Q1 2022 Marcus Corp Earnings Call
And other information regarding developments at our company that impact our investors customers vendors and other shareholders. If you'd look through our website Www markets Corp, Dot com as an important source of information regarding our company.
We also refer you to the disclosures that we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP measure used in evaluating our performance and its limitations.
A reconciliation of adjusted EBITDA to the nearest GAAP measure is provided in today's release.
So with that behind us let's begin.
This morning, Chad Paris, our corporate controller, and Treasurer and our next CFO effective may 15th following my retirement.
And I will start by spending a few minutes sharing the results from our first quarter with you and discuss our balance sheet and liquidity will then turn the call over to Greg who will focus his prepared remarks, and where our businesses are today and what we are seeing ahead and then we will open the call up for questions.
This morning, we reported another solid quarter that continues our post pandemic recovery trend of significant improvement in year over year revenues and adjusted EBITDA.
We also continued our sequential streak of positive adjusted EBITDA in both of our businesses and on a consolidated basis for the third straight quarter.
We were able to deliver to deliver these results. Despite the fact that the outbreak of the omicron variant negatively impacted both of our businesses.
On the theater side, we had a lighter film release calendar than originally anticipated as studios waited out this most recent surge.
On the hotel side office re openings were delayed on top of our normal seasonal winter had headwinds at our predominantly Midwestern portfolio of owned hotel properties.
Given the significant changes in the state of the business today compare to the environment. We're operating in a year ago, Chad will provide comparisons to our pre pandemic fiscal 2019 first quarter as he gets into the results of each business.
But at a consolidated level revenues increased more than two five times over the prior year growing from $50 million last year to over $132 million in the first quarter. This year.
As a result, adjusted EBITDA increased by nearly 21 million improving from negative $17 million last year to positive $4 million this year.
We have provided a breakdown of these numbers by operating segment in our press release, where you can see that our theater Division again contributed the majority of our first quarter. Adjusted EBITDA. We ended the quarter with the divisions contributing a combined $7 million and adjusted EBITDA prior to unallocated corporate expenses.
Below operating income our first quarter interest expense decreased by 750000, primarily benefiting from lower short term debt and reduced borrowings, resulting from our improved operating results the.
The reduction in interest expense was partially offset by reduced gains from disposition of property equipment and other assets this quarter compared to last year.
I'll now have Chad provide some brief financial comments on our operations for the first quarter beginning with theaters.
Thanks, Doug we continue.
To experience increased per capita spending by our customers in our theater division our average admission price increased by six 4% during the first quarter of fiscal 2022 compared to last year and increased by 18% compared to fiscal 2019.
Continued strong customer demand for our large format premium screens was the primary driver of this overall increase in our average admission price as well as more new films compared to last year. When a limited supply of new films resulted in a higher mix of legacy library titles shown a discounted ticket prices.
Meanwhile, our average concession in food and beverage revenues per person at our comparable theaters increased by five 7% during the first quarter of fiscal 2022 compared to last year and has increased by 36, 1% compared to fiscal 2019.
We believe our industry, leading mix of non traditional food and beverage options the mix of films shorter lines at the concession stand. The emphasis we are placing on encouraging guests to purchase their concessions and food and beverage ahead of time, either online or using our mobile app on top of what we believed to be.
Pent up demand for a return to normal likely continues to contribute to our increased per capita revenues.
As a significant number of theaters in both our circuit and the industry as a whole were closed during large portions of the first quarter last year. We believe a comparison of our results to pre pandemic results in fiscal 2019, maybe the best way to compare our performance to the industry this quarter.
When you compare our first quarter fiscal 2022 admission revenues to fiscal 2019, our admission revenues were down 39, 4% during the quarter, including the pro forma impact of the movie Tavern acquisition, which was part of our results for two of the three months in the first quarter of 2000 fiscal 2019.
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According to data received from Comscore and compiled by us to evaluate our fiscal 2022 first quarter results United States box office receipts decreased 44, 1% during our fiscal 2022 first quarter compared to U S box office receipts during fiscal 2019.
As a result, we believe our admission revenue decline once again outperformed the industry average by four seven percentage points during the first quarter of fiscal 2022.
Due to the impact of two strong blockbusters released or showing during the first quarter of fiscal 2022, which were the Batman and spider-man No way home. The first quarter box office was more weighted towards our top movies as compared with the first quarter of fiscal 2021 and fiscal 2019.
These films drove significant pls sales, but at the same time resulted in higher film cost as a percentage of admission revenues with that said, we're thrilled with the success of these films and their contribution to our improved results.
During the quarter, we were impacted by several labor challenges, including increasing hourly wages and a ramp up in staffing levels as we prepare to better serve the growing number of customers returning to theaters for the upcoming movie slate following a busy holiday season in which we operated well below our targeted staffing levels.
While we made progress, adding and training new associates and retaining many of our loyal associates, the shifting and uneven movie release schedule further complicated our ability to efficiently manage our labor costs.
While we were better positioned with our staffing levels entering the second quarter. We know we can do better and we expect our labor efficiency to improve as we move to a more steady release of new films.
Shifting to our hotels and resorts division comparisons of our total revenue and total revenue per available room or revpar to last year does not provide particularly meaningful numbers, we believe comparing to pre pandemic levels in fiscal 2019. However, does help provide perspective on the pace of the curve.
Recovery.
First quarter total revenue for the division was over 95% of 2019 levels, which was a post pandemic high now.
Now to be fair the Saint Kate was closed for the majority of the 2019 first quarter during its conversion from a branded property, but even if you take the Saint Kate out of both years numbers. Our fiscal 2022, adjusted first quarter revenues were still a very healthy 91% of adjusted 2019 levels.
Greg will further discuss some of the differences between the mix in the business, then and where we are today in his remarks, but we are encouraged by the overall continued progress in the recovery of the business.
Our revpar for our seven comparable owned hotels decreased just under 16% during the first quarter compared to the same quarter during fiscal 2019.
According to data received from Smith travel research for the fiscal 2022 in fiscal 2019 periods and compile compiled by us in order to compare our results our hotels outperformed comparable upper upscale hotels throughout the United States during the first quarter by two one percentage points.
The data also indicates that our hotels outperformed competitive hotels in our markets by approximately eight six percentage points during the first quarter.
Again compared to fiscal 2019 results.
Breaking out the first quarter numbers for the seven comparable hotels more specifically our overall revpar decrease during the fiscal 2022 first quarter compared to fiscal 2019 was due to an overall occupancy rate decrease of approximately 15 seven percentage points offset by.
And 11, 5% increase in our average daily rate or ADR.
Our average fiscal 2022 first quarter occupancy rate for our owned hotels was 48, 9%.
Shifting to cash flow and the balance sheet, our cash flow from operations was $6 $5 million in the quarter and benefited from two significant nonrecurring items.
First as we shared on our last call. We received an income tax refund of approximately $23 million in the first quarter as well as state government grants of $4 $3 million accrued during our fiscal 2021 fourth quarter and received early in fiscal 2022.
As a reminder, our cash flow from operations in the first fiscal quarter is historically impacted by seasonal changes in working capital, resulting from the slowdown in our businesses. Following the peak holiday season, and by the timing of various year end accounts payable and compensation payments.
Total cash capital expenditures during the first quarter of fiscal 2022 were $6 6 million.
A large portion of these dollars were spent on the first phase of a guest room renovation project at our Grand Geneva Resort and Spa with the rest going toward normal maintenance projects in both of our businesses.
We also had proceeds from the sale of non core real estate of $3 4 million during the first quarter.
Continuing to take advantage of opportunities within our substantial real estate portfolio.
We believe we may receive additional sales proceeds from real estate sales during the remainder of fiscal 2022 totaling approximately $5 million to $15 million depending upon demand.
Finally, before I turn the call over to Greg. Let me also briefly comment on our balance sheet and liquidity position as.
As our press release notes, our liquidity remains extremely strong with nearly $241 million in cash and revolving credit availability at the end of the first quarter of fiscal 2022.
At the end of the quarter, we had no borrowings on our $225 million revolving credit facility.
We ended the first quarter with a debt to capitalization ratio of 37% as.
As we head into the busy summer months for both businesses. We expect this ratio to continue to improve.
We remain committed to our philosophy of owning our real estate whenever possible and keeping the balance sheet strong.
With that I will now turn the call over to Greg.
Thanks, Chad.
We entered the quarter expecting it to be our most challenging of the year facing our normal seasonal headwinds during the winter months in hotels and.
Uncertainty is the omicron variant ran its course.
And a limited new film release calendar.
I am pleased to report that we navigated these challenges to deliver results, we outperformed the industry and continued our trend of significant year over year improvement in both businesses as the recovery from the impact of the pandemic continue.
More importantly, we.
We exited the quarter.
With exciting momentum in both businesses as we head into the spring and summer.
As you know we view the world through a long term lines on a recovery path is not a straight line in our rate of improvement will vary from quarter to quarter, but we continue to make consistent progress.
It's particularly gratifying to see our team shifting their focus from navigating through a pandemic to accelerating our recovery and looking ahead to once again growing our businesses in the future.
The first quarter that we're reporting today is yet another step in our recovery and we're pleased to be sharing these results with you.
So let me start my divisional remarks, with our hotel Division.
Chad shared some of the numbers with you including comparisons to our pre pandemic fiscal 2019 numbers and the fact that the data indicates that we once again outperformed both the industry.
And our competitive sets this quarter.
Chad mentioned it earlier, but it bears repeating total revenues for the division were over 91% of 2014 levels for the quarter after adjusting for the Saint Kate the composition of the revenue is different than it was three years ago with higher ADR, lower occupancies and a different mix of customers.
There is more recovery still in front of us but in aggregate.
Youre getting closer to where we were.
As expected Occupancies were seasonal low point for our hotels, but overall it was a solid quarter in which the division contributed over $2 million and adjusted EBITDA.
Leisure customers continued to lead the way, particularly on weekends. We were pleased with the continued strength of our average daily rate during the first quarter growing more than 10% over last year.
<unk> impact on the quarter was mitigated by this being our seasonally slowest time of the year.
We did have some cancellations early in the quarter, resulting in weak bookings for later in the year and in general it resulted in a delay in a more robust reopening of offices.
However in the last 60 days there has been a noticeable change compared to where we were at the beginning of the quarter with more large companies now implementing the return to office plans.
We continue to believe that in order for the business traveler to return to pre pandemic levels that begins with employees returning to offices.
That then can lead the businesses is getting comfortable with their employees getting back on the road to some clients potential clients remote offices and plants et cetera et cetera.
Well is going to group events and conferences.
While we are still in the early innings of the business travel recovery, our view seems to be playing out in the data recent industry surveys are indicating rising expectations for business travelers to take at least one trip to attend conferences conventions or tradeshows in the next six months.
Industry meetings volume grew significantly from March from February to March and the average number of attendees per meeting continues to increase nearly returning to its pre pandemic level of March.
These indicators along with a significant improvement in our group booking activity, which accelerated during late February through today, our group room revenue bookings for.
2022, commonly referred to in the hotels and resorts industry as group pace are now running with a 15% where he would historically be at this time, we prepay them the gears.
Okay.
Pardon me.
And.
Yes.
When we pick up where we are running now with a 15% we would historically be at the same time, our pre pandemic years, they're up significantly from where we were at this time last year.
Encouraged by the increased amount of activity and leads we are experiencing and our sales teams remain focused on continuing to close the gap as business travel activity recovers.
Quit and catering revenue pace for fiscal 2022 is also trending similar to the improvement in group pace running behind where we would typically be at this time in prior years, but closing the gap.
We continue to experience very strong bookings and some of the bigger clients of the past are once again booking for 2022 and beyond.
Overall, we generally expect our revenue trends to track or hopefully continuing to exceed the overall industry trends for our segment of the industry, particularly in our respective markets.
As in the past our results in this division will vary by quarter due to the seasonality of our properties historically experience, but on a relative year over year basis. We look for continued improvement during this ongoing recovery.
And as I've said in the past.
We believe we have special assets would make our portfolio.
These assets have allowed us to successfully.
To serve an increasing number of leisure customers during the pandemic and.
And we will continue to optimize revenue management and deliver outstanding service to returning business travelers and group events.
So now let's shift to our theater division javelin over the numbers <unk>.
<unk> are continued increases in per person revenues outperformance of the industry and our third straight quarter of positive cash flow with nearly $5 million of adjusted EBITDA in the quarter.
We delivered these results.
Unlimited film release calendar that was impacted by Ahmad with several film shifting out of January and February to later in the year.
The Batman delivered a blockbuster performance, leading our box office results for the quarter with the balance of the box office, resulting from a mix of continuing strong runs from several storms that debuted in September , including Spider Man, No way home and sing too as well as several films debuting in the quarter that performed well such as unchartered screen and Doug.
All of the top five films in the quarter to be within exclusive theatrical run prior to release on streaming services compared to where we were a year ago. When four of the top five films in the first quarter, we released data.
Growing audiences in a widening variety of genres from films released two exclusive theatrical run reinforced several themes related to our customers.
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Our customers are increasingly comfortable coming back survey data released by the National Association of theater owners regarding consumer sentiment towards mobile movie going is now, indicating the percentage of those surveyed say they are very or somewhat comfortable going to the movies is at 87%.
As the comfort levels have increased our customer base is growing.
Second we believe the question of whether our customers would return to watch movies on the big screen has been answered.
There is strong consumer demand for affordable out of home entertainment and customers coming back with immersive theatrical experience they simply cannot get mitigated.
The blockbuster performance Spider Man, the way home and the Batman illustrates the big movies will bring back huge audiences, but beyond these big movies solid performances from an increasing number of films we're showing.
There is demand from theatrical experience for more than just the 10th goals and we continue to see more customer segments returning to mobile.
A growing number of family films have returned to theatrical success.
<unk> Sonic the Hedgehog, two fantastic beasts, the secrets as Dumbledore and more recently the bad guys all delivering solid performances films such as the La city in everything everywhere. All at once are seeing women in older adult audience has returned to the movies.
So everything is certainly not yet back to normal, particularly as it relates to the quantity of films being released theatrically we continue to gain confidence as we see more of our audiences return.
Short to borrow aligns in field of dreams. The performances of these films are reinforcing that if you build it or in this case release it they will come.
Last week I joined our theatres team at Cinema Khan, who was able to get a firsthand look at some of the exciting films on the slate for many of our studio partners.
The strength of the release schedule for the rest of this year in 2023 continues to improve with a fantastic mix of films from not only the major franchises, but exciting new original stories as well.
The next few months being particularly strong.
Tickets for this weekend's debut of Doctor Strange in the multi <unk> madness have pre sold in a post pandemic pace second only to Spider Man No way home and while they are still several weeks away from our Premier early advanced ticket sales for top gun Maverick and Jurassic World Dominion are also starting out strong.
But beyond the strength, obviously, what was extremely important to hear was a commitment to theatrical exhibition from our film studio partners.
You heard me talk before about our belief that no other distribution channel for film content matches the experience.
Watching a movie on the big screen.
And our belief in the importance of an exclusive theatrical exhibition window as it means maximizing the performance and monetization film content over its lifecycle.
Last week, we heard our belief echoed by film studios as the data is beginning to prove out that an exclusive theatrical exhibition windows setup strong subsequent windows, including premium video on demand and streaming platforms.
Magic and gravitas of exclusive theatrical exhibition delivers an experience that elevates the perceived quality for a movie.
Building long lasting demand for its brand.
The other channels of distributions.
This has long been our belief and it was encouraging to hear several film studios reaffirm their commitment to exhibition and announced exclusive theatrical exhibition windows for films beyond just the tent poles billing.
The length of exclusive theatrical Windows may vary from film to film while many windows are getting many windows are settling in around 31% to 45 days. There will also be some films that run shorter than others that may run much longer. So just spider man that way home, which ran for an 88 day exclusive theatrical window.
So as we look forward. We continue to believe 2022 will be the year of the return to an exclusive theatrical release window for the vast majority of themselves and.
In our film and our view was confirmed last week.
As an industry. We will also continue to encourage our studio partners to increase the number of films released theatrically as well as encourage additional content providers to take advantage of the unique theatrical experience as a means to showcase some of their best content.
Chad mentioned earlier our opportunity.
Our opportunity to improve labor efficiencies as the business continues to ramp up.
Our response to cost inflation is being addressed on multiple fronts, including improving labor efficiency, continuing our cost management discipline, we implemented during the pandemic.
Drawing higher margin concessions and food and beverage revenues in the second quarter. We are also implementing targeted price increases for our premium large format screens on certain days of the week.
This is an area, where our customers continue to show a strong preference and willingness to pay for the premium entertainment experience.
While delivering magical movie memories delivering.
Delivering magical move experiences to our customers we will remain at the core of our will remain at the core of our theater business. We continue to develop additional entertainment options within our theater locations. This quarter, we launched our sports viewing monitory the wall at our theater and Gurnee Mills. This one of a kind sports viewing experience combined with industry, leading food and beverage offering.
<unk> debuted during March madness to positive customer feedback and we continue to refine the customer experience and develop the promotional strategy.
We're still in the early innings of this project of this concept experiment personally there's no place I'd, rather watch the games the experience I get at the wall.
This quarter, we also launched testing in select markets for new subscription models known as movie Flex and movies <unk> plus.
We believe these subscription programs are a way to drive recurring traffic through our theaters and we're testing a unique approach designed to attendance for some of the smaller films that play an important supporting role around Tentpole features.
While we are in the early stages of testing with these programs, we believe they represent potential seeds for future growth in our theaters.
Finally, I want to briefly remark on the strength of our balance sheet and liquidity position we have.
Always maintained the core philosophy of owning our real estate limiting our exposure to leases and managing our debt at levels that we believe are prudent for the businesses that we own.
Even formed this view with our 86 plus years of experience owning and operating these businesses and we believe it has served us well, providing operational flexibility and effective risk management for when the unexpected occurs.
We believe we enter 2022 from a position of competitive strength with less debt and relative leverage a minimal amount of deferred rent and a great deal more flexibility than our peers as opportunities for investment in growth in both businesses develop we will be well positioned to execute for me. It is incredibly exciting to get back to focusing on.
Growth, our strategic priorities and the exciting opportunities that lie ahead.
Before I wrap up my prepared remarks on behalf of our board of directors and our chairman and my Dad, Steve Marcus I wanted to express my Thanks, and gratitude to Doug Nice our executive VP and CFO , who will retire next week. After 36 years of service with the Marcus Corporation in 25 years as our CFO .
Many of you may have gotten to know Doug over the years, but for those of you who haven't had the privilege of working with them closely as I ever saw alone could not have asked for a stronger leaders navigate the changes and challenges we faced over his tenure.
In particular in Australia leadership over the last two years has been critical to our successful recovery.
I'm happy to note that Doug has agreed to continue to provide advisory services company. After his official retirement date in order to ensure the transition to chatter seamless he.
He will very much be missed we wish Doug his wife, Sue and their family the very best in his well earned retirement.
Doug you have not only been a great asset to our company you have and will continue to be a good friend I could not ask for more out of a working relationship I was always grateful for what you brought to our company, but the last two years really highlighted that impact even more.
Meanwhile, we're extremely pleased to welcome Chad as our new CFO upon Doug's retirement.
Upon joining us last October chat has worked closely with Doug and quickly immerse themselves in our businesses systems and culture. We're fortunate to have found some woodsheds knowledge and experience and I'm confident that he will be a great addition to our executive team and I expect it to become a good friend as well.
I would also like to provide a reminder, that our annual shareholder meeting is next week may 10 at nine a M. Central time, we're excited to hold our first in person annual shareholder meeting in three years and we hope you can join us at the movie Tavern in Brookfield.
Any details regarding the meeting can be found in our proxy statement, which can be accessed on our investor Relations website investors that Marcus Corp Dot com.
I'd like to once again express my appreciation for our dedicated associates of the Marcus Corporation Your outstanding work and commitment to serving our customers is responsible for our success and we appreciate all that you do.
Every day.
So on behalf of our board of directors and the entire executive team. Thank you to all of our associates.
With that at this time, Doug Chad and I will be.
On the call up for any questions you may have.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now when preparing to ask your question. Please ensure you are muted locally if you change your mind. Please press star followed by team.
Okay.
Our first question is from Mike Hickey of Benchmark Company. Your line is now I think please go ahead.
Yes.
Hey, Greg Doug Chad Congrats guys on them.
Strong quarter in a difficult market.
Thanks, Mike for taking my questions Doug. Thank you remark man it's been great.
Thank you.
Thank you Mike it really almost at right.
Back at you. We appreciate you all.
Welcome Chad.
The first question.
For me I guess.
Okay one of them.
No doubt a lot of compelling products and some big.
Budget movies coming out obviously attendance is going to reflect that but when you look at the.
Total scope.
Primarily sort of wide releases it looks like we're sort of still a disconnect.
In terms of the volume of wide releases, where we were pre pandemic. So just sort of curious your thoughts.
How the industry closes that gap.
Whether or not you see.
Some of the OTT providers.
Creating experiences that would be great in theater.
Namely Amazon, Netflix and Apple start too.
What a good product.
And to your theaters, especially on sort of a more agreeable gum window that sort of selling at 45 days of follow ups. Thanks Scott.
Thanks.
Hi, Mike.
If you look youre exactly right, we are not back to where we were from a content perspective yet.
And it's.
It's one of those things where it's really.
There's a bit of a lag time.
That were that you've that you bump into it.
This business when someone even if they plan to change their mind.
And I think there's been it's been great to see some minds change.
I think I think we all know there was this well were just Google screaming as the as the be all end all of everything we never understood and I think if you've been listening to our calls long enough. You would know that we've said that we can't see that actually making sense and I think that that is being borne out.
Streaming is here, but as I've said a million times screaming the real battle.
Streaming versus linear TV.
Yeah. It is competitive because the board product being pumped into the home the more competitive business, but but at the end of the day.
The theater has a differentiated experience and so I'm being repetitive, but I think it's important to convey that whole thing, but if you look at movies put into production. There is a great stat I saw recently and you would see that in 2019 <unk> 2020.
Production, just slowed down to I think the pandemic really.
Just slowed down a lot of production one of the things we're bumping into right. Now is in addition to that is the gross postproduction houses are really busy they face the same labor issues as everybody else and they are running behind and so.
As we've said a bunch of times. This is going to be up this is not a straight line path.
Well it will be a little bumpy from time to time, but the trend is.
I guess I learned from industry. The trend is your Britain.
It was really positive for US everybody is talking to say we understand that.
That the.
The film is better.
Performs better on streaming it performs better in all the markets when it opens up and theatrical.
And we heard that we've heard the studio, saying, we're seeing it being written about and so that bodes well for business because we do provide that unique experience and ability to spotlight and highlight a film.
We will see production has moved back up again, just generally <unk> in general I don't know what the number ultimately shakes out for all of us but.
But I think we're going moving in a positive direction.
Greg do you want to touch on Netflix Amazon Apple earlier thoughts on that.
Yeah.
We're in discussion we talk to all these guys were in discussions with them, we're trying to figure out how to work with their models and.
I don't have anything to report today on the phone call.
But.
But yes, we're talking to them.
And we continue to think we've been testing different ideas different different exhibitors have tried some different things through the pandemic.
I guess the best I can think of is to say that.
It has been reported in the press we are open to playing their films. We believe we are one of the statistics is a great statistic.
The people I don't know they talk about it enough is that the number of people who go there is a huge overlap between people that go to the movies and people who stream content that is.
That is a.
That's a very big group and so.
Because consumers of media just tend to be big consumers of media.
And so we that's where we make the case as we look at.
We are not.
We're not competitive in a way we are complementary and weeks. We're working these guys. I think there is and they are I think theyre going to want at the end of the day.
They're going to want to maximize the revenue from their IP because they are at these very competitive segment.
There it is.
Getting more competitive in the streaming business everyday.
And so they've got to get that money back and there is multiple ways to get that money back and I think all too often.
People treat their content, they said that certain people talk about content.
Or it's a screwdriver now I'm, sorry, but I'm going to the hardware store I couldn't tell you Im sorry, the screwdriver manufacturers that might be on our call probably none.
If there are I apologize upfront, but I Couldnt tell you whats grew driver I was buying and which one was better than the other.
And then.
But.
The film content is not like a screwdriver intellectual property and it is unique and I'm sorry, if you want to see I imagine that's right. If you want to see a movie that you'll like it if you want.
When.
Doctor Strange is going to be out this week when it comes out there will only be one place to go.
Plus it is unique it is not it does not intangibles screwdriver and the people that want to see that.
We will have the ability and they will have to be in the Disney plus family to see that and Thats true for something.
Clicks or on Amazon to the extent that they make content that people want is they can only go to that streaming service when does it exclusively and that will be a benefit to their members and only their members.
And yet it will have that.
The patina F&B Clayton the theater Halo.
And we think that for certain films that can be mutually beneficial.
And also that will drive incremental revenue and probably probably not drive any.
And the decrease in revenue on their streaming side so.
Sure.
I think it's a winning combination for them history has borne out the ethical as complementary and serves the ancillary markets not competitively ancillary markets.
I think that's it.
The action that they are starting to see that too.
Thanks, and sorry for taking my question.
I love the passion demonstrate.
Second question for me on.
I mean, it's all.
Obviously, we've got some uncertainty here.
<unk> and otherwise see that amongst markets good morning.
Youre confident you are in.
To your business, you've you're bouncing back strong.
Product is coming back strong.
Cash flow.
<unk> sort of flattish for the quarter, but sort of three.
Three quarters in a row.
Flat to up when you look back pre pandemic lost $11 million in free cash flow in the first quarter. So you are way higher than that so all of that being.
Sure.
<unk>.
About.
Potentially reinstating your dividend.
And how would you approach that I'm guessing you'd sort of bench into it but I guess just given your confidence and your cash flows the dividend was such a nice piece to your return profile and I think obviously the market is somewhat rewarding.
Capital return here and value stocks. Thanks, guys.
Yes, that's a really good question, Mike and I will I will certainly confirm that we're having lots of discussions about that.
We have been for really for most of our entire history, a dividend paying stock and we certainly anticipate returning to being a dividend paying stock.
We're watching that.
The timing very carefully I mean, we've got several puts and takes to think about regarding that.
But that certainly.
So I can't sit here today on this call and tell you.
Which quarter that might in turn become a reality, but it is on our radar we expect to return to being paying dividend I can say with certainty that when we do first return it won't be at the same levels that we left when we.
When the pandemic hit we still have some restrictions that we're operating under with our with our bank agreements until we get back to our old covenants, we're on our way back to getting back to our old covenants and so that comes into the consideration of all of this.
But it does allow us to start paying a dividend it's just.
It wont be at a level that you saw previously initially and then hopefully we'll be able to go as things normalize continue to focus on that it's an important part of who we are and I would expect that it will be in the future as well.
All right. Thanks, Doug Thanks, guys. Good luck.
Our next question is from Eric Wold of B Riley Securities. Your line is now open. Please go ahead.
<unk>.
Thank you good morning, everyone.
Great working with you Doug over the years definitely started to Hugo.
Sure.
Thank you Ed.
A couple of questions I guess one.
Obviously, a lot of the focus on inflationary pressures wages labor.
In the case for a while I guess what.
Have you seen over the past, maybe 12 months or even more reason in terms of how price sensitive.
Consumers have.
It's been both in the theaters and your hotel hotels.
Do you expect.
Still continued ability to completely cover increased costs.
Price is there a risk that may not be the case, where have you seen some pushback if at all from your moves around that.
Yes.
We have each business is different I think that we've seen we have seen a fair amount of elasticity I mean as you as we reported in our rates on the hotel side and so when I sit in the hotel side.
Both areas, but our rates on the hotel side have been.
Have been very very aggressive like the rest of the hotel world.
<unk>.
And so we've been able to manage that.
<unk>.
Okay.
We will continue to react to the market is as we as we can and test the waters and continue to.
The price there Peter side, we've been in we've been able to selectively we're being tactical with what we do there mainly because of that we're trying to to rebuild the business and bring people back to the theaters and that there are little there not as far along the curve as the hotels are.
So with that we're being we're getting we're being more selective but that doesn't mean, we're not doing it just means that I can tell you right now the guys on 'twenty.
We're sitting on 2020.
The theater, they're sitting around Rolando and his team are sitting around trying to figure out how to manage that labor as tightly as they can manage it.
And.
And yet at the same time, they are taking selective price increases where they kind of again, it does not and tune it across the board but.
We like for example, like on a Tuesday.
Instituted a dollar.
Charge upcharge for our <unk> premium large format screens from didn't have one in the past.
Those who arent members of our loyalty club.
No it's tactical things like that we're doing we're not we're not doing things like raising the price of an individual film like selling some of our competitors are doing but.
We're taking price increases during different day parts.
Sure.
So we are in there is there is elasticity in that as well because at the end of the day.
I don't know about you, but the last time I went to what any professional sports League.
Let's take it as our pricing and Thats.
As we talk about.
Six out of the last eight recessions Accredo business got better because people start to trade down because they still want to go out and we know this I saw an article and there was an article in the Wall Street Journal today to talk about how bananas people are to get out of their houses and how the world is trying to go back to people don't want to be at home anymore.
Bodes well for our travel business, but if the economy were to start to Ive always said theaters are uncorrelated asset.
As we go if the economy were to have any struggles.
That tends to bode well for the theater business because people want to go out and they are looking for less.
Less pricing entertainment and so we will have room to move on that pricing as well too.
Got it and then.
Second question.
What are your views on that.
The acquisition environment on the theater side right.
Right now obviously, we've seen some moves by us and our competitors are you seeing anything that fits your criteria do you think you could get.
Increased inventory and potential target is funding sources change.
And some of the acquisitions that we've done not checked all the boxes that you actually do it.
Tracking to you the environment and how could that change over the next 12.
12 months in your favor.
Okay.
There Hasnt there has not been a lot of activity that we've seen we saw a small transaction just recently, we got us because the market we saw it in the market that was announced.
But it was a pretty relatively small transaction.
We will look at anything.
At the end of the day, we are going back to the core precepts of our balance sheet needs to be in great shape.
As a business where scale is helpful, but it's not paramount.
And.
And so we are.
So I don't have anything to tell you that.
The activity is pretty quiet theres not much happening yet, but you know.
As you know, Eric we could see that environment change.
As the business stabilizes and continues to stabilize there maybe people who say okay.
Now I know where it is I have written this out kind of this.
Sale off in the Sunset we will.
We can potentially be available we'll have to look at it as it comes about.
Okay.
Got it thank you.
Our next question is from Jim Goss of Barrington Research. Your line is now open. Please go ahead.
Alright. Thanks.
I will also begin offering congratulations to Doug it's been great to be able to work with you for many years.
At your signing executive and the fine human being scheduled.
Got a tough act to follow so good luck to you too.
Thank you Jim.
Thanks.
I would add.
Actually I would like to start with.
Exclusive theatrical windows comment are there any holdouts, notably or I think most of the major studios have confirmed the 45 day type exclusive window Kevin.
Yes.
Can't think of anybody who hasn't.
Matt.
We don't have.
We don't have we don't discuss strict the conversations we're having with people.
Most everybody has got a window because I think they know okay.
I can wait in this before.
It doesn't.
Why do you want to create an unlimited number of seats on the first day, you want to talk about the laws of supply and demand.
Why would you want to would you want to on day one.
The unlimited basically limited inventory.
The whole concept of windowing is selling the same thing to the same person over and over again and you go into your highest.
Per capita channels first.
And all you do is destroy that and when you go to <unk>.
That situation and again.
Going back to know and to maximize the value of your IP and the revenue coming off your IP is counterproductive and I've always said and I guess, if anybody's capel's listening they can come back and tell me I'm wrong, but it was never lost on me that on day, one when Apple with.
<unk> released a new iPhone just historically if you go back to them when they were just really in the earlier years.
People were lined up around the building I find it hard to believe it how many iphones they would sell on day one.
And yet they created that demand they restricted the supply and and it works so beautifully to their advantage, we should all take a lesson from that.
Right.
With the issues Netflix the space lately have there been any change in the tone of conversation with it in terms of potentially introducing.
Having some sort of window I think micros bring this up before but also I'm wondering if you were to do a.
A theatrical window for some of the streaming content would it be day and date or would there be.
Any chance that should have at least a week or a few days of exclusivity.
That.
I look at I'm, not going to get into what we discussed with the with a different.
The difference.
To distributors and so we've never we've never done that in the past. So we're not we're not really going to go to that now.
We're open to whatever we're open to different models, we tested different things, we think what's best for us and for everybody has to have some sort of window.
It helps them back again.
We think it's counterproductive to.
<unk> worked very well.
We are open anybody has good ideas.
Okay.
No you've said in the past sometime that.
Certain of the films tend to play in your markets.
Better than others are there any.
The major releases coming up that you think will be particularly good or bad in the.
Marcus with Western type markets.
I can't think of anything that's going to be particularly challenging in our markets I can think like.
We performed very well on family films. So we will tend to over perform there. So I think like light year will be one where we can over perform.
Yes.
I'm trying to think off top my head of any of the new stuff.
Hi.
The stuff that I don't see stuff that I think we'd naturally underperform I don't know Doug could you think of anything on top of your head.
Hi, Chad.
The odd couple for US is that as you said, we indicate we performed very well on family films. We also tend to perform pretty well on horror and kind of scary scary stuff and so I'm trying to think if theres a few pictures coming out that might kind of fit that category as well and so but as I kind of mentally thinking.
The slate.
I would echo what Greg said Theres nothing is jumping out at me that insurance at all.
This is a bad mix for us.
I don't.
That's an unusual mix for us so I don't I don't think its.
Material.
Okay.
On the hotel side.
Business travel has lagged somewhat.
Are there any.
Additional specials youre trying to provide for leisure travelers, combining stays with food and beverage or anything like that too.
Make the most out of that opportunity.
Yeah.
Not one where I think we have to do much discounting.
Do that.
Where when we when we drink during softer times, you can see us packaging golf and Lake Geneva.
With our resort.
We will do it selectively where we have quieter periods to drive some demand, but we haven't had too much of it because.
<unk>.
And then come back on some wood.
The leisure travelers, but out in force.
Okay last thing.
The search late relationship.
Is there any way to you might frame out what sort of broader expectations.
You should have in terms of frequency of investment opportunities you can get out of that.
That relationship I know, it's going to be a very uneven but.
Is there anything you might say that.
<unk>.
I wish I could give you a frequency number Jim I really don't have one.
We are actively we are actively looking for things to do and for transactions to do.
With or without investment partners, but I.
And then look at the end of the day the thing that we do.
As we were about.
We hear about quality not quantity I mean, we don't have we're not trying to just put money out for putting out money I'll say for the sake of putting out money, we want to make sure our investors do well and we're certainly going to do our best.
We make mistakes occasionally I wish we were perfect, but we're not perfect, but we but we.
But we what we want to find them. So we're going to be careful and be thoughtful about what we do and.
The transaction market at R&D Hasnt been increasingly robust it's been.
There is stuff happening, but it hasn't been but we're actively looking for stuff and we have the capital available to do it from our partners.
When it becomes so.
Okay. Thank you very much.
Our next question is from Andrew Shapiro Lawndale Capital Management. Your line is now open. Please go ahead.
Hi, Thank you can you hear me okay, yes.
Yes, we can how are you Andrew.
Also high so first off Doug congratulations on the retirement well deserved it's been more than a decade I think we've engaged with you.
Really enjoyed enjoyed that over the years and look forward to.
Continued discussions with you on the industry et cetera.
Having your own one of the boards that we do stuff with future it can be great.
Thank you very much Andrew.
With respect to some of the comments that were made.
Agree with your comments.
That.
The big event Premier the Red carpet and box office run success drives the streaming popularity and you also spoke to the uniqueness of studio IP.
And that IP and promotion cost studio is hundreds of millions of dollars.
And at the point that when that IP streams, it has to be encrypted to be seen.
And it's at that point, when Theres, a perfect high quality high.
Pirated versions emerge.
Can you comment on what you have heard from the studios.
And your private discussions and cinema Khan and and just what you know in general about the impact of the increased piracy.
Studios have experienced.
During this.
Covid period in DMD.
A period of putting up their IP that where I mean, we had heard that like matrix for was like one of the most pirated movies of all time within four days.
Are you have you heard and seen things like that and what's the what's the takeaway on on all of this.
Sure.
No.
Andrew that is a great question and I'm not saying that's a great question to stall because thats usually people do know that's simply a great question.
You can you remind me if I didn't talk about what day and date, because yes piracy is a gigantic problem.
And yes, they're talking about it and they know about it and yes. The minute you create that debt that you put it on your stream of digitally you create the opportunity for that pristine copy.
As opposed to the Guy with a camcorder in a theater, which.
Somebody maybe just walking in front of the the thing and it's not in focus all the time and it's just clearly not like being able to grab that pristine copy and they are seeing in the minute. They put it on a P vod or streaming anytime nickel digitally into the home.
And it's been every film just sees a gigantic pop.
When they do that and they know that it's really a negative. So it's just another reason to again grab as much revenue as you can from the from theatrical first and then move it and here's the ancillary markets. So thank you for that great question.
Did you get have you gotten feedback from studio exact that.
And Ricky in recognition of this I mean, this just proved to be a really big change in hit.
And and impacted their models such that that's one of the motivators not only for them to return to exclusive windows, but.
Since they've learned their lesson and they probably won't be leaving those exclusive windows. So quickly.
Yeah.
I can't say that I've had those countries I might not have them anyway, because it would be our theater team might be able to more directly than I am having them, but no.
But.
But look at it we know the MPAA is focused on piracy they talked about it that's what.
Charlie Revkin that specie, a big topic in his speech was the problems of piracy and how they are working to try to fight it.
But you know.
Like it's like radar detectors with the police I think.
No.
There are people, who are card to stop them, but they want a steel it's really hard to stop them from stealing.
Right.
Okay. Thanks.
Thank you Andrew.
Our next question is from Ryan Hamilton of Morgan Dempsey Capital Management. Your line is now open. Please go ahead.
It's a variety of everybody.
Hey, Ryan.
The top of the hour.
Give us give us your best shot give us your best one yes.
Similarly in Europe .
But to answer.
Just real quick on price increases.
What about on the theater side any comments on the concessions food and beverage.
Yeah.
Any comment on price increases.
Food and beverage side price increase I'm, sorry, it didn't quite get the price increases.
I basically would echo what Greg said earlier about.
The context was primarily an admission pricing when he was answering it but at the same approach on the concession side too is very tactical I mean, we have taken some some selected increases.
Just like we're seeing labor cost challenges, we're seeing some rising costs in our cost of cost of product.
And so we're trying to be smart and tactical about any price increases that we take.
We're no different I mean, you go to any restaurant or anywhere else go to a ballgame youre going to see those same prices going up.
We have the unique challenge of as Greg as Greg indicated we're trying to rebuild the business as well so we want to be careful and smart about it.
But but but it's it's another issue that our team is watching and working very carefully on.
Sounds good.
Sure.
Co later, Doug Congrats on excel.
For career Fantastic working with you over the years.
Thank you Ryan.
Yeah.
Thank you at this time it appears there are no other questions I'd like to turn the call back to Mr. <unk> for any additional or closing comments.
Thank you very much I want to thank everybody for joining US here today are Greg and all of you that were on the call as well. Thank you for your kind words.
I personally would like to thank everyone listening the call for your interest and support of the Marcus Corporation over the years and certainly during my time here with Marcus.
I am, particularly grateful for the relationships I've built with many of you during that time my time here at.
It has been an honor and a privilege to work for such an amazing company and an incredible family for over 36 years.
So while I look forward to this next stage of my life I will most definitely Miss all of you and my second family here at Marcus.
Greg and Chad, we will look forward to talking to you once again in early August when we release, our fiscal 2022 second quarter results until then thank you and have a great day.
That concludes today's call you may disconnect disconnect your line at anytime.
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