Q3 2022 Marcus Corp Earnings Call
Side, we continued to see strong enthusiasm from our customers who turned out for the movies that we had but as we expected we were challenged by a limited number of film releases during the quarter.
Consolidated revenues increased nearly 26% over the prior year growing from $146 million last year to nearly $184 million in the third quarter. This year Consol.
Consolidated adjusted EBITDA increased from $24 million last year to nearly $28 million this year.
We provided a breakdown of our third quarter numbers by segment in our press release, where you can see that in the third quarter. Our hotel Division provided a majority of the $31 million of adjusted EBITDA from the divisions prior to on allocated corporate expenses.
As we will discuss today, our hotels business had a phenomenal quarter that exceeded all of our expectations.
Below operating income our third quarter interest expense decreased by approximately 900000 benefit primarily benefiting from lower short term debt and reduced borrowings, resulting from our improved operating results.
The reduction in interest expense was partially offset by a decrease in gains on sales of assets this quarter compared to last year.
Turning to our segment results, our hotels and resorts Division revenues were $82 million for the third quarter of fiscal 2022, as we continue to see strong seasonal demand for leisure travel and improving conditions for group events in business travel.
The division delivered $19 1 million of adjusted EBITDA, which is a record third quarter for any fiscal year.
Total revenue before cost reimbursements increased over $12 million or 24% over the third quarter of 2021.
Revpar for our eight owned hotels grew 19, 8% during the third quarter compared to the prior year.
We continue to believe comparing our results to pre pandemic levels in fiscal 2019 helps provide perspective on the recovery of the business.
And after two years on this journey, we are pleased to now be reporting growth over pre pandemic levels.
Third quarter total revenue before cost reimbursements for the division grew eight 9% above 2019 levels a post pandemic high Similarly, revpar for our owned hotels increased five 3% during the third quarter compared to the same quarter during fiscal 2019, marking the first.
Quarter of Revpar growth compared to pre pandemic periods.
Breaking out the third quarter numbers for the eight comparable hotels more specifically our overall revpar increased during the fiscal 2022 third quarter compared to fiscal 2019 was due to a 16, 6% increase in our average daily rate or ADR, partially offset by an over.
Raul occupancy rate decrease of approximately eight percentage points, our average fiscal 2022 third quarter occupancy rate for our owned hotels was 75%.
According to data received from Smith travel research for the fiscal 2022 in fiscal 2019 periods and compiled by US in order to evaluate our results comparable competitive hotels in our markets experienced an increase in revpar of three 9% during our fiscal third quarter compared to.
The third quarter of fiscal 19, indicating that our hotels once again outperformed by approximately one four percentage points during the third quarter.
Further when comparing our revpar results to comparable upper upscale hotels throughout the United States. The industry experienced an increase in revpar of three 5% during our fiscal third quarter compared to the third quarter of fiscal 2019, indicating that our hotels also outperformed the segment by approximately one.
Eight percentage points during the third quarter.
Finally, as group business returns, our banquet and catering operations continued to drive growth in food and beverage revenues, which were up 28, 2% in the third quarter of fiscal 2022 compared to the prior year and were up six 3% compared to the third quarter of fiscal 2019.
Shifting to theaters, our third quarter fiscal 2022 admission revenues increased 29% compared to the third quarter of 2021, a period that was still impacted by customer comfort concerns with returning to theaters and day and date releases of films all of the top five movies in the third.
Quarter of 2022 debuted within exclusive theatrical window compared with three of the top five movies, releasing day and date to streaming services in the prior year quarter.
When compared to 2019, our third quarter fiscal 2022 admission revenues were down 29, 1% occur.
According to data received from Comscore and compiled by us to evaluate our fiscal 2022 third quarter results.
States box office receipts decreased 32, 1% during our fiscal 2022 third 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 three percentage points during the third quarter of fiscal 2000.
'twenty two.
Our average admission price increased by 0.8% during the third quarter of fiscal 2022 compared to last year. This increase was primarily the result of targeted admission pricing increases implemented during the third quarter or the second quarter in response to cost inflation and.
Negatively impacted by an unfavorable mix of lower priced matinee tickets due to a mix of films that played more to family audiences. In addition on September three R. Circuit participated in the first National Cinema day in the U S and industry celebration of movie going that included $3 promotional ticket pricing.
While the day was a success in driving attendance with over 8 million customers participate participating nationally the promotional pricing from the event resulted in a three two percentage point headwind to our year over year average admission price increase for the third quarter.
Average admission price during the third quarter grew by nine 3% compared to the third quarter of 2019.
Our average concession food and beverage revenues per person at our comparable theaters decreased by two 6% during the third quarter of fiscal 2022 compared to last year and was also negatively impacted by a higher mix of family films at daytime showings, which resulted in purchases of less expensive.
<unk> items and smaller average tickets compared to the third quarter of 2021 promotional concessions pricing on National Cinema day, also unfavorably impacted food and beverage per caps compared to the prior year quarter.
When compared to fiscal 2019, our per capita average concession food and beverage revenues increased by 21, 2%, which we believe is the result of several factors, including our industry, leading mix of nontraditional food and beverage options generally shorter lines at the concession stand.
And the emphasis we are placing on ordering through our mobile app as well as pricing changes.
Due to the impact of three strong blockbusters during the third quarter of fiscal 2022, which were minions. The rise of grew Thor love and Thunder and top gun Maverick the third quarter box office was more weighted towards our top movies as compared with the third quarter of fiscal 2021 and fiscal 2009.
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These films resulted in higher overall film costs as a percentage of admission revenues.
Film costs as a percentage of admission revenues increased significantly year over year due to a limited number of blockbusters last year, resulting in abnormally low film cost percentages in the prior year and were generally only slightly higher than our cost in the third quarter of fiscal 2019 prior to the pandemic.
Shifting to cash flow and the balance sheet, our cash flow from operations was $5 1 million in the third quarter of fiscal 2022, and $64 million year to date total cash capital expenditures during the third quarter of fiscal 2022 were $11 1 million and for the first three.
Quarters of fiscal 2022 total capital expenditures were $27 5 million for both the third quarter and the year to date. The majority of our capital expenditures have gone to renovation projects in the hotels business with the balance going to maintenance products projects in both businesses.
We ended the third quarter with over $213 million in total liquidity at.
As previously announced in July we repaid $46 6 million of short term borrowings.
Paying in full and retiring early the term loan facility. We took on to help manage through the pandemic that was set to mature in September of this year.
Following the term loan retirement at the end of the third quarter, our debt to capitalization ratio was 33%.
Our net leverage was two two times net debt to adjusted EBITDA.
Finally in September we paid our first quarterly dividend to shareholders since suspending the dividend at the onset of the pandemic.
This morning, we announced that our board of Directors has approved our next quarterly dividend declaring a <unk> dividend to common shareholders of record on November 25 to be paid on December 15th.
We remain committed to returning capital to shareholders, while maintaining the strength of our balance sheet and liquidity.
With that I will now turn the call over to Greg.
Thanks, Chad good morning.
In our last update we reported a quarter, where both of our businesses had significant momentum and.
And we took a big step forward in our recovery.
As we entered the third quarter, we saw the opportunity for continued year over year improvement I am pleased to report that we delivered a quarter that met our overall expectations and in some cases exceeded them.
Hotels, we continue to see group business return and demand from leisure customers remained strong and theaters our customers continued to come out to see the movies that were playing.
But our teams into work hard to navigate a light film slate, particularly during the second half of the quarter.
It is quarters like these that highlight the benefits of our diversified business strategy, which allows us to successfully manage around the bumps in the road at any one particular business.
Since the pandemic began I've said several times on these calls that our recovery journey will not be a straight line, but we will continue to make progress overtime.
Well not as fast as last quarter, we continued to make progress this quarter and I'm pleased to share. These results with you.
Chart with our hotel Division.
<unk> 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 our industry and our competitive sets this quarter.
Our hotels team delivered another record quarter with $19 1 million of adjusted EBITDA for the fiscal third quarter, a record for any third quarter, either pre or post pandemic. This follows a second.
Our record second fiscal quarter, making for a record summer season in which our hotels division delivered nearly $31 million of adjusted EBITDA in the combined second and third fiscal quarters.
This level of success speaks to both the high level of execution by our team and the quality of our hotel assets.
Our owned hotel portfolio includes special assets like the Grand Geneva Resort, and Spa, which has performed so well throughout the pandemic by appealing to leisure customers and is now hosting and growing number of returning group events.
Well I hesitate to declare victory and a full recovery following the pandemic because there are parts of the business, where there is still more recovery in front of us, particularly in the business travel segment.
Is incredibly encouraging to be focused on growth with both total revenue and revpar growing above 2019 levels this quarter.
As we have for the last year, we continued to see strength in leisure travel this quarter.
We're seeing a trend where the lines between leisure and business travel blurring to create a bleed your customer who's filling up weekend shoulder night demand.
In addition.
Our group business, which includes associates, which includes I'm, Sorry Association corporate and social events continues to grow.
So far during the first three quarters in 2022 group customers have represented approximately 35% of our total rooms revenue compared with 29% during the same period last year and 39% in 2019 prior to the pandemic.
Our group room revenue bookings for the remainder of fiscal 2022 or group pace in the year for the year is now running within 5% of where it would historically be at the same time and prepay demick years.
Looking further ahead, our group pace for physical 2023, compared to where we would historically be at the same time pre pandemic is running behind our pace compared to this time last year, which we believe is likely due to the trend of shorter booking lead times for events, which we have seen over the last year.
Because our pipeline for next year looks healthy.
We're encouraged by the increased amount of activity in leads we are experiencing and our sales teams remained focused on continuing to close the gap as group business travel activity recovers.
The growth in group business continues to drive strong banquet and catering revenue pace, we continue to experience very strong wedding and social event bookings and some of the bigger events of the past are once again looking for the remainder of this year 2023 and beyond.
The customer segment that continues to lag and its return as the transient business traveler. This customer segment continues to slowly improve month by month and according to industry data U S business travel in May through July . This year was approximately 75% of 2019 levels with an industry outlook of a recovery to 80% in 2023.
In general the overall demand environment remains supportive of strong average daily rates.
And we continue to see occupancy pace build while holding onto higher rates.
We were pleased with our average daily rate during the third quarter, which grew approximately 4% over last year. Despite the year over year headwind, resulting from our three Milwaukee Margaret hotels benefiting from three large event demand drivers at high rates in the third quarter last year that did not recur in 2022.
Average daily rates for the third quarter increased approximately 17% compared to 2019 rates for the quarter.
As we stand here today, we are not yet seeing indications of consumer demand slowing or macroeconomic softness. According to a recent travel industry survey, 91% of surveyed travelers have trips planned in the next six months and in the same survey, 82% indicated they plan to spend more or about the same on travel this holiday season.
Throughout this year, we've made investments in renovation projects at the Grand Geneva Resort and Spa with preparations now beginning for the final phase of our room renovations coming this winter. We will also begin making significant investments in several of our other hotels to enhance the guest experience and we expect these investments to continue to drive our outperformance in the years to come.
My congratulations to Michael Evans in our hotels and resorts team for delivering a great quarter.
Shifting to our theatres division I would like to begin by congratulating Mark Graham's on his promotion to president of Marcus theatres, Mark brings many years of industry experience and knowledge of passion for the movies and theatrical exhibition and understanding of the market culture to his new role I know Mark is proud to lead a great team of dedicated BD Associates I'd also.
Like to congratulate Relondo Rodriguez on his retirement and thank him for his many contributions to our company the movie theater industry and the communities we serve.
Moving to the quarter Chad went over the numbers with you, including our continued increases in per person revenues and our outperformance of the industry.
As I shared on our last call we expected the third quarter to file the inverse pattern in the second quarter, starting with a strong film slate in July with several films, releasing and others carrying over from the prior quarter and continuing to show well followed by a softening film slate in the late summer headed into the fall.
This lull in the movie release calendar resulted from several film shifting back due to production delays in a post production backlog.
Box office, followed the pattern, we expected and while the movies that we had played to help the movies. We had played to help your audiences the limit quantity of films caused the sidestep and a recovery path with that said there are several bright spots that I would like to highlight first.
Our audience continues to broaden with family audiences out in force. This quarter are number one will be for the quarter was minions. The rise of grew with DC League of Super pads coming in at number seven for pundits, who don't think families want to go out to the movies. They were our number one customer in theaters this quarter.
In addition, customer show that when we have movies and genres other than superhero films. They came to theaters to see them two films like Elvis where the <unk> and note all resonated with audiences and performed well in the theaters.
Top gun Maverick sort for the entire summer playing exclusively in theaters for 88 days before it's PV premium video on demand release and continuing to play in theaters through labor day to become final becomes the only film in cinema history to secure the number one box office spot domestically.
Both Memorial day, and Labor day.
The experience of immersive sound and the big screen cannot be duplicated on the couch in your living room.
So customers just kept coming some to see the second and third time in the theater driving maverick to generate the fifth highest domestic box office growth of all time.
I've talked in the past about our belief that exclusive theatrical runs elevated studios brands generating a buzz for a film that sets up subsequent windows and maximizes the value content top gun Maverick is perhaps is perhaps the best example of this yet becoming paramount's number one best selling digital sell through title ever in the U S. In its first week.
A P Vod and digital release in late August . This was followed by a DVD and Blu Ray released earlier this week, while Maverick remains the number one movie on itunes all of these windows added to Maverix huge box office success before its eventual streaming release on Paramount plus.
Earliest earlier this month, our magical movie rewards program added it's 5 million remember this program has increased customer loyalty and grown sales.
While providing a range of benefits for our members.
These perks combined with the overall moviegoing experience drive attendance and repeat business.
In fact <unk>.
<unk> members make up nearly half.
46% of our overall attendance and on average visit the theater four times per year.
Our loyalty program also provides us with valuable insight into customer preferences.
For example, we know that our loyalty members are more than twice as likely to purchase advanced tickets to a movie and we know that the loyalty program encourages ecommerce was 62% of our online ticket sales are purchased by loyalty members. This program has been a great asset to us and we will continue to develop and leverage our growing member base in the future.
As we look forward the film slates picked up with several films that have already played well in the fourth quarter, including Black Adam Smile, Halloween and ticket to Paradise.
And like so many of our customers. We're excited for the release of Black Panther will conduct forever, one week from today and avatar the way of water on December 16th.
As Chad discussed in his remarks today, we announced our second quarterly dividend since reinstating the dividend last quarter. The Marcus Corporation has a long history of returning capital to shareholders and we remain committed to paying a dividend.
As you know we view the world through a long term lens.
Our rate of improvement will vary from quarter to quarter as it did this quarter, but I am confident that we will continue to make consistent long term progress we manage the business day to day, but at the same time look at the overall performance of our investments with the goal of long term sustained growth and industry outperformance.
Finally, I'd like to once again express my appreciation for our dedicated associates of the Marcus Corporation their outstanding work and commitment to serving our customers is responsible for our success.
They are our most important asset and we appreciate all they do everyday so on behalf of our board of directors and our entire executive team. Thank you to all of our associates.
With that at this time, Chad and I will be happy to open up the call for any questions you may have.
Thank you if you would like to ask a question today. Please press star followed by one on your telephone keypad. If you change with a question. Please press star one.
Comparing to ask a question. Please ensure you're stating is that music lately.
And our first question today go to Jim Goss of Barrington Research Jim. Please go ahead. Your line is open.
Alright, Thank you and good morning.
I would like to start with a couple of questions about the hotel sector.
You've talked about.
At the beginning of a resurgence in business travel I'd like to.
Got a few more comments on that in terms of.
The la.
What trends Youre seeing in the.
The price sensitivities for both business and leisure travel and whether that makes a difference in how you are setting your rates.
And.
Then I was also wondering about a couple of the more specialty type hotels.
And so the Kimpton Monaco.
You might talk about their experience relative to.
Your group in general.
Yes, so maybe I'll start with a question on the business traveler and Greg talked a little bit about it in his remarks being over the early part of the summer.
We saw the business traveler back at at call. It 70% of 2019 levels and we've got an outlook that that the industry has an outlook that that's going to go to 80% hopefully for next year.
On the rate setting front I don't I don't know that theres as much sensitivity to rate as there are just a different behavior among business travelers and the trips that they are taking so.
The salespeople are back out on the road.
But the group that hasn't hasn't come back yet or.
The consultants and some of the professionals, who in the past with go out on the road with a team of four or five people and go out on Sunday night stay until Friday, now that anecdotally seems like its may be fewer folks and they're going out for.
A smaller number of days so that that's the piece that's that's lagging.
But what we're seeing instead is that demand is being picked up by first leisure travel and that's that's been strong continues to be strong and we're not seeing.
The pushback on any indication of pushback on rate at this point and now we've seen this ongoing trend for two quarters with a healthy return of group business.
Which is of course filling up nights during the week. So it's been really encouraging and I'll, let I'll, let Greg take the second part of the question around the Saint Kate assets, Yes.
Actually I'll build a little bit and I have.
No specific data point to Jim again.
Just out of my hands I can tell you anecdotally I do know that I heard some reasonably about some corporate rate setting that went on and.
We're having to pass along the cost of the customers.
They understand that and so we're we're not seeing.
We're not seeing pushback.
People negotiate but but but we're comfortable with where that's going.
As for performance as I've talked about before these hotels perform.
Has been have been very beneficial having these special experiential hotels.
Wherever we have the overlay of our experience with group business performed well no matter, who the traveler is.
Whether it's whether that's the kimpton or the Saint Kate we attract that leisure customer, but we also we're tracking that business customer as well, who have central city business and groups and.
Uh huh.
Who want to have something different to have an experience to not just be your.
Typical hotel room and so.
We're pleased with the strength, we're seeing in those hotels.
Okay.
And then on the theater side and thank you for that but on the theater side.
Going into this year it seemed like.
There was an expectation for almost a double ups in terms of the.
The slate that we could expect in that sort of fell apart a little bit.
Say August September and has been a little softer and towards the end of the year with the exception of some really big potential movies like Avatar Black.
Black Panther.
And I'm just wondering how you are looking at.
You had a valued part of the year developed relative to your own expectations and what's your thinking as you move into the new year.
Maybe including.
Good start with.
Rollover from Avatar.
Jim This is a business.
I don't really set expectations to be honest I mean, we deal with what's coming in we cant given given all that's happened with the pandemic and with what we talked about with Postproduction backups.
I think they are dealing with the same labor issues, we're dealing with and so.
We will continue we are pleased by continued progress.
<unk>.
But I am not going to say well. This is Mike I, just don't set expectations and we as I said, we manage to what comes in the door to maximize what's coming in at the top line and then two to maximize the bottom line. After that in two stages was play on both sides of the ball but.
Often say in defense and.
And so with that in saga.
It's to give.
Given all that's going on and then on top of that it is a business, there's an old saying in this business.
<unk>.
Every every film as the R&D, except the sequel.
So you'd never know whats going to come in well, how something is going to do it at any given.
Until it shows up.
I will tell you right now if I would've said the top line is going to be the biggest movie of all time is going to play all summer.
If I would have made that better I would have made a lot of money with people if I would've known that who would have known.
We just don't know.
And the only thing I'd add.
Jim on the number of films.
Right.
There's no doubt, it's taken a little bit longer than many have expected to ramp back up the number of films. After some of that inventory wind went to other channels during the pandemic, but I do think we are encouraged by what some of the studios are saying about what the pipeline looks like going further out.
In 2024, but it's going to take awhile to get there and so it's.
<unk>.
It's just going to it's just going to take some time.
Okay, and then maybe just one last.
And then into those comments.
Any of this affected your concession strategy or are those.
Just parallel situations in Europe .
The.
But the nature of the backstop with Hasnt really.
It had an impact on what your offerings would be or any sort of aspects.
What are you what are you thinking about if you have a good idea.
But.
No I'm just thinking.
Would you have been more aggressive in bringing on additional products or something like that.
Consistency of the box office was a little greater or or is that really not.
And that's something that worked into then the.
The strategic elements.
No I mean, I think our teams are always looking at what we can sell we can sell more of enduring offers to who's coming in the door.
So no I don't think that there is anything but I don't think there's anything that's shifting one way or the other.
Because of that because it was coming in the door other than just how we do things that we're trying to do which is to.
Like one of the really interesting things, we're seeing is as we move to online ordering the.
The ability to up sell.
So we were really ahead of the curve on developing the online ordering.
And we think that benefits us in two ways you mentioned, how recent we've added actually upselling to the technology.
So now you automatically get do you want an add on or do you want to make that medium soda all large we've got things technology like that now.
You can't.
We had sort of two issues just sort of dealing with humans that are sitting behind the concession stand one is when there's a really long line, they're not thinking about up selling you are thinking about getting people through the line.
Also.
When you have new people and high turnover, which is just natural in this business anyway, and training them as harder and making sure that they all again upsell do to drive more revenue.
Got.
So having that built into the technology is really helpful to know.
We have that and focus on operationalize that and building up our percentage of people who order on the app.
That's the kind of thing that we're looking at from how do we what do we do it going forward or not with our food and beverage operations. We think also it should save money.
At the at the concession stand in terms of labor as well, which is really important in this market and we're not I'm not here to give you a prediction on what that number might be but we see hotel industry is a great example, and I guess operating in multiple industries is a great way to see something like this we learned many many years ago that once people actually moved from calling our reservation system and having to.
A human being at the other end.
Put in all the information on the reservation.
That.
When they.
They move that work to the customer and now the customer when they're making hotel reservation. Thus it themselves. They don't get the benefit of calling up a hotel system and doing it. They do all the work and to the extent that we can also move that work to the customer on the concession side that should be labor savings on it because that just takes a certain percentage of time out of the <unk>.
<unk>.
The.
From from the because now no one has to take your order no. One has to process. Your credit card you do that all yourself when you do it on the App.
Okay. Thanks, very much really.
I appreciate it.
Thanks, Jim.
Thank you and the next question guys team, Mike Hickey of the Benchmark Company. Mike. Please go ahead. Your line is open.
Thank you Greg Chad good afternoon, guys nice quarter.
And my congratulations.
Your recovery here very impressive.
Great job to all of you.
I guess.
Gave some great data.
Greg on the.
On the hotel side.
I guess thinking about 'twenty three here everyone.
That we're going to be enough.
Session, but looking at.
Some of the momentum in your business clearly that there's indications that.
That will extend into 'twenty three.
I suppose the question is.
Yes.
As you sort of look that immediate.
Sort of in a unique position here.
Given that.
So much of the reopening tailwind.
Pushing through more.
A more difficult economic scenario.
And I know youre cautious on.
Setting expectations and I respect that on the leisure side I guess, specifically I mean is this could.
Could we be looking at 'twenty, three where normally you would expect a pullback in leisure travel, but just given.
What we've all gone through I guess that being at home is so critical to our health and escape isn't that leisure could actually.
Sustained level or grow despite.
More challenging.
Economy.
And then I guess the same question on the business traveler for only 7% were pre pandemic I think necessity to connect people still there just curious broadly speaking your thoughts.
Theyre tailwind that reopening into recession.
Curious, Greg what Youre hearing just anecdotally from two other business leaders.
Necessity and appetite to continue to travel.
Okay.
Yes.
Thanks for that question like that.
It's funny.
I hope, you're right and I have to admit I okay.
I don't I don't know, we just don't know, but the C. But the same thoughts of cross my mind.
Things.
Typically.
When you get into a recession.
Our hotel business isn't really going to again this is about having multiple some diversity hotels tend to see that.
See more GDP impact where theaters tend to actually go the other way because all of a sudden.
Cheap entertainment instead of going to a concert or going to.
Our game all of a sudden well, let's just go out and go see a movie so that can work to our benefit but on the hotel side, yes.
The mix is so different than we've ever seen.
Sort of wondering what will happen I wish I could tell you I know I hope Youre, absolutely right because you know the consumer is in Israel.
<unk> is in better shape than they've been in a long time.
Going into something like this and they do want to get out and they do want to travel they do want experiences and that is no.
We're seeing if you see I know that anybody is Washington economy is seeing stuff, where there was big pull forward in demand.
Goods and services <unk> services goods.
Buying things for your home.
There was there was big pull forward there and that group is now seeing.
That sort of.
Some reversion to the mean, but then experiences are now people are saying I want Ivo cabinet stuck in my House I can't actually buy another bad for my house or I can't.
Can't buy.
Hi, another got her to put on my House I've done everything I can do to my house I'm going to get out and do stuff.
And that's why I think.
Travel has been robust frankly, while the movies. We played have been people have responded to because they want to get out.
So that was along with saying I really don't know.
Well I hope you're right.
I guess, we'll accrue almost right around the corner, but thanks for that.
Second question for me.
The I guess.
Certainly.
From the.
Investor.
I think there has been sort of I guess <unk>.
On the theater side has been the inkjet.
Jim sort of skepticism.
Maybe <unk> won't grow.
I think broadly speaking a lot of numbers come in and taking a more conservative approach.
22 growth.
Curious.
Is that sort of pessimism.
Is also held.
Bye.
Either operators.
The industry units.
What is sort of.
The outlook from.
Your peers on the theater side I mean is the feeling that now.
It's going to be a grind here for a few more years.
Maybe there is too many screens and.
It's going to take a while to get product back.
If that's the case, maybe it's healthy optimism and everything's great, but if its not you feel like we are.
Two inflection point here and obviously, we know <unk> got.
Some screens for sales all of them probably.
Reaching a point, where maybe there is some incremental motivation here.
To maybe do something else either operators do something else with their lives and maybe try to sell an asset or two in does that given where you are in the recovery and the success historically of building value through M&A.
You're also approaching a point, where we could do more.
Inquisitive.
On the acquisition front thanks Scott.
Yeah.
Again.
We wonder Theres nothing has nothing happening yet.
No.
The obviously.
The Regal thing going on which.
I don't know whats going to happen.
Them and look what they projected a few leases, but they haven't really been done.
Much that I can even respond to at this point.
The.
Those those theaters are going to need a lot of work, though I'm sure that they've had a lot of deferred maintenance and thats going to need a lot.
Thats a project.
But.
The.
But but.
But to your point I don't know that anybody has actually started saying okay.
Okay got it.
Maybe the other side and now okay. It is I'm ready to go at it first of all don't think anybody actually necessarily I think they think I guess is we'll get to <unk>.
Yes.
No. One has made a decision on what that might mean or have we reached an inflection point.
I don't think so.
But again.
And it goes back to sort of like the consumer who is in pretty good shape.
There was there was a lot of money to the guys to anyone who wasn't public.
These shuttered venue operator grants that was significant money that the government put out how people get through the pandemic.
And.
So it's really a lot of pressure to actually do anything and got them to the other side and so we're not getting so I forget which.
Not seeing it yet where people are saying, hey, I'm ready to hang it up let's see let's see what's going on out there.
Yeah, and then the forecast for the 2023.
<unk> portion of your question.
The outlook, we don't we don't provide guidance.
But I would say we share some of the conservatism there.
You have heard in the last couple of months on those from those who follow this space.
And I think that really comes from just looking at the film release calendar and the amount of content that we expect to see come through and the push outs that we saw during the course of this year have had domino effects on what 2023 looks like and so theres been a shift in a number of different <unk>.
Areas. It just wasn't like all of a sudden we're going to have this surge when they when they get caught up I think it extends out the entire release calendar. So.
We are going to be cautious knowing that theres still a lot of movement in the schedule and that will continue to be something that we'll be dealing with until the studios get through their content pipelines, but.
As I said earlier, we will see when you get further out.
Alright, great. Thanks, guys good luck with holidays.
Thank you.
Thank you and as a reminder, if you would like to ask a question today. Please press star followed by one on your telephone keypad.
And our next question. Thank you Andrew Shapiro opioid <unk> capital management. Please go ahead. Your line is open.
Alright, thank you.
I got a few follow up questions along the same theme as Mike's question here.
And it's.
Takeaway from your discussions with those in the industry in particular.
Studios.
On whether the Halloween out.
Quantity of middle tier movies.
Is something that secular or if it is something that's a bit more.
Temporary.
Are you getting the takeaway that theres a lot of.
Theres post production.
Capacity issues or was it a reduced amount of production and these are multiyear projects within the reduced amount of production activity.
That obviously could not take place during the pandemic.
And then.
That that things will ramp up.
Or are we seeing a secular shift.
Where economically.
It makes more sense for the studios to put the middle tier.
Direct into streaming, which I'm not sure it does any more since the value per subscriber.
He has been greatly readjusted with the decline of.
Netflix and the rise of interest rates.
Yes, I mean, you answered I think youre exactly right not even sure if the value per subscriber you have to make the assumption that youre not going to have subscribers because somebody saw movie somewhere otherwise all you would have all youre talking about is incremental and the one thing thats very different.
Now that's happening only if you make a movie.
Somebody makes a movie the only incremental cost they have now after.
After the negative cost, which is the cost of making.
The only incremental cost they have.
Is marketing.
There is no more the.
<unk> of P&A is gone are going with virtually gone.
And so now Youre only questions looks like at least get my marketing spend back.
And you probably will get that and more and then Ken I E.
Sure.
Can I get.
Can I get some benefit, but let's assume while you got with your marketing spend back Felicia marketing for what ultimately as you explore your exclusive IP on your streaming service and so the only way someone can you see it.
See this is see it on the streaming services to go to be a subscriber and we know that there is the research has shown over and over again.
The people who are going to the movies tend to be high.
<unk> high users of all media and if you think about that.
The cost of going to a movie, which cheaper it's the cheapest out a form of entertainment I have to admit when I start comparing movies to streaming I feel like I am comparing apples to oranges. If you want to talk about streaming versus something on linear okay. That's a macintosh compared to a gala Apple I get it but.
The cost of going to a movie.
I'm thinking of a streaming service that night.
For what they charge on a monthly basis or a family went to the movies.
The second year of their streaming service and then whenever they saw at the theater.
The kids will watch a thousand times over at home.
And so that just seems like incremental revenue that you get in the theatrical plus being able to distinguish your product in the theatrical window as opposed to being a tile on a screen that disappears in 14 seconds.
Here you become because we have a limited shelf space you become part of the zeitgeist part of the discussion.
And part of it.
Part of the water cooler talk.
And.
It can't be for every film it can only be for a certain limited subset and I think that for whether it's a ROM com or drama.
And I do believe that there is a place we're putting out I actually saw a ticket to Paradise last night.
What a fun movie to see whats the theater lapping even it was a wednesday at our busiest night of the week, but there are people in the field with me and we all laughed together at the jokes.
This movie of all time was it a great. Our 45 minutes, yes. It was great to our escape to our vacation it was fun.
And so I don't get to your point, Andrew I'll get the math.
I don't I don't get why why you would why you'd want to take.
Especially this stuff in a way described we're going to take a few big things to try and sort of get some attention sure I get that but in the stuff that's sort of in the middle why you wouldn't just try and get your marketing budget back and plus plus plus plus and <unk>.
I keep thinking about.
The streamer, who the streaming services what are the biggest advertisers now in theater is streaming they know that their customer is sitting in the theater. They know it and they are advertising to them well in the most effective ad in.
In the.
In a theater is the one that plays right before the movie and if you're a streaming service. The last thing the customer's going to see it's going to have some of that is probably the highest recall is going to see this movie brought to you by X. It's like a giant add for a streaming service in 70 feet of glory.
For people, who are basically captive in their seats.
Not going to the bathroom not getting a sandwich not taking the dog out.
It seems to me, there's a lot of value in that.
We are purchasing the acquirer, we both agree I think on the economics and the model that makes sense. There is few other reasons frankly as you want to milk you want to milk the money.
Out of the exclusive.
Theater, where piracy is a shaky iPhone versus pristine pirated versions that come the moment something to get streaming et cetera, but.
The economics are clear to exhibitors that clear two exhibitor investors is your takeaway from your contacts with the studios.
Where they are green lighting films and they're deciding.
<unk> plans on on distribution.
Is it is your takeaway that the middle tier will be coming back in that Theres just been a.
Production shortage.
Thats existed.
I don't have so much of a takeaway so much as I just have a because it's not what do you say what do you do it I just look at if you just look at what's going on and you're seeing.
Windows come back and you look year over year and you see more windows for stuff is everything window now, but like when you are a great partner, who has given a ton of product a theater and then you do some day and date well. Okay. That's what you do for our great partner, well you say, okay I'm going to help your because again I think by the way I do think that streaming and theatrical should be.
A virtuous circle.
<unk> more money in the Kitty for everybody then makes it makes for more movies and then actually the more movies you make and the more content you make the more you available would be available more stuff you can play on your streaming service. So again the bigger the pie the more robust the whole ecosystem is and you know it.
It goes back to the thing about windows.
I think I talked about this on the last call the definition of Windows, we used to joke about.
Sure Joe.
<unk> have windows is selling the same thing to the same person over and over again.
A little subversive humorous, but the truth of the matter is I came to this conclusion recently as I thought more and more about the reason that we're able to sell the same thing to the same person over and over again is because they want to buy it.
And this idea of just taking one kick at the cat.
I'm, having trouble seeing the math I think that if you want to maximize the value of your IP.
You want as many kicks at the Cat is you can get sell it to as many people as you can sell it to multiple times because they will buy it from you.
And whether it is a rock com or a tentpole.
And by the way for the ecosystem to work we need both we can't just be tent poles.
It has to be it has to apply to two two we need a full slate of films for to be optimized and again, that's good for them too because you know when youre sitting in that and maybe that medium size film Youre watching a trailer for what the next giant tent pole is again, we know the most effective form of advertising studios.
This tool they fight for the trailers.
Is sitting in that seat.
Net at being captive to it.
And so it's good for everybody to have a robustly.
Right.
And lastly, I noted.
Even the streamers will Amazon has been doing it for a while where they will show them movies.
Exclusive in the theaters and then they brought it out.
Perhaps a little bit, but even now Netflix who had.
Poor doing that is doing the knives out.
With a modest window.
Of exclusivity.
Into the theaters are you participating in that.
I guess Thanksgiving period, showing knives out sequel.
Yes, we are.
Okay.
Excellent alright, thank you.
Thank you at this time.
No other questions I'd like to turn the call back to Mr. Perez for any additional or closing commodities.
We would like to thank you once again for joining us today, and we look forward to talking to you talking to you again in early March when we release, our fourth quarter fiscal 2022 results until then thank you and have a good day.
Thank you that concludes today's call. Thank you all for joining you may now disconnect your lines.
Okay.