's not like completely from scratch lending from scratches the food.

But I would say, there's a fund irony in that theater that I would that I shared with the group when we open to that.

That is.

My grandfather, 84 years ago almost to the for the day opened the first theater and if in Wisconsin. It was a former department store.

And the movie Tavern that we built and opened just this last few weeks was a former department store.

I found that it didn't really the irony.

As we start on another chapter in the markets corporate market leaders absolutely okay.

Okay, well, thanks very much appreciate it.

Thanks, Jim.

Thank you and our next question comes from Ryan Hamilton with Morgan Dempsey You May proceed with your question.

Good morning, everyone.

Hey, Ryan.

Hi, good quit a refresher for me and the.

And we'll be tavern conversions, along with the Dreamlounger conversions are you closing down the entire theater as you do these conversions are you.

Just calling on certain screens.

Yes, just certain screens Ryan we we've phase it and then we and so will and obviously, we're looking at film product. We're looking at a lot of different things, but weve typically will do several auditoriums at a time get those done reopened them move onto the next ones.

Okay sounds good and then my other question, it's with some of these production studio is launching a new streaming services have you noticed any push from them to maybe shortened the screening window or any other kind of shifts or changes during those negotiations.

No you can probably get too detailed but just curious if theres anything that's that's outstanding that we should now.

No all the one thing I would say is that we can tell you talk about the importance with with all of our studio partners about the importance of the window not only to us but to that and I think and I, you know and I'm not in the studio business, but I, but I have been around our our industry for a long time in that is.

In a world where so much is there's so much so much product in these in these in that in the home video market.

That.

What's it's it behooves them to put that Halo on some of their best product you know.

The that that is a is if you think about it I mean, if you think about what's going on with them why is it that the some of the most expensive things are spending some of the most money on our these old TV series friends signed felt the office you know why is that because of the time.

Those came out at a time when there were no such as so many such limited choices that they amassed these huge audiences became part of the Zeit geist and the and the water cooler talk and it was that part of the national consciousness, the way to become part of the National consciousness, I would take say them for their movies that they want to play.

On their streaming services is to be in the theaters and in that he will have exclusivity and it never where there's a much smaller amount of product you just by the nature of its business. We can play a gazillion things all at one time and so it it puts a spotlight so to speak on those movies and I think then then we'll then be very.

Beneficial to two to their surfaces and look at Apple has announced they're going to play movies in the movie theaters with a window.

And I think that's so important than I think that they are you know there clearly they have I think there's there obviously very smart.

And know that that's going to be a benefit to that that just saying well we havent for just for our service in our subscribers will for some of that that's probably okay, but where they really want to put to put a spotlight as I said, a halo and what they're doing I do believe that that that they should use that theaters and keep that window because that window of exclusivity is what keeps it spend.

Okay.

I have shared the same opinion, so thanks for sharing that.

That's all that kind of great quarter guys. Thanks again, thanks Ryan.

Thank you at this time. It appears there are no questions I'd like turn the call back to Mr. nice for any additional.

Closing comments.

Thanks again, everybody for joining us today, we look forward to talking to you once again in February when we release, our fiscal 2019 fourth quarter and year end results.

Until then thank you have a great day.

That concludes today's call you may now disconnect your lines at anytime.