Q4 2020 Marcus Corp Earnings Call

Good morning, everyone and welcome to the Marcus Corporation fourth quarter Earnings Conference call. My name is list and I will be your operator for today.

At this time, all participants are in listen only mode.

We will conduct the question and answer session towards the end of this conference.

And if at any time during the call you require assistance. Please press star zero and the operator will be happy to assist you.

As a reminder, this conference is being recorded.

Joining us today are Greg Marcus President and Chief Executive Officer and.

And Doug Nice Executive Vice President and Chief Financial Officer, and Treasurer of the Marcus Corporation.

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

Thanks, Liz and good morning, everybody welcome to our fiscal 2020 fourth quarter and year end conference call.

Please bear with me as is once again as usual I need to begin by stating that we plan and 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 may generally be identified by our use of words, such as we believe anticipate expect or words of similar and important.

Our 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 the adverse effects of the COVID-19, pandemic and our theaters and hotels and resorts businesses the zelle.

Lots of operations liquidity and cash flows financial condition and access to credit markets and ability to service, our existing and future indebtedness.

And the duration of the COVID-19, pandemic and related government restrictions and social distancing requirements and the level of 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 the assumptions about our ability to manage difficulties associated with the related to the COVID-19 pandemic the.

Assumption that of theater closures hotel closures and restaurant closures and and I expect it to be permanent or to reoccur.

And our assumption of about the release of new movies, and the temporary and long term effects of the COVID-19 pandemic on our business.

Listeners are cautioned not to place undue reliance on our forward looking statements and additional factors risks and uncertainties, which could impact our ability to achieve our expectations are identified and our forward looking statements.

Are included under the heading forward looking statements and the press release that we issued this morning announcing our fiscal 2020 fourth quarter results and and the risk factors section of our form 10-K, which we're filing today, which you can access and we're actually going to file and I believe on tomorrow. So I apologize and we'll be filing our 10-K tomorrow, which you can access on the SEC's website.

Right.

We'll also post all regulation G disclosures when applicable on our website at Www Marcus Corp Dotcom.

With that behind us lets begin.

Our call will follow our usual format, where I'll start by spending a few minutes briefly sharing a few numbers from our quarter and year with you and then I'll 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 for the near term and longer future well then open the call up for questions.

So you've seen the numbers, excluding some nonrecurring items that I will address our fourth quarter was pretty much as expected.

Theatre results improved compared to the third quarter, but were impacted by the limited number of new films additional restrictions imposed and some of our markets and November and December along with strategic decisions regarding openings and closings and our part.

As a result by the end of December we only had 52% of our theaters open now.

Now as we noted in our release with restrictions being lifted and improved operating assessments were back up to nearly 70% of our theaters open and operating now.

Also as expected results from our hotels and resorts segment were softer than our third quarter as the weather turned and our primary Midwestern markets and leisure travel declined from summer levels.

All eight of our company owned hotels are now open as well as all but.

And and at the end of the year, all but one of our managed properties was open as well.

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 additional property closure and subsequent reopening expenses with the majority of the expenses and our theatre Division. We also incurred impairment charges this quarter related to several theatre properties and our trade name intangible asset.

Conversely, we had several nonrecurring items this quarter that favorably impacted our reported results and our liquidity.

We were awarded multiple state government grants totaling approximately $7 million during the fourth quarter. We also received net of insurance proceeds related to Covid related insurance claims.

And in and this stuff and you have to fight of all of these numbers. We did include a non-GAAP reconciliation of our adjusted net loss and adjusted EBITDA with our press release in order to show you. The impact of these nonrecurring items had on our reported results.

Now there are also a couple of items worth, noting and our numbers below operating income as you'd expect our interest expense increased during both of our fourth quarter and fiscal year due to increased borrowings and higher average interest rate.

It's very important to note, however that $1.5 million.

During the fourth quarter and $2 $2 million for the full year of our reported interest expense represented noncash amortization of debt issuance costs and debt discount on our convertible notes.

I also want to point out that beginning in fiscal 'twenty 'twenty, one and the accounting for our convertible notes does change beginning January 1st will show the entire $100 million of $101 million of convertible notes as debt that it will not be of portion allocated to equity and.

As such our reported interest expense in future quarters will not have any noncash debt discount now and the fourth quarter approximately $1 million of that total $1.5 million noncash interest expense and I just talked about was related to the debt discount and the convertible notes and that will go away and future quarters.

Also during the fourth quarter our expense other expense was partially offset by other income of approximately $1.4 million related to the receipt of movie Tavern acquisition escrow funds that were returned to us in conjunction with a negotiated early of release of remaining escrow funds to the seller.

And finally, you'll note that we reported net gains on disposition of assets during the fourth quarter. This net gain was due primarily to the sale of two surplus land parcels and one theatre during the period.

Now of our effective income tax rate was 33, 8% during the quarter and 36, 2% for the year and both periods benefited from previously described adjustments, resulting from several accounting method changes and NOL carry back provisions of rising out of the cares Act.

Excluding adjustments favorable adjustments to income tax benefit our effective income tax rate during fiscal 2020 was 26%.

Now, we anticipate that our effective income tax rate for 2020, one maybe and that $24 26 per cent range once again of.

Of course, our actual fiscal 'twenty 'twenty, one and the effective income tax rate may be different depending on actual facts and circumstances.

Shifting gears away from the earnings statement just for a moment, our total cash capital expenditures during fiscal 2020 totaled approximately $21 million compared to our original pre COVID-19 projected expenditures for the year of $65 million to $85 million.

And approximately $94 million last year, which included the cash component of the movie Tavern acquisition.

Most of this year's dollars were spent and our senior division and several projects. We started during the first quarter we.

We only spent $2 $7 million during the fourth quarter.

As we look towards capital expenditures for fiscal 2021.

We're currently estimating that our fiscal 'twenty, one capital expenditures may be and the $15 million to $25 million range.

Many of our projected expenditures are back loaded to the second half of the year other than of recliner seating and renovation project that is currently underway at one of our theaters that we originally started prior to the pandemic and.

And the lobby renovation with selected Guestroom improvements at our Grand Geneva Resort and Spa.

Let me now provide some brief financial comments on our operations for the fourth quarter and fiscal year beginning with theaters.

Total attendance was down 90 per cent compared to the prior year fourth quarter, reflecting and reflecting the large number of theaters that were closed for all of our portions of the quarter and the fact that our open theaters are currently on the only operating on Tuesdays and weekends.

When you narrow that and mass down to just comparable attendance for theaters that were open and any given week compared to last year comparable attendance was down approximately 87 per cent for the quarter.

Our average admission price at our comparable theaters during the weeks that we were open decreased 13.7% during the fourth quarter, but only 0.4% during fiscal 2020 compared to the prior year.

Our average admission price was unfavorably impacted by the fact that we continued the only charge $5 for older Library film product and we only apply a regular pricing to new films.

We're very pleased to report an increase and our average concession and food and beverage revenues per person at our comparable theaters of 10, 2% for the fourth quarter and six 8% for fiscal 2020.

And our investments in non traditional food and beverage outlets shorter lines of the concession stand and the emphasis of emphasis we're placing and encouraging guests to purchase their concessions and food and beverage ahead of time, either online or using our mobile app is contributing to our increased per capita revenues.

Shifting to our hotels and resorts Division, our total rep Revpar revenue per available room for our seven comparable owned hotels decreased 73% during the fourth quarter and 54, 1% during fiscal 2020 compared to last year's same periods.

The Saint Kate was not open for the entire fourth quarter and was closed for nearly half of the year last year and thus was not included in those results.

Now according the data from Smith travel research and compiled by US in order to compare our results.

Our hotels were on a par with comparable upper upscale hotel throughout the United States during the fourth quarter and outperformed those same style hotels by nearly eight percentage points for the full year.

The data also indicates that our hotels outperformed competitive hotels and our markets by nearly six points during the fourth quarter and nearly 16 points during fiscal 2020.

Now breaking out the numbers for all seven comparable hotels more specifically, our fiscal 2020 fourth quarter. Overall Revpar decrease was due to an overall occupancy rate decrease of 44.7 percentage points and of 16% decrease and our average daily rate or ADR.

Our fiscal 2020 full year Revpar decrease was due to an overall occupancy rate decrease of 35, four percentage points and 11, 6% decrease and our ADR.

Our fourth quarter occupancy rate for the seven comparable owned hotels was $24 four per cent compared to a third quarter occupancy rate for the seven of those same seven hotels.

For the weeks that they were open of 36, 6%, reflecting the reduction and leisure travel as schools reopened and colder weather arrived.

And finally before I turn the call over to Greg. Let me also briefly comment on our balance sheet and liquidity position.

You may recall that we reported cash and revolving credit availability of over $218 million at the end of the third quarter.

Thanks to the receipt of income tax refunds of portion of the state government grants referenced earlier and continued strong cost controls at every level of our organization, our cash and revolving credit availability actually increased to approximately $227 million at the end of December.

And fast forwarding the today.

I'm pleased to tell you the two plus months into the new year I'm projecting that we're going to and this week at nearly the same amount of liquidity as we had at year end.

Thanks, and parts of the expected received this week of the remaining income tax refund from last year. The sale of another asset the receipt the receipt of the remaining state grants awarded last year.

And and and additional state grant that was awarded in 2021.

As well as improved operating metrics in both of our divisions.

As we previously reported we anticipate and additional income tax refund of approximately $21 million later in the year. After we file our 2020 tax return with.

With tax loss carryforwards also available to be used in future years.

As you know.

We also own the underlying real estate for seven of the hotels and majority of our theaters, thereby reducing our monthly fixed lease payments. This is of 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.

So you can do the math over the last three quarters, we've established a fairly tight range of adjusted EBITDA, reflecting being fully closed operating under significantly reduced revenue levels.

Even when you add cash interest expense to that number after taking into consideration of our expected income tax refunds in 2020. One you can see why we believe we are positioned to continue to sustain our operations throughout 2021 and ended the fiscal 2022, even in the unlikely scenario, where our properties continue to generate significantly reduced revenues throughout <unk>.

'twenty one.

And of course that liquidity position only gets exponentially stronger assuming revenues and both of our businesses continued to improve particularly during the second half of the year as currently expected.

And we'll continue to pursue additional and.

The opportunities to reinforce our liquidity and the future.

Which would include sales of surplus real estate and other non core real estate.

As reported in our press release, we received approximately $3 million of proceeds from the sale of real estate during the fourth quarter and early and our fiscal 2021 first quarter. We sold another assets further contributing to our liquidity.

We also have over $4 million of carrying value and additional assets currently under contract or letter of intent to sell later in 2021 and in fact, we believe we may receive total sale proceeds from real estate sales. During the next 12 to 18 months totaling approximately $10 million to $40 million, depending upon demand for the real estate and question.

Finally, even after the worst year, and our 85 year history, our debt to capitalization ratio of at the end of fiscal 'twenty was a remarkably low of 37%, giving us a lot of flexibility and the future.

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

Thanks, Doug.

And before I comment on our businesses and I'm going to begin my remarks, where Douglas Doug left off discussing our balance sheet.

Those of you who've been with us for Awhile know that and the same 85 year history, Doug just referenced a hallmark of this company has been the prudent management of our balance sheet.

As such we entered this crisis from a position of strength of the debt to capitalization ratio of 26 per cent nearly a year later that ratio was only increased to 37%, which is our press release notes is equal to or lower than the same ratio during seven of our last 10 fiscal year ends.

I find that remarkable.

And that conservative approach to our balance sheet has proved to be particularly important during this current environment.

You can be confident that we will continue to prudently manage our balance sheet and the future.

And order that not only what we successfully come out of this current environment, but that we will be in the position to grow and thrive once more in the years ahead.

With that I'll turn my attention to our operating businesses.

We recognize that there still may be some bumpy weeks and months ahead of us, but we are very encouraged by number of green shoots that are spring and fourth and both of our businesses.

Of course, the most encouraging news of all since we last talked as the approval and initial rollout of three vaccines for COVID-19, including the approval last week of the J&J vaccine.

And operator of movie theaters hotels, and resorts restaurants, and bars, each of which are based on public gathering our businesses are significantly impacted by of protective actions that federal state and local governments have taken the control of the spread of the pandemic and our customers' reactions and responsive to the such actions.

As you might imagine I've closely followed the COVID-19 numbers and our markets and throughout the country as well as the really miraculous development of highly effective vaccines, the curb and ultimately and this pandemic.

And well I think we would all agree that our country got off to a slow start COVID-19 numbers have been coming down significantly and our markets the pace and which states are getting shot and arms is increasing rapidly and the supply of vaccines is expected to increase significantly in the coming weeks and months.

We know there is still work to do in order to get back to normal and if we've learned anything from this pandemic and is that no. One can really forecast exactly how the future months will unfold.

But there certainly is a lot to be encouraged by I said each of the last quarters, 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 wellbeing of our associates customers and communities.

This is guided and everything we've done so far and will guide us and the weeks and months ahead as well.

So let's start with the hotel Division.

Doug shared some of the numbers with you, including the fact that the data suggest we outperformed both the industry and our competitive sets this year.

To expand on that point for a moment another way of looking at our outperformance is to examine market share, which and the hotel business is general is usually expressed.

As an index.

For example of Revpar index value of 100 wouldn't indicate that of given hotel is getting its exact fair market share of revenues per available room compared to competitive hotels and this particular market.

During the previous four fiscal years, our average combined company owned hotel Revpar Index range between 108 hundred 12.

Meaning that on average our hotels, we're getting $8 to 12% more market share than you would expect if everyone got their proportionate share of business.

Fast forward of fiscal 2020, certainly and unusual year, where of hotels and others and our markets may have been closed for portions of the year and.

And I'm pleased to report that our average Revpar index for these same company and owned hotels increased to 136, our hotels had revpar of 36% higher than you would expect if everyone got their fair share.

And now as demand increases and our hotels are fully operating we might expect that number to decrease of them, but I think it speaks to a flight to quality that should be beneficial and the future and our ability to consistently outperform and our markets.

The vast majority of our customers during the fourth quarter and continuing today come from the drive to leisure market.

And it wasn't that we didn't have any transient business and group business. We continue to have weddings, and some small group business and just like in the summer when we had major league baseball team staying with US we've had success booking basketball teams this winter but.

But there are also some green shoots and individual business travel and we believe the continued progress with the vaccine rollout will further support growth and both of these business travel segments.

But as I said the majority of our customers have been transient leisure customers, who are looking to get away and change their scenery after months of staying home.

As a result, not surprisingly weekend business was the strongest at all our hotels properties like the Grand Geneva Resort and Spa and timber Ridge Lodge performed the best amount of hotels as they are well suited for families looking to get away during our last call I shared with you that our golf revenues at the Grand Geneva were actually higher than they were and the previous year well.

Now I'm happy to tell you that we're having a record ski season at that property.

We've been at or near Sellouts on multiple winter Saturdays at this resort.

As you know with our company owned hotels, primarily in the Midwest, We're still working our way through our traditionally slow season, and overall of 24, 24% occupancy rate is nothing to get too excited about compared to what we would normally expect during our fourth quarter, but it certainly justified our decision to reopen our hotels as we share with you last quarter in many ways reopening.

Hotels was a mathematical exercise we made the bet that we would better off opened and closed and it proved to be good bad and despite the expected reduction in occupancy and the fourth quarter as kids went back to school and winter weather arrived we believe our hotels collectively significantly outperformed what they would've done if they had been closed.

And that is attribute to Michael Evans, Our hotel Division President and his entire team.

They've done a fantastic job of streamlining our operations, reducing both variable costs and costs that might have previously deemed fixed and order to keep our hotels open and operating and.

And that is paying off and increased market share.

Looking to future periods of the hotel divisions called the action in 2021 is aptly named rebuilding together, we know that we have a longer road ahead of us as we work to get our hotel business back to pre COVID-19 levels.

It will almost certainly take beyond 2021.

Overall occupancy and the U S bottomed out last spring slowly increased during the summer and early fall and level off and the fourth quarter.

Higher and hotels like the ones, we generally operate had been impacted more than lower and hotels.

Most current demand continues to come from the drive to leisure market.

The most organizations implement the travel bans and the onset of the pandemic and while there are some signs that some of these bands are beginning to loosen slightly business travel will still likely be limited and the near term and the other hand, we have very high hopes for leisure travel and believe there remains a lot of pent up demand and go somewhere assuming the vaccine rollout continues to progress and overall COVID-19 numbers.

And our markets continue to improve that may bode well as the weather improves and summer arrives it is encouraging that many cultural institutions and sports teams and our markets are transitioning their operations to allow more in person guests and spectators that may help drive for the future demand as well.

We're already seeing some of those green shoots besides of the comparatively strong winter season, we are experiencing at the Grand Geneva, We had a second hotel experience and near sellout. This past weekend as well performance of restaurants at the Mason Street Grill, while still only open for dinner has exceeded our expectations.

But we'll also have challenges as you would expect our company owned hotels of experienced a significant decrease and group bookings for fiscal 2021 compared to where we were last year at the same time and of course last year, we were still anticipating Milwaukee hosting of the Democratic National Convention in July of 2020, we were pleased to see the Ryder Cup rescheduled for September 2021, and as contribute.

Moving to our 2021 group pace looking further out the Wisconsin District approved financing during the fourth quarter for the expansion of its convention center. The expansion is currently expected to complete it and be completed in late 2023 or early 2024 and should help all of our Milwaukee hotels.

Banquet and catering revenue pace for fiscal 2021 is also running behind where we were last year at this time of fiscal 2020, but not quite as much as group room revenues due in part to increases and wedding bookings.

Many of our canceled group bookings due to COVID-19 of Rebooking for future dates excluding one time events that could not re book for future day, such as those connected to the DNC. However, some group bookings for the first half of fiscal 'twenty 'twenty, one and have subsequently canceled or postponed their event and we cannot predict to what extent any of our hotel bookings will be canceled or rescheduled due to COVID-19.

Otherwise.

Forecasting what future revpar growth or decline will be during the next 18 to 24 months, it's very difficult at this time the non.

The group booking window is very short with most bookings occurring within three days of arrival, making even 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.

We will be monitoring the economic environment very closely.

After pass shocks of the system, such as 911, and the 2000 and financial crisis hotel demand and took longer to recover the and other components of the economy. Conversely, we now anticipate that hotel hotel supply growth will be limited for the foreseeable future, which can be beneficial for our existing hotels, which we believe are uniquely positioned to capture increased demand.

And the near term.

We believe it will be very important to have our marketing message focus on the health and safety of our associates and guests. We are focused on reaching the drive to leisure market through aggressive campaigns promote and creative packages for our 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.

Finally, let me and my remarks about hotels by allowing myself to talk about growth for a second first off let me preface my comments about growth and both of our divisions by reiterating the priorities one two and three as we emerge from this pandemic, we will continue to be our balance sheet.

Every decision, we make will always have our balance sheet in mind and.

And the hotel side, there are clear strategic and the hotel side, there are clear strategies for growth that can be balance sheet friendly.

Besides continuing to selectively seek management contracts that we believe are good fit for us there may be opportunities to acquire hotels by of strategic partnerships or possibly by the creation of of fund.

All of which would allow growth without significant outlays of capital.

No one really knows yet what the hotel transactional market might look like and whether there may be many opportunities to acquire hotels that might be experiencing distress.

In addition, with the entire industry needing capital many properties are going without much needed capital investment, we think there may be and opportunity to acquire properties in this position as well as to provide significant value add.

And if opportunities arise we wanted to be prepared on the other side of this bottom line.

And there may be bumps along the way.

But of spring slowly arrives here and the Midwest After a long winter our hotel teams prepared and energized to manage our award winning hotels resorts and restaurants and rebuild our hotel business together.

So let's shift to our theatre division.

Doug went over the numbers with you.

While I don't intend to spend a lot of my time looking backwards, let me make a couple of comments first off Rolando Rodriguez and his team once again did a very good job managing through a very challenging quarter with very few new films and renewed restrictions implemented and several very important markets for us in November and December, including Illinois, and Minnesota, Ohio, Missouri, and Pennsylvania, the team still managed to improve.

<unk> adjusted EBITDA from this division by over $3 million compared to last quarter and once again managed costs and such a way that it was clearly better for our theaters to be opened and closed.

Our field personnel also continued to do a terrific job executing on all of the new operating protocols. We implemented in response to the pandemic our customer experience scores are and some of the highest levels, we've ever seen and I think it speaks directly to the efforts we've put into offer of safe and comfortable experience and our theaters once again, a big thanks goes out to all of our associates.

And this division.

Phases of limited amount of new film product and the pandemic that was further limited and customer willingness to go to public places our team had to get creative.

We had to come up with innovative promotions and programs that would encourage the return of movie going to and audience, who we believe wanted to come back but was reticent to do so.

Out of that came what was probably the most important accomplishment of the fourth quarter, which was the development of Marcus private cinema or as referred to and internally MPC for short.

Developed and introduced in the second half of the fourth quarter. This program has since proven to be a key component of our comeback in 2021.

Initially introduced the customers by communications on our website and via our loyalty program emails as a way for up to 20 friends and family to buyout and the entire auditorium for a fixed fee. We subsequently enhanced our technology and and 'twenty 'twenty. One we became one of the first theatre operators to offer customers the opportunity to purchase their private cinema experience directly from our website.

Our our app, eliminating the need to call our sales staff and as a result, the program really took force took off for US in these first months of 2021.

The program today has three pricing tiers in most cases, we charge of $175 for the first two weeks of of New film and then subsequently reduced the price of $249 films are tending to play on our screens for longer periods of time than our pre COVID-19 environment. So at the appropriate time, we further reduced the price of $99, we're still showing crude's too.

And our screens and MPC is given at longer legs than we ever might've significantly originally thought.

We also charged $99 for all older Library films and have experienced some very nice success with that product as well, which is particularly interesting when you consider the customers could choose to see that same product for free at home.

Just the throw a few numbers that you and the last seven weeks alone with just under 70% of our theaters open we've averaged over 500, Marcus private cinema Michelle's per week across our circuit contributing over 25 per cent of our admissions revenue. During this time and in large part because of this program. We've seen our overall market share of U S admissions revenues increased by.

Approximately 50% during the first two months of 2021.

Our market share and some individual films has more than doubled compared to our historical averages nearly 90% of the shows during this time period, where book directly by the customer online or on our App. We estimate that we are averaging approximately 13 people for showing and every Monday morning, our team meets and reviews of the film scheduled to be shown and the upcoming weekend.

In order to determine how many auditoriums to dedicate to MPC that week and.

And one last comment and MPC. It has brought people back to the theaters and allowed some who might have been reticent to return to see and experienced the protocols. We have in place and while I can't put a number on it we anecdotally of heard that it has encouraged many of the comeback for regular show as well.

Discussing this innovative program is a nice segue to our theatre division's call to action in 2021 with the twist on the classic three hours and we all remember growing up.

Our goal for 2020, one is to redefine refocus and rebuild our business Marcus private cinema is a great example of redefining our business and our goal is to take some of our learnings from this past year and make them part of the theatre experience and the future.

Even after our business returns to normal and studios begin to once again released new films and a weekly basis. We believe there will be a place from precede, particularly as the way to enhance traditionally slower periods of any given film week. Another example of redefining comes out of our expansion of the use of technology give.

And given our focus on food and beverage we were one of the firstly the or change the offer the ordering of concessions food and beverage on our website and mobile app.

We had already developed this technology pre COVID-19 and we're in the midst of rolling it out at several theaters beginning with our new movie Tavern. The we'd opened in October 2019.

When the pandemic hit we accelerated our plan and we now offer this technology and all of our theaters.

Not only is it a great customer convenience that will reduce our labor requirements. We believe it is contributing to our already highest among the major theatre chains.

Average concession revenues per person and will likely only get better over time.

And the coming weeks and months as we emerge from the most challenging time and our theaters history. We also need to refocus and rebuild our business that will include reintroducing movie going to of public who's been stuck and side without many out of home entertainment options for far too long.

And while we know there are still challenges ahead. Once again, there are plenty of green shoots to point to which we find very encouraging.

Vaccines, and reducing COVID-19 numbers, not only play a critical role in getting customers comfortable with returning to movie theaters and larger numbers, but these external factors are also critical of studios and make decisions on the release of new blockbuster films as you know the vast majority of new films have been delayed over the past year, which is clear and eat clearly an indication of the import.

And some of the theatrical release to the profitability of the studios.

And while no one was happy to see films delayed. The result has been a tremendous backlog of exciting films that are waiting for movie goers as we all emerge from our houses.

Several new films have been released recently to improving box office results and and our press release, we have listed a number of films out of and even longer list. There are scheduled for release in the coming weeks and months.

Another extremely encouraging piece of recent news was the announcement of the theatres and New York City would begin reopening with restriction and starting tomorrow.

The counties in California, reopening and San Francisco and L. A rumored to be not far behind that bodes well for the studios' willingness to hold to their current release plans and the spring and summer.

And while some have wondered whether customers would return to the theaters. After this was over all of you have to do is take a look at what is happening in China and Japan.

Both of these countries of experienced record breaking box office performance on several films, which we find very encouraging and we hope is a harbinger of things to come here and the U S. As we get the pandemic under control.

Which brings me to get another green shoot this past weekend, we saw the release of Tom and Jerry as you might've seen its performance greatly exceeded expectations and fact I'm thrilled to tell you. This past Saturday It was our best day, and our theatre since Covid and fact, this past weekend with really only one new movie our attendance was over 40% of our attendance last year during the same weekend.

At the same theaters that as a new high watermark that has really energized our teams and when you consider that this particular film was also available described birds to subscribers of HBO Max under Warner Brothers 2021, Covid release strategy I think it becomes even more significant it speaks to the pent up demand that we believe exist for returning to the theaters.

Part of our optimism for the summer season, and also stems from the fact that it is likely the consumers will have less entertainment options to choose from.

Live concerts and festivals will still be limited due to their need to plan, a long time and advance and the fact that with only one show capacity restrictions limit their ability to make the math work.

We on the other hand can effectively navigate through any remaining capacity restrictions because of our flexibility to offer virtually and unlimited number of shows.

And other significant advantage I believe we have as we look ahead is that we've already completed the majority of our theatre renovations and we offer what we believe is the highest percentage of recliner seating proprietary large format screens and food and beverage options and the industry certainly among the largest change our theaters are truly state of the art and our future capital needs are.

<unk> reduced because of that.

Now like my comments about the hotel Division. Please don't interpret my op and optimism about what lies ahead to suggest we may not still face challenges in the near term.

There certainly is the possibility that there may be further channel changes of the release schedule and there had been a lot of discussions about what the theatrical window will look like and the future. We know there are uncertainties and the weeks ahead.

But my larger point is that we have demonstrated that we have met every challenge we faced so far and I believe we are prepared to navigate through any further challenges as we redefine refocus and rebuild our industry, leading theatre business and finally, while clearly right now our focus needs to be on the near term and my same comments regarding the balance sheet is still apply or long term.

<unk> is not only to survive but to thrive. So I'm looking forward of the day when we can once again refocus on growth as well.

And closing and this continually changing environment you can be sure that we are constantly reviewing the situation in both of our businesses and making changes to our plans as warranted.

And we still of a lot of work to do I need to take a moment to do something important and she'll gratitude and these are not easy times and so many people are working so very hard.

First I want to express our appreciation for the confidence and support of our lenders and the investment community. During this past year. It has meant a lot to us.

I also continue to be thankful for our associates and the field, who have also worked extremely hard and are very difficult circumstances in order to continue to provide an outstanding experience for our guests and.

Thankful for these associates and the corporate office and I'm thankful for those of associates from the corporate office and support the field as well.

And I'm also grateful for our dedicated leadership team leaders like Doug Nice and Tom Kissinger continued to work tirelessly developing and executing strategies focused on getting us through this crisis, while also putting us of a strong position for continued growth over the long term our board has been invaluable and.

The special recognition goes to our chairman my Dad, Steve.

One of the benefits of our family orientation is.

As the years of experience and insights that he has and we mean, we remained beneficiaries of.

I can promise you. He is fully engaged trust me on that one.

Being in the movie business, we tend to quote lines from movies around the office and this case I'm reminded of a line from of Pollo 13, one of the characters of just recited all the things that could go wrong and noted that this might be the worst disaster NASA has ever experienced like a true leader of the actor playing gene Krantz at Michigan Troll responded by saying with all due respect Sir I believe this will be our finest hour and desktop.

And I feel about how our people have responded to the situation I could not be prouder of each and every one of our associates.

Thank you for indulging me on that with that at this time, Doug and I'll be happy to open up the call for any questions you may have.

Thank you, ladies and gentlemen to ask a question at this time. Please press the star and the number one key on your Touchtone telephone.

For all of your question press the pound key.

Again that is star then one to ask a question.

Well first go to Jim Goss with Barrington Research.

Uh Huh good morning, and this is Pat on for Jim.

I was that just had a couple of questions.

With the recovery of leisure travel I guess how.

Do you think that that.

Strength in leisure travel and particularly with our book.

The leisure travel and bookings.

Bookings like why do you think that can remain at the particularly elevated our stronger level.

And the long enough time for the.

And the group business to return and I.

I guess as you wear and additional costs.

And as well as.

Find ways to operate more efficiently I guess how.

How should we think about profitability of that segment.

Over the longer term over I guess as you have some recovery and I guess the profitability of that segment as you get closer to pre pandemic revenue trends.

Yeah.

I'll start with talking about what do we think about how we went to the question of how much will will leisure makeup for from missing business travel and I.

And I'd tell you look of I don't think of get completely make up for it but I think of it can certainly mitigated I don't know exactly what that what that will be and it's the same look and it's a very similar pattern, we've seen too as well for the leisure travelers just come out first because they have the only responsible to themselves and not like somebody, saying, Hey, I've got some of the send you out and that's why we know that.

And people as we said are itching to get out of their house and travel and we know there were all sorts of anecdotal stories about.

And about when the vaccine started coming out of the line people booking travel ahead of time, and saying Oh, we're going and we're going somewhere. So you know we know that it will be helpful. Our properties and a lot of instances lend themselves to that if you think about sort of just you know the nature even R. R.

Urban properties and the Pfister has the can.

And the track that wedding business and that social business and that leisure business Saint Kate the.

Same to it's not like it's not legacy of business hotel attached to an office building, we do have some of that but.

The Grand Geneva timber ridge.

You know the portfolio does lend itself to having some of that to be to be tilted net direction.

But but but still looking at the end of the day, our bread and butter as group business and that will take time to come back.

Is the profitability the.

<unk>.

You know I think well see the same patterns, we've seen before it and right now we batten down the hatches as tightly as you can bat and them down and that will benefit us on the upswing.

And that was because you just you just you operate tightly and you're just getting that mode. Eventually years from now will be as I think I've said this and the last conference call, we'll be saying wait a minute we were saving so much money before because people start to say I need to get those people back, but I think but to your point Pat I think we will we will have a.

We'll have that will have the luxury of some better margins for a while.

Okay.

And do you have anything specific on the margins you want to add go ahead no no and you use that last point was what I would've brought up as well as that and does that look I don't think anyone and our shop or anywhere else and the industry thinks that we were all operating.

Matt and all of that we were that we were that we had you know, but we've had the as we said in the prepared remarks. There were there are costs that we looked at that we may be previously viewed as fixed that we were forced to challenge and and look very closely at and and and like and both of our businesses, we're trying to use technology and and in some very unique ways.

As well and and I think that that's that that also maybe speaks to a longer term benefit that we'll see.

Okay.

And then just a couple of quick.

Quick ones on the theatre and.

The potential for I guess additional acquisitions would you.

Think of maybe approaching that market and at some of our way to how you're approaching the hotel the market more of a management contract approach.

And then I guess just.

In terms of getting consumers back to the theaters and.

What the how how do you go out and reach those who don't necessarily have.

And loaded your apps.

Regularly go to the website to make them aware of the general customer sales.

And with all of the cleaning of initiatives and things.

And so of that nature.

And let me do that let me and the first half and maybe Greg you can think of about the second half here. So the first half question. Yeah. I mean look you know all of them.

I mean again, we don't want to get ahead of ourselves and and you know and.

The risk of being redundant still balance sheet balance sheet balance sheet here, but having said that there might be some opportunities looking ahead that could also allow us to be less capital intensive.

You know if there if the if there are the leased properties.

Come available and can be done.

In a smart way I mean percentage rent and think differently and ways that that would make sense.

And that's that's one way of of reducing the capital and and and.

Another way you you referenced as management and while share I mean, if if there were some opportunities where we could potentially.

And offer some management services.

And historically, you haven't seen that and the theatre business.

Like we have and the hotel business.

We have one managed hotel the one manage the unit of the currently and our portfolio, but there's been some speculation that there could be no. There may be some opportunities like that as well and so certainly that would be.

And option that we could certainly consider and the future.

And all.

Buildup net and we talked about this I think on one of the previous conference calls it wouldn't be the first time of our company's history go back to my grandfather, and we started the business and then.

T V came along and there was a lot of displacement and he built the business by going to these and these landlords and saying, Okay. I'll I'll take I'll take the theatre on and all and I'll essentially managed amount of know if this deal was the percentage rent or the the shared and the equity of it but.

The the.

The but that was how we then built seat of built the theatre business knowing that it was not the end of the theatre business and so there is historical precedent and youre dealing with the company that's been and the business for 85 years, you'll get the here the speech and historical precedent.

As for getting customers back that's what we have of crackerjack marketing team and of our theatre business, but I think it's going to go beyond that because of our trade organization NATO is going to be involved and that working with the studios and and.

And we're pushing we're pushing our studio partners, who have lots of media outlets that they also control to help push the message of its time to go back.

And it's a great getaway and of great inexpensive getaway.

And for people, who might not have as much money in their pockets.

That's that's that's that's always been the benefit that theaters theaters of tended to outperforms and softer economic times, we know that that's a that's again another piece of history. So I think there was something to that yeah, and I would just maybe add to that and to say the look and you know we've got a great loyalty program and.

But what we were already and never mind, the post Covid times of pre Covid times, we still had over half of our transactions being transacted by people who are not loyalty members. So we've already had a put a very integrated digital marketing campaign.

And where we're trying to reach people, who are just online and streaming and and niche and people who may not be loyalty members, but yet still.

Need to know about all of these fantastic promotions of the programs that we have so so that's not new to us either Pat that we we know that there we have to also reach people that the art.

Aren't necessarily.

Using some of the technology that we have.

Okay. Thank you.

Yeah.

Our next question comes from Mike Hickey with the benchmark company.

Hey, Greg Doug How're.

How are you guys doing hey, Mike and Mike.

And.

Oh, Hey, I'm honestly, a lot of great data.

On the call.

Curious I guess.

What we've seen over the last week and here with Tom and Jerry.

Who would aghast of is that bill and Greg I didn't see that comment.

And then you've got kind of wonder woman without any of those films that are more blockbuster.

All right Downs may create a heartbeat theatrical space, but it was Tom and Jerry and you know pham.

Family friendly.

And so youre seeing sort of families bringing their kids.

Back to the theaters deserved sort of I guess is that more or less encouraging to you and you see that sort of demo really show up here in terms of how you think about a bounce back on the theatre side, especially when you've got what looks like a lot more films coming.

I'll tell you what's the most you know the to me the what's the most encouraging about that.

Is that if you look at if you.

We've been stopped we study all of the there's always there's lots of research going on which I'm sure you know about about people and their comfort levels going back and frankly, the people who war of the least comfortable where we are.

Women and.

And so the worry was okay and they bring the families and so to see them come back that's really encouraging and I think it's look at it directly relates to a combination of of people feeling more comfortable as as we get off the virus being so severe and the vaccines.

Coming online and the look at the Cowen nuts anyone with the anyone I talked to with kids at home is losing their minds just want to get out of house.

Which would you know which speaks to you know hey look at when things when everybody started feeling comfortable that should looking.

Looking at the China and seeing people they talked about one of the things that helped China was nobody was able to really travel.

During the during the during their new their new year and so they were they were able to that really pushed their numbers up substantially well not like we're going to not be in the no traveling mode, but again two of the point, we brought up and the call Youre seeing all of these festivals getting canceled because they take so much lead time and they're worried about capacity restrictions and.

And so and so our content is as you know is loaded up ready to go and we can show that we're at the former could maybe due to Congress of the he or she were still and client that's it on a given day.

And it's probably just one and where we can we have an accordion basically for how many show times, we can run and that's what happened in China to I saw the Straits and part of what drove it with people because they still have some capacity restrictions not like theyre going 100 per cent and they were able to run later and earlier shows and get people and the door. So that I think that bodes well and.

And and you know Mike the other adult use of of recent information is and the last day or two you probably saw that we saw a film move into this more current period and you saw Peter Rabbit to get moved into the main of the May time period and it goes right to your question essentially right I mean, it's the I think we probably saw what happened with Tom and Jerry and said Hey.

Let's jump in on this and and the and so so all of this talk about movies moving out and well here. We had a movie that was then move in to the near term here and that that was very encouraging.

No.

And.

Thank you for not.

The dog map of puts you on the the slot here I'm going to and what you're going to.

And do it anyway and we on me.

Hey, Mike better dump and me so good.

Your next year next growth.

The two question limit.

[laughter].

The Oh I'm going to go past the that we do Doug the.

EBITDA on a.

On your segments and I know you don't guide, obviously, but can you give us.

You know any sense here.

And you look at Q3, Q4, obviously and that we're supposed to do.

And by May.

The other one that once more and I think and harbor vaccine and you've got a ton of.

Content come at the end of the theaters, while you're seeing already.

The desire to come back from the very interesting demo and that's not the one that you would suspect I think initially so we shouldnt start to think about maybe growing EBITDA positive on the theatre piece and the three year four and what sort of I guess, just raw kpis and performance level of should we think about to get you there.

Yeah, well, it's okay. So you're right, we don't provide guidance per se. So so I'm going to watch my words carefully here.

Certainly.

The second half of the year is where most of us are focused right and so.

If the.

If the film and the theatre side of the film schedule holds like it currently is and certainly we've seen a lot of encouraging sides of the signs of suggests that it's going to.

And then and yeah, we have a much higher hopes for the second half of the year, starting and all that and then.

They were going to have a real summer season, and it won't be 2019 levels. Please know and I think is going to be fully fully back yet, but we certainly would think that on the.

And that we could be looking at the at those types of positive things in the second half of the year our hotel business.

Look the.

The summer because the main customer is drive to leisure our hotel team is pretty energized about what the summer could look like.

As we as we exit the summer we're going to face some of the same issues. If we don't have a lot of group business because what we saw as you and you saw and our numbers. This time around it naturally happens every year is that kids go back to school, and and and and and the weather starts to turn and so the leisure travel and these.

The mid week.

<unk> off and so I don't expect that pattern of the necessarily change, but we are.

You know and were certainly certainly encouraged about what the the summer could hold for US no question.

Good some of them Milwaukee sounds nice to be honest.

And last question, Greg from me can be short here.

I know, it's early days, but a.

A lot of people and a lot from of certain demo of getting vaccinated happen and bags and maybe that are you sort of seeing anecdotal and not sort of a.

The re engagement from what you would suspect to be sort of that that vaccinated demo and you look at sort of your moving patrons I guess more specifically given.

Whether it's still limited one of the leisure side and the hotel, but are you, saying Oh, yeah, they've got vaccinated. They are back and now you've seen that group.

Start to Reengage or are they sort of still being a bit cautious here.

You know I I.

I don't think so.

And just because frankly, the the group that's been mostly getting it has been the the you know the older. The older segment, you know a lot of the people and the nursing homes and.

And and.

Senior living facilities and that.

Now the health care workers for sure, but you know look at the end and but I think theres been a and and understandably there's been a lot of messaging Hey look at don't go nuts.

Once you get vaccinated, just because theres still a lot of virus in the in the market on the in the world and so there you know.

Youre seeing the same messaging, we're all seeing which is yeah, they're trying to sort of work their way around it what can you do and I saw it and talking about well now you can get together with friends, who are all vaccinated and have dinner without masks out and your house. So there I think is as that broadens and I think I think we all know it's coming sooner than we all are the than ever.

Body anticipated and a way that the when you talk about how much the vaccine and theres going to be the bigger challenge frankly is going to be getting people to get vaccinated and the importance of that message.

But I know people are focused on that as well and.

But the short answer is I don't think so not yet.

Fair enough. Thanks, guys best of luck. Thanks.

Thanks, Mike.

As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question and at this time.

The next question comes from Eric Wold with B Riley.

Hey, good morning.

And what are the odds you can get your crack marketing team to convince moms and a quiet place two of the family movie.

The trust.

[laughter].

A couple of questions Doug on on and kind of liquidity kind of cash flow and I guess, one can you provide kind of.

More detailed mix you kind of kind of what's in that $10 million to $40 million potential proceeds of the next 12 18 months and how much of that is true quote unquote pure pure surplus of their theaters and there are other hotels and there.

No. There's no there are no hotels and that kind of projection. It is it is primarily.

And we've used the terms surplus and non core.

And so that's how I would describe it.

And it skews towards I mean, certainly what's happened early on has been mostly what mostly surplus of minutes land parcels and things along those lines things that.

And frankly, we have more of it then and then we've probably ever had before.

And they have talked about this and our previous call, where you know as as we've rapidly expanded and and gotten to the point, where we've got the significant penetration of the recliner seats and our theaters.

Re calculated parking ratios et cetera.

And we've actually created more outlets for example than what we was originally what we considered and our inventory and so we just have a lot of that.

And now non core of the definition of non core.

Would be.

And I suppose you could have I mean, we did we did sell a a former theatre was a budget theatre and the fourth quarter.

And I think and it was sold to a church or something on those lines and so there could be a few things like the app that would fit into the non core category and and you know we've got some other real estate as well that maybe might fit the definition of non core.

But its not some of it it's all stuff that's that really shouldn't affect.

Our operating results very much at all if any.

And <unk>.

But it was just the bill just just for people who don't know this the reason when you go to Recliners and cage. The images Buildout bridge of that one step of your drug and that is so.

Codes building codes for parking or based on the number of seats, you have and a theatre and as people know when you go to Recliners you virtually reduced the seats by half and now we are cut and the parking and half we can't do that but it is creating out lot of opportunities because we do need less parking based on COVID-19.

And that in.

And then on the <unk>.

Talking about your 21 million and Capex last year versus the guidance that original guidance of 65 to 85 and now 15% to 25% for this year.

And that.

The kind of from last year that $40 million to $60 million is that still kind of sitting out there for future periods to come back.

Or have you kind of rethought that maybe that's something you'd thought needed to get done just like with the expenses may not need to be spent an hour of should we expect kind of 2022, plus and see that kind of ramp back up above kind of maintenance levels well, what's still hanging out there Eric is the.

And that a significant and a meaningful piece of that previous guidance included we previously spoke about the fact of several of our largest hotels are going to be due for some larger renovations and so that's still out there now what.

And I think we mentioned and I mentioned in my prepared remarks, we have actually already.

Holger, how well Grand Geneva is doing and so we've actually kicked off a very customer facing renovation and the lobby and the whole the lobby area and the means of front restaurants, and things like that right now and that's going on and as well as some select guest improvements with more to come essentially and so so certainly there will be some.

And some capital dollars for for several of our largest hotels in the subsequent and 'twenty two and 'twenty three.

I mean look depending on I mean is it possible that we could accelerate a little bit of that into 'twenty.

First half of 'twenty, one depending on conditions, it's possible, but it also takes time to prepare and be ready for that so so so longer winded. The answer is yes. There is still certainly as some some of that capital that would be coming through and the next couple of years.

Got it and then just final question is the numbers question the.

The <unk> 30 per cent or so of theaters that are still closed how.

How much of that is local restriction driven and how much of that is.

Youre a proactive decision based on the slate and based on the current slate. If it holds when would those proactive theaters open almost entirely the latter Eric in terms of in terms of that the the theatres that are not open.

Most of these strategic decisions and our parts.

And the most of the common theme for many of them if not most of them is that they are in markets, where we already have theaters.

And so we made strategic decisions to try to concentrate the attendance and the things that we do have right now.

And with with our other theaters and so.

Theyre poised to reopen as soon as we see enough of those green shoots and enough of the of the film product.

Clearly firming up that we can that we can start reopening some of those additional theatres as well. It's it truly is I mean, we mentioned the math exercise on the hotel side, it's a math exercise and the theatre side as well.

Got it thank you both.

Yeah.

Thank you at this time it appears there are no other questions I'd like to turn the call back to Mr. Nice for any additional or closing comments.

Great well. Thank you everybody, we really would like to thank you once again for joining us and we look forward to talking to you again.

First quarter always comes pretty quickly afterwards, and so we're looking at the we'll be talking to you. Once again in early may when we release, our first quarter results and.

Until then thank you and have a great day.

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

[music].