The Marcus Corporation (MCS) Q3 2015 Earnings Report, Transcript and Summary

Good morning everyone and welcome to The Marcus Corporation Third Quarter Earnings Conference Call. My name is Whitley, and I’ll be the 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. [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 now -- I’d like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you very much, appreciate it. Welcome everybody to our fiscal 2015 third quarter conference call. Bear with me as usual as I need to begin by stating that we plan on making a number of forward-looking statements on our call today. Forward-looking statements could include, but not be limited to statements about our future revenues and earnings expectations, future RevPAR, occupancy rates and room rate expectations for our Hotels & Resorts division, our expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future, our expectations about the future trends in the business group and leisure travel industry and in our markets, our expectations and plans regarding growth in a number and type of our properties and facilities, expectations regarding various non-operating 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 Factor Section of our 10-K and 10-Q filings, which can be obtained from the SEC or the Company. We'll also post all Regulation G disclosures when applicable on our Web site at www.marcuscorp.com. So with that behind us, let’s talk about our fiscal 2015 third quarter and first three quarter results. As you can see, it was another very good quarter for us, led by our second straight quarter of record operating results from our theater division. And nearly identical to our second quarter what makes this a special quarter for us is that we’ve produced these results during a 13 week period when the National Box Office numbers were essentially flat. So it wasn’t if we had an unusual -- unusually great film slate to work with. For the fifth straight quarter, our theater division significantly outperformed the industry and continued RevPAR improvement from our Hotels & Resorts division contributed to record revenues for the Company overall this quarter. I’m going to take you through some of the detail behind the numbers both on a consolidated basis for each division and then turn the call over to Greg for his comments. Now before I dig into each division, a brief look at the line items below operating income which show that our investment income was approximately $400,000 less than last year due to the fact that a long-term interest bearing loan that we had made to a municipality for a parking garage, adjacent to one of our hotels was recently paid off. And thus no longer earns interest which was typically recorded once a year when realized. Partially offsetting that was the fact that interest expense continue to run slightly below last year due to a lower average interest rate. Our effective income tax rate for the first three quarters adjusted for losses from non-controlling interest was 38.7% compared to 40.1% last year, lower than last year, but generally still right in our historical range in that 39% to 40% range. And speaking of non-controlling interest, as you can see, the only reason our consolidated net earnings attributable to the Marcus Corporation were lower than last year was because of a one-time legal settlement last year that resulted in the recording of a $3.8 million pre-tax loss attributable to non-controlling interest. Now that accounting terminology is pretty confusing actually and so I’ll just remind you in the most simplistic terms. Two years ago, we had extinguishment from debt income. We reported on a consolidated basis within attributed all of that income to our partner at the Skirvin Hilton. Last year there was a legal matter related to that and ultimately a legal settlement returned about 60% of that debt extinguishment income back to us. And so that’s what you’re looking at is below the line there as you’re looking at debt extinguishment income last year that really related to the year before that because of the legal settlement came back to us. Obviously, this is a one-time event and a simple math would be that if you exclude the approximately $0.08 per share that this item added to earnings last year. Our current year net earnings per share for the third quarter would have been about $0.04 or 57% higher than last year. There you go. Shifting gears away from the earnings statement for a moment, our total capital expenditures during the first three quarters of fiscal 2015 totaled approximately $47 million compared to approximately $33 million last year. Now approximately $30 million of this amount was incurred in our theater division related to the numerous investments we were making in our existing theaters as well as the new theater currently being built in Sun Prairie, Wisconsin. We spend approximately $16 million in our hotel division so far with the majority related to prior renovations at the Pfister and the Cornhusker and then the ongoing construction at our Chicago hotel. Now with one quarter to go in the fiscal year, we remain on track to have total estimated cash -- capital expenditures for fiscal 2015 in the $70 million range. With up to $50 million of that amount expected to spend in our theater division. The actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditure number as will any currently unidentified projects that could develop during the remainder of our fiscal year. Now I’d like to provide some additional financial comments on our operations for the third quarter and first three quarters, beginning with theaters. As you can see in our reported numbers, our box office revenues increased 8.3% during the third quarter, now putting us 6.7% ahead of last year through the first three quarters of the year. Our concession and food and beverage revenues increased a substantial 19.6% during the third quarter and are now up 16.6% year-to-date. Once again, we significantly outperformed the national numbers. According to Rentrak, a National Box Office reporting service in the theater industry, the U.S. box office only increased 0.5% during the comparable 13 weeks of our fiscal 2015 third quarter. So we outperformed the nation by nearly 8 percentage points. Year-to-date 6.7% box office gains over index a U.S box office decline of 5.1% over the comparable period. So we’ve over indexed by 12 percentage points year-to-date. In fact, according to the data obtained from Rentrak, we’re the only theater circuit of the top 10 chains in the United States to even report an increase in box office revenues during the same nine month period. Once again, the third quarter increases are attributable to an increase in attendance of 7.5%, despite what the national numbers would suggest was a really no better, no worse film slate. Year-to-date, our attendance is now up 12.8% despite a well documented weaker summer film slate. Once again, we believe the majority of this attendance increase and overall industry outperformance can be attributed to the new investments we’re making in our theaters and the innovative marketing strategies that we’ve initiated. Our average admission price for our comparable theaters increased by 0.7% for the quarter, but remains down 5.4% for the first three quarters of fiscal 2015 due entirely to our $5 Tuesday program that didn’t lap the previous year until November. Of course, as you know, that also contributed to our attendance gains. Our average concession/food and beverage revenues per person increased by a significant 11.2% for the third quarter and are now up 3.4% for the first three quarters in the fiscal year. Now that we’ve lapped the introduction last year of our free popcorn promotion related to the $5 Tuesday program, we’re now seeing more directly the impact of our new food and beverage outlets on our concession revenues per person. And of course with higher attendance, these changes in our per capita numbers only add to the positive story as evidenced by a significant increase in total concession and food and beverage revenues from this division. Shifting over to our Hotels & Resorts division, our overall reported hotel revenues were up 5.9% for the third quarter and 7% for the first three quarters. But if you eliminate the new policy of grossing up service fees into food and beverage revenues that I described during last quarter’s conference call, our revenues were up 2.7% and 3.6%, respectively, during the two reported periods. As our press release notes, our reported revenues and operating income were noticeably impacted by the fact that we’re operating a hotel in Chicago that is under major construction and is currently operating without the support of a brand. In order to get a better sense of how the majority of our hotel portfolio is performing, we believe it’s more meaningful to look at some key metrics excluding the Chicago hotel. So with that in mind, I will tell you that our total RevPAR for the eight comparable properties excluding Chicago was up 5.3% for the quarter and 6.1% year-to-date compared to the same period last year. As we’ve noted in the past, our RevPAR performance did vary by market and type of property and all, but two of our eight comparable company-owned properties reported increased RevPAR again this quarter. Now according to data received from Smith Travel Research and complied by us in order to compare our fiscal year results, comparable upper upscale hotels throughout the United States experienced increase in RevPAR of 6.1% during our fiscal 2015 third quarter and 7.8% during our fiscal 2015 third -- for first three quarters. I share that with you in order to be consistent with prior quarter disclosures, but there does continue to be an interesting dynamic playing out right now where -- whereby the national numbers don’t necessarily reflect what’s happening in our more Midwestern centric markets. When you further dissect the Smith Travel numbers and just look at hotels in our specific markets and competitive sets, you’ll find that we’re generally outperforming our competition in most markets during these reported periods. Specifically, RevPAR for our competitive sets during the third quarter and first three quarters of our fiscal 2015 year were up 7.2% and 2.1%, respectively. So that means the current quarter was slightly higher than our results for competitive set due really the two specific markets and our year-to-date number, however, is much better than the reported numbers for the competitive sets. Breaking out our numbers more specifically, again excluding Chicago, our fiscal 2015 third quarter overall RevPAR increase was due entirely to an overall occupancy rate increase of 3.7 percentage points, as our average daily rate actually decreased by 0.9% during the quarter. Year-to-date, our occupancy rate has increased by 4.2 percentage points and our ADR has increased by 0.2%. With that, I’ll now turn the call over to Greg.

Thanks, Doug. I’ll begin my remarks today with our theater division. We’re obviously thrilled to be reporting another record quarter for this division, once again significantly outperforming the industry. Clearly, the investments we’re making in our theaters are making a difference. And when you combine those investments with our innovative marketing and pricing initiatives, the result is record breaking attendance in our theaters during a time when the industry as a whole reflects an overall decrease in attendance. Doug shared the numbers with you. Not only are we over indexing the nation as a whole, the numbers we’re getting from Rentrak suggest that we were once again the top performing theater circuit among the top 10 chains in the United States. And keep in mind, that the numbers we reported today were despite the fact that we had numerous auditoriums out of service during the quarter at three more theaters where we were adding our DreamLounger seating. I think one of questions we answered during this recently completed quarter was whether we’d continue to outperform the industry after we had lapped the one-year anniversary of our $5 Tuesday rollout as well as the one-year anniversary of our initial four DreamLounger locations. Clearly, the answer to that question was yes. The next four theaters we added DreamLoungers last May were among our top performing theaters this quarter. But I will tell you that our first four locations combined, also continued to grow and contributed to our outperformance. In addition, our $5 Tuesday program continued to be a contributor to our stellar results with Tuesdays this year outperforming comparable Tuesdays last year, during the same quarter. And well there is no question that our DreamLounger recliner seat locations have been key contributors to these great results. I will tell you that during the third quarter over two-thirds of our company-owned first-run theaters outperformed the national box office increase of 0.5%. As Doug indicated earlier, the national numbers would suggest that this film slate was not significantly different in terms of quantity and quality than last year’s comparable slate. Yes, American Sniper was a pleasant surprise. But you have to remember that the quarter started off pretty rocky for us. On a comparable week basis, we actually started this quarter in the hole with four straight weeks of reduced box office. That all changed the week between Christmas and New Years and we proceeded to report box office increases in seven of the next nine weeks and break multiple daily, weekly, and monthly internal records along the way. The raw numbers would suggest that the film slate may have been a little deeper this year with the top five films listed in our press release this quarter accounting for approximately 41% of our total box office versus the 47% share the top films during the same quarter last year represented. But I believe it is more than that. I’d suggest that our $5 Tuesday program maybe contributing to a change in a particular dynamic as our numbers would suggest that we have clearly increased movie going frequency among our customers. An increase in frequency might tend to benefit the next year of movies after the blockbuster films that a customer may have passed on in prior years. But while it off starts the attendance in box office revenues, it is still up to our operating team to convert these revenue increases to increased operating income. So I’m particularly pleased with our 17.1% increase in operating income this quarter. Despite increased fixed costs, because of our recent investments, increased operating costs as we service significantly more customers than in the past, a new cost related to our loyalty program. Our team was able to increase our operating margin by a four percentage point this quarter and year-to-date our operating margin of 20.4% is 70 basis points higher than last year. Our entire operating team from our theater general managers, our district directors to our home office staff, deserves a great deal of credit for producing these outstanding operating results. Now speaking of our loyalty program, I’d be remiss if I didn’t highlight this week’s news that we just reached 1 million registered members in our Magical Movie Rewards program doing so in less than one-year. This is a tremendous accomplishment and far exceeds our initial expectations for the program. And the fact that over one-third of all transactions in our theaters have come from registered loyalty members since the program was introduced on March 31, last year, means that these are not just members in name only. We clearly are making connection with our customers, and they’re seeing value in the program. And we believe the program is already paying dividends for us and showing up in our results. As an example, one of the historical challenges for alternative programming in our theaters whether it is a one-time event, a series like the metropolitan Opera or perhaps even a revival of films that have previously been shown in theaters, but now are available in other mediums has been the inability to effectively market the programming. We now have the ability to talk directly to our customers in a cost effective way and promote non-traditional programming, particularly during non-peak time periods. We’ve already had some great success stories and I believe we’ve only scraped the surface of what this program can do for us in the future. Looking ahead, we’re excited to continue to reinvest in our existing theaters as we further expand the successful concepts and amenities that have contributed to our industry outperformance. A recent press release highlighted some of our newest investments underway. So I won’t repeat everything you can read. But let me share some additional statistics for you. By the end of next week, we will have 11 theaters that has been completely converted to all DreamLounger recliner seating. After our new palace at Sun Prairie Cinema opens up on April 30, we will have approximately 23% of our company-owned theaters and 28% of our total screens converted to DreamLounger seating. As far as we can tell by the information publicly available, those percentages are easily the highest in the industry among the top circuits in America. And our team is already looking at plans for additional conversions in our upcoming fiscal 2016, which if approved, will take our penetration over 30% in the coming year. We also continue to expand our proprietary large format concept. By the end of May, we will have 16 UltraScreen DLX auditoriums, that include DreamLoungers and Dolby Atmos Immersive Sound, plus another seven traditional UltraScreens, meaning that over 40% of our first-run theaters will have at least one large format screen. Once again, the highest percentage I’m aware of among the top circuits. And as the concession numbers Doug shared with you indicate, we continue to have success with our new food and beverage concepts with more to come. By early in our fiscal 2016 first quarter, we will have 14 Take Five and Take Five Express lounges open, including three new locations with several more on the drawing board. We will also have three full service Zaffiro’s restaurants and 15 Zaffiro's Express outlets by early in the first quarter as well, including four new Express locations not included in our results to date. Over the years, you heard me talk about the importance of our strong balance sheet and our preference for owning our real estate in our theater division. I believe those factors have once again contributed to our success, allowing us to be nimble, and react quickly to emerging trends in the business, giving us a clear competitive advantage. Looking ahead, the first three weeks of our fiscal 2015 fourth quarter have started off fairly even with last year. But we’re currently feeling cautiously optimistic about the film line up for the remainder of the quarter with several potential blockbusters on the horizon, including the much anticipated sequel to the Avenger series. Last year’s May films were not particularly strong overall. So we have the potential to end our fiscal year on a strong note in this division. And since our next earnings announcement won’t be until late July when we announce our year-end results. A press release also listed some of the upcoming summer films as well. As it has been pretty well documented, that last summer’s product, film product was not particularly strong, particularly in July. So if the summer film slate performs as strong as it looks on paper, calendar 2015 could be shaping up to be a very good year for the industry. Of course our goal regardless of how the film slate turns out, will be to continue to outperform the industry. With that, let’s move on to our other division, Hotels & Resorts. You’ve seen the segment numbers and Doug gave you some additional detail. Excluding Chicago, we reported solid increases in RevPAR and record divisional revenues. From an operating income perspective, we were not able to match last year’s results, but as Doug shared with you, that was entirely because of operating losses at our Chicago hotel, which we continue to operate while under construction. We knew we’d experience some short-term negative impact at this hotel to the extend of the major renovation. But operating without any brand recognition in the support of a reservation system, it’s proven to be a significant challenge. One of the realities we deal with is that with only nine company-owned or majority owned properties variations and even one or two individual hotels can’t be noticeable in our reported results and is accentuated during this historically weak quarter of the year for our Midwestern hotels. Not necessarily surprising, essentially all our RevPAR growth, the majority of our other hotels was driven by occupancy gains. As it is difficult to be aggressive with ADR during the winter months in most of our markets. Overall, we were pretty pleased with our overall RevPAR gains with the majority of our hotels. And as Doug shared with you, year-to-date we continue to collectively outperform comparable hotels in our competitive markets. After a slower start to the year, we continue to experience improvement in the pace of our group bookings, which is a very encouraging sign. The upcoming summer, in particular, looks promising from a group prospective as we already have more group business on the books compared to last year with several large events making final decisions soon that could enhance our position for other. In the short-term, however, I believe we’d likely have one more quarter where we may fall a little short of last year’s operating income. We will continue to experience operating shortfalls with our Chicago hotel until sometime in May when we’re scheduled to introduce the newly renovated AC by Marriott and we will incur some pre-opening costs along the way. We also had one particular hotel that had a very strong fourth quarter last year that will likely have difficulty replacing some of the business that drove last year’s results. I’ll tell you that once we get this construction period behind us in Chicago, we’re very excited about the prospects of the new hotel. We recently began selling into this hotel for the summer and the ADR on the books look strong and we’re getting great feedback. Bigger picture, most industry experts seem to be pretty bullish on what the future holds for this industry. Goldman Sachs recently issued a report indicating they expect the U.S leader traveler to travel more and spend more in 2015 as the impact of a better macroeconomic environment takes hold. Including lower unemployment, lower oil prices pent up travel demand. Adjust [Indiscernible] where PKF hospitality research predicts the U.S lodging industry will continue to achieve strong growth in RevPAR, in both 2015 and 2016. And that shift is on with a record selling occupancy, yield in ground to growing ADR. With ADR gains being the primary driver of RevPAR growth through 2019. I think the reality is that no one really knows what the future holds. But I’m confident that our hotels are positioned to do well in our markets and I know our operating team is focused on driving revenues and improving margins. And finally, we continue to pursue a number of additional potential growth opportunities with a particular focus on management contracts, possibly with some sliver equity at times. Our pipeline has grown in recent months and I’m hopeful that we will continue to add to our rooms under management during 2015. And as we previously discussed by us, we will also consider monetizing all or a portion of one or more hotels, owned hotels with a goal of retaining management, if we determine that such action is in the best interest of our shareholders. Manufacturers have to be evaluated as we are currently actively reviewing opportunities to execute against the strategy, including income tax considerations, the ability to retain management, pricing, individual market considerations etcetera. We evaluate strategies for our hotels on an asset-by-asset basis and we’ve not set a specific goal for the number of hotels that might be considered for this strategy nor have we set a specific timetable at this time. Before we open the call for questions, I also wanted to comment on our recent announcement regarding The Corners of Brookfield, the mixed use retail development we’ve been working on for several years now. In February, we were pleased to announce that we had entered into a joint venture agreement with IM Properties and Bradford real estate. Two proven retail development and investment experts to serve the new project management team, leading the Corners to completion. IM properties and Bradford will service managing member of the joint venture and the Marcus Corporation will remain as a 10% partner to joint venture. Under this agreement we will contribute our land to the joint venture and expect to be reimbursed for the majority of our previously incurred predevelopment cost at commencement of construction. We expect to recognize some development profit at that time with the possibility for additional development profit by the opening date of the project if certain conditions are met. Demolition has begun on existing building at the project site and site work is scheduled to begin soon. As we previously disclosed, it was always our intent to bring in a majority equity partner for this project. We knew that transitioning the Corners to a team with deep retail expertise, we’d speed the project timeline and ensure the best possible finished product. We are extremely proud of the efforts of our group and the investments we’ve made to make our vision for the Corners a reality. I’m confident that the Corners is on track to becoming a true destination in Southeastern Wisconsin that will spark new economic development opportunities in Brookfield and the surrounding areas. We are pleased to remain an investor in the joint venture. With that, at this time, Doug and I’d be happy to open the call up for any questions you may have.

Thank you. [Operator Instructions] Our first question comes from the line of Eric Wold with B. Riley. Please proceed.

Thank you and good morning. Couple of questions. I guess one on the theater side, obviously great outperformance in terms of attendance in box office relative to the industry as well as the strength on concessions gains. On the concessions I know its difficult to gauge this least accurately, but any sense of -- if those concessions gains are been driven by a greater percentage of your attendees buying something at all or is it more the same number of people buy from -- just buying more of it?

Well, look I think you have to -- I don’t think we have the exact breakout of how many people. So you have to understand there is a certain rule of the industry don’t know, because one person maybe buying from more than one person. But that being said, I think our team is executing -- and they continue -- always been very good at executing and they continue to get -- they just get better and better at driving sales than using techniques to drive sales. So, they’re able to do that. Also with the ancillary food and beverages, the new food and beverage options that we’re putting in, we know that that’s -- that gives us greater bandwidth and attracts more people. But I can tell you specifically that we’re selling more to more people, I bet I can't tell you exactly.

We do know that anecdotally you see customers, now that we -- for example, the Take Five Lounges you’ll see someone who maybe had popcorns and soda or something like that during the movie, then stop off afterwards and go to the Take Five. So there you’re getting a greater share of wallet in those situations. And so, there’s no question those ancillary outlets that we have are contributing in that way.

No, thank you. And then secondly on the hotel resort side, you mentioned you're evaluating your number of proposals or your options to monetize some of those assets. How would you characterize that? Is that more of a kind of a proactive effort on your parts or more reactive? Are you actively kind of going out there looking to possibly shop some of those assets and see what the demand is, is it more kind of reacting to potential incoming bids that come your way?

I would say that nobody just rolls -- nobody is rolling around throwing bids in over the transom, so I would tell you it’s active.

Perfect. Thank you, guys.

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

Good morning, gentlemen.

Hi, how are you?

Doing well, thank you. I had a few kind of following up on some of those. Let's just start with hotels since that's where the last question ended. Can you give us the RevPAR number for the quarter, including Chicago, just to help us with modeling?

Sure, I’ll be happy to do that. Let me just grab that here for you. For the quarter, we’re up 1.8%, year-to-date we’re up 4.6%. So you can see, it’s more pronounced -- the difference between the numbers I provided and those it’s more pronounced in the quarter clearly, in the winter months in Chicago without a brand under construction.

And that would have been both, occupancy and rate impact from Chicago, but more occupancy?

It would be both.

Okay. On Milwaukee, it doesn’t, you are still getting occupancy gains. And Greg, I heard you about the fourth quarter expectation that one hotel will -- you didn't say Milwaukee, but one hotel will have a tough comp just because of something that doesn't recur. But it doesn't look like supply is particularly hurting your ability to fill those rooms in the Milwaukee market. Any thoughts on that or on the outlook over the next several quarters with the supply growth slowing but still more coming on in the future?

A few things. I’ll start with a reminder about a lyric, money can't buy you love, but in Milwaukee it can. I think if you look at the Milwaukee market what you’d see is that, we have been very aggressive to keep rooms filled and we do that with rate, so we’re buying the love there. But it’s a better successful strategy for us too. And when you look at, again I’ve talked about this on prior calls, when you look at the Milwaukee market you see what's going on with supply, the market -- well this market is not keeping up with the national markets at all as a whole. The new property seemed to be doing well. Our properties are doing well because we’ve invested and we’ve -- as we always have. The properties in the market, I call them the legacy properties, they are not doing this well. And that’s the dynamics and so but -- so it’s a competitive market.

So, you’re holding market share and at some -- and that’s hurting your ability to raise rates, but you’re still holding market share and maybe even gaining a little bit. Is that a good summary?

Yes, I’d say we’re probably -- yeah, I’d say we’re holding market share.

Okay. That’s great. On the theater side and I know you talked a little bit about this. But I guess as you're looking ahead, the summer lineup looks really strong, the fourth quarter maybe a little tougher comparisons from last year. But I guess I'm wondering if you can give us an idea about how the trade-off sort of teases out with the loyalty program really kicking in better food and beverage versus film lineup. Do you think you're getting essentially same store growth all things equal, like film lineup not being a factor from all of this and can that continue as you continue to lap -- now that you have a million members for example as you continue to lap the rollout of that program and some of the other discounting programs?

Well, we have a really smart team of people, not [indiscernible] thinking about that exact question every single day, and they seem to be pretty good at it. Look, obviously it becomes more challenging, that’s -- I’m not going to tell you its not, but I have a lot of confidence in their abilities. These have been -- we continue to look for new ways to innovate and be innovative with the industry and to take advantage, and some of these things will build on themselves. If you think about it to the extent David, loyalty -- the loyalty program, that’s something that just as we said it sort of ads infancy and where that does go and what does that drive? That’s just starting really, how we can monetize that. And I think what you -- I hope and I think what you’ll see as we move forward is that, it’s not just one thing, its not just $5 Tuesday, its not just DreamLounge, its not just loyalty. We just keep executing on putting a number of strategies in place and continuing to drive our performance, but it will get more challenging, that’s -- you’re accurate

And do those smart people have a way to quantify that the impact of lets just say this last couple of 100,000 new loyalty members on attendance?

Yes, they do have some ways, and I will tell you that competitively I’m not necessarily going to share everything in terms of how some of these things have -- I’m not going to give you numbers for example.

Totally fair.

But look, don’t -- I agree with Greg in terms of just scraping the surface on some of these things, because ask your cohorts in crime that, that live here in this market and they’ll tell you that their seeing things for a ladies night series on Monday nights where we’re bringing back different films. Well we have never -- how could we ever promote that in the past. Now all of a sudden we’ve got a list of people that we can contact and talk to, and so I think we’re really kind of scraping the surface of ways to take to the non-peak times and promote into it or if we see a certain time period where we think a particular genre might be missing in the film lineup that’s being produced by Hollywood. We can in turn say, all right we’re missing that genre or missing that family film, lets come up with something that we can show, and then now we’ve got a way to promote it. That’s very interesting.

And I think and what Doug is alluding to David, and we can't model it. We can't tell you exactly what it means yet. But I know that it’s going to be an advantage for us, and that is, it’s this ability -- the thing that we have never had in our business before. We had this anonymous customer base wandering into our theaters, and for the most part we couldn’t tell you who they were. We couldn’t talk to them. And so whether it’s marketing for off times and marketing at specialty series or how about -- and we’re just starting to see ideas. Hey we haven’t seen you in a while, where have you been? A little email to somebody to say, we know things you like. We know you like action movies. So you might want to check out Fast & Furious 7, maybe we send something out in its third week to try and drive all the business to people we haven’t seen before. I mean in the past it wouldn’t have about as effective as me just walking up the street and knocking on random peoples doors, because we wouldn’t know who to talk to. But now we can be much more tactical about it. Now what does that mean? I don’t know, but I got to [indiscernible] have positive impact on us.

It is a little spooky though, Greg. Telling me what movies they like.

That was a evil laugh. I still get a little freaked out every time I drive by Walgreen’s and my smartphone buzzes and tells me I’m near Walgreen’s and so yes, so I’m with you.

Yes. But, yes my team actually does get those emails, and we haven’t talked about that. But Greg, one implication of that then, if you've got -- you found these ways to drive more value that must make theater acquisitions more interesting. Because now you have these methods of driving cash flow with loyalty with improved food and beverage, etc. Does that change your view on the way you look at the value you can create in acquisitions or in your appetite for those acquisitions?

Yes.

We agree with your thesis.

Yes.

Yes, I mean -- David what its, again its -- if you think about all the things that we’re doing and where might those have applications other places that, that content didn’t last on us.

Got it, okay. Well let’s just move on then. On The Corners, can you just give us a little more on the terms of that? So you've retained the 10% interest, that part I caught. It sounds like you have not received any capital back yet for this, but it sounds like there are some hurdles that as you hit you will receive them. But do you have any kind of promote or preferred return and what's your share of the cash flow? Is that 10% of the cash flow once it's open?

,:

So any thoughts on timing for that exit? I guess, value realization is going to come in stages as you first recover expenses and then get a profit. But ultimate exit is at years down the road or could it be sooner if you want it?

It could -- I mean that depends, again a variety of factors. It could be within a reasonable timeframe after opening but it doesn’t have to be. It can go there’s a potential for it to be as early as the year after it opens and, but it also could under a variety of different conditions continue for a while. So it really is -- it really is not determined at this point in time. When that happens, obviously we’ve got -- we carry it over basis in our land, so we’ve going to have a pretty low basis in this investment and -- so there’s certainly some upside on our backend I just can't give you a date. I can't tell you when it’s going to be.

Sure.

But I think overall its -- and it goes back to -- at the end of the day it’s really a pretty small thing. In fact its gotten way -- as it relates to our other business a little too much attention probably in terms of -- I feel like it’s a little bit more magnified than it really is. I don’t think you’re going to hear like a big huge number when it is all said and done. And so it’s …

Yes, but still it’s -- you created value from excess land. So there is value that has been created and will continue to be as you continue to build this. So its -- that maybe hard for us to quantify, but it sounds like it’s still meaningful.

I’m not sure I even, I’d say look, you got to go back and look at it in terms of when we started doing this thing, and it was when there was nothing else to do in the world we were -- because we didn’t, because the world was upside down when we started this project. And so our attention has gotten, has been now, really much more focused on our -- because we have so many more opportunities in our core businesses. And so its -- it was nice to create some value, but for us we looked and said, well look lets -- it was almost little bit of R&D too.

Yes, okay. It’s very helpful. Thank you for your candor on all of this.

Your next question comes from the line of Jim Goss with Barrington Research. Please proceed.

Thanks. In terms of capital allocation, you’re down the path of seeking out management contracts and owning, and having less investment in land in the hotel area. Are you -- are there certain types of properties that you probably would want to maintain ownership of and in the theatrical space you attended own versus lease more so relative to the industry. Is there going to be any shift in that side of the business as well?

Well there are hotels that we have very long-term views on and consider as very good investments, and we’ll make the right decision at the appropriate time, and I can't make any statement on that. The theaters, you asked a very interesting question and that is, what would -- I mean I don’t see us going out right this minute, sale leaseback on our portfolio or anything like that. But we’re going to grow and that idea is our minds. We’re going to -- now our preference is going to be to own real estate, but we’re going to have to -- if we’re going to lease we’ll have to look at some -- we’re going to have to look at those opportunities and we’ve taken leases on in the past, so it wouldn’t be the first time.

Okay. And you talked earlier, I think it's time you made a transition in management in the theatrical sector, talked about perhaps having acquisitions outside of your current geographic area. Are you going any further along those lines or is that just examine the properties and see how it takes you?

Jim, I think that we have the ability to go outside of our geographical area. We won't -- as we look at opportunities we won't limit ourselves to something that has to be -- it won't be a requirement, it has be contiguous to our existing geographic base.

I think the most fundamental change, if you think about the movie theater business, the most fundamental change that would allow, that makes that so much easier has been interestingly and up the internet, because you know in -- back when I started the business that sounded sort of below. We had to advertise in the newspaper to get our movie times out. And if you could have a significant presence in a market you could own the page of a newspaper and that was very powerful, but that doesn’t exist anymore. And so with the interest and our ability to advertise the ability to be in a market and not necessarily have to have market dominance is much more feasible. So it allows us to make, to do things differently we might have done in the past.

Okay and just a couple of other quicker things. Do you have an ultimate mix of receipts -- you're not necessarily targeting 100% of your space, are you? And what would determine how far you go down that path?

You’re talking between hotels and theaters?

No, just the receipts within the theaters. That trend you're over 30% you said in the coming year, and you have that trend going on. But some of the other ones who are doing it, notably AMC says, there are certain ones they wouldn't reseat. Do you have that sort of notion too, and how far do you go with that program?

I’m little more open minded as to where it might go, I don’t know. I know this. There is no better way to see a movie. I mean it’s a great way to see a movie, it really is. So, to the extent that we can give more people the opportunity. So, for example; if we take an UltraScreen and do the UltraScreen DLX which stands for DreamLounger experience. Where you have that opportunity, we’re going to be looking for opportunities to give people that kind of experience. And who knows -- maybe we’ll -- one thing that you see and we know that the other people in the theater space have done the same thing is that, they’re starting to collect a bit of a premium for theaters like that. Its not screen but it’s a premium for that kind of seating. Now will that pay for it? I don’t know. One thing about us is we’re able to look at lots of different markets and we’ve tried some different experiments to see where different things, how it works and whether its not just shares here. And the results are interesting, but we don’t know where it’s all going.

Okay. And with the -- and the last thing, with the rewards program, to some extent I think that's a good point that you have better communications and promotion capability. To the extent that you also wind up concentrating on that group that tends to go to your theaters the most, and you provide discounts and that sort of thing, you may also be discounting items you would've sold at full price anyway. I'm just wondering how that balances out, what the economic implications are that will reward program and what are the highlights that you’re offering with that program?

Look, you hit the -- that’s the nail on the head question, Jim. It is that, are you discounting to people who normally pay full price. And if you look at this just as a discount program then absolutely that is probably not a great trade. But we firmly believe that having that insight into our customers is going to be able to drive frequency. And on top of that, who knows whether marketing opportunities there are, for when we know -- we have a very valuable database. Now we can't abuse it but we have a valuable database. We know a lot about people. I could tell, I know who’s got kids, because I know who’s going to the kid movies. Now, so that might be very important to somebody else. So I think that there are opportunities for this program. It is just a discount program, you’re absolutely right. That economics wouldn’t pan out, but with that -- and that’s why we’re very focused. I’m looking at all the ways we can to monetize the million members that we have so far and further.

All right. Thanks very much.

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

Yes, good morning, guys. The value Tuesday, Greg, you talked about year-over-year the anniversary was still up positive. Was that just the admission tickets or does that include concessions also?

Well that includes both. I mean the fact is that we had more people on Tuesday nights than we had than Tuesday night for some of the same three month period last year, so that’s a clear comparison. I’ll remind you in the concession side that when we first rolled this out in November last year that the free popcorn was available to everybody. And then when we rolled out the Magical Movie rewards program on March 31, we adapted the program and at that point it was only available, the free popcorn was only available rewards members. So there is a little bit of disconnect on a year-over-year basis there because this time last year we’re still giving it to everybody.

Okay. That $5.00 value Tuesday guy or girl, are you getting any sense that you’re creating greater concession penetration with them or is that still cheap guy?

Yes and yes.

Do you go on Tuesday nights? Brian, I’m just curious.

No. I have yet to go, but I’m just curious -- I just would.

That’s one of -- you’re right, we are seeing better penetration. We also see opportunity to get even better penetration. The one thing that frankly that didn’t surprise everybody was -- we all knew, we’re all confident this will be a successful program. But the amount of people we are driving to the theaters is really impressive. But servicing those people is not easy and so as we start to adapt and modify our ways of doing business, we think there’s more opportunity. So it’s gone up as we, as Doug said. We took away the popcorn -- we took away free popcorn everybody that obviously drove some increases right in and off itself. We continue to -- we continuously improve, so we’ve got better at selling the things. And then on top of that we’ve got opportunity to get even better because we think we’re leaving more money on the table.

Yes. Okay -- okay. If we go to the other side of the spectrum and you look at the guy or the family that goes with the up charge for the Dolby Atmos, the UltraScreen, the DreamLounger, does that at all impair concession sales for that guy or that family? Will the higher ticket price?

We haven’t seen some, any data that would suggest that Brian. That’s a tough statistic to try to get at because that same customer is mixed in with everyone else and so it’s difficult to get at that statistic. But I wouldn’t say that we’ve seen anything that screams at to us.

I think, and that goes to a whole -- that goes for our whole strategy of -- really we got this from the hotel side which is the yield management strategy, the right customer at the right time at the right price. So you’re right, it’s a different customer on Tuesday. So there is some overlap. Tuesdays don’t drive some weekend business; our frequency program shows us that. But that [indiscernible] customer is more likely [indiscernible] customer and so they can also afford the concessions.

Yes, okay. Okay. Good answer. If you looked at the -- question on the receding as you roll out, you talked a little bit about your mix going forward, on the DreamLounger seating. I think I caught that you still have seven UltraScreens that are traditional, don’t have that. Would it be a decent assumption to say that at some point those would be filled up with DreamLoungers?

Not necessarily Brian, because that goes to actually Jim’s question earlier, which is how far can you take it, because seat count does matter in some circumstances. And so it becomes truly a math exercise, because as you know we loose about half of the seats when you put DreamLoungers in. And so there are -- let’s say that today there are locations of those seven; I’m thinking of that, it would be difficult to loose half your seats.

Okay. All right. Good. Thanks. Let me ask Wall Street Journal talk. You guys now with the magical awards over million guys, congratulations on that. Wall Street Journal had an article talking about some waning demand and movie going between 18 and 39 year olds. Obviously, your numbers being so strong, are you seeing any demographic changes as you guys start mining data on the rewards card program that shows ships amongst age groups?

I think its very hard for us. And I also think that its very dangerous that the industry -- no, not the industry, pundits have a tendency to look at the last years segment of data and make a decision that what was sometimes just a cyclical change is secular. We can’t ignore it and we have to watch it and we can’t say well, that data doesn’t exist. But so much depends on what kind of product was out at the time compared to the year before, you may wake up with all these -- with the huge amount of sort of built in fanboy kind of movies that we have coming out over the next few months and say, gee oh they’re all back or not. I don’t know. Demographically the rule is shifting too. I mean, the rule is getting bit older, so we will -- and the studios are cognizant to that and we’re also be confident. So I won’t ignore the data, but I will be very careful not to let one year’s data over two year’s data to drive me.

Greg explain. Think about a couple of what are expected to be -- maybe the two top movies in calendar 2015, The Avengers and Star Wars, probably go right -- probably pretty -- aim pretty directly at that demographic. So we will have to see what happens.

Yes, okay. You guys talked a little bit about the top five box office movies for the third quarter. Any comment on the depth, say movies 6 through 20 for 2015 versus ’14?

For this quarter that is completed?

Yes, the quarter completed. I’m just talking about the kind of the whole line up, just were stop by [indiscernible]/

I will just go back to Greg’s prepared remarks, in that look they performed -- that group performed better than they did last year and again I think it goes to this dynamic that we’re seeing where because I think we’re driving frequency that second tier of movies is benefiting as a result of that. And so this is a -- this is several quarters in a row now where the blockbusters as a percentage of our total has been less than it was the prior year and I think that’s -- its more than just a product issue. It’s the fact that we’re just driving frequency.

There is another interesting dynamic.

Okay.

The another thing that can drive that’s more [indiscernible] is with -- when we do DreamLoungers and we take half the seats out, we drive a lot more sellouts [ph] and so now someone goes on, we’re able to I think there is going to -- there is some shifting where someone goes and looks for the first choice movie on sold out and they say, I sort of in that mindset of going out and they then slide into a second choice, because they get some capacity out. So I think -- at all of our [indiscernible] and the margin that helps.

Brian we have another caller yet waiting. Do you have any other questions?

Yes, just let me ask from a standpoint, I think you guys had a $975,000 spend in the winter, polar vortex winter 2014. It much reduced this quarter in either [indiscernible]?

Yes, certainly reduced and that spend you’re talking about was over both the third and fourth quarters. If you remember, last year March was unbelievable and so -- and the heating costs went through the roof in March and early April. So we will still -- we will get some of that year-over-year benefit in the fourth quarter as well, but certainly its not plowing was an advantage for us year-over-year this year.

Okay. And one more, seasonally the averse of polar vortex, if you have a hot blistering summer, is there a drive to go in an air condition movie? Does that all have any seasonal impact for the summer or is it all about film slate?

No, no.

It’s all about film slate and then weather helps.

Yes.

Okay.

The rain and heat is good for us in the summer, no question about it. Thank you, Brian.

[Operator Instructions] Your next question comes from the line of Mike Hickey with The Benchmark Company. Please proceed.

Hey, Greg and Doug. Awesome quarter, guys.

Thanks, Mike.

Congrats to you and your team. You stock is hitting a five year high here, very impressive. Thanks for taking my questions. I promise to have hopefully a few less than 10 [multiple speakers]. I will try to be quick.

We always love to save you for last, Mike. If [indiscernible].

Operating on the fringe here, I love it. So guys, we have a fairly transparent view, I think, of what the top five networks are doing as it relates to client initiatives. I guess we are more curious if you could provide some insight to what you're seeing from the smaller private networks, particularly networks within your geographic reach as it relates to recliner, initiatives and perhaps enhanced food and beverage concessions at wholesale, that sort of thing.

We are not seeing too much yet. I mean, but I think -- but they will start to do it, I mean, we sort of wonder that’s what the opportunity is going to be in terms of if we think about growth where people want to put the capital in that takes to do that kind of thing. And they were always talking about the growth opportunities with digital, but digital studios ended up paying for it. I don’t know partially because remember we think about it for the most part, we got regional operators in most of our markets, we’re the regional operator. So we’re not really exposed to many of the smaller guys. We got the bigger guys in our markets, but not the smaller guys.

Okay. Fair enough. The graph is well on the million plus moviegoers on your loyalty program. Curious how you guys are thinking about maybe leveraging that -- your loyalty patrons to online ticket sales?

Say that again Mike.

We are sort of curious how you guys are thinking about leveraging your loyalty patrons for online ticket sales?

If you’re a loyalty patron, you don’t have the service charge for online ticket sales. So yes -- so actually it is driving -- I don’t have statistics to spout out for you, but I think it is driving more people to online ticket sales, because there is no longer service charge if you’re rewards member.

Okay.

And that we view that as a positive development.

Forgive me if I’m wrong on this, but do you guys currently have an internalized online ticket sale program or are you using all third-party still?

We utilize -- we don’t run the online ticket ourselves. It’s external.

Okay, fair enough. And on the M&A landscape, sort of wondering if you’d consider potentially buying a theatrical network, maybe a portion of that network that is larger in scale than yours currently?

I don’t know what you’re talking about Mike? You know what, the DOJ has been pretty -- but looking at this industry closely and in previous situations has been pretty strict about this. So I suppose you’re right that if there was a transaction, it could be some opportunities. We think that -- I mean, on a broader scale, not trying to be as specific as I think you’re implying, the -- we think it’s an advantage for us that we don’t have the conflicts that others might have. And so that’s I think the more important point. The earlier question about looking and going outside our geographics and looking at other areas, well we’ve got an advantage in that regard is that if we do take a look at anything, we wont have a conflict and so we won’t be -- I’m going to turn your question around the other direction, but we wont necessarily have those types of issues ourselves.

But I would tell you that all that being said, one thing that’s going to be true about whatever we do is we did -- as we’ve always been disciplined about it and we’re going to be looking for quality and opportunity for improvement. We are not just going to grow for growth sake. We want to grow and we want to create opportunity, but we want to be able to deploy capital and utilize the skills that we’ve got and frankly the years and years of investments we’ve made in the programs that we’re rolling out now, because it just didn’t happened overnight. And then -- but we want to do with quality stuff.

Fair enough guys, thank you. As always, best of luck to you guys.

Thank you, Mike.

Thank you. At this time, it appears there are no questions. I’d like to turn the call back to Mr. Neis for any additional or closing remarks. End of Q&A

Well, thanks everybody for joining us again this -- for this call. We look forward to talking to you once again this time it will be couple of extra months, it will be in July when we release our fourth quarter and our year-end fiscal 2015 results. Until then, thank you and have a great day.