Q4 2022 Marcus Corp Earnings Call
Yeah.
Yes.
Good morning, everyone and welcome to the Marcus Corporation fourth quarter Earnings Conference call. My name is Emily and I'll be your operator for today at this time all participants are in listen only mode. We will conduct a question and answer session towards the end of this conference.
If at any time during the call you require assistance. Please press star and then see right and I'm pretty sure we'll be happy to assist you as a reminder, this conference is being recorded.
Joining us today are Greg Marcus President and Chief Executive Officer, and Chad, Paris, Chief Financial Officer Treasurer of the Marcus Corporation.
At this time I'd like to turn the program over to Mr. Perez for it I think remarks. Please go ahead Sir.
Good morning, and welcome to our fiscal 2022 fourth quarter conference call I.
I need to begin by stating that we plan to make a number of forward looking statements on our call today, all of which we intend to qualify for the safe harbors from liability established by the private Securities Litigation Reform Act.
Our forward looking statements may generally be identified by our use of words, such as we believe anticipate expect or words of similar import.
Our forward looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected.
Listeners are cautioned not to place undue reliance on our forward looking statements.
The risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward looking statements are included under the heading forward looking statements in the press release, we issued this morning announcing our fiscal 2022 fourth quarter results.
And in the risk factors section of our fiscal 2021 annual report on Form 10-K, which you can access on the SEC's website we.
We will also post all regulation G disclosures when applicable on our website at Marcus Corp Dot com.
The forward looking statements made during this conference call are only made as of the date of this conference call and we disclaim any obligation to publicly update such forward looking statements to reflect subsequent events or circumstances.
In addition, we routinely post news releases and other information regarding developments at our company the impact our investors customers vendors and other stakeholders.
You should look at our website markets Corp. Dot com is an important source of information regarding our company. We also refer you to the disclosures we provided in todays earnings press release regarding the use of adjusted EBITDA, a non-GAAP measure used in evaluating our performance and its limitations.
Reconciliation of adjusted EBITDA to the nearest GAAP measure is provided in today's release alright with that behind US. Let's begin this morning, I'll start by spending a few minutes sharing the results from our fourth quarter with you.
And discuss our balance sheet and liquidity.
I'll, then turn the call over to Greg who will focus his prepared remarks on where our businesses are today and what we are seeing ahead. We'll then open up the call for questions.
This morning, we reported our quarterly results the cap a year of recovery and progress in our journey back from the effects of the pandemic with both of our businesses outperforming their competition for the fourth quarter and for the year.
In our hotel Division continued strong demand in both leisure and group travel led to fourth quarter total revenue above pre pandemic levels a trend that began in the second quarter and theaters are customers continue to come out of the home for the big screen theatrical viewing experience to see a slate of film.
That included some great quality blockbusters, but was lighter on quantity than compared to the fourth quarter last year.
Consolidated revenues were $163 million in the fourth quarter, a decrease of 636% compared to the prior year quarter as the growth at our hotels and resorts division could not overcome the revenue headwinds in our theaters division.
Consolidated adjusted EBITDA for the fourth quarter decreased from $29 million last year to over one two over $16 million this year for.
For the full year fiscal 2022 consolidated revenues were 677 million a decrease of nearly 48% increase from the prior year and adjusted EBITDA was $85 million and over 142% increase from the prior year.
These results are illustrative of what we have been saying for a while that while we are clearly on the way back that road back will not necessarily be a straight line.
We provided a breakdown of our fourth quarter numbers by segment in our press release and as we will discuss today, our hotels business posted another strong quarter of revenue and earnings growth that contributed to a record year for the division.
I do need to highlight a few items below operating income our fourth quarter interest expense decreased by approximately 900000.
The decrease came primarily from lower short term debt.
Reduced borrowings this was driven by our improved operating results for the year, our interest expense decreased by $3 4 million compared with fiscal 2021.
Additionally, we reported total gains on asset sales of $7 1 million in the fourth quarter, including a $6 3 million dollar gain from the sale of the Skirvin Hilton, which we completed in December .
For the full year fiscal 2022, we had seven 4 million in gains on asset sales.
Finally in the quarter, our income tax expense was negatively impacted by $6 7 million or <unk> 21 per share from a net increase in our valuation allowance on certain deferred tax assets.
This adjustment relates to estimates for state income tax net operating loss carryforwards that recovery of which is uncertain.
For the full year income tax expense was negatively impacted by $7 4 million or <unk> 23 per share from the net impact of valuation allowance adjustments on these deferred tax assets.
All of these items are excluded from our adjusted EBITDA operating results.
Turning to our segment results, our hotels and resorts Division revenues were $65 million for the fourth quarter of fiscal 2022, as we continue to see strong demand for leisure travel and improved conditions for group events, even as we entered a seasonally slower period for our Midwest hotels.
The division delivered $5 6 million of adjusted EBITDA for the fourth quarter and a division record $38 9 million for full year fiscal 2022.
Total revenue before cost reimbursements increased over $11 million or 24, 4% over the fourth quarter of 2021.
Revpar for our eight owned hotels grew 22, 2% during the fourth quarter compared to the prior year.
Compared to 2019 fourth quarter total revenue before cost reimbursements for the division grew three 2% in fourth quarter Revpar for our owned hotels decreased two 8%.
Breaking out the fourth quarter numbers for the eight comparable hotels more specifically our overall revpar decrease during.
Fiscal 2022 fourth quarter compared to fiscal 2019 was due to a 15, 3% increase in our average daily rate or ADR offset by an overall occupancy rate decrease of approximately 11 percentage points.
Our average fiscal 2022 fourth quarter occupancy rate for our owned hotels was 58%.
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.
Terrible competitive hotels in our markets experienced a decrease in revpar of 5% for the fiscal fourth quarter compared to the fourth quarter of fiscal 2019.
This compares favorably to the previously mentioned two 8% decline for our hotels.
Thus once again, our hotels outperformed the competition by approximately two two percentage points.
For the full year fiscal 2022 comparable competitive hotels in our markets experienced a decrease in revpar of seven 8% compared to fiscal 2019, indicating that our revpar decrease of five point of three 5%. During this period outperformed by approximately 4.3.
Percentage points for the year.
Finally, as group business continued to return our banquet and catering operations continued to drive growth in food and beverage revenues, which were up 34% in the fourth quarter of fiscal 2022 compared to the prior year.
Shifting to theaters, our fourth quarter fiscal 2022 admission revenues decreased 19, 6% compared to the fourth quarter of 2021 with an attendance decrease of 24% driven by a reduced number of wide release films debuting during the quarter with 22 wide releases in the <unk>.
Fourth quarter of fiscal 2022 compared to 26 in the prior year quarter.
There were also several films early in the quarter that performed below expectations as well as films that premiered in the middle to end of December and got off to a slower start than expected, but whose performance has been strong since the first of the year benefiting the first quarter of fiscal 2023.
And of course as the press release noted last year Spider Man No way home set box office Records in December .
When compared to 2019, our fourth quarter fiscal 2022 admission revenues were down 34, 3%.
According to data received from Comscore and compiled by us to evaluate our fiscal 2022 fourth quarter results United States box office receipts decreased 35, 7% during our fiscal 2022 fourth quarter compared to U S box office receipts during fiscal 2019.
As a result, we believe we once again outperformed the industry average this time by one four percentage points.
Our average admission price increased by 10% during the fourth quarter of fiscal 2022 compared to last year the.
The increase in average admission price in the quarter was significantly impacted by an increase in our three D ticket sales, which accounted for half of the increase and were 12% of tickets sold in the fourth quarter of 2022 compared to less than 1% of tickets sold in the prior year quarter.
In addition, strategic pricing actions taken earlier in the year in response to inflation and pricing actions implemented during the holidays contributed to the balance of the increase in our admission per caps for.
For the full year fiscal 2022 average admission price increased three 1% compared to the prior year.
Compared to 2019 fourth quarter average admission price grew significantly by 23, 8%, which was also due to the increase in <unk> ticket sales and pricing.
Average admission price for the full year fiscal 2022 grew 14, 2% compared to fiscal 2019.
Our average concession food and beverage revenues per person at our comparable theaters increased by 11, 1% during the fourth quarter of fiscal 2022 compared to last year, driven by inflationary price increases implemented during the year, a higher food and beverage hit rate, which we define as the ratio of food.
In beverage transactions to box office transactions and due to higher check averages across our circuit.
We introduced new food and beverage a new food and beverage menu in early November which we believe has positively impacted check averages when.
When compared to the fourth quarter of fiscal 2019. Our per capita average concession food and beverage revenues increased by 33, 4%, which we believe is the result of several factors, including our industry, leading mix of non traditional food and beverage options. The emphasis we are placing on ordering through our mobile app.
As well as pricing changes.
For the full year fiscal 2022 per capita average food and beverage revenues increased by three 3% compared to the prior year and 27, 5% compared to fiscal 2019.
Shifting to cash flow and the balance sheet, our cash flow from operations was 30, $33 8 million in the fourth quarter of fiscal 2022 for.
For the full year cash flow from operations was $93 2 million, which includes approximately $28 million of nonrecurring income tax refunds in government grants received during fiscal 2022.
Total cash capital expenditures during the fourth quarter of fiscal 2022 were $9 4 million and for the full year fiscal 2022 total capital expenditures were $36 8 million compared to $17 million in fiscal 2021.
During 2022, the majority of our capital expenditures have gone to renovation projects in the hotels business with the balance going to maintenance projects in both businesses as.
As Greg will discuss further as our business operating performance continues to normalize so do our capital expenditure plans, we expect a ramp up in our capital expenditures in fiscal 2023, as we begin several renovation projects in our hotel business and continue to invest in maintaining and enhancing the customer experience.
<unk> in theaters.
For fiscal 2023, we expect total capital expenditures of $60 million to $75 million with $45 million to $55 million in hotels and $15 million to $20 million in theaters.
We are particularly proud of the feet that during 2022, we reduced long term debt by $83 6 million ending the year with a debt to capitalization ratio of 28% and our net leverage was one nine times net debt to adjusted EBITDA.
While we invested in our businesses and reduce debt. We also returned $3 million in capital to shareholders in fiscal 2022 by reinstating our quarterly dividend in the third quarter of the year.
Yesterday, we announced that our board of directors approved our next quarterly dividend declaring a <unk> <unk> dividend to common shareholders of record on March 13th to be paid on March 20th.
We remain committed to returning capital to shareholders, while maintaining the strength of our balance sheet and liquidity.
We ended the fourth quarter with nearly $22 million in cash and over $243 million in total liquidity.
As we have discussed before we have always believed in maintaining a strong balance sheet with a manageable amount of debt, including owning the majority of our assets.
We believe our strong balance sheet is a strategic advantage, providing flexibility and allowing us to invest in growth opportunities for the long term.
With that I will now turn the call over to Greg.
Thanks, Chad and good morning, everyone. Throughout 2022, we reported on the incremental progress made in our recovery journey.
And as we close out the year and step back to reflect on where we are today compared to where we were a year ago. They.
We've come a long way.
Last year at this time of uncertainty was high in both of our businesses and while we expected significant year over year improvement.
There are many things we knew we couldnt control.
Our focus was on bringing our customers back managing operations efficiently, while facing cost and labor inflation supply chain disruptions and inconsistent film slate and executing our strategies in each business.
As I look at our performance during fiscal 2022.
I'm pleased with our results and how we managed our businesses, we outperformed our competition in both of our businesses throughout the year.
Our diversified business strategy allowed us to still make progress overall when the pace of recovery in our two businesses was clearly different our hotels division returned to pre pandemic revenue levels by mid year.
Now all of our theaters division made progress in the year overall with summertime performance that began to approach 2019 levels. The recovery has been held back at times by the lack of film content.
At the end of the year, we had restored the balance sheet towards pre pandemic state and we have returned our focus to reinvestments in our assets that will drive future outperformance.
What a difference a year makes.
The themes, we saw throughout much of the year continued in the fourth quarter.
Hotels leisure demand remained strong and we continue to see the return of more group business.
In theaters, our customers confirm that they want to see iconic movies like Black Panther will conduct forever and avatar the way of water on our premium large format screen with our best in class food and beverage.
But as expected the quarter was negatively impacted by the number of wide release films as Chad recounted in his remarks that path back is not necessarily a straight line, but it is headed back.
The fourth quarter and fiscal year that we're reporting today completed a year of significant progress and we're pleased to be sharing these results with you.
I'll start 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 our competitive sets this quarter.
Well, we certainly plan for a significant recovery during 2022, our hotels division record year exceeded all of our expectations. Our hotels team delivered nearly $39 million of adjusted EBITDA for the year a record for any year, either pre or post pandemic.
This level of success speaks to both the high level of execution by our team and the quality of what I have previously described as our special hotel assets.
As you travel remained strong in the quarter as it has all year.
And group business continued the strength, we began to see during the summer.
Last quarter I shared that we were encouraged by the increased amount of activity in sales leads we were experiencing I am pleased to report. This activity has continued to convert to bookings and close the gap on group pace.
As of this week, our group room revenue bookings for the remainder of fiscal 2023 core group pace in the year for the year is now for the first time running in line with where we would historically be at this same time in prepaid demick years.
Even though booking lead times are shorter than pre pandemic years for 2020 for group pace remains below pre pandemic levels, but is significantly ahead of where we were at this time last year.
Our experienced appears to be indicative of a broader industry trend. According to industry data service Noland reported U S Group meeting volume in December 2022 exceeded pre pandemic levels for the second month in a row up three 1% from December 2019, and while meeting room volume continues to increase so has the.
Average attendees per meeting increasing from 99 in December 2021 to 111 in December 2022, and compared to 82 in December 2019.
We continue to see strong average daily rates and improving occupancy Chad shared our quarterly numbers and when we look at the full year, our average daily rate increased 9%.
Occupancy increased nearly 14 points in Revpar increased an impressive 40% compared to 2021.
As we look to 2023, our hotel division strategies remain focused on three pillars.
Operational excellence and financial discipline portfolio management, and lastly growth.
Operational excellence and financial discipline initiatives include a renewed commitment to customer service and guest experience.
Expanded associate training programs sales and marketing focused on increasing market share to capitalize on leisure and group demand.
And enhancing technology to optimize labor management we.
We did a great job controlling their costs during the pandemic and managing through a labor shortage and we have to hang on to the efficiency gained efficiencies. We gained when we had to operate with less labor.
We've talked in the past about our ongoing portfolio management process, which includes evaluating each assets competitive market strategic positioning financial performance over time current valuation and expected future returns of each asset approaches its next capital investment cycle.
Our investment decisions are focused on value maximization as the as the determining factor for whether we hold reinvest or divest of hotel and during the fourth quarter, we executed on our portfolio management strategy with the sale of the Skirvin Hilton in Oklahoma City.
The <unk> is a great hotel that was a great investment for the company and our shareholders delivering an internal rate of return over 30% during our investment period that dates back to 2007 when REIT, we reopened the historic hotel following an extensive renovation.
Ultimately in this case, we were able to maximize value through the sale with evaluation of nearly 20 times LTM EBITDA, when including $14 million of avoided capital expenditures.
After retiring property specific debt and lease obligations, we will redeploy the capital into investments in the hotels business. We think our former associates the skirvin for their many years of loyal service to the Marcus Corporation.
Portfolio management strategies will also include continued reinvestment in our existing properties to maintain and enhance their value.
During fiscal 2021, and 2022, we made investments in renovation projects at the Grand Geneva Resort and Spa, where the final phase of our room renovations are currently underway and planned for completion in time for the summer season.
We'll also begin making significant investments in renovation projects, the Pfister hotel and our other hotels during fiscal 2023 and 2024 to enhance the guest experience.
And we expect these investments to continue to drive our outperformance in the years to come.
These investments will be significant over the next two years with up to $55 million of capital expenditures expected for the hotels business in 2023.
Finally, as part of our growth strategy, we are actively seeking opportunities to invest in new hotels and increased the number of rooms under management that may come in several different forms, including acquiring new management contracts or hotel management businesses seek opportunities, where we May act as an investment fund sponsor acquiring additional hotels for redevelopment or is a joint venture partner and acquiring additional home.
<unk> properties.
We are excited about the opportunities for future growth in hotels business and I'd like to congratulate Michael Evans in our hotels and resorts team for delivering a great year.
Shifting to our theaters division javelin over the numbers with you, including our continued increases in per person revenues and our outperformance compared to the industry.
I'd like to start by highlighting a few things that we believed at the beginning of the year that we're proven out during the year first.
Consumers want in an affordable out of the home entertainment experience and more specifically they still want to go to the movies the.
The big screen experience can't be replicated in your living room, and with a number of films we saw that even when movies began their second window on premium video on demand customers still came in significant numbers to see the movie in the theater.
When our customers came back they went to see many genre is beyond superhero movies, including family films action and adventure whore and even romantic comedy.
When they came back they preferred a premium large format screen and continue to spend more on concessions food and beverage.
Finally, there were many examples this year that demonstrated that an exclusive theatrical exhibition window sets up strong subsequent windows, including premium video on demand and streaming platforms and it maximizes the performance and monetization of film content over its lifecycle.
The magic and gravitas of exclusive theatrical exhibition deliveries and experience that elevates the perceived quality for a movie building long lasting demand for its brand that other channels of distribution do not.
Several of the year's biggest hits performed better on the streaming following their theatrical one.
It is becoming clear that the sequential release model with an exclusive theatrical window continues to be a winning strategy that maximizes the value of the creators intellectual property.
We're encouraged to see many in the industry come to the same conclusion.
So with these in mind, the fourth quarter and the year can be summarized simply the customer still wanted our product. They just want more of it.
We finished fiscal 2022, playing 85 wide release films this compared to 79 wide release films last year, but still was below the approximately 115 to 120 wide release films delivered annually prior to the pandemic.
The headwind of a movie production backlog that impacted the availability of films in 2022 is expected to continue to dissipate as we go through 2023.
So we do expect there to still be some uneven spots in the film calendar. We are encouraged by the additional releases that have been added to the film slate for 2023.
In the recent months. This year, we are projecting 95 to 105 wide release films. We are also encouraged by the increased level of promotion and marketing that is returning for exclusive theatrical releases, Washington, The NFL playoffs, and Super Bowl. It was great to see so many films promoted with a commercial that ended with exclusively in theaters.
The first quarter in our theaters division is off to a notably stronger start than last year Avatar. The way of water has continued its blockbuster run with pushing boots. The last wish Megan man called Auto 80 for Brady and Ant man and the Wasp Quanta media all playing well.
We are excited to begin them run a more steady weekly theatrical releases that will take us well into the summer.
Overall, we believe the 2023 movie slate is strong and will continue to bring audience is back to the theaters.
We also continue to work with additional content providers, including streaming platforms to take advantage of the unique theatrical experience to showcase some of their best content.
We believe exclusive theatrical runs can deliver an important incremental revenue source for content providers and we continue to work together to find a model that is mutually beneficial.
Amazon Studios upcoming Air featuring Ben Affleck and Matt Damon is an example of the potential for films coming from new content providers with an exclusive theatrical window marketing and promotion to help get the industry back to pre pandemic levels of wide releases and overtime potentially beyond.
As we look to 2023, our strategic growth initiatives are focused on bringing new content to our screens and creating fresh entertainment options to complement the movie going experience.
This includes growing alternative content, including live performances concert sports and faith based content.
And the last year, we saw significant customer demand for alternative content events, including concerts for Bts, Billie <unk> Coldplay and others. In addition in January we launched Marcus passport a program that allows customers to purchase a passport ticket with access to every movie that is playing as part of our Marcus theaters films series The program launched with the best.
Picture passport, featuring 10 Academy Awards Best picture nominees and the kids passport featuring 12 family films.
We're also looking ahead to returning to strategic growth in our theater division when the Time's right growth opportunities that we may explore in the future include management contracts are taking over existing theater leases and acquisitions, we believe our strong balance sheet positions us well to execute on this strategy has attractive growth opportunities arise.
As Chad discussed in his remarks yesterday, we announced another quarterly dividend.
The Marcus Corporation has a long history of returning capital to shareholders and.
And we remain committed to paying a dividend.
As we continue to progress in a recovery and as we move past the more significant capital investments in our hotels business plan for this year, we will continue to reevaluate the level of dividend and potential share repurchases to return incremental capital to our shareholders.
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'm 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 would 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 and we appreciate all that they do every day. They are our most important asset.
So on behalf of our board of directors and our entire executive team. Thank you to all of our associates.
And with that at this time, Chad I'd be happy to open up the call for any questions you may have.
Thank you.
I'd like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad.
Your mind I would like to be removed from the queue. Please press star and then K.
So ask your question. Please ensure that your device and youll microphone on mute lately.
We will just take a brief pause to compile a Q&A roster.
Our first question today comes from Eric Wold with B Riley.
Please go ahead.
Thanks, Good morning, Greg and Chad I appreciate you taking my questions.
I guess a couple here I guess I guess, one when you think about the hotel Division you talked to.
About the portfolio management, obviously, the sale of the skirvin.
And potential others and kind of what Youre doing we're looking for additional opportunities maybe you're talking about those opportunities kind of what youre seeing.
In the pipeline for potential expansion.
Within that segment.
Are there attractive.
Underperforming mismanaged properties out there right now that are reasonable prices as a matter of our sellers' expectations reasonable and then you kind of have a cap on.
What you might be willing to put into a single property or is that.
There really isn't a ceiling at this point.
Uh huh.
I'd say right now right now the market is not moving very much there I think as everybody knows the debt markets are certainly had their their challenge is I saw a stat. The other didn't see MBS that now that we're going to against the MBS that I missed.
You never know, but.
The market is pretty much frozen right now so I think that there is there is currently a mismatch between I think theres a lot of sellers, who are counting on interest rates going down in the second half of the year I am not here to opine on where interface will be but I'm, just saying that drives probably a mismatch between buyers and sellers and so nothing right. This second is there is not.
A huge volume of transactions, but that that eventually turns around and.
And there will be opportunities.
So we don't have them right. There is not we have a pipeline we're working on it we always are looking at things.
We constantly are evaluating what is out there.
And we will continue to do that as for size.
<unk>.
I don't have a limit I don't think we are about to see.
Nothing crazy and gigantic, but I mean, if the deal were amazing and we saw we could bring in partners, we might do I wouldn't rule anything out.
Yeah, Eric the only thing I'd add to that is on valuation, we're going to we have a process and we're going to be very disciplined about how we think about.
Acquiring <unk>.
<unk> and doing diligence on those properties and where we think.
We can acquire relative to our cost of capital and I think right now there is a bit of a disconnect between buyers and sellers. So we're patient and we'll continue to find the right opportunities, but we're going to be disciplined about it.
On your question on reinvestment in the magnitude of reinvestment I think you were getting at our existing properties.
Look we think about that in terms of our return on incremental capital as well as the plus the value of the asset today and so.
It's not so much a limitation in terms of the quantum of investment as it is can we hit our hurdle rates for the reinvestment as compared to what we can get to evaluation to sell the asset and I think the skirvin as an example, where we concluded that the right answer was to divest the asset.
Rather than put more capital into it.
I do want to just go back.
Yes.
Eric just one thing on size look at at the end of the day member.
Paramount for US has always been managing our balance sheet appropriately and so.
That's why I said, if it was a partnership with something because you know thats going to be a limit or just by itself because the one promise I can make is we are not about to stretch our balance sheet to do giant acquisition.
No that's helpful.
On the theater side.
Maybe if you could update kind of where you are with the staffing environment.
The current flow of films and kind of expected flow. This year are you at optimal staffing levels for where you'd want to be <unk>.
We are staffing or sorry, if attendance does return to.
Pre pandemic levels in the coming years.
Look forward to that point whenever it may be would you anticipate having.
The same number of employees that you had back then let's say in 19 or would that number be lower but with the wage inflation higher and kind of making the overall cost comparable.
Yes, great Great question. So let me point out a couple of things. So you this quarter.
Our our labor cost was now starting to get back to the staffing levels that we want to have.
As if you compare it to where we were in 2021.
And we shared with you that we could not hire enough folks in the fourth quarter of 'twenty one to meet the volume that we had going through the theaters. So we had a.
A short term benefit in our P&L because of that and we got through it but we want our NPS scores and we want our customer experience too.
It will be at a higher level than we were a year ago and I'm happy to share that.
We're making great progress in that area and getting back to the staffing levels that we think makes sense.
The labor market has loosened a bit over the course of the second half of 2022, and we still have some pockets, where we arent filling filling some positions, but generally we feel like we can get pretty close to meeting the demand now.
I think your other question is is the cost of labor in the P&L is that is that going to be greater than it was in 2019, given the wage inflation that we've seen.
And so what we're trying to solve for here is taking labor out of the model and that is.
Get executed through an increase you see in technology.
And really running our facilities with fewer people than we would have before and I would say that the same thing is true in our hotels business. We know and we are managing to operate these properties with a different staffing model than we did before the pandemic. So.
Will it ultimately be neutral to margins, we're still trying to work through that it's a challenge.
But we believe that we've we've done well on changing the staffing model and we still have some opportunity in front of us.
Perfect helpful always guaranteed gross offline thanks, guys.
Our next question comes from Jim Goss with Barrington Research. Please go ahead Jim.
Thank you.
Greg I'd like to go over a little more on the sort of the new normal and some releases.
And as you mentioned it has gone choppy and coming back and I'm wondering if you would.
Think there'd be tented to be fewer midsize films.
That sometimes go direct to streaming that maybe offset by some streaming network films that might get theatrical releases. This has started to occur.
<unk>.
The overall.
In comparison, our slate.
And then maybe you can talk about a couple of the.
Dreamers.
They might view the world.
Well you get me on my Soapbox, Jim getting wound up wind me up early.
You know that it will give you a chance.
<unk>.
Thank you.
Look I.
I believe that.
I know that for us to have.
A healthy film ecosystem, we're going to need mid size films and smaller films to be a part of that mix more than in the last few years for sure I don't know where it gets back to where it was but I can tell you. We saw we're seeing some real positive signs and what they are releasing and the performance of those smaller films.
Because like a man called out 100 million Bucks.
Great gross that is for a midsize film and it was fun.
I was reading the list of movies. So far this year that have been out I've seen them, all and they arent huge mega huge movie, but fun and good under two hours.
The plane and missing in the last month really.
Nice fun.
Short mid sized films that did well and performed nicely for us.
They are I.
I keep saying, we can't just feed as dinner, we need lunch and when he breakfast too they are rounded nutritional.
Diet.
And because those films helped to build but we talk about momentum in theatrical being a habitual thing and that we have to rehabilitate lies the moviegoer because what happens is as you go to that movie, it's really not too complicated to go to the movie.
And you start watching the previews for the next movie and you say, Oh I'd like to see that and hopefully you enjoyed the movie you saw you said well. This is fun hate what's come back and see this next movie.
And then when we have and so as you can't have it is impossible to have nothing but blockbusters giant films you need those smaller films to help with that rehab digitalization and that debt that healthy ecosystem and it's not just good for us it's really good for the entire industry because.
<unk>.
As we talked about this idea of sequential release.
<unk>.
The movies that show up.
Our play in a theater when you go on that enlist pit of streaming that it just had its bottomless and Thats a great thing there is so much content and yet how do you distinguish yourself and people look at the person I heard of that because it was in the movie theater and Thats why that performance is as good or better on streaming. So this is really found money for.
For.
For any for the people, who have a streaming business or who ultimately sell into the streaming because again the sequential release model you don't have to own your own streamer to ultimately sell your product after theatrical into the other channels and so it's beneficial for them and frankly I just.
I have to admit I get a little frustrated when I hear people say well you know the movies or for the theaters are for big movies in the medium and the small so if you could walk that at home.
Can but even at that the experience is different.
It is yes, you may have a 100 inch screen at home, but we have a 45 foot screen.
30% to 45 at our smaller screens fleet Street are sound as great, an even better different than that.
Your phone is off your nobody your kids are not walking into the room. The dog doesn't have to go outside you've got all.
Sure.
We engaged in the content and the way were not at home.
And it's a better and different experience and then what you'll watch it again at home when you liked it and so I really have to say.
It.
It's two weeks.
Like when we compare ourselves to television because we are an out of home experience and we talk about theatrical being the least expensive out of home experience.
And if you want to get out and get after it does on your couch.
<unk> called out of <unk>.
Or go see Creek III, so while we might all agree philosophically with everything you're saying it does seem like.
The new normal is not going to be the old normal and that there will be variances.
And I'm just wondering what.
Hi.
Uh huh.
You know what those differences might be.
Because.
We've had several years it doesn't seem like we're getting back to where we were exactly.
And maybe maybe we don't need to at least improving from this level, but then just always looking at those differences and in fact, you mentioned Amazon with.
The air film.
I've got feature films they have MGM Amazon.
Amazon Prime.
They are they are a.
Sort of an interesting mix.
Mike.
And I'm proud of them to do certain things.
And Warner brothers, and Paramount or undergoing different challenges too so.
So I don't know are there any more specific.
Might have on the approaches.
Yes.
Don't want to be argumentative necessarily Jim, but I'm not ready to throw the towel in yet on what the future is going to look like.
<unk>.
As you pointed out all of a sudden Amazon is going to release <unk> theatrically.
I don't know what.
I can't speak for the streamers.
But so I don't look it as you just pointed out we have a <unk>.
Good cash flowing business right now.
But.
I don't know that all of a sudden the tone is changing in a way I haven't heard in a while you got to remember that for the last number of years frankly wall Street was saying be like that one company that it gets $200, a subscriber which they don't anymore on their stock value and don't worry about anything else don't worry about maximizing the value of your content don't worry about don't worry.
Your profitability.
Just get forget any other revenue stream just get that one subscribing revenue stream.
And that tone has changed but that takes time to work through the system now I'm not here, saying that it's going to go back to where it was and that im going to manage to whatever comes our way, but I'm also not going to throw in the towel because there are a lot of content providers, who make content, who haven't been playing theatrically and they are starting to see the benefits of that sequential release and not just for the larger movies.
I don't know what it is I wish I could tell you and as I said I just don't I don't want to say that I know that it's not going to be there I don't know what its going to be there, but but but I will say the trend is your friend it feels better than it did before.
Jim that's the that's the key compared to where we stood back in November and where we were thinking the number of wide releases was going to be for 2023.
At the top end of that at that range. In November we were thinking this was more like a 95 is the top end and now there have been a number of positive developments in content coming our way that have dropped into the schedule. During 'twenty three some of which are coming from streamers.
And appear to have legitimate marketing and promotion associated with them. So there does seem to be a change in tone and the nature of the discussions some of them seem to be getting it and realizing that there is a lot of opportunity.
With box office and theatrical that will be incremental to their total returns on content.
I think we're very encouraged by that so where it ultimately stabilizes.
We'll see over the next couple of years here.
Still working through some supply chain issues that have been disruptive and I think there will still be.
Some impact of that that doesn't get you to a stabilized number in 2023, So, we'll see where 24 and 25% and up but but this is this is not a stabilized number.
Okay. One last one the loyalty program, Kevin talked about that much lately, what is the size the role and the usage right now.
And you mentioned Markus passport, perhaps that ties.
Ties into it somehow.
We are over $4 million over absorbed $5 million and our loyalty program.
Our usages.
I think a little what were around 50% of our transactions are loyalty transactions speak.
Speaking from memory, Jim and frankly.
Just looking around the office to make sure that I'm, not making a mistake, but look at it. We're pleased with the program. It is a good program. We have a lot we have room to improve it there is absolutely no doubt.
We have room to.
I've said and I pushed our team that's our ability to build a relationship with our customer and our customers.
That's the real interesting thing about the movie business.
Our customers are very passionate.
I've noted that they'll actually to add to our product onto themselves, which sounds crazy but.
There are people walking around with Superman tattoos, and yada tattoos and.
So when they're actually going to permanently put our product onto themselves. We think thats a really good thing and that is an opportunity for us that we really need to get better at capitalizing on but it is our way of reaching out to the customer and building building our business. So we're pleased with so far with what we've got schedule, yes, yes, just to just to put some numbers to it Jim we are at $5 1 million members enrolled in the program today.
Hey.
And our percentage of transactions.
<unk> members is growing 45% of all of our box office transactions are loyalty members.
And 40% of our total transactions, including food and beverage were from loyalty members in.
And so as Greg said, we're continuing to do things to incentivize use of loyalty and create more incentive for.
For customers too frequently come to the movies, which is really what that program is driving it.
And then it's.
Well, it's about frequency of visit and building that relationship it's too it's twofold.
And a stronger relationship will ultimately drive frequency, which is the end game as the passport. That's a really cool program that our team came up with I love what they did it is.
It's a way of.
Marketing a smaller set of movies as a as a.
<unk>.
<unk>.
Almost like a subscription I don't want to call it a subscription necessarily but when you when you buy the Oscar passport you are paying for us you're paying $40 to see all the Oscar movies. If you want to know you may not be seeing all the Oscar movies and so what's your price per movie use will depend on what you what your own personal usage.
But where instead of trying to market every individual movie.
We're marketing all of the best Pictures.
And one thing and I foresee a day when you can go on our website youre going to be able to pick from your passport do you want to go see a bunch of kids movies and our Kids Dream series do you want to see the best Picture series do you want to see the comedy series do you want to see the.
The.
What's it called the concert series, whatever whatever it might be whatever.
Tivoli hopefully has no bounds.
And that you will buy out we'll be able to market that in a different way and there'll be a bulk purchase and again it helps build frequency and <unk>.
And our relationship with our customers.
Alright, Thanks, and Oh by the way, Greg, which allow them to do to shift your attention.
Yeah.
Some things around and need to know basis Jim.
Okay.
Thank you.
Yes.
As a reminder for any further questions. Please press star followed by one on your telephone keypad now.
Our next question comes from Chris <unk> of Northern border investments. Please go ahead Chris.
Good morning, you guys have done a great job improving the balance sheet over the last couple of years specifically.
Bringing that debt level down and it's easy to envision a scenario, where you might be able to.
Settle the convertible.
With cash rather than shares which by the way I think would be very good for the stock price could you can you guys talk about how you think about that issue.
Sure on the convertible we've got a bit of runway here left on the maturity it's out there till 2025.
And given where the stock is trading today in the cap call transaction that we've put in as a hedge on that instrument.
Candidly, it's not a urgent problem and given where the debt markets are today.
It would.
So long as you keep the dilution within the bounds of our capped call the coupon on that on that that isn't.
It would be more risky expensive frankly to replace it so.
We will look if there are opportunities to do something before maturity that make economic sense, we certainly would look at it but.
<unk>.
That isn't a priority.
Thank you.
As a final remind us any further questions. Please press star followed by one on your telephone keypad now.
At this time. It appears there are no further questions I'd like to turn the call back to Mr. Paris, any additional or closing comments.
Alright, well, we would like to thank you once again for joining us today, and we look forward to talking to you not that long from now in early may when we release, our first quarter fiscal 2023 results until then thank you and have a good day.
That concludes today's call you may now disconnect your lines.
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Sure.
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