Q3 2020 Marcus Corp Earnings Call
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Operator for today.
At this time all participants are in a listen only mode.
Will conduct a question and action towards the end of this conference.
If at any time you require operator's assistance. Please press Star then zero as a reminder, this conference is being recorded joining us today are Craig Marcus President and Chief Executive Officer, and Doug Nice Executive Vice President Chief Financial Officer, and Treasurer of America's Corporation. At this time I would like to turn the program over to.
Mr. Nice for his opening remarks. Please go ahead Sir.
Thank you Michelle good morning, everybody welcome to our fiscal 2023rd quarter Conference call.
As usual you do know that I need to begin by stating that we plan to make a number of forward looking statements on our call today, all of which we intend to qualify for the safe harbors from liability established by the private Securities Litigation Reform Act.
Our forward looking statements may generally be identified by use of words, such as we believe anticipate expect or 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, including but not limited to.
To the adverse effects of the COVID-19 pandemic on our theater and hotels and resorts businesses results of operations liquidity cash flows financial condition access to credit markets and the ability to service, our existing and future indebtedness and the duration of the COVID-19 pandemic and related government restrictions and social distancing requests.
Our mens and the level of customer demand customer demand following the relaxation of such requirements are.
Our 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 or related to the COVID-19 pandemic assumption that our theater closures hotel closures and restaurant closures are now expected to be permanent or for re occur and the temporary.
Long term effects of the COVID-19 pandemic on our business list.
Listeners are cautioned not to place undue reliance on our forward looking statements.
Additional factors risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward looking statements are included under the heading forward looking statements in the press release, we issued this morning announcing our fiscal 2023rd quarter result, and in the risk factors section of our form 10-Q that were filing today, which you can access on the Fccs web.
Right.
We'll also post all regulation G disclosures when applicable on our website at Www Mark as Corp Dotcom.
With that behind US, let's begin and will follow a similar format I'm going to start by spending a few minutes briefly sharing a few numbers from a quarter with you and I will also discuss our balance sheet and liquidity I'll, then turn the call over to Greg who will focus his prepared remarks on where our businesses are today and what we're seeing in that for the near term and long term future and we'll then open the <unk>.
Call up for questions.
You've seen the numbers essentially 100% of our theaters were closed for the first two months of the quarter and the 80% that we reopened for the final month of the quarter, we're only operating with a limited number of new films.
As a result, after adjusting for nonrecurring items, including an impairment charge, our operating income and adjusted EBITDA from this division was pretty much equal to our second quarter results. When we were completely closed.
In hotels and resorts segment, we had four hotels opened the entire third quarter and three hotels reopened during portions of the quarter, all a significantly reduced occupancy.
While the numbers from this division weren't great. They were much better than the second quarter. When we were essentially completely closed and they were overall better than we'd expected.
As the press release notes, we did once again have several nonrecurring items this quarter directly related to the impact of the COVID-19 pandemic, we incurred approximately $1.6 million of additional property closure and subsequent reopening expenses with the majority of the expenses in our theater Division.
The reopening expenses this quarter related to extensive cleaning costs supply purchases and employee training among other items related to the reopening of selected theater and hotel properties and implementing new operating protocols.
We also incurred an impairment charge of nearly $800000 quarter related to several theatre properties and an impairment charge of another $800000 alluded to an investment in hotel joint venture.
We included in the non-GAAP reconciliation of our net loss and our adjusted EBITDA with our press release in order to show you. The impact these nonrecurring items had on our reported results.
Our effective income tax rate was 26.9% during the third quarter and 37.3% for the first three quarters of the year.
As we discussed last quarter, our year to date fiscal 2020 income tax benefit was favorably impacted by an adjustment of approximately $17.4 million, resulting from several accounting method changes and the March 27th 2020, signing of the Cures Act.
One of the provisions of the Cures Act specifically designed to help otherwise healthy tax paying companies like us that were significantly impacted by the COVID-19 pandemic allows our 2019 and 2020 taxable losses to be carried back to prior fiscal years during which our federal income tax rate was 35% compared to the the current statutory federal.
The tax rate of 21%.
Excluding this favorable adjustment to income tax benefit our effective income tax rate for the first three quarters of fiscal 2020 was 24.5%.
We anticipate that our effective income tax rate for the remaining quarter of fiscal 2020 may be in the 28, 29% range due to an expected taxable loss during fiscal 2020 that will continue to allow us to carry back a portion of the last three years that had a 35% federal income tax rate.
Of course, our actual fiscal 2020 effective income tax rate may be different from our estimated quarterly rates, depending upon actual facts and circumstances.
Shifting gears away from the earning statement just for a moment our total cash capital expenditures during the first three quarters of fiscal 2020 totaled approximately $19 million compared to approximately $80 million last year, which included the cash component of the movie Tavern acquisition mode.
Most of this year's dollars were spent in our theater division on several projects that we started during the first quarter.
We only spent about $2.8 million during the third quarter.
We continue to have most future capital expenditures on hold for the time being.
Now since the majority of our theater in hotel properties were open for at least the portions of the reported quarter I'm going to provide some financial comments on our operations for the third quarter and first three quarters beginning with theaters.
Now while overall attendance was down over 95% compared to the prior year third quarter. Because we were closed for two of the three months attendance at comparable theatres same theaters opened and same weeks opened.
Were down it was down approximately 85%.
Our average admission price at our comparable theaters during the weeks, we were open increased 0.6% during the third quarter and 2% for the first three quarters of fiscal 2020 compared to the prior year periods.
Our average admission price was unfavorably impacted by the fact that we continue to charge only $5 for older Library film product and we only apply our regular pricing to new films.
We were very pleased to report an increase in our average concession and food and beverage revenues per person at our comparable theatres of 28% for the third quarter and 7.2% for the first three quarters of fiscal 2020.
Now our investments in non traditional food and beverage outlets continue to contribute to higher per capita spending but there were other factors in the play this quarter that likely contributed to the large percentage increase.
We've always believed that long lines at the concession stand can result in some customers choosing the skip the lines and that by concessions.
The reality is that with reduced attendance lines are not long and that has likely contributed to our higher per capita revenues.
We also believe that the emphasis we're placing on encouraging guests to purchase the concessions and food and beverage ahead of time, either online or using that our mobile App is also contributing to our increased per capita revenues.
While the first reason will eventually go away as attendance increases. The second reason is the potential will be long lasting which is very encouraging.
Finally, I'll point out that we were not able to compare our box office revenues limited as they were to the industry. This quarter as data provided to rent track. The box office reporting service was also very limited and not useful for accurate comparisons.
Shifting to our hotels and resorts division, our Red our total revenue per available room or revpar for our seven comparable owned hotels for the third quarter and first three quarters decreased 58.2% during the third quarter and 44.3% during the first three quarters of fiscal 2020 compared to the last years same period.
Now to be clear. This math only includes the weeks that the various hotels were open because as I mentioned three of our hotels were reopened for only portions of fiscal 2023rd quarter.
The same Kate was not opened during the third quarter at all and thus was not included in these results.
Now according to data received from Smith travel research and compiled by US in order to compare our third fiscal quarter results.
Comparable upper upscale hotels throughout the United States experienced a decrease in revpar of 67.1% during our fiscal 2023rd quarter and were down 59.7% year to date.
Meanwhile, competitive hotels in our collective markets experienced a decrease in revpar of 71.4% and 68% respectively. During our third quarter and first three quarters.
Thus, our hotels outperformed both the industry and our competitive sets during both the third quarter and first three quarters of fiscal 2020.
Breaking out the numbers for all seven of our open hotels more specifically our fiscal 2020 threerd quarter. Overall Revpar decrease was due to an overall occupancy rate decrease of 46.4 percentage points.
And a 5.3% decrease in our average daily rate or HDR.
Year to date, our fiscal 2021st three quarters overall, revpar increase or decrease was due to an overall occupancy rate decrease of 28.6%.
20 is 8.6 percentage points and the 10.2% decrease in our Hbr.
Our third quarter occupancy rate for our seven comparable hotels for the weeks that they were open was 36.6%.
Finally, before I turn the call over to Greg. Let me also briefly comment on our balance sheet and liquidity position our.
Ill remind you once again that we entered this crisis in a position of strength our debt to capitalization ratio at the end of fiscal of 2019 was a very modest 26%.
Even after reporting the two worst quarters, we've ever experienced in our 85 year history, our net debt to capitalization ratio at the end of the third quarter was still a very low 35%.
Of course, we also own the underlying real estate for seven of our company owned hotels and the majority of our theaters representing over 60% of our screens and even even larger percentage of our revenue and cash flow.
Thereby reducing our monthly fixed lease payments this.
This is a significant advantage for our company relative to our peers as it keeps our monthly fixed lease payments relatively low and provide significant underlying credit support for our balance sheet.
We also shared with you last quarter that we filed our for income tax refunds of $37.4 million in early August with the primary benefit derived from the accounting method changes I referenced earlier and the new and the new rules for qualified improvement property and net operating operating loss carry backs that came out of the cures Act.
I'm pleased to tell you that we've received approximately $31 million of those refunds in October after the end of the third quarter with an additional $6 million expected soon.
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 future years.
As well.
You'll also note that we have begun reporting assets held for sale in our balance sheet, primarily related primarily to the book value of surplus real estate that we believe will monetize during the next 12 months.
Now, we actually have significantly more real estate that we have the potential to monetize in the next 12 to 18 months, but our accounting policy is to only classified as assets for sale. The book value of assets that we actually have letters of intent or contracts to sell in place.
We will continue to update this number on our balance sheet in future quarters, as we make additional progress in our efforts to monetize surplus real estate.
We're not going to speculate on what the possible sale proceeds might end up being but as a potential to be in the tens of millions of dollars depending upon the strength of the real estate market and how active we might choose to be.
As we previously reported in light of the COVID-19 pandemic, we've been working to preserve cash and ensure sufficient liquidity to endure the impacts of the global crisis, even a prolonged.
As you know on April 29, 2020, we amended our existing credit agreement and issued a new $90.8 million 364 days senior term loan aid to further support our already strong balance sheet and.
On September 22nd we extended the maturity date of the term loan to September and 2021.
Amended our debt covenants and issued $100.05 million in convertible senior notes.
We used a portion of the proceeds from this issuance to purchase capped call transactions that effectively increased the conversion rate of the convertible senior notes from 22.5% to 100% significantly reducing potential dilution related to the convertibles.
Thus after deducting cost of the debt issuance, we added an additional $78.6 million and liquidity to our balance sheet.
We used the net proceeds from the convertible issuance to pay down revolver borrowings under our credit agreement.
As a result as of September 24th 2020, we had cash and revolving credit availability of over $218 million.
And that's not counting the $31 million of income tax refunds received in October.
So you can do the math.
Our adjusted EBITDA during the second quarter. When we were essentially completely closed was a negative $30 million and our adjusted EBITDA. During the third quarter was a negative $26 million.
Even when you add interest expense of that number with a combined nearly $250 million in cash and revolving credit availability. When you add in the October income tax refunds received.
Classic future income tax refunds remaining in 2020 and future potential income tax refunds in 2021.
You can see why we indicate that we believe the additional financing positions us to continue to sustain or operations throughout fiscal 2021, even if our properties continue to generate significantly reduce revenues or have to re close for a period due to the effects of the COVID-19 pandemic.
And we'll continue to pursue additional opportunities to fortify our balance sheet and reinforce our liquidity in the future that.
That will include seeking additional government support is appropriate for example, we're very pleased to see the states of Wisconsin in Nebraska recently recognized the need to support those businesses most impacted by the pandemic introduced graph grant programs that include a theater in hotel industries.
Our trade groups will continue to lobby for additional support at the federal level as well.
With that I'll now turn the call over to Greg.
Thanks, Doug.
I'm going to begin my remarks were Douglas left off discussing our balance sheet.
This is my first chance to comment on the actions. We took in late September to further strengthen our balance sheet and liquidity and I think it would be helpful to explain our thinking.
We have an 85 year history of prudently managing our balance sheet.
As Doug shared earlier, we entered this crisis from a position of strength with a debt to capitalization ratio of 26%.
That conservative approach to our balance sheet has proved to be particularly important during this current environment.
We always have been and will continue to be thoughtful and opportunistic with managing our balance sheet.
Immediately upon the onset of the pandemic, we went to our bank and increased our liquidity by a 364 day term loan closing on that financing in April 2020.
With a significant number of unknown in those first month of the pandemic. We believe adding this short term borrowing was the prudent thing to do.
Well, we now have the majority of our theaters and hotels opened there remains uncertainty regarding the pace of the recovery.
We continue to be confident that both our businesses will recover but.
But our thinking always has been and always will be long term focused.
With that long term focus in mind.
We also have always had the philosophy that our debt portfolio should match our asset base.
Our assets consist primarily of fixed and long live assets and thus we've always tried to have a significant portion of our debt fixed in lung as well.
With the 364 day term loan scheduled to mature in April 21, we are presented with an opportunity to amend our current bank agreements extend our term loan by another five months and adjust our covenants to provide for future near term and medium term uncertainty in our businesses.
A key component of amending our bank agreements was opportunistically raising attractive capital that would ultimately replace the short term term loan.
With that in mind, we believe the issuance of convertible unsecured notes was the most attractive capital raising alternative at that time and had the following advantages.
We can effectively replaced short term borrowings with five year Junior capital five years is a long time and with minimal debt maturities before 2025. It has given us a lot of flexibility and time for the recovery to take hold.
Cash interest payments will be significantly lower than other long term options.
We were able to size the issuance appropriately, particularly for a company our size as an example high yield debt mother long term option. Many borrowers include some of our peers have availed themselves of typically requires a minimum sizing the $300 million range.
But purchasing the cap call in conjunction with our issuance we were able to effectively increase the strike price of the convertible from 2002.5% of our closing stock price to 100% of our closing stock price significantly reducing any dilution concerns that would typically arise from a convertible issuance.
In addition, we have the option to settle these notes at maturity with cash equity or a combination thereof, providing the further ability to reduce any actual dilution of maturity.
I think those last two points are particularly important to may not have been completely understood by the market.
We have the option of settling the convertible notes at maturity in any combination of cash and or stock. It is our stated intent to settle the principal amount of the convertible notes in cash and only study only settle any of the in the money portion of the notes with stock.
Our capped call transactions effectively increase the strike price of the convertible notes to 17 98.
$17.90, $18, almost which significantly reduces the potential dilution arising from these notes.
We've included a table in our latest investor presentation, which shows what the actual dilution would be depending upon our actual share price at maturity five years from now building in the impact of the cap calls me assumption that we pay the principal in cash for example at a 20 dollar future stock price dilution is estimated to be only approximately 3% and a 20.
Five dollar future price dilution climbs to a very modest 8.2% level and if the price is higher than that while the dilution would increase I think we would all agree that everyone would be pretty happy you can find this presentation in the Investor Relations section of our website at Www Dot Marcus Corp Dotcom.
You can be confident that we will continue to prudently manage our balance sheet in the future in order that not only will we come out of this current environment in a strong position, but that we will also be in a position to grow and thrive once more in the years ahead.
With that I'll turn my attention to our operating businesses focusing my remarks on where we are today, what we have done to date and are continuing to do to manage through this crisis and what 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.
I said this last quarter, but it is worth repeating in this rapidly changing truly unprecedented environment. There was 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.
This is guided everything weve done so far and will guide us in the weeks and months ahead as well.
I continue to be thankful for our experienced and dedicated leadership team throughout our organization. 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.
And as we have brought many of our associates back they too we have worked extremely hard under very difficult circumstances in order to continue to provide an outstanding experience for our guests Im so proud of each and every one of our associates.
So let's start with our hotels since they are further along in the reopening process Doug shared some of the numbers with you, including the fact that the data suggests we outperformed both the industry and our competitive sets. This quarter. It certainly wasn't a good quarter for many historical sense, but frankly was better than we expected. When we first started are reopening our hotels with very little advanced bookings in place.
As our press release notes the vast majority of our customers. This quarter came from the dry to leisure market. It wasn't that we didnt have any group business as the summer unfolded. We did have weddings at several locations and return of major League baseball helped our Pfister hotel.
But the majority of our customers were transient leisure customers, we're just looking to get away and change their scenery after months of staying home.
As a result, not surprising we can business was the strongest and properties like the Grand Geneva Resort and Spa and timber Ridge Lodge performed the best among our hotels as they are well suited for families looking to get away Gulf.
Golf revenues the Grand Geneva for example were actually higher than they were last year.
And overall, 37% occupancy rate is nothing to get too excited about compared to what we are used to during our third quarter, but certainly justified our decision to reopen our hotels as we shared with you last quarter in many ways reopening our hotels was a mathematical exercise.
We made the bet, we'd be better off opened and closed it proved to be a good bet, we're particularly pleased that our LDR held relatively strong during the quarter admittedly, it's hard not to wonder what the quarter might have been like in the Noncovered world with the Democratic National Convention in the Ryder Cup, but it was not to be.
It also is important to note that the customer response to our new operating protocols has been very positive once again I can't say enough about the wonderful job all our own hotel associates have done as we welcome guests back to our properties.
Were also particularly pleased with our recent announcement that same Kate the arts hotels reopening this week.
We reopened the first four common areas, including the bar in Pizza restaurant in late July and now were reopening the rooms.
This amazing hotel has earned an incredible number of awards since it opened last summer, including most recently being named the number six top hotel in the Midwest and the top hotel in Milwaukee by common asked readers. It is fair to say it has now been walk is most recognized hotel with the same Kate reopening all eight of our company owned hotels will be open.
In the future periods overall occupancy in the US has slowed concrete is slowly increase since the initial onset of the COVID-19 million demick in March higher.
Higher end hotels like the ones, we generally operate have been impacted more than lower end hotels.
Most current demand continues to come from the drive to leisure segment, most organizations implement the travel bans at the onset of the pandemic and are currently only allowing essential travel, which will likely limit business travel in the near term.
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 of the date of this report our group room revenue bookings for fiscal 2021, commonly referred to in the hotels and resorts industry is group pace is running significantly behind where we were last year at this time for fiscal 2020.
And a large portion of that decline is because last year's group bookings included bookings in anticipation of Milwaukee hosting the DNC Democratic National Convention in July 2020.
Banquet and catering revenue pace for fiscal 2021 is also running behind where we were last year at this time for fiscal 2020, but not as much as group room revenues due in part to increases in wedding bookings.
Many of our cancer group bookings due to cope with 19, our re rebooking for future dates excluding onetime events that could could not be booked for future dates such as those connected to the DNC. However, some group bookings for the first half of fiscal 2021 have subsequently cancelled or postponed their event and we cannot predict to what extent any of our hotel bookings will be cancelled or rescheduled do.
Recovered 19, or otherwise we were pleased to see the writer Ryder Cup rescheduled for 2021 and it is contributing to our 2021 group pace looking.
Looking further out that Wisconsin district, just approve financing for the expansion of its convention center here in Milwaukee. The expansion is currently expected to be completed in late 2003 2023 or early 2024.
Forecasting what future revpar growth or decline will be during the next 18 24 months is very difficult at this time, the non group booking arrivals very short with most bookings occurring within three days of arrival, making will be short term forecast the future revpar growth very difficult.
Hotel revenues have historically tracked 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 system, such as 911, and the 2008 financial crisis hotel demand took longer to recover than other components of the economy.
Conversely, we now anticipate that hotel supply growth will be limited for the foreseeable future, which can be beneficial for our existing hotels. Most industry experts believe the pace of recovery will be steady, but relatively slow.
We continue to believe it will be very important to have our marketing message focused on health and safety of our associates and guests.
Overall, we generally expect our revenue trends to 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 whole Hotel Division President Michael Evans and his outstanding team will effectively manage our hotel operations. During these turbulent times.
Our associates are working tirelessly. So that every guest can rest easy knowing that they are receiving the highest standards of service and cleanliness, while still enjoying the best.
Our award winning hotels and resorts have to offer.
So let's shift to our theater division.
I went over the numbers with you and since we were closed for the majority of the quarter. The numbers are pretty similar to the second quarter, obviously challenging in the midst of this unique time. However, there were some encouraging signs during the quarter that bode well for us in future periods first off.
We're thrilled with our customer reaction to the new protocols, we put in place.
To get 96% of a group of people to agree on anything is virtually impossible. These days if that is what percentage of our first loyalty members told us they had they had a safe and comfortable experience at our theaters.
All the credit goes to our leadership team for developing smart and effective new operating protocols and to our managers and Peter associates for executing on them and providing a great experience for our guests.
We expect policies and guidelines will continue to evolve the timing will be assessed and updated on an ongoing basis. Our goal continues to be to build consumer confidence and trust as quickly as possible. We know it is a process, but word of mouth will help and we're off to a good start.
We also didnt know for sure what customers behavior with what customer behavior would be once they arrived would they adapt to the new protocols.
Would they use our industry, leading technology to order more of their concessions and food and beverage online would.
Would they even by concessions the answer to these questions was a resounding, yes, and we were very pleased with the increases we experienced in our concession revenues per person.
As our press releases noted we reopened 80% of our theaters by August 28, and time for several new films, including tenant on Labor day weekend. Unfortunately with restrictions still in place in New York and California in particular, not long afterwards studios are started changing the new release schedule once again.
Thus like I mentioned in my hotel remarks, it once again became a little bit of a math exercise, we want to be open, but being opened as a certain level of fixed costs associated with it. So we also don't want to lose more money being opened and closed.
As a result, we made the difficult decision to re close 17 theaters in early October and reduced our operating hours and operating days remaining open theaters right now our theaters are open on Tuesdays.
Fridays, Saturdays, and Sundays, which better aligns with current demand.
The industry received some good news a couple of weeks ago. When it was announced that New York State would begin reopening theaters that allowed us to reopen our movie theater, our movie Tavern location in Syracuse.
And as an indication of pent up demand that location was the number one theater in the country for the new film honest, Steve when it first reopened we since we opened three theaters in Nebraska, as well, meaning that as I speak to today, we have 59 theaters opened representing approximately 66% of our circuit.
So now it really comes down to two interrelated topics, both necessary to increased customer demand for going to the movies first and foremost we need new films to be released.
Weve seen first hand that when new films come out our attendance increases.
And in fact.
When we pulled our guests our loyalty club, 60% of them said the reason they weren't coming was because there was there were no movies to see attendance at the last couple of weeks has been the best we've experienced since the first two weeks of yield reopening and is not a coincidence that they coincide with the fact that we are showing an increased number of new films as well as an increased variety of film show, we do better.
That's when all the film genres represented we continue to have regular conversations with our studio partners regarding the need for them to commit to from release dates and continue to release new films theatrically.
Having said that we also need the country on an incremental basis to get the pandemic under control not only will that increase consumer willingness to go to the movies, but it will further encourage the studios to follow through and released their films the confidence that there will be a willing audience ready to attend and see their content. The way it was meant to be seen.
It is particularly heartening to take a look at what is going on in Asia.
The Chinese box office is coming back in a recent new release in Japan, just shattered the record for the biggest opening in Japanese history. After initially struggling to attract audiences. It was the enemy film it at $44 million in its first weekend that compared to the to give you an idea of the relative performance to frozen to which to $30 million. So it was.
Significant outperformance.
There are multiple films still scheduled to be released during the remaining two months of the year that may generate substantial box office interest. We listed some of those terms in our press release, we anticipate the Flubs film slate for 2021, which will also announce with multiple films. Originally scheduled for 2020 is currently expected to be very strong.
And despite some continued experimentation with alternative releasing strategies, which we believe are generally directly are generally directly related to the current COVID-19 environment. The fact remains that the vast majority of films have been delayed to future periods.
Clear indication in our view of the importance of the theatrical experience to the studios they seek to monetize their content.
Just as we've had to adapt our plans in the recent months, we recognize that we will need to be prepared for new challenges and opportunities in the weeks and months ahead.
Well I won't share the exact numbers when we first began reopening theaters, we did the math and we believed we needed a certain attendance level in order to perform better than being closed as we manage through the past two months, we found additional ways to reduce fixed costs and operate at lower levels of attendance in other words, our math has improved and we have 66% of our theaters opened today, because we think it is better to be open better.
For the customer site that are for the associate sake and better for the overall business six.
And of course, we have an advantage that Doug alluded to earlier, we own the majority of our theaters, reducing our monthly fixed costs and making it easier for us to stay open.
There's always the possibility that the film schedule could change again or that we could see renewed restrictions from select local or state jurisdictions, but I am certain that rely on to Rodriguez and is incredibly talented team, we'll be prepared to adapt and manage us through this reopening process and ultimately position us to once again lead the industry into what we believe will be a very bright future.
And while I'm on it.
Want to publicly congratulate Rolando and recently being elected chairman of the board for our industry Trade group The National Association of theater owners or NATO. It has tremendous honor for Rolando and a recognition for his leadership not only for us but for the entire industry.
[music].
In conclusion is continually changing environment you can rest assured that we are constantly reviewing the situation in both our businesses and making changes to our plans is warranted a 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 continue to appreciate the confidence and support of our lenders in the investment community. During this challenging time and always with that at this time, Doug and I'd be happy to open the call up for any questions you may have.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone. If your question has been answered very wish to remove yourself from the queue. Please press the pound key.
And any background noise, we ask that you. Please place your line on mute. Once your question has been stated.
Well go to the last first question from Eric Wold with B. Riley Securities. Your line is open. Please go ahead.
Thank you good morning, guys.
Eric couple of a couple of questions I guess, one on the theaters and one on the hotel side.
So Greg you just mentioned about the the theaters identify certain.
Fixed costs out of the can reduce could bring down that breakeven point I know you're not going to stay with that breakeven point is but can you just identify what those fixed costs were in are those more likely be short term or can they be permanent.
You know, it's those member breakeven to being closed so just make sure that we're just talking about.
The.
The.
You know its look it there looking at everything throughout the board first of all just so and some of its when I say temper some of the costs were temporary.
So we have to get people for example to get people in a cousin to the environment. We we were a little we were I would say heavy on some of the labor to get people to.
Two we had greeters people to to steal she'll be booking how do you operate in this new environment I mean literally I.
I have to tell you will detail we were in our team was not given such credit.
We were so you could use your foot to open the door because we've got these little pedal that sort of sit on the bottom of the door that you that is a clamp when you put your foot down on it you can pull the door up on your fleets you not to touch the door I mean, it's that level of detail so to have people to and to explain how to order online and order your tickets online and to promote that so some of that then got cut back that was a piece of it.
And then just adjusting to the willing to adjust to what the volume is in the theater with our processes and in itself and then also but its throughout the organization.
We've asked our teams at the corporate level, you know to to cut back as well into and we've we've been thoughtful about every dollar that we spend and it hasn't been easy and again to Orlando and the team I. Thank them. This has been a huge challenge. This is they exemplify what leadership is.
And so some of that look at.
It's as as we as you know we.
As we trained to run the marathon, we've what we've gotten in better shape and I think some of that will will be permanent in the end and how we operate and I do think again to one of the advantages of the ability to move people to online ordering something we learned a long time this benefit of being a multiple business lines lumping in hotel business.
It hurt many years ago and they talked about how.
Getting customers to to make their own reservations in hotels, which you now do on your phone and on your computer was a huge benefit because the signal a ton of money from them in a call up a reservation center, where a human had to do that we actually they actually moved the the work to the customer as opposed to someone they employed to do that so.
Same thing in the theaters, if you can get people to order tickets online into or their concessions online you know.
Although it's a very quick transaction.
[music] type to type in somebody's order.
Put in thousands of transactions and those that time adds up and so you know so I think that that that there will be savings that come throughout that we see at the other at the other side of this.
It's as that it's a mixture of things.
Okay. Thank you and then on the hotel side.
Can you talk about the decision to reopen CKD rooms coming week I know in the past you've talked about your only open a hotel if it was it.
Good.
News less cash or generate more cash than being closed.
Is that the case here without potentially drawn away from 200 properties and the wacky or is this more and you cannot just trying that property get ready for it.
When visits as return.
I think you read my mind exactly.
Yes, you are exactly on point to.
It was.
You know I don't know I don't know, how we don't know how could we don't there's no advanced bookings. We've had we've had so many this is such a special hotel. It so interesting I mean too.
You know when I go back to when we first opened the same Kate.
We were trying to I went out and I googled, and we're gonna hearing how man. This hotel is fantastic. It's is so unique and so so interesting so amazing and I can go on Google and I, Google Best hotels in Milwaukee, and it wouldn't show up and I was like well, we just haven't been around long enough to be on the list well now were on the list into that kind of Nasty award was such an IPO.
Such an important award among all the others, we've gotten we've gotten that just.
So many were one of the most recognized I'll tell him walk you for sure and frankly, probably one of the more recognized hotels in the country, if you sort of add up.
That we thought it was important to have rooms open now one of the advantages of being in Milwaukee is we're able to lever some management across the hotels and sold the incremental cost of being open isn't very much we may shift a little bit of business I think you're exactly right about that but.
But we want to be able you know its hard to tout you're one of the best hotels in town and then not be available to guest.
Got it and then just a last question on hotels.
What are you seeing with competitive 80 ours.
In the markets Youre in.
Then what have you done in response to that.
Are you being flexible at all are you, mostly really until year end.
Yes.
I would.
Okay, that's market dependent and 80 hours are ours are down in lots of places.
It's where we could where there's demand we were hope we were able to hold 80 hours in some areas as well and so it just it just depends on what's going on.
And mix of business and we've shifted business in different we've got some lower rated business that we moved around.
Surprise I would say you know I'd give it a b and you know in terms of people not going completely to racing to the bottom because they know that there is this is there is not a lot of there's probably not a ton of elasticity.
They want to attract people, but the people that are traveling are just going to travel so.
Perfect Thats correct.
Sure. Thank you.
Thank you and our next question comes from the line.
Jim Goss with Barrington Research. Your line is open. Please go ahead.
Okay. Good morning.
Over the past over the past several years so the industry as this it theatrical industry is addressed the footprint this year by cutting seats with receding revenue and fewer screens at this stage with the pandemic contributing.
I think there will be any cut in the number of screens in the industry and if so.
How would you look at the impact potentially on your competitive position or even your M&A potential given that you're in a lot of smaller markets, where maybe some of those theaters might be more at risk.
Well either.
I actually I do thing Jim there will be.
A shrinking of the theater footprint.
Well I think that the that the odds are that there will be players who will have to reorganize and.
And it's and and it's interesting I think it's important for people to remember realization doesn't mean, they're going away.
Yeah tick a little bit more than a 14 second outlook.
It's hard for the average layperson understand that I know you understand that but you know as a company we they reorganize their going there, but there are you know frankly, the investors are already in there they've been jockeying for position in their debt for months and months and months is there waiting for the loan they've been loaning to own their going end up owning these and they're going to end and Anthony.
If you look believe in the long term health of the business, which which I do not I believe people want to be together people want to go to the movies Theyre, they're itching to get out right now I think it's it's you know that.
We know the theatrical as a significant revenue stream for for a lot of these companies frankly society I think it's important I mean, we always talk about the communal experience than we do we talk about it being good for our being good because customers enjoy being with other people, but even beyond that you know society.
Society reasonably strong as it's as its common bonds of trust and I somehow think that society would prefer to have people have different background.
Backgrounds and thoughts altogether in a room rather than sitting at home alone in their silos thinking about just what they believe and its I think decidedly it's good so I believe we get in the long run.
The long run that the future of theatrical but that being said as they rationalize their footprints some.
Some of these smaller theaters will go away now look at in a small towns that were in.
That probably we may be the only player in a small town now where a lot of where a competitor with a less.
And as Peter Let's say, we did invest in these theaters, it's time for them to go way the giving back the landlord nobody comes back into take them.
The the landlords and these some of these out these absolutely Peters go away a customer who want to come to theater will travel further and they're probably come to some of our theaters. So that will be helpful. In the long run as well.
Ill ask for bigger theaters, frankly, we've been thinking for a long time about if we had too many screens and were what are other uses for them. What other kinds of group uses could there be in I don't know where that'll happen as well, but there'll be there'll be some of that in markets, where there has been some that were building. Some of those theatres are going to disappear and then the people who are still around will benefit from those customers we've seen lots of it.
Histories, we think about the car industry.
In the in the in the in the great recession, the nightclub and not so great recession the.
You know the guys who were able to get through it ended up really doing very well because there was a fitting out of a lot of car dealers and so I don't know that it will be as dramatic is that with our industry, but I think there will be some of them.
Okay. So the overall number the 40 or 40000 whatever's figures right now you don't think will materially.
Change not.
No no I do think it's going to decline I do think it will decline I can't put my finger on what it will be but I do think it will shrink.
Okay.
Yes, let me, let Jim let me, let me just make one other point on that.
No one should draw a percentage of revenue to the to to theaters as a straight line depreciation on a straight line mathematical exercise you know if a certain percentage of those leaders go away. It's a very probably small percentage of overall revenue because they are those smaller obsolete theaters.
That's that's a good point too.
Yesterday you had.
Excellent.
Some of the maybe an increased linked with Comscore and we're going to talk about that a little bit.
Our use somewhat outsourcing some of your theater management operations or just engaging them in certain certain aspects that they do.
To maybe to a greater extent.
Just wondering how this how we should read into this management team the idle that as much to read into it I think comscore Wanda to promote that we were their customer [laughter] [laughter].
Fair enough if Jim Jim they've got a they've got a very good product that we use.
At the theater level.
Theater management system and so.
Thats all thats what it is.
I don't think it's any larger issue other than that it's it's very good technology that we that were.
We're pleased to continue to use and expand our usage of.
Okay, and maybe lastly, the search.
Surplus real estate issue you mentioned.
And you said potentially tens of millions of dollars that sort of thing.
What would be the decision driver in doing something.
With regard to some of this real estate and might there be properties swaps that might benefit into the hotel or theatre side that you might consider rather than monetizing them directly.
Well.
I would break the two.
Two things one is going to be.
Don't demand.
No we.
The.
Because what we're not we're not win with a fire sale. These properties again, that's the most important point you know, it's really got something where frankly, just it was good Dick ill good to get our focus on what we had there and.
And so to that that focus now is really get us get you said, let's let's let's make sure that we that we maximize we've got going on that being said no. We don't need we don't need to we don't need to fire sale it to anybody and so but the increased focus the painting the devotional taking our.
Resources devoted to making that happen is I do believe important now that surplus real estate, it's not something we would trade now would we trade real estate.
Yes, sure and in certain markets. If it made sense, we would be open to that theres not theres nothing of that happening right. This second Tonight, I don't think until the world settles down or something like that happened, but it's not unheard of.
None.
Clay, there's a tax ramification.
If you do a properties swap.
And our both the hotel and the theatrical.
Parts of your business in the same area in terms of that tax issue.
Real estates real estate when it comes to that particular issue Jim. So so so yes. If you if you sell real estate and by real estate essentially I mean, the train as you kind of referring it to then it does.
Got to do it right, but and meet certain qualifications, but yes. It does ultimately qualify for the a 10 31 treatment that you're I think you're referring to.
All right. Thanks very much appreciate it.
Thank you.
Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
Our next question comes from the line of Mike Hickey with.
The benchmark company. Your line is open. Please go ahead.
Hey, Greg Doug.
And my guidance.
Hey, I guess congrats on the hotel side for the quarter definitely pretty good performance mix since we open.
Looking at four.
Fourth quarter, it looks like sort of the virus influence sort of crept up in some of the states where you have concentration some year.
Your business units, Wisconsin in particular are you.
Five year hotels, and I think you screen countenance around.
27%, So just curious what you're seeing.
In the fourth quarter in terms of sort of consumer behavior.
Under sort of doubt spike in infections that you're seeing in Wisconsin, Another key states.
Yeah.
Well you.
It's.
It's been a little hard Hello, right now whats well look at it I think we we are businesses would typically slow down.
The fourth quarter.
Heart hard to know I mean, it's interesting I looked at I can't I will say, which was I looked at the list yesterday of a sale of our theaters and how they were doing I look individually on attendance level I have looked at some of the areas that have been the hardest hit and yet they those theatres are not necessarily among the lowest performing theaters you think there would be a natural correlation to that.
The other day it does talk about on the theater side about where people feel as of of all the indoor things that could be going on.
That that theaters are.
The among the safest things and all the indoor because because of the nature of what you do doesn't it.
It doesn't intuitively feel that way until you think about it and we've talked about this before but the intuition is you know theater concert live theater, they're sort of all get the sort of go to that direction. Yes would you go out to eat all sure I got some would say but.
In a restaurant and done properly restaurants can be safe environments to but just I know if you're going to compare relative environments. The theater you go in.
Face to face all one direction, you don't talk to anybody.
You don't.
You you you have a mascot unless you're going to have some concessions.
You are socially distant from everybody.
That we have Rick.
Decliners keep to seven feet deep between seats, and we see checkerboard and you have six feet between you and people your side. So you know.
Because of all the things that Weve the order online low to no contact all things that we've been putting in place you know it's an end people are learning about the people that are interested are starting to hearing audits that have the feeling comfortable and safe environment and is that our customers are it's helpful to have that and so getting more product would be caused people to talk about it.
But yes, no I mean, I think that we have to be sensitive to what might happen with the virus and what and what's going on but I do think that that if they do start to to two that there will be attention focused on it post election, and hopefully then it's a it's a short intense.
Packet, what's going on and then because we learned from experience and then we we get under control and start to move back into a better place.
Okay.
Did you mention what you're seeing in the hotels.
In terms of sort of recent trends on the buyers are I missed that sorry.
Again, I think it's still sort of hard for us to tell I didn't really talk about because we're seeing is pretty is been what we've been seeing sort of all fall, which is you know it gets relatively quiet during the week and it's getting it's this could that the person driving this is the is consumer leisure and then.
And then it gets stronger.
During during the weekends and.
And then for example, it like at Lake City right now we're in a bit it will all be getting harder that well was Halloween. So thats, one thing thats going to chemicals, one weekend, but even more generally we're sort of in between golf and before ski season, and so but once we once we get some snow and get some skiing and that gets colder and starting colder except for this week.
You know that that should be good for lake Geneva on the weekends and and so again.
I do think that that as the that as it heats up it's fair to say, let's watch what's going on we don't have any insight to it yet, but it's a fair concern, but but again I think that it will get attack and and then we'll get moving again.
Okay.
On the leisure side, we normally your fourth quarter first quarter, I concur that sort of low.
Low occupancy quarters, just given the monthly winners you have there Scott.
[laughter].
The but do you think it might be different.
Over the next couple of quarters just given.
How constrained are our summer months of Dan are you doing I know you are pretty creative like Geneva, another property in terms of promotion.
Special offers are you doing.
Sort of incentives that could bring people on the leisure side more than normal in the fourth quarter and first quarter.
Yes, our teams have been.
Have been unable I give you that given such credit Michael team they've been unbelievably response of the trying to come up with ideas for how to drive bookings I think even as you were all seeing it. This is that we're not in a great period, where we're trying to just make the best of what we have here, we're making we're trying to make little lemonade.
And so I'm not sure the dials going to get moved generally huge in either direction.
But that being said.
They've they've.
We've been working on promotions like for like this week all of a sudden 60 here and they're very quickly getting outcome to two to market to people Hey couple of the golf and whether it's beautiful.
You know and so the answer they moved very quickly on other things marketing it as a quick getaway marketing staycations.
Marketing the idea of if if your kids are remote.
No. If you carve your remote if you everything you're doing is remote common stay at our hotels come to comment because we and we've set up like Lake Geneva, We've got the ability to help them with learnings set up for tutoring and to take advantage and say if you're stuck at home and you can't and nobody is going anywhere they will come and have a changing environment and come to where we are.
And come to have come to it where you can be outdoors and enjoy all the amenities that we have that you can acute enjoy safely so.
The teams were very creative and coming up with ideas to try and take care of.
Just to do just that.
Cool the last question that you touched on it a bit but it looks like you have at least one distress seller potentially in the market us.
On the on the theater side I'm sure. This.
A lot of them.
And of course when is that obviously you get a pretty good deals cannot any asset sale just sort of wondering.
Your motivation to be buyers here.
Or is it just still too uncertain for operating environment to be opportunistic.
You know.
I think it's going to depend on the situation. We there's nothing right. This second I think some of the opportunity for a company like ours will be you know.
As as people are rationalizing their footprints to potentially pickup theatres from white with landlords and.
And cut deals that are that are that look different than we've been cutting to the past to say look at landlord you might be getting offered something very low.
We would we would be able to come in and maybe we're going to be partners. We've done deals that effect. If we go back in the history of the company, which by the way, it's our 85th anniversary we celebrated its on Sunday and we're so valley this week, but.
But my grandfather, I know one of the ways. He built the business at the TV came along so let's talk about the fact that this business does endure some significant shocks.
That the and it endures keyword being endure the he went around to other people who were getting feeders back and say look we're going be partners and will bring and because it's going to come back at some level and he was right and.
And so I think there could be opportunities like that as we look forward and we will be focused on trying to take care of do that and then looking at other opportunities with with people who own things who need good management teams. We have that we certainly under that we have a great team that understands this business.
All right sounds good guys. Thanks, Greg.
Thanks, Mike.
Thank you at this time. It appears there are now at a question I'd like to turn the call back to Mr. nice for any additional or closing comment.
Well. Thank you everybody. We just thank you for joining us once again today.
We do look forward to talking to you once again in early 2021, when we release, our fiscal 2024th quarter and year end results.
Until then thank you have a great day.
That concludes today's call you may disconnect. Your line at any time thank.
Ladies and gentlemen have a good day.
[music].