Q2 2020 Marcus Corp Earnings Call
[music].
Good morning, everyone and welcome to the market's Corporation second quarter earnings Conference call.
My name is crystal and I'll be your operator for today.
At this time, all participants are in listen only mode.
We'll conduct a question and answer session toward the end of this conference.
If it anytime during the call you require assistance. Please press star zero and an operator, we'll be happy to official.
As a reminder, this conference is being recorded.
Joining us today or Greg market, President and Chief Executive Officer, and Nice Executive Vice President Chief Financial Officer, and Treasurer of the market's Corporation.
At this time I'd like to turn the program over to Mr. nice weren't opening remarks. Please go ahead Sir.
Well, thank you Crystal and good morning, everybody welcome to our fiscal 2022nd quarter Conference call.
As usual I do need to begin by staying with kind of making 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 made generally be identified by a use of words such as we believe anticipate you'd expect her words of similar import.
Forward looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected.
Moving but not limited to adverse the adverse effects of the cobot 19 pandemic on our theater hotels and resorts businesses.
Results of operations liquidity cash flows financial condition access to credit markets that ability to service, our existing and future indebtedness.
The duration of the covert 19 pandemic and related government restrictions and social distancing requirements and the level of customer demand following the relaxation of such requirements.
Forward looking statements are based upon our assumptions, which are based only upon currently available information, including assumptions about our ability to manage difficulties associated with are related to the cold 19 pandemic.
Assumption that a few closures hotel closures and restaurant closures are not expected to be permanent or we occur.
Continued availability of our workforce following the temporary layoffs, we've implemented as a result of the covert 19 pandemic and the temporary long term effects of the Kobin 18 pandemic in our businesses.
Listeners are cautioned not to place undue reliance on our forward looking statements.
Additional factors risks and uncertainties, which can impact your ability to achieve our expectations identified in are forward looking statements included under the heading forward looking statements in the press release, we should this morning announcing our fiscal 2022nd quarter results.
And then the risk factor section of our fiscal 2019 annual report on form 10-K, and the subsequent quarterly reports on form 10-Q, including the form 10-Q that we're filing today.
All of which we connect you can access on the Fccs web site.
We'll also post all regulation g. disclosures when applicable on our website at www markets Corp. dotcom.
With that behind Us let's begin.
This will obviously not be a normal quarter for us and and in our prepared remarks today were once again reflect that as we spend less time looking back at this past quarter and spent most of our time looking ahead.
I will still to begin but I still begin by spending a few minutes briefly sharing a few numbers with you, but then I'll pivot to more current topics such as our balance sheet liquidity.
Once I do that I'll turn the call over to Greg will focus his prepared remarks on where our businesses are today.
Because we as we began reopening some more properties along with their plans for reopening the rest of our properties in the future.
When we open the call up for questions. We could certainly be happy we'd certainly be happy to revisit the quarter and answer any follow up questions if needed.
So you've seen the numbers essentially you're looking at operating results with all of our business is closed for the entire corridor.
On the theater side are only revenues will from six theaters that opened on a very limited basis in June 2020, primarily to test new operating protocols as well as five parking lots in the most which is our version of the driving that we opened in operated during the quarter and some limited online and curbside sales of popcorn.
And pizza and other sorted food and beverage items.
The hotels and resorts segment, we still had three hotels opened at the very beginning of the corner, but has significantly reduced occupancy and they closed after the first couple of weeks.
We began reopening hotels toward the ended the quarter beginning with the Pfister on June eight followed by the Grand Geneva, Hilton Madison and screw up and Hilton in subsequent weeks in June.
As the press release notes, we did once again have several nonrecurring items this quarter directly related to the impact of the covert 19 pandemic.
We incurred approximately $3 million of additional property closure and subsequent reopening expenses with the majority of the expenses in our hotels and resorts Division.
A portion of these expenses represented payroll continuation and severance payments made to associates laid off as a result of the closures.
We also began incurring expenses this quarter related to extensive cleaning costs supply purchases and employee training among other items related to the reopening of selected theater hotel properties and implementing new operating protocols.
We included a non-GAAP reconciliation of our net loss in our adjusted EBITDA with our press release in order to show you. The impact of these nonrecurring items had on a reported results.
[noise] in that reconciliation you also see a significant favorable adjustment for income taxes that would that needs to be addressed.
You will note that we reported a larger than might be expected income tax benefit this quarter. In fact, our effective income tax rate was 52.5% during the second quarter and 44% from the first half of the year.
Our fiscal 2020 income tax benefit was favorably impacted by an adjustment of approximately $17.6 million, resulting from several accounting method changes and the March 27.
20, signing of the carriers that.
One of the provisions of the Cures Act allows our 2019 and 2020 taxable losses to be carried back to prior fiscal years.
Including years during which the federal income tax rate was 35% compared to the current statutory federal income tax rate of 21%.
Excluding this favorable adjustment to income tax benefit our effective income tax rate during the first half half of fiscal 2020 was 22.8%.
We anticipate that our effective income tax rate for the remaining quarters. The fiscal 2020, maybe in the 29% to 30% range due to unexpected taxable loss during fiscal 2020 that we'll continue to allow us to carry back a portion of the last two years that had a 35% federal income tax rate [noise].
Of course, our actual fiscal 2020 effective income tax rate, maybe different from our estimated quarterly rates, depending upon actual facts and circumstances.
And this benefit won't just reduce our reported net losses. We may occur. We believe it will also result in significant liquidity benefits, both this year and mixture.
In the coming days were finally income tax refund claims of $37.4 million, but the primary benefit derived from the accounting method changes I, just referenced and new rules for qualified improvement property or Q. I P and net operating loss carry backs that came out of the cures Act.
We also expect to apply a significant portion of our anticipated tax loss to be incurred in fiscal 2020.
To prior year income, which May also result in a refund that we expect may approximate $21 million in fiscal 2021.
When our fiscal 2020 tax returns filed.
With possible tax loss carry forwards that may be used in the future as well.
Shifting gears away from the earnings statement just for a moment, our total cash capital expenditures during the first half of fiscal 2020 totaled approximately $16 million compared to approximately $60 million last year, which included the cash component to the movie Tavern acquisition.
Most of this year's dollars the Spencer Thier Division and several projects that we started during the first quarter and we continue to have most future capital expenditures on hold for the time being.
Before I turn the call over to Greg. Let me also briefly comment on our balance sheet and liquidity position.
I'll remind you once again that we entered this crisis small position of strength.
Our debt to capitalization ratio at the end of 2019 was a very modest 26%.
Net of a larger cash balance in our balance sheet than what we would normally carry our net debt to capitalization ratio at the end of the second quarter, even after having essentially all of our business was shut down for the entire quarter was still a very low 32%.
Of course, we also on the underlying real estate for seven of our company owned hotels in the majority of our theaters.
Presenting over 60% of our screens and an even larger percentage of our revenues and cash flow.
Thereby reducing our monthly fixed lease payments.
This is significant advantage for our company relative to our peers as it keeps our monthly fixed lease payments relatively low and provides significant underlying credit support for our balance sheet.
We even have some surplus real estate that could be monetized in future periods if opportunities arise.
As we previously reported in light of the corporate 19 pandemic, we've been working to preserve cash it ensures sufficient liquidity to endure the impacts of the global crisis, even if prolonged.
As you know on April 29, 2020, we amended our existing credit agreement and issued a new 90.8 million dollar 364 days senior term loan aid to further to support our already strong balance sheet.
As of June 25, 2020, we had a cash balance of approximately $80 million and approximately $90 million availability under our $225 million revolving credit facility.
So you can do the math.
Adjusted EBITDA during the quarter was a negative $30 million for about $10 million a month.
Even when you add interest expense, so that number and maybe just a little bit of capex with a combined $170 million in cash and revolving credit availability.
Plus income tax refunds that may total as much as $58 million combined in 2020 and 2021.
You can site you can see why we continue to indicate we believe the additional financing positions us to continue to sustain our operations well into fiscal 2021, even in the very unlikely scenario. That's a majority of our properties remained close.
And that doesn't even consider the possible possible sale surplus real estate or additional financing if needed.
We believe we continue to be strong position.
With that I'll now turn the call over to Greg.
Thanks, Doug.
As Doug noted earlier I'm going to focus my remarks on where we are today, what we've done to date and our continued to do commanders should this crisis and whats some of our plans are for the future.
As you can imagine there are a lot of unknowns, yet about what the future months will look like so our plans will continue to evolve as the situation unfolds.
In this rapidly changing truly unprecedented environment. There is one thing that has not changed and will not change our priority as it has been throughout our history is the safety and well being of our associates customers and communities.
This is guided everything we've done so far and will guide us in the weeks and months ahead as well.
I continue to be thankful for experienced dedicated leadership team throughout our organization, we've had to make some very tough decisions in the short term and they continue to work day and night developing and executing strategies that we believe will get us through this crisis and put us in a strong position for continued growth over the long term.
As we've now shifted to reopening properties were bringing people back I'm asking them to work into very different conditions, not surprisingly our people could seem to step up and meet the challenges before US words alone don't do justice to how proud I am of all our associates and I cannot emphasize at this point enough from our executive team.
Our people in the field they talk about the importance of gratitude I have huge gratitude for everyone. Because it's we have we have less people, they're working harder and and as the words were just spoken their unprecedented so I'd I'd say equal for everyone. Around me. This is now cannot do this alone.
So now as I've said the focus on this focus is on reopening owner hotelzon theaters and I'd like to spend a few minutes talking about where we are and where we're headed in each of our divisions. So let's start with our hotels since the reopening processes the furthest along so far.
We closed our hotels was not because of any governmental requirements to do so our restaurants and bars than our hotels were required to close but the hotels themselves were considered central businesses under most definitions we closed our hotels do significant drop in demand made it financially prudent for us to close rather than stay open.
As a result, our decisions regarding reopening our hotels and resorts will be driven by an increase in demand as individual business travelers begin to travel more freely once again.
Subways it is a mathematical exercise reopening when we believe will be in we will get a better position being opened and closed even if that means just losing less money than being closed.
As we've noted late in our fiscal 2022nd quarter, we reopened several of our hotels, including several of our restaurants and bars, beginning with the Pfister hotel on Judy followed by the Grand Geneva Resort and Spa Hilton Madison went on the terrorists scrubbing Hilton Hotel and subsequent leaks in June.
Expected the primary initial customer for hotels came from the drive to leisure market as air travel remains significantly reduced.
And the number of transient and group business customers will likely remain limited in the near term.
The majority of the hotels, we manage for other owners have also recently [noise].
We're monitoring market demand and we currently hope to reopen our remaining company owned hotels during the third quarter fiscal 2020.
In fact, you may have seen the notice that we opened up the public spaces of seeing Kate Arsenal tell this past weekend, we're not looking rooms, yet, but we wanted to activate the first few floors and the community, including or lobby bar, our pizza restaurant and maybe most most importantly art exhibit space.
That first floor is essentially an art museum and we felt it was important to get that space reopened as one more step towards recovery downtown Milwaukee and.
And while the upcoming Democratic National Convention will not provide nearly the impact. We all had originally expected. We currently expect to reopen Hill Milwaukee Hotel in time for that upcoming event.
As we reopened our hotels, we are reopening with new operating protocols. In addition to follow with only brand standards for our branded hotels. We have also introduced our own clean care pledge that incorporates the best industry practices and protocols for operating our hotels resorts spas golf courses and restaurants with enhanced.
Focused on cleanliness sanity standardization and safety.
[noise] key elements in examples of the clean care pledge include introducing new processes and easy to use technology to create a low to no contact experience incorporating social distancing into processes various spaces.
Outfitting associates with masks and Glugs, making masks available for guests to required to weird them in all of our public spaces and enhance cleaning and standardization protocols that go beyond leading hospitality industry standards and CDC guidelines.
Looking to future period overall occupancy in the U.S. has slowly increase since the initial onset of the cobot 19 pandemic in March similar to our limited experienced during the second quarter. Most current demand continues to come from the drive to leisure segment. Most organizations had implemented travel bans and our only now starting to allow some the central travel which will likely limit.
Business travel the near term.
Well really performance is very by hotel I will tell you that occupancy movies, well still significantly lower than where they would normally be this time of year generally exceeded our expectations. As we have reopened hotels retail pricing has also thus far held relatively strong despite the current lower occupancy environment.
Our company owned hotels have experienced a significant decrease in group bookings for the remainder of fiscal 2020 compared to the same period last year.
As a big this report however, our group revenue looking booking a group room revenue bookings for fiscal 2021, commonly referred to in the hotels resorts industry as group pace is running only slightly behind where we were last year. At this time fiscal 2020, and the majority of that declines because last year's group bookings, including bookings.
In anticipation of Milwaukee hosting the Democratic National Convention the didn't see in July 2020.
We find is very encouraging because we believe this speaks directly to a continuing desire for people to travel in congregate.
They couldn't catering revenue fiscal 2021 is currently head of will that were last year at this time fiscal 2020.
Another positive development is the fact, the majority of our cancel group bookings due to cope with 19, our rebooking for future dates excluding onetime events the couldn't rebook for future data such as those connected to the DMC.
Another major event will benefit our Milwaukee hotels. The Ryder Cup was originally scheduled for September 2020, but it was recently we schedule. The September 2021, well disappointing to lose the spent in 2020. It is contributing to our 2021 group pace.
Forecasting what future revpar growth or decline will be during the next 18 to 24 months is very difficult at this time Hilton hotel revenues at historically track very closely with traditional macroeconomic statistics such as the gross domestic product. So we will be monitoring the economic environment very closely.
After pass shocks to the systems, such as 911 into 2000, the financial crisis hotel demand took longer to recovery than other components of the economy. Conversely, we now anticipate the hotel supply growth will be limited for the foreseeable future, which can be beneficial for our existing hotels most industry experts to lead the pace of recovery will be study, but relatively slow in the near term.
We believe it will be very important to have our marketing message focus on our approach to the health and safety very associates and guess.
Overall, we generally expect our revenue trends track or exceed the overall industry trends for our segment of the industry, particularly in our respective markets.
Regardless of how this unfolds I'm confident that our new Hotel Division President Michael weapons, and his outstanding team will effectively manage our operations and we look forward to reopening our remaining hotels. Our associates are working tirelessly. So but every guest can rest easy knowing that they are receiving the highest standards of service and cleanliness, well still enjoying the best or award winning hotels and resorts have dog.
So what shipped or let's shift to our theater division.
On June 19th we began to implement our phase three opening plan with the opening of six of our theaters in multiple markets, where the primary with a primary goal of testing new operating protocols in accordance with local health and safety guidelines and designed to prioritize the safety and well being of our associates and guest during this initial phase we've been showing older library phone call.
<unk>, including a combination of films that had been leased in theaters during the months prior to closing as well as classic older films, such as films from the Harry Potter series, we waited for new films to be released.
As we speak to this morning. It appears we May finally have a clear idea what the film studio released plans will be after several stops and starts it appears increasingly likely that the first new film scheduled to be releases unhinged together with the pre release of inception on August 20 Onest.
Disney's New mutants is currently scheduled on August 28, and the much anticipated film Tenet now is now scheduled for Lee releasing the U.S. September Threerd 2020.
Warner Brothers announcement of this new release date for tenant was particularly important as they acknowledge that this release will not follow the more common global they release patterns, we've seen in recent years.
But rather we will market returns days when films used to be released in different markets at different times in the industry, we call it platform release.
Warner's has indicated the film will first open overseas and is further it now when it opens in the U.S. may not open in every market initially rather it will open in as many markets as a can with other markets to follow as any remaining restrictions are lifted.
The good news for US is it state and local governmental restrictions have been lifted in the vast majority of the markets in which we operate theaters, allowing movie theaters to reopen.
As such assuming the current really schedule holds we expect the majority of our theaters to reopen in late August in time for these new movies.
As part of our reopening experiencing or theaters, we've introduced our movie Star Sta, our approach, which incorporates new health and safety measurements and isn't alignment with CDC guidelines specific measures. We are implementing in conjunction with reopening of feeders include but are not limited to initially reducing each theater auditoriums capacity by 50.
Person.
And implement they get checkerboard seating pattern that will allow guests to reserved seats together with two empty seats between groups to allow for proper social distancing in accordance with CDC guidelines [noise].
Staggering showtime's limit the number of people in common areas theater, and allowing extra time between shows for Theyll cleanings.
Requiring masks could be borne by guests, except for when they're eating or drinking the auditoriums.
Conducting associate wellness Jackson, requiring the use of face masks as well as globs as appropriate during the associates yet.
Increasing frequency of cleaning, especially high touch surfaces, providing hand sanitizer throughout the theater and introducing signage to encourage proper social distances.
The urgent guests to purchase for tickets online or by the market leaders.
An encouraging low contact food ordering through our proprietary mark receivers and web site with food orders picked up at a designated area within the theater.
[noise], we expect policies and guidelines will continue to evolve with time and will be assessed an updated on ongoing basis. Our goal is to build consumer confidence and trust as quickly as possible and I'm pleased to share that we have received extremely positive comments from the guests who been coming to our six test theaters.
Our team has done an excellent job executing a new protocols.
Something that has come up before but it's worth repeating is it a reduction in capacity does not necessarily translate to an equal reduction potential revenues reduced capacity be potentially impact attendance on five dollar Tuesdays and an opening weekends of major new film releases, but other showings, maybe relatively unaffected given normal attendance counts and based upon our past experience, we believe the customers and.
That was five dollar tuesday's, nobody weekends, they adapt to reduce seed availability, but shifting their attendance the different days at different days in times a day. In addition, as new films are first released we anticipate that indicating a larger number of auditoriums to the blockbuster films to increase seating capacity for those movies.
We believe that the exhibition industry, historically fared well during recessions she'd won't occur as a result at the cobot 19 endemic and we remain optimistic that the industry will rebound and benefit from pent up social demand as home sheltering subsides and people seek together just within tempt to return to normalcy.
Let's turn to enormously a return to normalcy may span multiple months driven by staggered theater openings due to government limits reduced operating hours lingering social listing requirements and a gradual ramp up of consumer comfort with public gathers.
There are significant number of film schedule to be released during her many months of the year that may generate substantial box office interest, including multiple films that were originally scheduled for the first half of fiscal 2020.
We listed some of the some of those films in our press release, you anticipated film slate for 2021, which will also now include multiple films. Originally scheduled for 2020 is currently expected to be very strong.
Just as we've had to adapt our plans in the past month, we recognize that we will need to be prepared for new challenges and opportunities in the weeks and months ahead I'm certain that reminder, rodriguez his incredibly talented people be prepared to adapt managers through this reopening process and ultimately deliver a truly great movie going experience to our guests.
Normally I would end my prepared remarks at this point and open the call for questions, but first I wanted to address the elephant that entered the room last week.
There's been some speculation cobot 19 pandemic may result in a change in how film studios may distribute their product their product in the future, including seller accelerating the release of films, an alternate distribution channels, such as premium video on demand or PD L.D. and streaming services of course that speculation increase exponentially last week, when AMC Universal announced deal they didn't.
Associated that would according to reports significantly shrink the window for select films to be released on PD.
I suspect you might wonder what we think about that.
Let me get would let me say that's a relationship with the film studios are important to US. We are partners can an 11 to 12 billion dollar U.S. exhibition industry, and then over $40 billion industry worldwide. It can establish affect the film studios derived a significant portion of the return on investment in film content from theatrical distribution.
Past month, well Peters had been closed studios have continued to acknowledge that there is no economic model to recover the size of the investment in big theatrical boot without theatrical revenue and their actions to delay the vast majority of new films until theaters reopen rather than released into the home is a direct confirmations that.
Thus, we believe books studios, an exhibition are aligned and their interest to preserve theatrical experience for our value customers. We believe in appropriate theatrical window as an integral part that aligned interest.
Second I will say upfront that we never have conducted our negotiations studios and public and we don't intend to start now we will continue to talk to our CVR partners about terms windows financial model Cetra as we always out but in private as it should be.
While speaking specifically to PD OTI, what I'm about to say next applies to any changes in the financial enter distribution model our business.
Our position has always been that like in any successful negotiation any change in the existing model. These to be a win win win for the studios the exhibitor and the customer our common goal should be to grow the size of the pie.
I also think it's important to put all this PV ob talking perspective, while acknowledging the consumer behavior can and will change periodically history suggests than a normal conditions. When all forms of entertainment are available to the consumer the market for PRB PB Odie may not be particularly deep I think everyone would acknowledge that these last four months.
We're not normal with feeders, essentially 100% CLO and other forms of out of home Entertainment also not available to consumers and I would suggest this period tell us very little about the depth of a $20 P D market.
We're in the business about at home Entertainment, just as I mentioned earlier I Hotel remarks that we believe people want to travel and congregate, we firmly believe that human beings have an innate desire to get out of the house interacted people.
We seek social experiences.
In fact, you could argue that this very same human characteristic as an underlying reason the challenges our country continues to face during this pandemic and it will always be this way whether it is improve treatments vaccine or in the or in the near term everyone just being smart and say, we will get to the other side of this and we believe consumers will seek the seek out those same out.
The answer is that all we sought out in the past we're already seeing signs of that in other countries and similar to pre pandemic days when they decide to stay home. They will continue to have a fire hose other entertainment options available to them at a price point significantly lower than $20.
As you can tell I'm passionate about the exhibition business, we've made significant investments in our theaters over the last six years and we believe we've built a theater circuit that a second to none in terms of entertainment experience for our customers. We believe distributing films and a movie theater will continue to be an important component their business model.
For two of continued healthy relationship with them in the future.
In conclusion in this rapidly changing environment you can rest assured that we are continually reviewing the situation both our businesses and we will make changes to our planes is warranted company is built for challenging times like this our leadership team managers and associates have stepped up to the challenge in ways that go way above and beyond and for that we are.
Most grateful we also very much appreciate the confidence in support of our lenders and the investment community. During this challenging time.
And always.
With that at this time doesn't I'd be happy to open the call up for any questions you may have.
Thank you.
Ladies and gentlemen, no question at this time. Please press the star followed by the number one keen on your Touchstone telephone. If your question has been answered on U.S. or move yourself from the Q. Please press the pound key once again to ask the question. Please press Star and then one now.
And our first question comes from Mike Hickey from the Benchmark Company. Your line is open.
Hey, Greg Doug.
Thanks for taking my son, Fas I, Mike you about [noise].
The obviously skills like you've gotten to the crux of munitions hears and severance.
Good on the offense on the reopening process a lot of I think positive data you shared with us.
In terms of hotels and groupings since were 21 et cetera to years looks like the vast majority.
Well do you all can here pretty soon.
I realize maybe 21, it's hard to balance in terms of what are your I guess relative 19, but I'm curious your view there and then should.
Because we stretch out a little further.
22, [laughter]. She was sort of think 22 years that back to normal like 19 or are bigger, but your thoughts there would be appreciated and I have a follow up too. Thank you.
I mean, I'll I'll start Mike and look I mean, we haven't even opened our theaters yet to speak of I mean, that's it with new products. So we certainly have a lot to learn yet about what the pace of the <unk> of the recover <unk> recovery will be on the theater side once we reopened.
As we said in her prepared remarks, there's look there's a lot of product.
And got 2021 has a whole bunch of films that were originally scheduled for this year that were moved in on top into a year that already had quite a few films.
Look very positive so.
So on that side, we're certainly very optimistic, but luckily until we get open until we start seeing how this you know how the customers respond.
Try to now compared 2021 to 2019.
That's that's tough as you can imagine and I imagine that will be tough for anybody to try to do right now.
Certainly on on paper, we're gonna have we're gonna have the goods to be able to deliver to the customer and and so assuming things continue to progress. We certainly think that as we get you know as the year goes on it will just progressively get better.
But this will be a this will be a process this won't be an overnight.
Event.
Yeah, I mean, not the only thing I would build on that yeah, I mean I.
I have no idea, what's going to happen in the short term.
I have no idea even in sort of the medium term.
Well, we'll what will when will what will look like 2019 were better, but what I do know and what we've talked about here is that you know and we're in this for the long haul is that people want to be to give you just look at the news there Crazy you can't keep them apart. It's unfortunately [laughter] as we've talked about our prepared remarks, it's just nuts.
Which is said which is short term not really a good thing, but long term it says human creatures, our social animals, and they want could be together and they want to do things and there will be pent up demand and I think that bodes well for the really all of our businesses, but the short term you know who knows.
Fair enough. Thanks.
The.
It's a last question to sort of curious maybe what the demo looks like for the movie goers coming back.
To your theaters.
And sort of I guess, the the durability there you think.
That demand I imagine you might sort of come back its.
You are dying to get on the house you want to do something feeders, obviously escapism makes a lot of sense, but curious if you feel theres durability there.
Yeah, Matt demand.
Then $1 million when pricing will come back on the tickets that sort of comes back with the.
Tent Poles, and our plans here pretty shortly and also woman Collier concession sales.
Yeah, Hi, expecting will trend that's it from you guys. Thanks best of luck.
Yeah, I can I can take that demos, we don't know specific demos I could speak anecdotally I mean, I've seen surprisingly all ages going into our theaters.
Once we've been testing.
You know that could get I think the durability of people going will depend on so many things and all the in the environment, what's going on with the virus. What is you know how the the.
What what how the product is what you know.
But the end of that they were.
And people, who you know when good product goes out and they said we've been heartened to see what's happening and other in international markets.
So the numbers are starting to pick up they're seeing as I described it yesterday size Europe had green shoots and ER and I know I think South Korea has had some success. So seeing you know people will go to see the product that that is good they have to feel comfortable or the one we've seen really really very very positive you know we've been should we.
Running our AR.
Our customer service scores through our through our loyalty program and we're seeing very positive commentary really really very surprising, but I was surprised how strong the spend how comfortable people feel and what they think about the experience and so weve.
So again I think it's all those things coming together.
We'll have that will promote that durability and the other concessions per cap side, it's been.
Very strong.
Yeah, I wouldn't I would just maybe the building I would add to the comment is that obviously showing library product just like we are starting new products. The the demos are tied into what you're showing as well, but I would echo what what Greg indicated its not as if there's there's no doubt.
Campbell that hasn't been represented one that we're seeing seniors, we're seeing adults were seeing families.
And and so it's not as if we looked at and so what are the theater looks different today than what it was before so that's encouraging.
That's great. Thanks, guys.
Thank you.
Our next question comes from Eric Wold from B. Riley Your line is open.
Thank you good morning, guys.
A couple of questions now your follow ups from the prior ones I guess why don't sort of concessions.
Any any major changes too.
Good food and beverage product you have available to our two patrons when the peterbilt and based on kind of cleaning restrictions are handling restrictions at your movie tavern in different locations or is it can be pretty much status quo wondering reopened.
In terms of the offerings the offerings are not changing so much as the procedures are changing and how we do it and I would tell us speak to our this this idea of the low to no contact and something where we've been really ahead of the industry and I'm really proud of our team can look in her I T team really got us not in a place that.
But could not because we plan for this but this idea of being able to order on the path.
I mean ill Ah that's that idea you can or would you preorder your food, we can probably to pre order your food before you come to the theater and and then you and your food is ready to pick up there you don't have to wait and aligned don't have to deal with a with a vendor concession attendance you are you're able to just shelf and pick up your food that that ice.
I think it's something that will be it was and it would they talk about this they'll be environment now accelerating that really was just an accelerating trend not one that became because of it as I said, because we are so focused on food and beverage and we had such challenges the labor markets getting people. We were trying to figure out how do we take labor out of the equation well if you use technology to your advantage.
You can do that and that let us to over the last year I talked about doesn't last call.
The the.
The the we have you know we were we were ahead of the industry and getting them getting testing and you know this this out the application.
As part of our App.
And I said, we probably we have shrunk the menu a little bit, but not not not ton the Uh huh.
The.
The but that's the and the movie caverns, we're changing we're not we're not necessarily going in and taking orders at the seats and to what we've we're not we're changing that procedure a little bit as well right now for these times.
People have to go out and pick up there to bring it in.
That is more so it's been procedure less menu well the little bit events.
Okay and then.
You mentioned, the b capacity limitations, you're doing in theaters, and 50% and the checkerboard seating and that.
Is that the norm across the sort of get when they reopen hadn't labor day are there any markets, where it's measured in less than 50% and again when is your view.
You get to the end of year, where you could be in terms of capacity mutation.
I think that that is the vast vast majority of the circuit is 50%. They're made there there may be one or two that they did that was a little bit less and stuff that make you know that make that may come.
That may be less but but the but the way vast majority is with the perceptive and we feel comfortable having seen what happened with with requires that we can do pretty well that environment.
Yeah, Eric and then it.
Thank you for them. They add on you know if you look at our footprint of theaters.
That's certainly to our advantage.
The situation because because of the markets that we're in and so they are pretty much 50% of everywhere, we're only and really it's literally two markets that we're still keeping an eye on it and it's only we've got one theater in the state of New York and we've got three theaters in Pennsylvania, and we're keeping close eye on those markets, but that's four theaters.
In total and so so we're very.
We're fortunate from that perspective.
Okay and then they and then final question I guess more of a.
Yeah longer term broader question I guess, you, obviously mentioned again to be getting that you end the majority the real estate.
When each or theaters your north of 60% of your screen and it's obviously been a big boost in recent years there with your remodeled strategy in that.
We haven't really had to deal with landlords in terms of what do you want to do with the theaters, it's going to help you in the restart in terms of having a lower breakeven point with less rent expense than others that gets us sitting once we got.
In a more normal situation kind of owning that real estate is not.
Been reflected your valuation versus your peers, you know as you get back to normal levels, how aggressive would you be.
Willing to be to unlock some of that value for shareholders.
Boy, Eric I mean, I'll start putting and Greg jump in if you want but I mean.
So so.
As we've talked about and we've talked about this you know multiple times, even before this all happened in our core real estate and frankly, not fear side, it's proving to be exactly what we said it was a strategic advantage for us It was a strategic advantage for us in growing the company over the last six years and now it's a strategic advantage for.
Chris and suffering and going through all the crazy assignment, we've ever seen in the industry. So.
No it's.
It's for us without change that perspective on our theater real estate specifically.
That that might be a tough tough decision.
Having said that and we alluded to it briefly in the comments, we've got a lot of real estate and and so I mean, it doesn't mean that the couldn't be some selective monetization. We also have lot of surplus real estate.
Former locations thing you know.
Excess and surplus land and outlets on real estate that we own and so there is a that's always a possibility for us to unlock and monetize real saving and we've done it selectively and periodically in the past and.
We certainly could do it the future.
Yeah. Thanks, guys.
I would fill them it just a little bit and that is the say could to sort of say yet and it really it is been such an advantage for us over the years.
No. It maybe it would be incumbent upon us to be better working to really work to really pressing educate the investment community on the value of that real estate and really try to stress that pointed I had said that I'd, rather do that that give up our strategic advantages that we've seen.
Because you can always ultimately going to monetize something so one time event.
But I, but I prefer to to get better and.
Telling the story.
Perfect. Thanks, starting again.
Thank you.
Our next question comes from Jim Goss from Barrington Research. Your line is open.
Okay. Good morning.
I'm wondering first a if you could.
If you have any estimate of the continuing cost of sort of the new normal in terms of cleaning product protocols.
And any offsets from I'd have to that increased.
Cost allocation.
[noise] well, Jim I mean, we there's really two categories. There's there's kind of these nonrecurring expenses and we'll have some more of that in the third quarter, because we'll be reopening you know some more a few more hotels and we will be reopening or theaters and so there are some of these nonrecurring costs.
So that.
Fall into the you know Greg listed some of the category. So I had mentioned a few of the categories they fall into.
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Some of that is even can be even capital and and so there's the things that we have to do to get the theaters get the hotels ready.
Well called those out again in the third quarter two degree and you saw in order of magnitude of what it was this quarter is about $3 million on an ongoing basis, that's a little harder and I think until we really.
Get our theaters open for example, it is gonna be harder to tell on that I mean, there's just there's a whole bunch of.
Smaller supply is right and those aren't you're not going to notice those that much and and and they get mixed into that kind of that soup with all of our other costs, where we're also trying to be very.
Cautious about our cost structure and so we're trying to operate our theaters and our hotels.
In or trying to think outside the box and trying to operate with less staff and so I don't know if you'll notice some of the things that are specific to the of the operating protocols in our operating costs going forward because it all gets thrown into the soup and gets mixed together and.
And then there is no one single cost that that is so large that we have to say, okay. You better prepare for the fact, the Oregon, we're going to have you know X amount of year related to.
This or that so until we get the theaters opened I mean, we could be a time when we ultimately say look on our new operating structure and cost structure is going to look like this but until we get the theaters open that it's hard to quantify anything.
And.
You got to be looking at a b is a more of a medium term thing in terms of whatever that we will have ongoing labor due to increased labor costs as we opened as we even in this environment dealing with standardization and customer orientation. So we will see some increased labor costs, but I think that's I think for the most part that.
As a medium term kind of thing because once we get past having to operate you know in and this in the pandemic environment.
We received a return to normalized environment whenever that might be you know might you see a little more cost in terms of labor in terms of things you might see out its is a good thing that we're doing that anyway. So I think it will be offset by what I was talking about earlier the technology changes that we're going to have put in place that's going to reduce people working in the box office Medusa.
Looking at the concession stands as people use technology, a two to access our leaders in our and our concessions and so in our food beverage products.
Yes, probably not much change and then in the medium term, we could see some increased costs.
Okay.
And Doug just a housekeeping question the timing of the inclusion of those very nice tax benefits you outlined.
Well that's been the.
Third quarter of parse them.
So there's two different issues, there's the pinedale impact, which is already reflected in I mean, there's a large part reflected in the numbers, we reported today and it will continue in the third and fourth quarters and it'll it'll come through in the third and fourth quarters because of that higher effective income tax rate that I referenced.
In my prepared remarks, you know normally as you know we might you might see I don't know 24, 25% effective tax rate under normal conditions, and and because we will still be able to take some of our losses in the third and fourth quarter back to prior years.
We're we're right now estimating that that effective rate might be 29% to 30%.
In the in the third and fourth quarters. So so that's one way that you'll see it the other way is a balance sheet and so if you look at our or balance sheet, you'll you'll see that theres, a large refundable income tax number there and those claim part of that is claims that were filing right now and we will receive.
In you know, we would expect to receive in 2020.
As we said we filed their 2019 return and the claim refund claims to go along with that and part of that refundable will stay on our balance sheet through the end of the year and because it's it's additional refundable taxes that we're accumulating in 2020 that we'll get back next year.
Okay.
And then with both the hotels on the theaters.
I assume are mess protocols will be a in place.
Both types of venues.
How are you thinking in terms of enforcing that.
And as that is at a challenge or is this something you're saying not to be so much and maybe a also in the theater area.
Our rewards program wondering how that fits into this whole a process.
The man on the mass protocols, we require everyone's aware mass.
And frankly, you know what most of the country is getting that you know I think that its.
Two months ago might have been harder yeah. It probably would have been but I think so much of the country. Yet there are people who for medical reasons camp and if they can't for medical recently, when they don't wear masks, but if someone's as they occur where mass them, we than we asked them a you know not to not to patronize or establishment.
But we really don't ask will be asking to put on the mask and and we're seeing you know very very very.
Very high compliance.
Because they understand that this is about staying in business. You know it's funny you know the idea that masks you know are talking about this before our nobody likes Oh.
Oh, Gee I want to wear masks, but I know everybody likes the economy function and the only could economy functions is if we're able to to keep the virus at bay and it seems that the masks that we've seen I've seen numbers just to just looking around Wisconsin, where Madison, we had a problem. They put in a mass policy and the problem has started to abate so the Milwaukee.
Same thing here and so you see that the science shows that is working units and that's good for business and I think a lot of people are coming around to that and it's temporary <unk>. It will eventually it'll go away and it's not about the person people, who know just the distance I'm on my soapbox for a minute. It's about you know people also.
My choice, well, yeah, but but the but they're really their actions impact others and that's one that's when they have to have a different approach a it's just like I'm not allowed to drive on the street part of my House hotter miles an hour because they're worried that might hurt someone else including myself.
That's that's the reason behind it and and as more people understand that they go okay. I got it. So that's that's a good and fine I would say.
The the and your second question, Jim I forgot what wasn't I was just saying the rewards program is typically a little bit engines, because it gives or data and that's sort of thing I'd just wondering how it fits into this crisis.
Same thing its look it's been great to have you know it's been great to be able to yeah for all these years, we'd never knew who is coming to our theaters.
No they're paid cash and they went into the movie theater and they were anonymous and now it was half our transactions coming out of our loyalty program. It's still very sick of we're still seeing significant percentages even in this environment in the small tests that were running you know it's great to know who they are we we've been able to stay in contact with them.
Throughout this whole experience.
And they continue to be customers and it's so it's very beneficial to us.
Okay, and lastly, I, just one of the complementary or Greg on the or the way you outlined your position on the Windows issue I think it is clear that first from domestic box office has a significant share of the studios.
Revenue base and I agree the confirmation.
That syndicated by putting off rather than going to PV I'd and the major films.
Those are really good points appreciate it.
Thanks, Jim have I, if I could just I build on it just a hair and that is simply getting as I said the goal is to grow the <unk> by the way there's good news in this I couldn't but.
Well I guess, we're having a discussion about the future of how we're going to be up the pie [laughter] ill right. That's good that means but theres going to be a theatrical business. We should all take heart that I'd much rather have that debate then when are we going to open.
But that pie has to grow larger.
And we have to be careful that we don't shrink the pie because shrinking the pie by the way and we know well intentioned people have made mistakes and when you shrink the pie it doesn't just hurt us it hurts the distributors to they don't make it up in the PBL decide it as we've talked about as you just alluded to it's hard to know necessarily the normalized environment, how big that will be.
And I guess I'd just end with there's hope, saying, you know and I'd remind anybody who is thinking about as the ultra model.
They don't leave a good party in pursuit of a better one [laughter] Oh and by the way also lets not forget one other point nobody talks about this I want to talk about it for me.
No. This is about it does hold discussion that had about PV or the <unk>. This is all about figuring out how to make those midmarket movies more financially viable for the studio. So they can get more out of theatrical more out of the secondary markets. I know that's what their goal is because that's been the challenge, but one other things and we applaud them and we want.
To be a part of that discussion.
But one of the things that they never and so they always talk about all the cost of releasing a movie is so high let me talk about like that's never going to change that actually is going to change and so one piece of that equation is.
Actually I argue both pieces of PNM Princeton advertising cost. The P is coming down I hope, it's not zero. That's you know when the bps go where the virtual print fees.
We'd like a little bit of money for maintenance at the nice to have a little something because these projectors and all the components to wear out a lot faster than older projectors, but virtually that's gonna go down to bear to a very small.
And and then the advertising I would argue that with streaming one of the things that you're seeing is that the way the market movies in the streaming world. They don't market the individual movies very much the market the streaming service and so I think the cost of advertising could be going down as the streamers used to use the are usually the.
There there.
Their economies of scale across their marketing there one name of their streamer across a lot of films. That's one of the benefits of it and you know I hope they see the benefit of it then giving though some of those films a <unk> halo and a highlight platform where they get that national attention on the movie theater screens, I think that that as that market becomes more competitive.
To the ability to use our theatres to say see it here and then play exclusively on new name the streamer that could be a benefit for some of them I think they'll see that and so I think the cost of distribution is coming down that will be helpful. The midmarket films and if they can figure out a weighted and also to find other ways to monetize and we can be a part of it.
For the pie is growing for everybody that's a win win win.
All right. Thanks for your thoughts.
Thank you and as a reminder to ask a question. Please press star and then one now.
At this time there it appears that there are no other questions I'd like to turn the call back to Mr. nice for any additional are closing comment.
Well listen I'd, just like the wrap up by saying Thank you for joining us once again today.
We do look forward to tuck ins you once again, where pricing is three months when we released our fiscal 2023rd quarter results and until then thank you and have a great day be safe be healthy.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.
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