The Marcus Corporation (MCS) Q1 2016 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Marcus Corporation First Quarter Earnings Conference Call. My name is Chris and I will be your operator for today. At this time, all participants are in a 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 turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you and welcome everybody to our fiscal 2016 first quarter conference call. As usual, you know I need to begin by stating that we plan on making a number of forward-looking statements on our call today. The 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 & 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 the 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 can 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 our Regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2016 first quarter. I'm sure by now you would have -- you’ve read the word record multiple times in our press release, it was a very good quarter for us. Obviously, we had a much improved film slate compared to last summer, but once again we took it several steps further reporting our seventh straight quarter where our theatre division significantly outperformed the industry, and improvements from our hotels and resorts division contributed to our great results this quarter as well. I'm going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division and then turn the call over to Greg for this comments. Now before I dig into each division, I usually spend a few minutes on each line item below operating income, but as you can see, other than a very small gain and disposition related to our former theatre property, we had virtually no change in any of the four applicable line items during the first quarter. So, I will save some time and skip that step this time. Our first quarter effective income tax rate adjusted for losses from non-controlling interest was 38.5% compared to 39.1% last year, slightly lower than last year but still generally right in our historical range. Shifting gears away from the earning statement for a moment, our total capital expenditures during the first quarter of fiscal 2016 totaled nearly $14 million compared to approximately $13 million last year, approximately $9 million of this amount was incurred in our theatre division, the majority of which related to the completion of multiple projects previously discussed as part of last year's $50 million investment in new and existing theatres. At this early stage of our fiscal year, I have no reason to make any major adjustments to our [Technical Difficulty] capital expenditures for 2016 of an amount in the $70 million to $90 million range, recognizing that as we pointed out in our recent 10-K filing, the timing of several of our planned expenditures are still just estimates this time. We are still finalizing the scope and timing of many of the various requested projects by our two divisions, and we anticipate proceeding with many of these projects as the year unfolds. I will say that if we let history be our guide, some of these projects could carry over to the next fiscal year, and if that occurred, it would be more likely that we would spend to the lower end of the projected range. 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 our fiscal year. Now I would like to provide some financial comments on our operations for the first quarter beginning with theatres. As our press release indicates, our box office revenues increased 16.6% and our concession revenues increased an outstanding 27.5% during the first quarter, another great quarter for this division, and as our press release also notes, based upon US box office numbers compiled by us using data from Rentrak, the national box office reporting service for the theatre industry, we once again significantly outperformed the national numbers this quarter by a full 6.5 percentage points. The first quarter increase in box office is attributable to an increase in attendance at our comparable theatres of 12.8% and increase in our average admission price of 3.5% for the first quarter. Now the fact that we have increased our number of premium large format screens, with a corresponding price premium certainly contributed to our increased average price this quarter, as the top blockbusters performed very well in these screens. In addition, even though only seven of our top 15 films were available on 3D compared to nine of 15 last summer, the percentage of our total box office revenues attributable to 3D presentations increased during the fiscal 2016 first quarter, thanks primarily to a higher than average 3D performance from our top summer film Jurassic World, this would also have contributed to our higher average ticket price. We were also very pleased to report an increase in our average concessions/food and beverage revenues per person of 13.1% for the first quarter. Our film mix can have some impact on this metric as last summer's summer film slate was noticeably lacking in family films, a genre that typically produces higher concession per capitas while this year two of our top three films were family films Inside Out and Minions. Having said that, clearly our investments in non-traditional food and beverage outlets are contributing to this outstanding performance. The last three consecutive quarters, our average concession revenues per person have increased 11%, 9%, and now 13%. Lastly, it did not impact our first quarter results. In fact, it had little or no impact in our future operating results, but if you're looking closely, you may have noticed at the end of our press release that our circuit size has now listed as 675 screens at 54 locations. That's because after Labor Day, we closed a six-screen budget theatre. Now shifting over to our hotels and resorts division, as we noted in our release, our overall hotel revenues were up 5.6% for the first quarter. If you eliminate the new policy of grossing up service fees into food and beverage revenues that I’ve described previously, revenues were up just under 3% compared to last year. I'll remind you that we converted to this new policy with the year-to-date adjustment during the second quarter last year. I also want to point out that this new policy of grossing up service fees has the additional impact of reducing our reported operating margin from this division. On the surface, it appears our hotel division’s operating margin declined slightly during the quarter compared to last year, but if not for the new policy our reported operating margin would have actually increased from 17.7% to 18% during our fiscal 2016 first quarter. As noted in our release, our total RevPAR for nine comparable properties was actually down slightly during the fiscal 2016 first quarter compared to the same period last year. And as we’ve noted in the past, our RevPAR performance did vary by market and type of property, and Greg will talk to this during his prepared remarks. Breaking out our numbers more specifically, our fiscal 2016 first quarter overall RevPAR decrease was due to an overall occupancy rate decrease of 2.6 percentage points, partially offset by a 3.2% increase in our average daily rate, and according to data received from Smith Travel Research and complied by us in order to compare our fiscal quarter results, comparable upper upscale hotels throughout the United States experienced increase in RevPAR of 2.7% during our fiscal 2016 first quarter. Finally, I want to reiterate from our press release that for one more quarter, our new Chicago hotel did have a small negative year-over-year impact in our operating income comparisons. Now I want to be clear, we are actually very pleased with the guest response to the new hotel, but initial preopening and start-up costs that I would quantify in the $300,000 range typically – pretty typical with the introduction of a new hotel in our marketplace were included in our reported results. We’ll start to have more favorable comparisons for this hotel late in our second quarter and then as you probably recall, this hotel had a significant negative impact on our reported results during our fiscal third and fourth quarters of last year. With that, I'll now turn the call over to Greg.

Thanks, Doug. I will begin my remarks today with our theatre division. We're obviously thrilled to be reporting another record quarter for this division, once again significantly outperforming the industry. I must admit that putting my prepared remarks together has been pretty easy lately as I keep on saying the same thing. Clearly, the investments we're making in our theatres are making a difference and when you combine those investments with our innovative marketing and pricing initiatives, along with our loyalty program that is now up to over 1.25 million members and counting, the result is record-breaking performance for our theatres. And while there is no question that our DreamLounger recliner seat locations have been key contributors to these great results. We currently offer this amenity in 30% of our first-run screens. I will tell you that during the first quarter, nearly 60% of our company-owned first-run theatres outperformed the national box office. Part of that is because 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, even after adjusting for the national box office increases resulting from the improved film slate, combine that with all the other amenities we've been adding and you have a recipe for success. Typical for summer movie season, our box office revenues were heavily dependent upon so-called blockbuster films, even more so than usual during our fiscal 2016 first quarter. As evidence of this, I will note the top-five films listed in our press release accounted for approximately 50% of our total box office revenues this quarter. Last year, our top-five first quarter films only accounted for 36% of total box office revenues. In fact, our top three films, Jurassic World, Inside Out, and Minions all performed better than our number one film last summer. There is, however, a consequence to this particular dynamic. As you’d probably know, generally the better a particular film does, the higher our film rental cost tend to be as a percentage of revenue. So film slate heavily weighted towards blockbusters tend to put pressure on operating margins. Because after all, while it all starts with attendance and box office revenues, it is still up to our operating team to convert these revenue increases to increased operating income and that is why I am particularly pleased with our 21.6% increase in operating income this quarter. Despite higher fixed costs, because of our recent investments, increased operating costs as we service significantly more customers than in the past, and the higher film costs that inevitably resulted from this quarter’s film mix, our team was able to increase our operating margin this quarter. I think that’s a tremendous accomplishment that our entire operating team should be very proud of. As we look ahead, we are excited to continue to invest in both new and existing theaters during fiscal 2016 as we further expand successful concepts and amenities or industry outperformance. On our conference call in late July, we shared with you detail on how we may spend as much as $50 million to $65 million in this division during fiscal 2016. So I won’t reiterate those plans again today. Suffice it say that we continue to see opportunities to grow revenues and we are actively executing on the various strategies we have previously laid out for you. And while our stated goal is to continue to outperform the national box office regardless of how the films do compared to the prior year, I must tell you that on paper, the remaining film slate for calendar 2015 looks very good. We’ve listed some of the movies scheduled to be released during our fiscal 2015 second quarter in our press release, and of course, we are all looking forward to the next Star Wars film in December. I know our team is ready for whatever comes their way, it should be fun. With that, let’s move on to our other division, hotels and resorts. You’ve seen the segment numbers, and Doug gave you some additional detail. After several quarters of reduced operating income due in part to disruption of our Chicago property, it was nice to get back to a solid increase in operating results from this division. In fact, as noted, it was a record quarter for us and as noted in our press release and further included in Doug’s comments, our results would have been even better if not for upfront pre-opening and start-up costs we incurred with the new AC Chicago Hotel, pretty typical for a new hotel like this. It was unusual quarter, and that we reported a small decline in RevPAR, yet an overall increase in our operating income, not necessarily a combination you would expect to see, but there is a logical explanation for it. I’ll start with the revenue side of the equation and specifically the group business segment of our customer base. As you know, our hotels in general have a fairly strong alliance on group business and a couple of our hotels specifically even more than normal. Our overall decline in our occupancy rate for the quarter that Doug referenced earlier was primarily the result of reduced group business in a couple of our hotels, particularly during the first half of the summer. I will tell you right away that we believe this was not the result of any particular trend we are seeing overall, but more function of a particular point of time where there was just less group available, group business available in our markets. The reason why I can make that statement with some confidence is the two of the hotels that were impacted by this particular quarter were the same two hotels that actually showed the highest increase this quarter in group room revenue bookings for future periods, something we’d call group pace. During this past quarter, as a result of the reduced group business, these same two hotels were the only hotels in our portfolio to increase to experience in our average daily rate or ADR. That actually make sense as we aim to be more aggressive with our pricing to make up for the lost occupancy from group business. Increased supply in a couple of our markets also had some impact on occupancy this past quarter, but reduced group business appears to be the main reason for our overall decline. While this helps explain why our relatively small portfolio of company-owned hotels had a slight increase in room revenues -- I am sorry, a slight decrease in room revenues, it doesn’t explain why operating income actually increased. For that, I’ll point to three primary reasons. The first of which surprising enough, again relates to group business. I don’t usually single out hotels, but in this case, I’ll share with you that at Grand Geneva Resort & Spa, we made the conscious decision this quarter to focus on growing total hotel revenues through more group bookings with a higher ancillary spend, i.e. sacrificing some room revenue dollars for a higher total spend throughout the resort. Even after adjusting our reported food and beverage revenues this quarter for our new policy of grossing up service fees, our overall food and beverage revenues were up nearly 5% this quarter and I will tell you that a key portion of that increase was the result of our bookings strategy at the Grand Geneva. So at this particular property, RevPAR may have been down slightly, but our overall profitability was up. A second reason for our increased operating income comes from something we have been talking about for some time, desire to increase our ADR. For those of you who followed this industry, you know that properly managed, increasing ADR, even at the expense of some occupancy can result in better operating margins. In fact, when you think about our recent repositioning of our Chicago Hotel, the key to our future success of that property will be in doing just that. I think you saw some of the strategy pay dividend this quarter for our entire portfolio, not just at our Chicago Hotel. And finally, you’ll note that the key words in that last comment were properly managed. Just like I said in my theater remarks, it is still ultimately incumbent upon our management teams to not only execute good revenue management strategies, which control costs in the process. That has been a key focus of our COO and his operations management team and they did a very nice job of that during this quarter. They are to be commended. Looking ahead, as I mentioned earlier, overall our owned hotels had a very strong booking period for future business during our first quarter. We currently expect to get back to reporting RevPAR increases more in line what is happening nationally and in our markets. The AC Chicago while still ramping up has shown good progress in booking activity and it goes without saying that we will have particularly easier comps for that hotel starting in November, coinciding with when we began our renovation and had our then existing flag removed. We’re certainly keeping an eye on hotel supply in our markets and the macroeconomic factors that impact our industry, but in the near-term, we’re looking for continued improvement from this division. We are still pursuing a number of additional potential growth opportunities with a particular focus on management contracts, possibly with some sliver equity at times. While we are still reviewing opportunities to sell one or more owned hotels, it is important to say it again for the record that our overall goal is to increase, not decrease our management company business. It could be that more of our properties in the future are being managed for other owners besides ourselves but that really is a corporate asset allocation strategy, not a divisional strategy. In that vein, as our press release notes, we currently expect to close on our previously announced sale of the Hotel Phillips by the end of the month. I will tell you that this hotel has historically been the smallest of our company-owned properties, both in revenues and operating income. So, while we haven’t disclosed the sale price yet, you certainly can assume, there is quite a bit smaller than what you might expect the implied value of other larger more profitable hotels might be. You will find the assets held-for-sale related to this hotel noted on our balance sheet. With that, at this time, Doug and I’d be happy to open the call up for any questions you might have.

Thank you. [Operator Instructions] First question comes from the line of Jim Goss with Barrington Research. You may proceed.

Thanks. Wondering, following up on the film rental margin comment you had made, essentially you have a different sort of overlap vis-à-vis the rest of the industry in terms of the timing of films. Do you have any expectations you’d like to share in terms of the new quarter, vis-à-vis the last quarter? Will you have the same pressure on margins or do you think with some of the big films in the current quarter or do you think it will be a little less pressure?

So, Jim, just to clarify, you’re talking about our upcoming second quarter, just wanted to clear about the question?

Yes. The second quarter versus the first quarter, where you saw some of the same pressures on film rental costs and margins that the rest of the industry had, but your --the match up vis-à-vis the films is a little bit different. You had a 10.1% industry comp that you exceeded and that’s the environment for your film rental margin issue. I’m just wondering how you’re seeing the current quarter in that regard.

Jim, I can’t tell you that I know what’s going to happen. My crystal ball, I don’t know. I don’t have any particular reason to think that it’s going to be as hit laden as the summer was and it is concentrated as the summer was, but you never know all these things, but I don’t think in this quarter, we’re going to see as much of that but I just don’t know. I will say that regardless, kudos to our team, they’ve worked hard to manage our film costs and well yes, ours are up. I would say that we are not leading the industry enough.

Okay. Also, you had the seventh consecutive quarter of above industry gains, which I think you’re running out of strength a little beyond what I think even you seem to be expecting. Do you have a lot of emphasis for continuing outperformance or do you think that gain -- relative gain might narrow little bit coming up?

Well Jim, I’m not going to give you a number, but absolutely I’ll tell you that our team and to the extent they’re listening in right now, they’re shaking their heads right now saying yes, we’re going to continue to outperform, that’s their goal, that’s what they intend to do, and look we’ve made quite a few investments in the last fiscal year including a brand new theater, right that and so we’ve got -- we didn’t make those investments with an expectation of not getting a return on that. We expect to get a return. So, I certainly see no reason why they can’t continue to outperform, that’s their goal, 6.5 points this time is a little bit less than what it was at the – couple of earlier quarters, but it’s still very significant.

It’s exceptional actually. Maybe -- and just a couple of quick things on the hotel side, first with the AC conversion, do you have any other potential conversions anywhere in your palette of hotels that where such conversions might be made either under their brand or another similar type of brand?

In the next few years, there is only one where there is a license coming up that I can think of off the top of my head.

Okay.

And relating to our existing portfolio, Jim, so answering specifically to your question, there is maybe only one hotel that could potentially have a license change or brand change. Having said that, specifically to AC, I will tell you that we are, I mean, we are -- I think we’re the fourth AC [Technical Difficulty] in the country and part of our growth strategy could include looking for some other conversions elsewhere or other properties in the -- round out throughout the US. So I think the AC brand itself, we’re on the front end of that and so that could be a potential growth vehicle for us, but I’m not sure, you said conversion, that’s why I wanted to clarify. So...

Okay. And the last thing and I’ll move on, I might have brought this up for last call, but are there REIT partnerships you might be able to forge such that they’re taking the appropriate risk and you’re taking the management risk or is that something you’re continuing to pursue with the new efforts you’re making on the hotel side?

Yeah. REITs are natural partners for us, and in fact, the -- our Atlanta property is actually owned by a non-listed REIT. So yes, actually they’re natural for us and we will continue to pursue those opportunities.

Alright. Thanks so much.

Thanks, Jim.

Our next question comes from the line of Mike Hickey with The Benchmark Company. You may proceed.

Hey, guys. Great quarter. Just curious about in theater security, we’re seeing at least one of your competitors take extra measures to try to help provide a safe environment on the perception of a safe environment, curious your guys’ consideration on potentially taking actions on in-theater security. Thank you.

Yeah. Theater security is obviously of fair amount of importance to us and it’s something that we constantly review and are thoughtful about. As it relates to what our competitor did, we -- that was a policy that we had already had in place. We do not allow backpacks in our theaters and it’s -- for some reason, you can’t take it -- return it, we’ll have to search the backpack. So we had that policy in place already, but we constantly review our standards and our security situations and it’s our goal to make sure that we are at industry standard.

Okay. Fair enough. And the last one, I was hoping you could sort of update us on your installations ending Q1 for DreamLounger, your Big Screen Bistros, Take Fives, I didn’t know if there was any meaningful update to the quarter, I didn’t hear that in your prepared remarks or statement?

Yeah. Mike, while we’re finishing up some projects, the reality is that the summer is the time period when we try very hard to not have a lot of disruption going on at our theaters. So we spend most of this summer preparing for some of the next wave that we’ve talked about in our last call and it’s enlisted in our 10-K. So we actually have now -- we’ve got a couple of projects that are now underway and we have a little disruption, not so much that you will probably notice, but we’ve got I know the theater right now that has five auditoriums out of commission as we're working on it. So that’s kind of going on now and – but nothing dramatic in the first quarter other than finishing up the products that we had previously announced.

Okay, guys, thank you very much. Good luck.

Thanks, Mike

Our next question comes from the line of David Loeb with Baird. You may proceed.

Good morning, gentlemen.

Hey, David.

Hello. Just a couple. Greg, you alluded to supply in your markets that you watch that. Can you just give an update on what you're seeing and what impact it's having? Milwaukee clearly has had a lot, but are there other markets that have new supply coming that concern you?

David, I am concerned about everything, you know that. Look, we continue to see the same dynamic that we are seeing really and I can almost – it’s almost really in all of our markets. It’s like we call the ankle biters, now these sort of 100, the key limited service or full service that are – they are parading around, they are masquerading these full service hotels, but they have got very limited in their feature set. They come in, they are very efficient and they just add to pressure in the market. Nothing has been overly dramatic. But we feel them than we have felt them at times and I think that's – I don’t think it’s a dynamic that's unique to us.

Yes. And Milwaukee, is that feeling more stable these days or are you just feeling some of that impact from the ankle biters in that market.

I would say that Milwaukee has for us, I mean – again it can be little rocky, I think the Milwaukee compared to national has been muted overall. We know that. That's been going on for a long time and that's because I think of the increased supply. But for us we've been able to manage pretty well because as we’ve about on previous calls we have invested in our assets and we -- that's why we continue to win and outperform compared to our comps at general. Again, we will bump into times if Milwaukee slows down we feel it.

Yes. And then capital allocation more broadly, you have proceeds coming in from Kansas City. You have a lot of capacity for investment anyway on the balance sheet. What are your thoughts on the opportunity set out there and particularly relative to your cost of capital where do you see the most likelihood of finding investment opportunity?

It’s an interesting question. The most likely place that we are going to put significant capital, there is going to be capital, but we are going to put capital into our assets. I will start there. That’s for sure going to happen in both our divisions. We are going to put capital into our hotel division in terms of looking for management contracts we talk about, but that's really a smaller need for capital as it relates to the ability to add properties to the portfolio unless we saw again a great opportunity we're not going to, but that's not our focus right this second. Theatres is the most likely place to put big slugs of capital, but the opportunities in theatres are tough to predict. That is not as robust a trading market as the hotel trading market is. And especially you start to move down in size, they tend to be family-owned businesses and the families like the business. You said it’s – one of those businesses that day to day you don’t know where it’s going, but over time it’s a relatively stable business and it’s a nice business. And that’s appealing to people who have been in it a while because they can deal with the volatility.

In terms of the geographic focus of your theatre circuit, you’ve succeeded in markets that are fairly close to your home market. But I guess you’ve been looking nationally basically continuously. Do you think that you are more likely to find success in the mid-west or do you think that there could be opportunities in other regions as well?

We think there will be opportunities in other regions.

Okay, great. That’s all I had for today. Thanks.

Thanks, David.

[Operator Instructions] Our next question comes from the line of Brian Rafn with Morgan Dempsey. You may proceed.

Good morning, guys.

Hi, Brian.

Give me a sense, the elasticity of your Tuesday $5 guy or gal, your penetration into sales from food and beverage?

So clarify that for me, Brian.

Yeah, again, my question about the guy that’s sneaking in the jelly bean or the [indiscernible] for the $5 Tuesday, are you seeing more from the behavior of that customer as you have guys have done a great job, ticket sales in traffic, what – are you getting a little more penetration of food and beverage sales from a guy who is or maybe perhaps a little more elastic, little more value conscious on that Tuesday night?

Somewhat. You’re correct, that a Tuesday night customer does --to make a generality, it tends to be more value conscious than a Saturday night customer. But – and then you have to keep in mind again, we continue to operate free small popcorn to our loyalty club members and so that by definition will drive a lower per capita on a Tuesday night. Having said that, if you have been to one of our theaters on a Tuesday night, it’s pretty crazy. And so a key element for us on Tuesday night in order to maximize our concession in food and beverage revenues is, as you said, you actually alluded to it, managing people and getting people through lines and making sure there is a sign as stated in our show times and things along those lines just to be able to handle a large quantity of people. So our team does an excellent job with that and so…

But their focus – and exactly what Doug was talking about, and that is where the opportunity lies on Tuesday. The opportunity lies on getting more people to buy concessions because we have driven such big crowds into those theaters. And they are really focused on it, and I have no doubt they are going to be successful at it. But that’s not in getting the average person to spend a little more, there is some of that and we want more of that, but the real opportunity is getting more people to be able to spend.

Okay, I got you. I think that’s fair. Good way of putting it. You guys without making some predictions on movie slate, how do you guys see year-over-year the fall schedule coming out relative – I am thinking of the new James Bond movie and that, how do you see that – you guys I think looked at the summer as without the summer blockbuster and the family pictures last year in 2014. But you thought 2015 would be a pretty good slate. Do you have any sense of the fall slate versus fall of last year?

You know, Brian, it’s again – so now you’re going to – I am going to go ahead and answer your question any ways, but then you’re now asking me to – asking us to somehow look at crystal ball and suggest how art is going to perform. But as we said in the prepared remarks, on paper, we are excited. I mean, we think that the remaining slates for this fall, within our core ends on Thanksgiving Thursday, the slate looks very strong on paper, and there seems to be a fair amount of buzz for some of the pictures that are coming up, never mind November, the pictures that are coming up here in late September and in early October with Maze Runner and Everest and interestingly enough, picture like Everest is being released to a premium large format screens week early so that will be -- and so that certainly have been an emphasis of ours and so we are excited about that opportunity. And there is a lot of buzz about The Martian and I can go on and on. You mentioned the Bond picture, but we listed a bunch of them in our press release and then of course the quarter concludes with the final installment of the Hunger Games series. So on paper, Brian…

No more operating than the [ph] theater film buyer.

Yeah, exactly.

Wow, the films look great. You know what, the best message Brian is, it’s not a quarter-to-quarter business, yeah, next quarter could be fantastic.

No, I think that’s fair.

It’s a stable business over time, that’s the message.

Yes. You guys – you mentioned it a little bit, Doug, are you seeing Hollywood do a better job in spreading these movies out across the year? I certainly have noticed it in the January-February period. But do you think that’s an ongoing event?

Yeah, we seem to think, we seem to see that happening. Yeah. They’re getting more in January, getting into Spring, getting to fall, yeah, they seem to be seeing the opportunities. They were surprised that there are audiences, Sniper last January, there is an audience in January, you see these and they are taking advantage of.

Yeah, with your markets reward, did you guys go out and you have selectively market that you guys talked about for the first time. Are you able to measure behavioral differences, maybe the guy that saw, went out was a diehard Bruce Willis fan or whatever, when you go out and ping these people that are you starting to measure changes, and attendance or people that come back in or you’re actually influencing future things with the markets’ rewards card?

Absolutely, we do see that we’re just building a database so we’re just on the front end of that but we’re seeing and we’ll leave an AV test so we’ll take a group and will give a small group a message maybe geared you were, as you said, a diehard fan then we won't send it to similar group and we'll see if we're generating an incremental business so that we know that what we’re doing is working.

Yeah okay. And with some of your large, you talked about the Dream Lounge or ultra-screens at Dolby Atmos, the sound systems. Are you seeing -- I've asked this to you offline Doug before, some of the different non-movie venues the Broadway movies, maybe holiday seasons, is there any penetration in that activity across your auditoriums, more of the non-theatre type stuff, then niche stuff?

Well, we're showing more of it Brian and so from that perspective that's personally very encouraging is that -- that there continues to be kind of an increase in that type of content and it’s an hit and miss, some of the stuff does very -- some of it does pretty well, some of it is not going to connect, what you didn't mention and I'll feed off of your last question as well as it relates to the royalty program but we’ve talked about this is the series, the special series promotions that we’ve been running have also been quite interesting and quite successful where we will be able to bring back some classic films and show them and be able to and the only way -- we never could tell people about it in the past or there is no effective way of marketing to that and now with our loyalty program, we now have a way to be able to do that and so where our guys think that there is kind of scrap in the surface of that and you will continue to see some more series along those lines and it could help fill in quiet periods, it can help fill in some slow periods in the theatres whether it's a Saturday or Sunday morning or whether it's a Monday night or something along those lines and so, I see that as a real opportunity.

Just to build on that, just to see if you understand what we’re talking about and it’s one of these things that’s really been building over time and I think we'll continue to build and we've talked about it but right now, in our theatres you can -- last night you could have gone and seen Godfather II, which was pretty cool, it’s part of a retro series, we're doing as a mafia series, we had Godfather I last week, next week it’s Scarface and after that its Casino. You know seeing great movies and that was on -- potentially made sure we can film with some business, you have a ladies night series, you have an October fright night series. We have a classic movie series, there is all these -- I think over time it’s going to be a real, it’s going to take time for people to understand that we are known for series and that's a great effective marketing because when we're marketing a series, we’re not having to market one event one night, I'm telling about the mafia series that covers eight nights. We can talk about much -- to a base about a much bigger group of things and as we become known for it, it's one of those things where you have to make an investment, an investment in time and resources because we see it every day, the average customer not so much and so they have to start to learn and it becomes habitual for them as well. I think it’s going to be -- I think it will be powerful.

And then just one, you talked a little bit about top five movies in that, I'm just wondering the depth of the movie slate, say the top 20 or so, how was that some of the backend from say six to 20, summer of ‘15 versus ‘14?

Well again, because of the fact that you have such a strong top three, that certainly made a difference. So the top 15 films were as a percentage of higher than the top 15 films last year but not as dramatic as that 50 to 36 that we shared in the prepared remarks. So it was -- there is no question that this summer had a strong, was more top-heavy than maybe you would typically see.

Okay, done a superb job guys, you guys are doing a bang up job thanks.

Thank you Brian

Our last question comes from the line of Jim Goss with Barrington Research. You may proceed.

Hi thanks. The discussion you just had about the classic film series I think is very interesting, and I know you have been pursuing this. I'm wondering what the studio split looks like when you tried to give them a second shot at some of the library content effectively? Will they give you a better break than they would on the new series and if you can comment it all on any other alternative content efforts you’ve made and maybe what sort of percent of revenues you’re getting at this stage and what you think you can fairly target in terms of alternative content since the theaters are mainly vacant during the time you’re probably running these series anyway, so, it’s got to be incrementally better for you?

Yeah. So, Jim, we’re obviously not going to disclose any specific deals we have in the studios but the short answer to your first question is, yes, that when we’re bringing back some of these pictures whether it’s a Disney series or this Mafia series or whatever might be, we will work a deal with the studio and it’s not at splits that you would see in a first run picture. So, sure, that absolutely is a favorable component of running such a series. And you also know, I’m not going to give you a very satisfying answer to the second part of your question, because as you know, we play that fairly close but that’s in terms of some of those percentages. We are seeing -- because of the success with some of these series and things like that, we are seeing our percentage increase but we haven’t disclosed the -- on a percentage of our business basis, we haven’t disclosed that. But it’s -- yeah, I mean, Greg is still holding his fingers close together, you’ve heard me say this to you before Jim is that it’s still small, right? I mean, we’re not talking about percent -- a very high percentage overall. It can’t compare to Jurassic World and Hunger Games and Star Wars.

Yeah, it’s found money for us.

In a way because again, to your point Jim, it’s when the theaters aren’t as busy and so, it’s -- for us, I think it’s going to be very important and it’s an investment that we all want to make in doing this to continuing to build on it as it ever going to be the biggest piece of our item, I don’t think so, I don’t know, but it is important because as you know, with big fixed assets and it’s every dollar we can bring in above it has great marginal impact to us.

Small is better than zero for sure.

You got it.

Well said.

Do you ever think you’ll make any headway in getting sports rights or anything like that or concert rights on a sold-out concert or things like that because I think with PCDC, the entire country can be linked together basically in the digital format? So, you have a lot of opportunity with keeping the rights for the programs.

I think again, it’s marginal, I think, but if we can and I think there will -- with time that will change. The whole world of linear television is just shifting so fast right now. So now, that being said, as you pointed, with that happening, the value of sports rights have become -- have gone up to the roof. So, I don’t know where it’s going. I think you’ll see more of it and time will tell.

All right, thanks. Thanks for taking it second time.

Thanks, Jim.

And we have no further questions at this time. I will now turn the call back over to Mr. Doug Neis for any closing remarks.

Before Doug does his closing remarks, I do want to take one moment and just make a point because our first quarter is as you all know, it is the busiest time of the year for everyone in our Company and it is -- and as you could tell from these results, we’ve been happy and people have been working really hard. So, I just want to take a minute to thank everybody out in the field for all their hard work and in this office, people have been working very hard and you’re seeing the results of all the hard work and I just want to say thanks to everybody.

So, with that, I’ll also want to thank you for joining us again today. Maybe, we’ll see some of you at our upcoming annual meeting on Tuesday, October 13, at our InterContinental Milwaukee hotel. For those of you who cannot attend, we’ll be webcasting the meeting. We’ll also look forward talking to you once again in December when we release our fiscal 2016 second quarter results. Until then, thank you, and have a great day.