Good morning, everyone, and welcome to The Marcus Corporation Third Quarter Earnings Conference Call. My name is Matthew, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer, and Doug Neis, Chief Financial Officer of The Marcus Corporation. At this time, I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you, very much. And welcome, everybody, to our fiscal 2014 third quarter conference call. As usual, I need to begin by stating we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include, but not be limited to, statements about our future revenues and earnings expectations; our future RevPAR, occupancy rates and room rate expectations for our hotels and resorts division; expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future; expectations about the future trends in the business group and leisure travel industry and in our markets; expectations and plans regarding growth in the number and type of our properties and facilities; expectations regarding various nonoperating line items on our earnings statement; and our expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties, which could impact our ability to achieve our expectations, are included in the Risk Factors section of our 10-K and 10-Q filings, which can be obtained from the SEC or the company. We'll also post our Regulation G disclosures, when applicable, on our website at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2014 third quarter and first 3 quarters results. As you can see, we had a great third quarter, thanks primarily to the outstanding results of our theatre division and favorable comparisons for our hotels and resorts division. I'm going to take you through some of the detail behind the numbers and then turn the call over to Greg for his comments. Before I dig into each division, let me start with some of the general numbers. Most of the line items below operating income…

Thanks, Doug. And I'll begin my remarks today with our theatre division. And as you can guess, we're pretty proud of the results we're announcing today for this division. And yes, it was a very good quarter for the movies. But as Doug shared with you, the national box office was up 15% with those same movies during our fiscal third quarter, yet we were up 24%. In fact, according to the box office results compiled by Rentrak, we were the top performing theatre circuit among the top 10 chains in the U.S. during this time period. We believe that against the backdrop of a smooth leadership transition earlier this fiscal year, this is an indication that our investments and operating strategies are working, and I'll talk more about that in a minute. From a movie perspective, our press release listed the top 5 movies. And while from top to bottom, it was a good slate of films, there is no question that this was a quarter dominated by the top movies. As an indication, those same top 5 movies accounted for nearly 47% of our total box office revenues during the third quarter compared to last year's top 5 films, which accounted for 37% of the total. And our top 3 films: Frozen, Hobbit and Hunger Games, are now 3 of our top 4 films for the entire fiscal year so far. The only downside of this dynamic is that film costs are typically higher for the best-performing films. So when the top films represent a higher percentage of our total box office, it does impact our margins a little. Overall, we had 11 films produce box office receipts greater than $1 million for us this quarter compared to 10 last year. So as I said, there were good…

[Operator Instructions] And your first question comes from the line of Eric Wold of B. Riley.

Two questions. I guess one, first, a quick question on the $5 Tuesdays promotion, should we assume that's going to be an ongoing kind of continuous program for the foreseeable future? And then the second part of that is, what was the -- if this hadn't been in place, what would've been kind of a comparable Tuesday average ticket price?

Well, the first answer is yes. We are very pleased with how the program has played out. And so we -- you absolutely should plan on that program being in place in the future. A comparable Tuesday, I mean, look, prior to this program, I guess maybe the best way I could answer this is that prior to this program, we were -- our average ticket price was -- it's been generally growing at kind of an inflationary rate. And so the typical Tuesday night adult ticket is -- I don't know that Tuesday would have been...

We don't break them out day by day. I mean...

It would be tough to do that, I'm not sure. I mean, Eric, what's clearer though is that we've...

We have absolutely -- we've -- there's something that we've hit on, something in the conscience, the collective conscience in the country really in a way, I mean, this -- the buzz around this is really interesting. I mean the amount of people that were saying, "Wow, I went to check out a movie. It's $5." I mean, it really -- it's gotten everybody's attention. We combined it with a free popcorn on a temporary basis as an added incentive. And it's been really interesting. And we've been looking at it making sure we're not cannibalizing. And you're sure to look that you're going to cannibalize -- it looks like we're cannibalizing really mostly some other mid-week customers. But when you look at the net add on top of it, it's clear that it's been a victory for everybody. It doesn't seem to be impacting our weekend. And we think, over the long term, just the idea of rates reducing the habit of moviegoing of people should be a positive for non-discount days, as well.

Perfect. And then kind of the bigger question on the $50 million capital investment in the theatre side, what are your kind of baseline goals in terms of -- how you want to measure, is it the ROIC, increases in attendance per capita, what are you looking for to get out of that $50 million investment in the theatre side?

Well, Eric, we've put all of our investments through -- in any of our businesses, through kind of the same screens and so we absolutely believe that these investments that we're making will provide, if you want to talk about it in an economic profit, it's going to be a positive economic profit. We look at that, we view it from an IRR perspective. We're typically looking for in all of our investments, after-tax returns, assuming a 50% leverage of 18% to 20%. And we think that based on our experience thus far, we are having no problem meeting those types of hurdles with those particular types of investments.

I do think it's important to make sure we distinguish though, of the $50 million, you can sort of break it into 3 tranches, I would say. One is the tranche is of sort of the what would hopefully be a more immediate return. If we put a Take Five lounge into a theatre, that really should produce relatively promptly. A chunk of it -- a smaller chunk, a really relatively small chunk of it was, for example for our theatre in Sun Prairie just outside of Madison. So that's going to take a little while because we haven't even started the construction of that, that should start this year. The third piece of it is simple. CapEx spend that we have to put into our theatres and a chunk of that is that you can't pin a specific ROI to, but other than the fact that if you don't invest, that you could start to yield -- you're going to have a negative ROI because your business is going to go backwards. So it's a little bit of a blend of all those. It's more heavily skewed toward the first category I mentioned. But there's lots of pieces to it, too. But as Doug said, we look at every piece very -- with, I think, with rigor.

Your next question comes from the line of David Loeb of Baird.

Greg, just to go a little further on the theatres. Have you guys tried to break out how much of the performance this quarter was due to your initiatives versus national box office trends? And in other words have you looked, for example, at how you usually perform relative to the national and how much better it was this quarter due to your own initiatives?

I mean, yes, we absolutely have. And it's been -- we actually -- I haven't looked back. I've looked way into the history on that, but in the -- the year -- but all I have right now in front of me that I -- it's not right in front of me, that I know off the top of my head is, the prior year, we had trailed the national box office a little bit. But so if you use the national box office as your baseline, you can see we exceeded it.

So again, the numbers that I shared, David, were the -- for this, we actually took these exact same 13 weeks based on the numbers that are available to us on Rentrak and determined that the national numbers were 15%. We were at 24% increase in box office. And we've typically matched -- or even, like Greg said, I think last year, we're actually under the national numbers. And so I would suggest that all that variance is due to these initiatives. And it's not any 1 initiative, it's not just the DreamLoungers, it's not just the $5 Tuesday, it's not just the fact that we've made it more of an entertainment destination with the Take Five and the Zaffiro’s Expresses, we think it's a combination of all those elements.

One other thing, if you remember with national box offices, we do have some local mix issues depending on if you have more family films, we're going to tend to outperform. If you've got films that are more urban-oriented, we probably will not outperform. So at least on a relative basis, I hope we'll outperform anyway. But it will be modulated by the mix of films, by the weather. And we have those things that impact us when you're looking at the business week-to-week.

Yes, we're just trying to figure out for modeling purposes, is that 9% something that's likely to recur over the next 3 quarters? Presumably, there'll be a tail on that as well because: one, you're not done with these initiatives; and two, it's probably going to continue to have growth beyond just the first year. But I guess the other piece of that then is the weather. Do you think your weather was slightly less bad than the national average? There were a lot of markets that had even worse weather. Hard to imagine, but true.

Weather -- Doug and I were discussing whether weather being a help this quarter. The weather probably was a push for us. There are some days, when you can't get out, you can't get out. There are some days when you -- when you -- like when they called off school for cold, well, that's so kids don't wait in buses. So now parents are sitting around wondering what to do with their kids. But I will say, what our team did, which was really brilliant, they reacted very quickly. Our ops guy just said, he said, "You know what? Let's do a free frozen hot chocolate for anybody that comes to the theatre on a Monday." So now here's -- for a long time, the people around this company have been saying, "Luck is when opportunity means preparation." So we got a little lucky that we had the right people in the right places who moved quickly, and we took advantage. At the same time we had, as Doug pointed out, $600,000 of additional snow removal costs. We broke without snow around here. We had -- our heating bills were much higher. So that was probably the push.

So for the next 3 quarters, do you think that 9%, plus or minus, is a pretty good estimate of your potential out-performance of the national numbers?

It's really tough to put a number on that, David. I mean, the fact is, is that we do -- we're doing this because we expect and hope that they'll be continuing to outperform those national numbers. But after having 1 quarter of this, and I couldn't sit here and tell you that we can count on them. That's kind of a variation.

We're also dealing with a larger denominator than [indiscernible].

That's true. So it's just -- we expect to outperform, but I'm not ready to put a number and say that we can count on that.

David, so what you're telling me is we're taking a business that we can't even begin to know what we're going to do in any given period because we don't know what the product's going to be. Now we're going to add to it a whole new paradigm. I admit, it's a bit of a challenge for us, too.

Okay. Well, fair enough. I have actually no questions on Brookfield. You guys have been pretty forthcoming on that. We've certainly been following the town's actions. And it sounds like you're close to making more announcements. I guess, one sort of question, if things keep going your way, are you likely to break ground in the near term, like, in the next several months?

We're working on that very timetable as we speak, David. And so we expect to be able to be making some announcements about the entire timetable in the near future.

Okay. And on the hotel side, if I can zero in on Milwaukee with all of the supply changes. Your results were pretty good in the off-season. Clearly, you guys have responded with product improvements and it sounds like you've really been aggressive in trying to court groups. And it doesn't look like that's hurt your ADR. Any thoughts on where we are in that supply cycle and what kind of impact you're seeing?

Supply is impacting the Milwaukee market. You can see it. I mean, look at what -- we can see it. It is -- and we don't break out the specifics, obviously, but I can tell you that it is impacting. The -- I think that what's -- it continues to -- we continue to see it. What I originally said, probably we'll see it less than some of our competitors because we've always invested in our assets. But we can see it, we can feel it and we have had to get aggressive on rate. In one of our hotels, there's an incredible hotel in Milwaukee that's quite a value, I would tell you that right now, because we had no -- we really -- look, here we had no choice. And -- but it's worked. We have the $5 Tuesday at one of those hotels, actually.

Okay. And maybe a $5 Monday, Tuesday and Wednesday. Any update on the casino hotel tower? Is that still looking likely or what's the timetable there?

Doug's looking out the window right now.

I'm looking at it right now, David, out my window. I think we're talking late summer or early fall, is that the current timetable, Greg?

I think so, yes.

Well, okay. We'll be watching for that, too.

Your next question comes from the line of Brian Rafn of Morgan Dempsey Capital Management.

Give me a sense -- you guys always talk about the quality mix of pictures. It seems to me, again, just a novice moviegoer that, that kind of January to March has always been kind of a dead zone graveyard for pictures. But it seems the last couple of years, there have been more, I don't know if you call them blockbusters, but there seems to be more higher-quality content, the actors, the plots, that type of thing. Is that a trend that you're seeing? Is it just my observation? And if that's the case, do you see Hollywood redistributing pictures more evenly throughout the year? Or do you see them just bringing up the first quarter to more equal in some of the -- obviously, it's never going to be summer or Christmas, but I'm just getting a sense of what your observations are.

Well, Brian, it's a mixture of things. First of all, last year it wasn't as strong. I'm not sure if Doug's looking at exactly what was released, but I just remember it being weaker. We do -- we have a constant drumbeat to Hollywood to please distribute product more evenly throughout the year. People will show up if you do. And I think this quarter proves it. The other piece of it, too, is how much they release -- another good tell is how much are they releasing on Christmas and New Year's. And if it's very busy and there's a lot of good product, which there was this year and the year before last, it had a very similar dynamic, there's a lot of people who still were sort of they're -- I still got to see this. And so that pushes a bunch of demand into January, which is helpful for us, obviously, in the quarter.

Okay, okay. Your $2 -- or excuse me, $5 Tuesday nights, is that also for your UltraScreen with the Dolby Atmos? For every screen in your theatre chain?

It is, yes.

Okay, okay. In that value customer that you guys talked about -- and again, you're obviously not doing scientific studies -- What is your sense, anecdotally, of the demographic mix of that Tuesday guy or girl?

We have not -- look, at some point, we will be doing better, we'll be doing more detailed survey work, and we may be able to answer that question more specifically. But it is -- we're seeing people who are openly telling us, I haven't been to the movies for a long time. It is a value-oriented customer. And it's -- look, it's not just about -- it's a lot of people, everybody likes a bargain, especially in this neck of the woods. But it's -- it is a -- but we're clearly seeing people that haven't been in the theatre in a while.

And it's also becoming a repetition thing too, Brian. We're -- overall, I think the national numbers have shown that moviegoing frequency has decreased over the last X number of years, that's attendance. And we're again, anecdotally, hearing about, I mean people who are -- who go every Tuesday now. And so some of these people, maybe they went to a handful of movies a year and now, all of a sudden, their frequency has increased as well. And they're seeing -- they're not just seeing Frozen, they're also going to see that next picture that maybe they might have passed on otherwise. And so it's increasing the repetition as well. And that's a really good thing for everybody involved.

Okay. You guys also, in the past, you've talked about not just your top 5 pictures but some of your 6 through 10, 6 through 15. How did that kind of second tranche or tier compare year-over-year?

Well, they were good, Brian. As I've indicated, this particular top 5 skewed a little heavier in terms of the overall mix. I think we've indicated it was about 47% versus 37% of our total -- was just from the top 5 pictures. But I mean looking at my next 5 movies, there's some very well recognized films here, including: American Hustle and Wolf of Wall Street and Saving Mr. Banks and Lone Survivor. And these are pictures that -- those are all good pictures that did some nice business nationally. And I think we did mention, overall, we had 11 pictures that were -- did over $1 million for us versus 10 last year. So there was -- there was depth to the market as well. It was nice to see.

Okay. Your $5 Tuesday guy, what are you guys -- and again, it's early and I understand that. What are you guys seeing on that customer's food and concession demand?

That looks a little masked right now with the free popcorn. But we expect that that's going to be at a lower level than our current food and beverage per cap, when we look at it. That's going to go down. But we are going to order, we're -- but we are seeing a good uptake in our restaurant and other food and beverage parts of the operation, the nontraditional food and beverage operations, that's been very -- it's been beneficial to that. And we're also seeing, again, we're seeing more volume. So while we are seeing that decline in what we're getting in per person, we're making up for it in volume.

Okay. You guys talked, and I think you did a good job in some of your cost issues with the polar vortex winter. Is there any differentiation that you guys foresee -- you mentioned I think it was kind of a push, in the difference between heavy snow versus really cold temperature?

I think we talked about it. It's harder to get out with snow.

Yes. So -- absolutely, so if given a choice in the movie theater business, we'll take the cold because at least people can still get out and drive. But we had kind of both this year. I mean, we didn't have a record amount of snowfall, but we had plenty of it. And so -- as evidenced by our snow removal total. So neither one of them is great.

Yes, no, got you. When you guys look at your very high end, the UltraScreen, the Dolby, the DreamLounger, as you expand that, are you guys directing or shoveling your specific pictures in those areas? I mean, because it's a beautiful setup. I'm thinking of the young kid with the Slurpee or the sucker and then you got some pretty nice chairs. Or is that -- I guess I'm guessing the kind of your sensitivity to the types of pictures that you might put in that venue.

You're talking about in the -- I was a little confused by the question. You're talking about it in the DreamLounger locations?

In the DreamLounger, right, exactly. I mean, that's a pretty nice setup. I'm just -- does that just get all of the standard movies?

Look, the kids love that setup, as well. And they've got great sight lines and so we're playing a normal lineup of pictures, Brian. Brian, we do have another individual waiting on the questions. Do you have 1 more?

Yes, just one more from the standpoint of if you guys look competitively, what you guys have done with the amenities and the restaurants, the entertainment destination, how would you look at Marcus versus the competition across the U.S.?

We've always viewed ourselves as 1 of the premier theatre circuits in the country. My grandfather had a very simple saying, "I don't need to be the biggest, I need to be the best." And that's a mantra we've always applied, and we're just building on that history with what we're doing right now. We were one of the greatest percentages of Stadium Cinemas when that came along, as quickly as we could. We continue to own our real estate, we take care of our assets, and then we make future investments and we -- what you're seeing right now is the application of many years of hard work. We didn't just come up with the Big Screen Bistro last week, that's been in the works for a long time. We didn't just come up with the Take Five lounge. Bruce Olson, when he was here, he built that, he started that ball rolling. Rolando has come in and taking it now to the next level. It's been a great experience. And so we are -- we're taking what we did and we're just continuing to move forward with -- working on the same presets we've had for generations.

And as Greg noted in his prepared remarks, Brian, we think we have a unique advantage. I mean, because of the fact that we've been in the food and beverage business for as long as we have been with our hotels and we had a large restaurant division, we understand that part of the business. And we think that gives us a unique advantage as well, going forward.

[Operator Instructions] And the next question comes from the line of Jim Goss of Barrington Research.

That was a great quarter. And I know you did have a couple of months of easier comps, but 1 in December that wasn't necessarily so easy. And it seems like you've raised everything up several notches. And I assume that would, at least going back to the discussion you had earlier, give you enough to bias your results upward even when the tougher comps come because I think it's -- there are clearly some issues that are different from the way you had operated them earlier.

Well, that's our goal, Jim, is that -- and again, as we said, you've been following this business long enough to know that there are going to be quarters where the box office is stronger than others. But our goal is to continue to outperform whatever those numbers are. You're alluding to the fact that, correct, in general, to the degree that anyone can look ahead and project what's going to happen in the box office with their crystal ball, most people are suggesting that 2014 is going to be -- have some tough comparisons and everyone's talking about 2015. We view it through a longer-term lens. 2015 looks great on paper. But our goal as each quarter comes along is just to continue to try to outperform. And I think if we do that, we'll do quite well.

Now one of the sticking points in doing, say, a $5 Tuesday is the studio has to agree to that, too, I assume, if they're willing to cut the price and take a split of a smaller amount. Do you have to negotiate that with every movie event then, that this is your policy now and demonstrate why they should buy into that?

Obviously, we work with Hollywood, they're our partners. But I just have to correct one thing you said, Jim, which was they're taking a percentage of a smaller number, they're not. There's more coming in the door. And so they're really getting a percent of a larger number, which is good for them. If that wasn't happening, if the total pie wasn't getting bigger, then you're right, then they would slip in to say, "Guys, what are you doing?" But in fact, as we've demonstrated, we outperformed the industry. And it wasn't just the $5 Tuesday that will -- but our track record is demonstrating that it truly is a win for them as well.

Okay. So they're willing to take that leap to overall box office, not just whatever ticket price you're having. Atmos is one of the others I was interested in. One of the pushbacks that seems to come up in a lot of these conference calls is the economic model issue, that it's hard to find a way to pay for better sound. I'm just wondering what your take is on that particular technology, how do you factor it in? How do you think you do get paid for it?

Well, this is like akin to the classic line of, "50% of my advertising works but I just don't know which 50%." It's -- we aren't just putting immersive sound into an auditorium when we're doing it. What we're doing, we're putting them in with these -- with these UltraScreen DLXs, is we're putting in DreamLounger seating on an UltraScreen large-format experience, and then adding this to it. and it's another talking point, it's another talking point for someone to talk about. And in isolation, probably, I don't know. But when we look at it, we're looking at it with the whole thing. And it allows us to get premium pricing, as well, when we do that experience. Because that's where we're charging a premium for the UltraScreen DLX experience, as we should. It is an incredible way to see a movie. There's no better way. There's lots of great ways but that's the best.

Okay. And then the last question, more broadly, in terms of tone of acquisitions going forward. Now that we've sort of cycled through the digital upgrade phase, do you think the overall business looks like it's still conducive to sort of an industry roll-up stage? And what is your interest in participating in that phase?

The way we've looked at it, it's -- we think it -- there was a certain push for little while, but I don't think it was as much as anybody expected. As you know, as we all know, it's a very fragmented business once you move below the larger circuits very quickly. But it's a business owned by, in a lot of cases, by families, smaller firms, people who like being in the business. And so their economic motivation may be a little bit different than others. And so it's hit or miss, when something comes available. Look, we've been around long enough. We like to be in the stream when we want to make good acquisitions, if they're available, where we think it makes sense, where we can add value and where it complements the quality of our circuit. But -- and we'll continue to look at those as they become available. But you can't -- it's not very predictable, I don't think.

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

Well, thank you. We want to thank all of you for joining us today and we look forward to talking to you again in July when we release our fourth quarter and year end fiscal 2014 results. Until then, thank you, and have a great day.

Thank you. Ladies and gentlemen, that concludes today's call. You may disconnect your line at any time.