Q3 2025 Marcus Corp Earnings Call
Speaker #1: Good morning, everyone, and welcome to Marcus Corporation's third quarter earnings conference call. My name's Lydia, and I'll be your operator today. At this time, all participants are in listen-only mode.
Speaker #1: We'll 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 zero, and an operator will be happy to assist you.
Speaker #1: As a reminder, this conference is being recorded. Joining us today are Greg Marcus, Chairman, President, and Chief Executive Officer; and Chad Paris, Chief Financial Officer and Treasurer of Marcus Corporation.
Speaker #1: At this time, I'd like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir.
Speaker #2: Good Good morning, and welcome to our fiscal 2025 third quarter conference call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today.
Speaker #2: Which may be identified by our use of words such as "believe," "anticipate," "expect," or other similar words. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected or projected in our forward-looking statements.
Speaker #2: These statements 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.
Speaker #2: 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 third quarter results.
Speaker #2: And in the risk factor section of our fiscal 2024 annual report on Form 10-K, which you can access on the SEC's website. Additionally, we refer you to the disclosures and reconciliations we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP financial measure, in evaluating our performance and its limitations.
Speaker #2: A copy of which is available on the investor relations page of our website at investors.marcuscorp.com. All right, with that behind us, let's begin. I'll start this morning by spending a few minutes sharing the results from our third quarter.
Speaker #2: And then discuss our balance sheet, liquidity, and capital allocation. 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.
Speaker #2: We'll then open up the call for questions. This morning, we reported a quarter with solid results overall, despite somewhat mixed results in our divisions relative to our expectations.
Speaker #2: In hotels, we exceeded our expectations and were able to overcome a very challenging prior-year comparison to deliver revenue growth and outperform our competitive sets.
Speaker #2: In theaters, we saw a less concentrated film slate, with several films that performed well relative to our own expectations. However, the slate lacked a major breakthrough tentpole that we've seen in the third quarter of the last couple of years.
Speaker #2: During our seasonally busiest quarter, our teams in both businesses remained focused on serving our guests with excellence to deliver memorable experiences. I'll start with a few highlights from our consolidated results for the third quarter of 2025.
Speaker #2: Consolidated revenues of $210 million were down 9.7% compared to the prior year quarter. Operating income for the quarter was $22.7 million, a decrease of 10.1 million compared to the prior year quarter.
Speaker #2: Consolidated adjusted EBITDA for the third quarter was $40.4 million, a decrease of 11.9 million compared to the third quarter of fiscal 2024. Net earnings for the quarter were $16.2 million, or 52 cents per share, and were favorably impacted by a non-recurring gain on a property insurance settlement of $3 million, or 10 cents per share net of tax.
Speaker #2: Excluding the impact of the gain, net earnings for the third quarter were $13.2 million, or 42 cents per share compared to prior year third quarter net earnings of $24.8 million, or 78 cents per share, excluding the impacts of our convertible debt repurchases last year.
Speaker #2: The change in our fiscal year and quarters had an immaterial impact on our third quarter results, with one additional operating day during the quarter in fiscal 2025 compared to last year.
Speaker #2: Turning to our segment results, I'll begin this morning with our theater division. Third quarter fiscal 2025 total revenue of $119.9 million decreased approximately 16% compared to the prior year third quarter, primarily due to weaker performances from the top films in the quarter compared to the top films in the quarter last year.
Speaker #2: And less carryover of films that released in the second quarter compared to last year's carryover. Comparable theater admission revenue for the third quarter decreased 15.8%.
Speaker #2: And comparable theater attendance decreased 18.7% compared with our fiscal third quarter 2024. While our market share in the third quarter of 2025 was in line with our historical third quarter share including our third quarter share in 2023, this year's film mix did not help us.
Speaker #2: Notably, the film slate did not include a family animated film in the top five movies of the quarter, a genre that our circuit typically outperforms in.
Speaker #2: When using our comparable fiscal days, U.S. box office receipts decreased 12% during our fiscal 2025 third quarter compared to U.S. box office receipts during our fiscal third quarter last year, indicating our admissions revenue performance trailed the industry by 3.8 percentage points.
Speaker #2: We believe that our lower box office performance relative to the nation during the third quarter was primarily attributable to our strong performance in the third quarter last year, when our circuit outperformed the national box office growth by nearly 6 percentage points.
Speaker #2: As you may recall, a year ago, our third quarter 2024 box office results benefited from a favorable film mix in which we achieved above our historical average market share for each of our top six movies in the quarter.
Speaker #2: Including several films such as Inside Out 2, Despicable Me 4, and Twisters, where we significantly outperformed our typical share. Our admissions revenues did benefit from several pricing changes that we discussed with you last quarter.
Comparable, competitive hotels in our markets, experienced a decrease in revpar of 6.7% for the third quarter of 2025 compared to the third quarter of fiscal 24, indicating that our hotels outperformed the competitive set by 5.2 percentage points.
Renovated properties in our portfolio.
When comparing our revpar results to the to comparable, comparable, upper upscale hotels throughout the US.
The upper upscale segment, experienced a decrease in revpar of 1.3%. During our third quarter, compared to the third quarter of fiscal 24,
Indicating that our hotels General performed generally in line with the industry, despite the growth headwind from the prior year, RNC impact and the outperformed the industry by nearly 9% points. When adjusting, for the estimated impact of the RNC on our revpar growth,
With the strong growth in group, business and events our banquet and catering operations. Continue to grow with food and beverage revenues up 8.3% in the third quarter of fiscal 25 compared to the prior year which includes the impact of the headwind from prior year RNC related, banquet catering events.
Finally, hotels adjusted. E.V.A. was essentially flat in the third quarter of fiscal 2025 compared to the prior year quarter, which we believed was a significant achievement given the changes in our revenue mix, with a decrease in high-rate, high-margin rooms revenue in the prior year due to the RNC and the increase in comparatively lower-margin food and beverage revenue.
Shifting the cash flow in the balance sheet. Our cash flow from operations, was 39.1 million in the third quarter of fiscal 2025 compared to cash flow from operations of 30.5 million in the prior year quarter, with the increase in cash flow, primarily due to differences in the timing of various working capital payments.
Total Capital expenditures during the third quarter of fiscal 2025 were 20.9 million compared to 18.5 million in the third quarter of fiscal 2024.
A large portion of our Capital expenditures during the third quarter were invested in the Hilton Milwaukee renovation with the balance, going to maintenance projects in both businesses.
Our Capital Investments and Renovations projects have progressed as planned. And we now expect Capital expenditures for fiscal 2025 of 75 to 85 million.
The timing of several projects will impact our final capital expenditure number for the year.
Looking ahead, as we get past the heavy part of the reinvestment cycle that we are in this year with our current hotel portfolio.
We see a meaningful step down in capital expenditures in 2026.
Our preliminary expectation is for approximately $50 to $55 million of capital expenditures in 2026, with this range subject to adjustment for the final timing of payments for our 2025 projects.
We ended the third quarter with approximately 7 million in cash and over 214 million in total liquidity with a debt to capitalization ratio of 26% and net leverage of 1.7 times.
Finally, in today's earnings release, we announced that during the third quarter, we repurchased a proximately 600,000 shares of our common stock for 9.1 million in cash.
This brings our share repurchases this year to just over 1 million shares or approximately 3.2% of our outstanding shares at the beginning of the year.
Our cumulative buyback, since resuming share repurchases. In the third quarter of 2024 are now over 1.7 million shares or approximately 5.3% of our outstanding share count when we began returning, nearly 26 million in capital to shareholders.
Our strong balance sheet and confidence in our businesses give us the ability to continue pursuing growth investments while returning capital to shareholders through our quarterly dividend and opportunistic share repurchases.
We will continue to allocate capital with a balanced approach that supports our strategic priorities while pursuing investments that provide the most attractive returns to shareholders.
Greg will further discuss our Capital allocation approach and today's announcement of an increase in our share repurchase authorization. And with that, I will now turn the call over to Greg
Thanks Chad. Good morning, everyone.
When we were together last quarter, we share that our summer was off to a solid start in both our businesses.
In theaters, a more diverse film slate was bringing out audiences for a series of solid performance in hotels. We were gaining momentum. As we entered the third quarter and we're well positioned with several newly remodeled properties in our portfolio.
As the rest of the third quarter played out, we saw some Divergence between the results of our 2 divisions.
That we've had the last couple of years, and the film mix was challenging for our markets. In hotels, our team executed exceptionally well capitalizing on both group and Leisure demand and delivered, a quarter that outperformed, our competitors in the nation, overcoming a very difficult comparison to our record third quarter results last year.
As I will discuss today, while the overall result was a mixed quarter compared to our own expectations, there were many positives that we think will benefit us in the long term.
I'll start with that, the division.
In a quarter where there has been much industry discussion about a national box office that was down nearly 12%.
I'd like to step back for a moment with some perspective and start with a few things that we thought were positive. First of all, we had good product supply with 32 wide releases in the third quarter this year compared to 29 last year.
The film slate was less concentrated, and many of the smaller mid-size pictures actually performed better on average than they performed last year.
When you get past the top 6 movies in the quarter, the average box office gross per film for the next 14 films in the top 20 was up over 11%.
It illustrates that there is an important role for small and mid-size films and theatrical releases. Contrary to some of the narratives in the trade press, audiences want to come out to see these movies in theaters.
Second.
There were several films that outperformed expectations. James Gunn's Superman opened to $125 million domestically, achieving over $350 million at the box office during its domestic run and grossing over $600 million globally. More importantly, the success of this DC franchise film sets up a promising outlook for future sequels, with more DC adventures on the horizon.
Zach Cregger's horror hit, "Weapons," crossed $100 million at the domestic box office in just 2 weeks, on its way to over $150 million for the run.
Conjuring last rites, Smashbox office records with both the highest domestic and Global opening for a horror film going on to become the highest grossing film in The Conjuring series.
Demon Slayer: Infinity Castle broke the anime record with a $70 million domestic opening and has continued to play strong to become the highest-grossing international movie ever in the U.S. with a domestic run now over $132 million.
These were all great results for these films and they illustrate the audience appeal for a wide range of content to crush genres.
So, where did the summer box office come up short compared to last year? We think it ultimately comes down to a couple of simple factors. First, we didn't have a breakout smash hit this year that was the must-see film of the summer, as we've seen in the last two years. The number one film in the third quarter last year was "Deadpool" and "Wolverine," and in 2023, it was "Barbie," with both films grossing approximately $630 million domestically in the quarter.
As I discussed earlier, the number 1 film in the quarter this year, Superman was a great success for many reasons, but a 350 million. Its gross was approximately 280 million lower.
We've been in this industry for a long time, and this dynamic with varying levels of box office hits from year to year isn't new. It's just the nature of our business.
Second. And the third quarter, the summer box office was lighter on family films, a genre of, we typically outperform,
Last year, our top 5 films in the third quarter included, Despicable Me 4 at number 2 and Inside Out 2 as the number 5 film, which was the second quarter release that carried over and held strong into the third quarter.
To contribute 183 million to the third quarter domestic box office.
This year's third quarter did not have a family animated film in the top five and didn't benefit from the carryover of family films released in Q2. Again, this isn't really a new phenomenon, but it did create a tough comparison to last year, particularly for our circuit, which historically has outperformed on family films.
Chad discussed the factors we believe are impacting our box office growth relative to the nation.
And while we underperformed the nation by just under 4 percentage points, this was primarily due to our strong outperformance last year. In last year's third quarter, coupled with a film mix this year that didn't include many family films.
I'm pleased to share that we continue to make progress on optimizing prices to capture premium during peak periods and maintain the right balance of value-oriented options for more price-sensitive customers during lower demand periods. As expected, our mission per caps improved during the third quarter as we implemented blockbuster pricing on high-demand films and continued to adjust pricing for our everyday man-made program.
The growth in our admissions per capita for the next several quarters.
We're looking forward to an exciting fall on holiday films with Wicked, for Good zootopia 2 5 nights at Freddy's 2. The SpongeBob Movie search for Square Pants and Avatar fire and Ash just an interview
As we look ahead to next year, the 2026 film slate features major franchises including Spider-Man: Brand New Day, the Super Mario Galaxy movie, Moana, Jumanji 3, Jumanji 3: 2, different movies, Toy Story 5, and Mega Minions.
the Mandalorian and grogu, dune, Messiah, and Avengers, doomsday, just to name a few
There are many more great films coming. Noted in today's earnings release, the 2026 film slate continues to fill in. The early indication is that while there are a similar number of franchise films in 2026 compared to this year, the grossing potential of the 2026 franchise is greater based on their historical predecessors' box office performances.
the 2026 slate currently includes 4 Films, where the predecessor earned over 500 million at the domestic box office compared to only 1 such film in 2025
moving to our Hotel and Resorts division. You've seen the segment numbers in Chad shared some additional detail on the performance metrics, including our outperformance to the competitive sets.
We expected this quarter to be a challenging comparison to last year for the hotel division, given the significant impact the RNC had on our Milwaukee hotels, in the third quarter last year,
And I'm thrilled to share that our team met the challenge and delivered. Absolute growth to overcome the tough comparison.
The RNC was an extraordinary period, extraordinary event for our largest market, and we back out the RNC impact from our prior year results. Our Core Business performed very well, in particular, 2 of our newly renovated properties Grand. Geneva Resort and Spa and Pfister Hotel benefited from our investments and Renovations, and great execution by our teams to deliver outstanding results. This quarter,
There were several notable items in the quarter that I'd like to highlight.
The average daily rates during the quarter were generally strong with rate growth at 4 of our 7 hotels, when adjusted for the prior year. RNC impact.
We have been successful in giving higher rates at our hotels, with newly renovated room product including the Pfister Grand Geneva Resort and Spa at Hilton Milwaukee.
I can't even see your remains strong with the occupancy growth at 6 of our 7 hotels. The combination of strong ADR and occupancy growth resulted in our properties once again outperforming the competitive sets, with impressive RevPAR growth of 7.5% when adjusted for the prior year impact of the RNC.
Group business during the quarter was stable and as we approached the end of the year, our group room Revenue. Bookings for full year fiscal, 2025, or group Pace in the year for the year, a runny slightly behind where we were at this time last year which includes the RNC Group business last year.
Even more encouraging group room, pays for 2026 is running approximately 14% ahead of where we were at this time last year for the next year out with banquet and catering Revenue. Similarly, running ahead of last year's pace
The current state of our hotel business remains stable and consistent with our view last quarter.
While some markets have seen some more significant leisure softening, our own portfolio has generally performed well.
Leisure transient demand remains soft in some markets around the country, but our hotel portfolio has not seen significant signs of softening or significant cancellations of group business. We believe our upper upscale positioning drives demand in market locations, and a broad segmentation lessens our exposure to any one type of customer. We'll see less volatility if further economic softness occurs.
There remains an increased level of economic uncertainty compared to where we were a year ago. And if we begin to see softness, we are prepared to react and adjust quickly.
Our operations team is continuously focused on labor efficiency, and we've developed a strong track record of successfully managing through a changing demand environment.
Finally, I'd like to close with our views on capital, allocation and returning Capital to shareholders.
the last couple of years, we've made significant reinvestments in our assets assets and as Chad discussed,
We expect to move past this heavy capex cycle next year as we shift back to a more typical maintenance and ROI capex mix.
We're seeing great results from our renovated properties, and we believe these investments will continue to have attractive long-term returns.
On the growth front, we can continue to look for opportunities to deploy capital to grow both of our businesses with value-creative investments.
We have confidence in our businesses and a strong balance sheet that allows us to move quickly when we see good opportunities.
We have a history of executing when they arise.
To the extent that we don't see attractive Investments that are actionable. We expect to return excess Capital to shareholders through, share repurchases, or dividends
Because she had described in greater detail, we repurchased over 5% of our outstanding shares through opportunistic share purchases. Since we began repurchasing shares in the third quarter of 2024.
5 million or approximately 80 cents per share to shareholders in the last 4 quarters.
This morning, we announced that our board of directors has approved a 4 million share increase. Our current repurchase authorization now brings our total share repurchase authorization to 4.7 million shares.
In the absence of growth Investments with attractive returns, we will continue to use this authorization to opportunistically repurchase shares and return Capital to shareholders.
And this new authorization will give us the flexibility to move quickly as opportunities arise.
Throughout our company's history, we've taken a balanced approach of investing in long-term growth opportunities while returning capital to shareholders. You should expect us to continue to do both going forward. It won't be all one or the other.
We continue to pursue growth opportunities in both of our businesses, and we're generally opportunistic, investing where we see value and attractive returns, whether it be new deals or in buying back our stock, as we've done recently.
Finally.
Tomorrow marks an important milestone in our history.
On November 1st, 1935 my grandfather Ben Marcus founded, what became the Marcus Corporation with the purchase of a single screen movie theater in Ripon Wisconsin.
During the month of November, we will celebrate the company's 90th anniversary, and our theme for the year has been the spirit of entrepreneurship. One of the guiding principles that my grandfather and dad instilled in all of us, and on which our company's future will be built, is that same entrepreneurial legacy.
We are called on to push change and evolve because, as we know from our 90 years of history, the only constant has changed.
I'm excited to celebrate our 90th anniversary with our Associates.
Who, by the way, taught us? Our most important asset?
As we both recognize our achievements and look ahead to a future that will continue the legacy of these great businesses for many years to come.
Before we open up the call for questions, I want to conclude my remarks by saying thank you to all the hardworking Associates of the Marcus Corporation.
I don't want to ever take for granted what each and every 1 of them does to contribute to the success of both of our businesses.
Thank you.
With that at this time Chad and I would be happy to open the call up for any questions you may have.
Thank you.
Please, press star, followed by the number 1. If you'd like to ask a question and ensure your devices are muted locally when it's your turn to speak.
Our first question today comes from Eric Wald with Texas Capitol.
Please go ahead. Your line is open.
Thank you. Uh, good morning, guys.
um,
A couple questions. Um,
you mentioned, um,
On the hotel side you mentioned that you you had rate growth in in 4, the 7 hotels uh in the quarter. I guess, I guess for the other 3 is that something that was
Um, more of a short-term issue is that something that's kind of been more than 1 quarter where you haven't had rate growth? Um, at those 3 hotels, something that's you think um, more of a competitive issue in, in, in those markets I don't want to lean on that too much, but I just want to see if it's more of a something that's been short-term or something that's been more than a quarter. And is that something you think that's more of a competitive issue or something that may require, um, uh, an investment as you look in next to a couple of years.
Thanks Eric. Uh, yeah, I mean it's a, it's a 3 hotels where we didn't see ADR growth. Um, I I would say there are more more market dynamics. Um, 2 of them have been
Persistent market dynamics, that are more, uh, generated by Supply in the, in the market. Um, and in the third, it really was just, uh, a little bit of softening very recently, in, in demand. Um, but I, I don't know. And 2 of the, 2 of the 3. I don't see significant capex Investments. We have 1 of those 3 that we're going to be doing some, uh, small refreshes too, but nothing anywhere near. What we've done at the at the 3, major properties over the last few years, I would describe it as a more. Normal course, uh, refresh that is embedded in our 50 to 55 million of capex that we expect for next year.
Got it. And and on that, that 50 555 million.
that considered, um, kind of including refreshes that considered, I guess, more of a maintenance capex, number kind of going forward, anything anything, that would be kind of unusual in that number
Activities. Um, but it is it is primarily maintenance and and Roi capital
Got it. I mean, this last question, um,
Any touch on this a little bit with the the, um, the capital return comments, you know, with the increase, you know, share purchases this year and the new buyback authorization you should should m&a. I know you obviously, you know, you have some increased free cash flow with with the reduced capex next year. Um, and presumably going forward but should should m&a opportunities come up on either the hotel. Um, or the the exhibition side, you can you talk a little bit about your comfort taking on Leverage um to the balance sheet and kind of, you know, what's kind of your your comfort level, you know, on kind of a leverage ratio. Um and then also you know, should be
The equity, get back to a more, um, whatever in your mind, be a more appropriate. Um, valuation, you know, you know, would you use equity? Um, you know, for m&a in the future or is is debt in your view, the more, um, more appropriate. Um, um,
Kind of a way to go about that.
Yeah. On the, on the first part of your question on on m&a, I think, you know, if we have something that's actionable we we will. We will move on it.
We have been allocating a lot of of capital to to share repurchases lately and at the current leverage at 1.7 times.
You know, we're very comfortable and we actually have a Target leverage, that's a bit bit above that closer, to 2, and a quarter to 2 2 and a half. So we have some, we have some capacity to do that. Um, and if we found the right type of m&a opportunity, we, we have some flexibility and, and can Flex up a bit, and then bring ourselves back down to somewhere in that, in that, in that Target level. Um, but, uh, very comfortable with where we're operating right now. And there's, there's actually some room to, to do a bit more and and continue to invest
You know, as for whether we, you know, the bill of taking on more leverage and doing things, we have that balance sheet capacity, as Chad pointed out. Um,
Would we use equity? Uh, yeah, I mean, look at, we have a history if you look, and, you know this, Eric, if you go back, when when we think there's, when we think that we, the, the, the, the, the opportunity to return Capital shareholders through stocking purchases makes sense. We do that when we have, when, when we believe the stock is, uh, at a price where we think it's appropriate to use it as as capital we. We do that as well and so it will just depend on, you know, market conditions. We are not a company that just says well, we program
Automatically buy stock, no matter what the price is. We're going to sell stock to grow just to raise Equity. We will do it based on what we think the price is, and whether it makes sense. And, and just to be clear, you know, at the, at the current levels, obviously, we're in the market, and, and we were repurchasing shares during the quarter. And, um, and so that's the that's kind of the level that we're at right now. Um, you wouldn't see us issue Equity at at the current share price to go do m&a.
We understand appreciate it. Thanks guys.
Our next question comes from Patrick Shaw with Barrington Research.
Your lines open.
Uh, thank you. Um,
I just curious on, um, concessions. Um, just with the current macro environment. Have you seen any uh change in how consumers are like just consumer uptake or uh I guess hesitancy with regard to price increases and the ability to offset offset uh inflationary pressures there.
Um, hi pad know, we haven't really seen a lot to speak of over the summer in in changes, in consumer, buying patterns the the hit rate and the basket sizes have been have been pretty consistent and we we moved through inflationary type P pricing increases nothing overly aggressive, as we've seen in our per caps, um, and there's actually been more propensity to for our
Customers to to buy merchandise associated with concession purchases. Um, that's, that's been a nice part of the uplift, but, uh, nothing that we've seen it would tell you, there's, there's a, a change going on in, in the willingness to buy concessions.
Okay. Um, and then maybe just a question on the M&A markets, you know, kind of with the...
I guess softening. Uh,
macro environment in hotels, and
Uh maybe some stability in the uh, home play. I'm just kind of curious how you're seeing, like the
Um you know it's it feels like there's some more trans. I mean look if you look at it from a macro level and you back up the market is still very, very sluggish in terms of transaction and volume.
But it's if I, if you said, how does it feel right? This minute, it starts. It's starting to feel like there's some more stuff happening, you know? I, it's, I don't think we're seeing so much selling pressure from anyone. Fueling the pressure to sell from from
A performance standpoint yet. Uh, you know, I think you get people who just don't think it's too long and that that's their issue. The thing, I think we've bumped into, and by the way, if interest rates as it come down, that will help. Because again, I think 1 of the bigger challenges that we bump into is, if you know you wrote a proforma to buy an asset and you've had an exit cap that's significantly below our cap rates are now.
You're going to and you don't have to sell, you're going to hold on as long as you can.
And so, since the economy has held up,
We're not seeing force people.
Feeling pressured and forced sales. You're seeing people who are now starting to say, "Okay, am I going to make the reinvestment the next cycle?"
You know, because we got to because Pips are coming up on people and I going to, you know, is that, am I going to want to reload that? And and that's probably what we're seeing some opportunity.
You know, it's more along that we're not feeling that as you might be alluding to some economic pressure as the economy slows down.
Okay. Uh, thank you.
Thank you. Our next question comes from Drew crumb with the Riley securities.
Please go ahead.
Okay, thanks again. Good morning. So I think you you talked about expectations for admission per cap growth over the next few quarters.
Does that incorporate or contemplate? Any further changes to your pricing strategy. And if so, what are those and any early learnings from the pricing increases, you took at the beginning of 3 Q,
Hi Drew. Yeah, the it does not contemplate a lot of significant changes um prospectively beyond what we did in the third quarter. It's more the annualization benefit and Tailwind that we'll get from, um, you know, frankly flipping from a, a headwind on some of the, the discount programs that we've been camping for the last year to, now, to now, uh, moving to some strategic pricing moves that have increased pricing and, and that becomes a Tailwind. Um, during the third quarter, we had Blockbuster pricing on a number of films that our pricing approach in that evolved a bit throughout the quarter, in terms of the, the length of period that we had Blockbuster pricing on. Um,
And, um, Everyday Matinee, you know, evolved a bit during the quarter. But I think we've hit a level that, um, makes sense. Pricing, as we talked about last quarter, continues to be an area where the industry has done a lot of experimenting. And so we'll continue to watch what others are doing. Um, but in what we did in the third quarter, it is having the effect that we expected. It was.
Got it, okay? And then you guys discussed the composition of the slate and Q3 having a negative impact on your steer admissions.
No, as you look at Q4, how are you viewing it? Mix, is it a positive for your circuit, negative, or you know, two top two? Top to tell.
Yeah, I I'll start first and like great Greg, Greg at his thoughts. I mean I think it's a it's a little bit tough to tell. It's easy to forget that we had a we had a Moana film in the fourth quarter last year and we don't have something quite like that. Um, we do have we do have a couple of family films uh here coming up in the, in the quarter. Um, and we have an avatar, which we didn't have last year. So there's several puts and takes. It's it's it's frankly tough to tell on mix.
So it's so hard. It is really hard to tell, but we never, we never know again. But glad, glad we got to Topia, glad we got Wicked. You know, that'll play special, play good in our markets. Um,
SpongeBob and, you know, I'm a fan. So uh, but uh, we love to see how it goes.
Okay. All right. Thanks guys.
Thank you. And just, as a reminder, please press star followed by the number 1 if you'd like to ask a question today.
We'll move to our next question from Mike, Kiki with Benchmark.
Please go ahead.
Hey Craig, Chad thanks for taking our questions. Um, I guess for first Greg, obviously,
bullish actually encouraging just would love to get sort of your
Off Script thoughts. Greg on the growth opportunity, you see from theaters and hotels and any catalysts or major drivers obviously,
He lives a lot of films. Um, that that sounds encouraging, maybe something that's very relevant to your demo. I know the hotel side. I don't know if the mark that seems like a really interesting project that you guys are doing is if that could be a catalyst or any other initiatives that you think could move the needle for you guys across your 2 segments and 26, I got a couple follow-ups.
Sure. Um,
look on the feeder side, you know, I
You know, I mean like I'm not I'm not I I tend to hate to try to predict how things are going to go, you know, it's it's uh, it. I always go down to let's just count the number of bills and that'll give us a range. And then I don't know what and then in some years it's going to be better or some years in some periods. It'll be not as good. I mean, you know, I keep reminding myself. Oh yeah. Uh, Memorial Day this year was the, you know, the the, you know, the biggest Memorial Day in the history of the movie business and then summer, slowed down, you know, we were so, you know, you just, you just don't know, but I thought it was a really interesting data point to look and say, well, look at the number of franchise films next year.
Pretty much like this year. I think maybe 1 less
If you look back at the historical grossing,
Of what the franchise films that are coming around this time.
Certainly more robust than we had in 20.
So, I'm not going to ignore that stat. Now, go to bed feeling, good about that but I, you know, I'm sorry again, always hard to predict on the hotel side. Um, you know, look at we've made a lot of Investments, that, that should continue to, to bear fruit for us, which which is great. You know, there's that old old saying that, uh, you know, uh,
Old smells and and new cells. And so that that's that's very good for us and we should see that. I I don't want to overplay the mark thing. The, you know, the Mark was done, uh, opportunistically frankly. Um, you know, we have we we we, you know, we we we've been very disciplined about the amount of investment. We wanted to put into the hearing into the Milwaukee.
and, you know in, uh,
We were we had made the decision that we weren't going to renovate the entire property and we were going to actually you know close 176 keys and and we looked at it and said but we work on closing immediately and we had demand for the rooms.
And so while there's demand for the rooms, we're not going to actually make much of an investment in it.
We're just going to separate it out from the from the Hilton system basically, and then we'll run it as an independent.
And it's the way that, you know, if it's if it's there, let's let's you know, there's well, let's get some cash flow off of it while it's there while we figure out where it's going. And if
The city and the community decide they want to go in a certain direction because it will involve all of them.
That any any further, any further investment in that telephone, frankly, is going to require subsidy, and if that's going to happen, then, uh, we're we're all ears. Uh, if not, that will become a different use, but while it's waiting, Let's, uh, let's let's Warehouse it and, and get some cash flow from it.
Like I just want to add on 1 1, comment on the 26th. Slate, in terms of the terms of film mix, the 1 thing that that does stand out is when you look at Family content next year and you look at the franchises. We have a Mario, Brothers, we have a Toy Story, we have a uh, a Minions movie. We have Moana and we have a Jumanji. I I think the family mix. Comparatively to 25 is is very helpful for our circuit.
Nice. Um, but I guess give them that. You guys seem optimistic on growth. How should we think about the bottom line here, either? The drove potential?
Operating leverage and, um, free cash flow conversion. I know that's come up a lot. But when you think about, I guess Catalyst to your valuation, I think free cash flow, uh, in 26 would probably stand out as as the largest
Yeah, no, no doubt. I mean, just by virtue of the capex coming down. Our free cash flow is is going to grow significantly next year, and then I think as the, the highest Leverage is in the theater business. And so if if you assume, you know, the hotel business kind of continues steady as as you go as it has with a, with a stable economy. Um, if if, you believe the 26 slate will grow, our operating leverage in in theaters is historically contributed around 50%. Um, uh, to the bottom line in in Topline growth. So, uh, you know, we continue to focus on managing our cost structure and getting better at managing these buildings when, when you're in the troughs of the content Supply, that's that's really critical.
Does the peaks and valleys, you know, have they been pronounced the last couple of years? Um, but yeah, the IBA, you know, the IBA should flow through with what the top. If the top line grows as.
You expect for the Slate?
Thanks, Chad, last question. Um, obviously recent news that Mark is, uh, retiring. Uh, sad to hear that 55 years. You never hear that sort of tenure with the company, uh, so congrats to him just curious, um, on the transition plan. And, um, if this could also be a potential, uh, Catalyst for maybe a a change in in strategy and how you manage your your your asset,
well, um,
You know, it's, he's, he's... we are, we are, we're in the middle of a, we're in the middle of a search.
For the new leader. We're looking at internal and external candidates, we have both and, you know, the what, what, what a new leader I. Well, look at the idea is, is that we hopefully will see new ideas and, and new new approaches. And yet, look at we
We're celebrating our 90th anniversary.
I don't think that we're going to see like a whole we're going to wake up with a wholesale change as to how we approach the business, but but I but I but I like the idea of of new ideas and and
Bringing out new, uh, new new approaches. And we'll, we'll, you know, and we're always. And we're always trying to do new things to figure out what will work and, uh,
Most of it doesn't, but every once in a while you find one, and we'll run with it. I think I can't say it was just like the surprise movie, you know? I never know what's going to hit, but there always is one.
Nice. Thanks, guys. This is exciting.
Thanks Mike.
Thank you. At this time, it appears there are no other questions, so I'd like to turn the call back to Mr. Parris for any additional or closing comments.
You'd like to thank everybody for joining us today, and we look forward to talking to you once again in late February, when we release our fourth quarter results, until then thank you, and have a good day.
This concludes today's call.
You may disconnect your line at any time.