The Marcus Corporation (MCS) Q3 2016 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to The Marcus Corporation Third Quarter Earnings Conference Call. My name is [Kailey], 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 would like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you and welcome, everybody to our fiscal 2016 third quarter conference call. As usual, I’ll need to begin by stating that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include, but not be limited to statements about our future revenue and earnings expectations; our future RevPAR, occupancy rates, and room rate expectations for our hotels and resorts division; our expectations about the quality, quantity, and audience appeal of film product 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; our 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 factors 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 website at www.marcuscorp.com. So, with that behind us, let’s talk about our fiscal 2016 third quarter and first three quarters. And as you can see it was another great quarter for us. Thanks to record performance from our theatre division. As been the case now for three years we once again outperform the industry and pretty significantly of that. Results from our hotels and resorts division were down slightly this quarter, but year-to-date we remain significantly ahead of last year and we're also performing in this division. Following our usual format for these calls, I am 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 his comments. So we'll start with interest expense, you'll notice it was down slightly compared to last year due to a lower average interest rate and a small decrease in total borrowings. But other than that there were no significant changes in the line items below operating income or effect of income tax rate. So we can skip that portion of my usual comments this quarter. Before I begin these division. I will briefly shift gears away from the earning statement for a moment tell you that our total capital expenditures during the first three quarters of fiscal 2016 totaled approximately $58 million compared to approximately $59 million last year. Now approximately $49 million of our total spend during fiscal 2016 first three quarters was incurred in our theatre division, the majority of which related to the completion of multiple DreamLounger seating projects, UltraScreen DLX screens, and new food and beverage outlets, as well as cost related to two new theatres and now under construction and the purchase and renovation of a closed theatre that now is open on the south side of Chicago. At this point our fiscal year we believe we're on pace for a total capital expenditures for fiscal 2016. The likely be in the $75 million to $80 million range. Borrowing any growth opportunities that could arise in the remaining months and recognizing that the timing of payments for several of our various projects could vary and carryover to fiscal 2017. The actual timing of various projects currently underway or proposed will certainly impact our final capital expenditure number, as well any currently unidentified projects or acquisitions that could develop during our fiscal year. So, now, I’d like to provide some financial comments on the operations for the third quarter and first three quarters, beginning with theatres. Our box office and concession revenues increased 19.8% and 16.3% respectively during the third quarter and our total revenues have now increased approximately 8% during the first three quarters of fiscal 2016. I want to remind you that while the periods we’re comparing in today’s release are both 13 and 39 weeks. Keep in mind that because 2015 was essentially a 53-week year for us, the weeks that we are comparing to do not match up on the calendar. More specifically, this year’s numbers include a 13-week period from July 1st through September 29, 2016 for the third quarter. And the 39-week period from January 1 through September 29 for the first three quarters. Using our last Thursday, December fiscal year-end, the numbers that we're comparing to cover the period from June 26, 2015 through September 24, 2015 for the third quarter and December 26, 2014 through September 29, 2015 for the first three quarters last year. And that means during the third quarter, we essentially traded a week in June last year for a week in September this year, which is not typically a favorable trade. And the calendar disconnect becomes even more significant when looking at the first three quarters numbers because as you know the week between Christmas and New Year’s is historically one of the busiest, if not the busiest weeks of the year for moviegoing. So the up nearly 8% year-to-date in revenues, when comparing to a period that includes the Christmas week last year was pretty impressive from where I said. Now as a result, there are really two ways to compare our third quarter and first three quarters results to the industry and I'll try to explain this as succinctly as I can because it can be confusing. We've established our weeks in both the third quarter and the first three quarters this year that we've already established there misaligned with comparing to last year. So when we compare our results to the industry. Our first option is to compare our changes in box office revenues for our misaligned weeks to the change in the national box office for those same misaligned weeks. When we do that based upon U.S. box office numbers compiled by us using data from rent track and national box office reporting service of the theatre industry, we find that the national box office increased by 9.3% during our third quarter and 1.9% during our first three quarters, meaning that we outperformed the industry by 10.5 percentage points during the third quarter and 6.2 percentage points during the first three quarters. We will probably interests you – most as how do we compare to the more comparable 13 and 39 weeks last year as that more closely matches, what you'll see reported from others in our industry. And they're the story only gets better. Again using ran track, we calculate that the U.S. box office increased 14.7% during the third quarter of calendar 2016. Meanwhile, adjusting our reported last year's numbers are removing that last week in June and adding the last week in September that I talked about, thus kind of fixing that misalignment if you will. We find that our third quarter box office revenues increased a significant 25.2% compared to the same weeks last year, which is once again 10.5 percentage points better than the U.S. average for the quarter. I've going through the same exercise the first three quarters of the year. We're now running 6.9 percentage points better than the U.S. average year-to-date. This means we have now outperformed the industry during the 11 of our last 12 reported interim periods or three years something we're very proud of. Going back to our reported comparisons, the third quarter increase in our box-office revenues is attributable to an increase in attendance at our comparable theatres of 14.7% an increase in our average admission price 4.2% for the third quarter. For the first three quarters of the year, our 8.1% increasing in box office, receives is attributable to a 3% increase in attendance and a 4.6% increase in our average ticket price. The fact that we’ve increased our number of premium large-format screens with a corresponding price premium, certainly contributed to our increased average ticket price during the fiscal 2016 period, as did a modest price increase taken back in January. Conversely, I’ll tell you that our growth in our average ticket price was tempered during the first three quarters of this year so far. By the fact that two of our three highest grossing films year-to-date were animated or family-orient films, compared to none of our top three last year year-to-date, meaning that we had a much higher percentage of our box office mix came from the lower price kids and matinee pricing. We’re also very pleased to report an increase in our average concessions, food and beverage revenues per person of 1.4% for the third quarter and 3.8% during the first three quarters, compared to the same period last year. Our investments in non-traditional food and beverage outlets continued to contribute to this outstanding performance, but once again I’ve been tempered this year, but a change in film product mix, as animated and family pictures tend to not draw as many people to our non-traditional food and beverage outlets, compared to more adult oriented films. Finally, I'll also note that other revenues for our theatre division increased 28% during our third quarter and then increased nearly 13% year-to-date with increases from Internet surcharge ticketing fees and pre-show advertising income contributing to a strong performance. I also want to point out that our agreement with our current advertising provider Screenvision includes a provision for a one-time incentive payment if a defined cumulative attendance milestone is reached within the fine time period. Now based upon our current projections, we believe we'll reach this milestone during our fiscal 2016 fourth quarter. As a result, I'm very pleased to tell you that our operating results during the fourth quarter fiscal 2016 are expected to benefit from the significant one-time payment which is currently forecast to be approximately $3 million or could even be slightly higher. Shifting to our hotels and resorts division. If you do the math, you'll see that our overall hotel revenues were down 3.4% for the third quarter and down 1.6% for the first three quarters, but if you eliminate the hotel we sold in October 2015, the Hotel Phillips from last year’s results and the SafeHouse restaurant that we purchased last June from both years. You will find that same property revenues were actually up 0.3% and 2.1% respectively compared to last year’s third quarter and first three quarters. Now, as noted in our press release, our total RevPAR for eight comparable properties increased 2.7% during the fiscal 2016 third quarter, compared to the comparable period last year, and 4.6% for the first three quarters of fiscal 2016 compared to last year. As we’ve noted in the past, our RevPAR performance did vary by market and type of property. According to data received from Smith Travel Research and compiled by us in order to compare our fiscal quarter results, comparable upper-upscale hotels throughout the United States experienced an increase in RevPAR of 2.3% during our fiscal 2016 third quarter and competitive hotels in our collective markets experienced an increase in RevPAR of only 1.7% during our fiscal 2016 third quarter. Year-to-date, Smith Travel Research date indicates that upper-upscale hotels have experienced an increase in RevPAR of 2.4% and competitive hotels in our collective markets have experienced an increase in RevPAR of 2.5%. Thus, you can see that we outperformed in this division as well during both the quarter and first three quarters. Breaking our numbers out a little more specifically, our fiscal 2016 third quarter overall RevPAR increase was due entirely to a 2.6% increase in our average daily rate. Our overall occupancy rate was virtually unchanged. Year-to-date, our occupancy rate has increased 1.4 percentage points and our average daily rate has increased 2.7%. With that, I'll now turn the call over to Greg.

Thanks, Doug. I’ll begin my remarks today with our theatre division where the numbers certainly speak for themselves. When we last talked in late July, we told you that our fiscal 2016 third quarter was off to a very good start and we were once again outperforming the industry. But I suspect the amount of our outperformance may have surprised you. From a pure size of our performance perspective, our 10.5 percentage point over indexing to the national numbers this quarter was the largest we've experienced of our three quarters so far in fiscal 2016. And one of the largest quarterly spreads of the last three years. Yes, we had a solid slate of films during the third quarter both in terms of quantity and quality. But don't forget that we are also outperformed and we also outperformed during the second quarter when film comparisons were much more difficult. The fact is that we continue to demonstrate that our business model is a successful one that has resulted in sustained industry outperformance now three years worth to be exact. As I indicated, we had a good film slate to work with this quarter. Box office receipts increased during 10 of the 13 weeks in the third quarter fiscal 2016 with the greatest increase occurring during July in the first half of August. Although attendance did increase during September 2016 compared to September 2015. Historically, the second half of August and the month of September have comprised one of the weakest periods for moviegoing and students return to school and the quality of films released tends to weaken. In addition, the Olympics likely had some negative impact on moviegoing during the third quarter of fiscal 2016 as television viewing tends to increase during the two weeks of events. I know I will sound like a broken record, but it doesn't make what I'm about to say any less true. The combination of our investments we've been making in our theatres along with our innovative marketing and pricing initiatives including our loyalty program that now exceeds 1.6 million members continues to make a difference. Our record performance this quarter once again is a testament to the benefits of the strategies we've been executing on for a number of years now. So rather than just talk about the investments and strategies that we have received so much – that have received so much attention. I thought I would devote my short-time with you today and an element of our success that has been just as critical if not more so. If there are only capital of theatres was all it took to outperform the industry then you would think others would be out performing to the same degree that we are. After all we’re not the only ones investing in their theatres these days, but it also takes strong leadership focused and collaborative execution on the part of the entire team in order to convert these investments and marketing strategies into real sustainable profit improvement. And in this area I believe Rolando Rodriguez, his management team and our entire theatre operational organization of excel. Let me give you two examples out of many. I believe that every successful team recognizes that not only is important to have a strong office but a strong defense as well. As you know well all of the new investments we've made in our theatres including a number of new food and beverage amenities. We have significantly increased attendance at our theatres. With these new amenities we have added significant operating cost to our operation. That in periods of business weakness could potentially impede our ability to obtain adequate returns on our investments. So with that in mind, during fiscal 2016, Rolando and his team implemented a cost savings initiative [gov CSI] for cost savings initiative that specifically targeted opportunities to increase labor efficiencies and manage and reduce other operational administrative cost items. They came into the year with a goal of identifying over $2 million in cost savings and I'm pleased to report that they are well on their way to meeting or exceeding their internal targets. Another example of the importance of focused leadership relates to the outstanding execution of our strategy to implement classic revenue management concepts to the theatre business. For ten years now the growth of the national box office has been driven virtually exclusively by increases in the average ticket price. When we began this current journey three years ago we made driving increased attendance to our theatres a number one priority and by effective revenue management strategies offering both premium pricing as well as discounted pricing opportunities in order to maximize box office revenues in a more effective manner. We increased both attendance and box office receipts a win for everyone involved. And good things happen when - were customers come to our theatres. It means more people see the previews for coming attractions. It means more people have an opportunity to try our expanded food and beverage options and it means more people see our pre-show advertising and speaking directly to that point. Our team negotiated a mutually beneficial agreement with our advertising provider Screenvision that provided for the expected fourth quarter incentive payment that Doug referenced earlier. It's just another example of a cohesive focused strategy that continues to pay dividends today and in the future. As we look ahead, we shared with you our excitement about the recent grand opening of the markets Country Club Hills Cinema in Illinois and addition of DreamLoungers and the exciting food and beverage concepts Take Five Lounge and Reel Sizzle to our Orland Park Cinema. Notably our percentage of first-run auditoriums with recliner seating is now 48%, a number we believe is easily the highest in the industry among the top chains in the country. We also listed a number of new amenities currently under construction as well as two new screens at our Palace Cinema in Sun Prairie and two new theatres currently scheduled to open in 2017. We're also reviewing a number of new opportunities to add our successful amenities and concepts to existing theatres in 2017. We’ll keep going as long as the investments continue to meet our investment return threshold. And I would be remiss if I didn't note that we continue to be very interested in expanding our circuit with selective acquisitions when the right opportunities arise. It is definitely a focus of ours right now. From a film perspective our stated goal is to continue to outperform the national box office regardless of how the films do compared to the prior year. Until this past weekend October films have performed slightly worse than last year but I'm pleased to tell you that we continue to outperform the entire and - outperform the industry early in the fourth quarter. We all know we will be a going up against Star Wars in December and an extra week in last year's fourth quarter but the buzz around some of the upcoming films listed in our press release has been increasing as we began learning more about them. So we're looking forward to the opportunity to showcase our outstanding theatres to our customers during the busy holiday weeks ahead. With that, let’s move on to our other division, hotels and resorts. You have seen the segment numbers, and Doug gave you some additional detail. It was somewhat of a mixed quarter for this division this time around. On the one hand overall revenues and operating income were down slightly during the third quarter due primarily to reduced group businesses and some of our hotels particularly during August. And with reduced group business we've experienced corresponding decrease in food and beverage revenues as groups are a big contributor to banquet and catering revenues, a key revenue source for our hotels. But on the other hand just like our theatre business we have to work with the hand we're dealt and in that regard it was a good quarter for us. As our RevPAR increase once again outperformed both the industry as a whole and more specifically our specific competitors in our collective markets. In the fact that our increases in RevPAR continue to come primarily from increases in our ADR is also good news. Is that it’s continued to be an area of focus for us. In fact ADR has increased at six of our eight comparable hotels to the first three quarters of fiscal 2016. And while the third quarter had some softness in it. The fact remains that our year-to-date operating results continued to be very strong and significantly improved over the prior year. Thanks for strong performance for our management team led by Joe Khairallah. Joe is built an organization focused on operational excellence profitability, quality integrity and under his leadership. The team at the hotel division has enjoyed strong financial performance while continuing its unwavering commitment to exceptional guest service. As an example of this focus on profitability the first three quarters of fiscal 2016 after adjusting for the hotel sold last year at the safe house and last year's impairment charge. Over 100% of our year-to-date revenue increased our hotels and resorts division has flowed through to our operating income line. That's an outstanding achievement. As I just indicated while reduced group business during the third quarter contributed to our lower operating income during the quarter. I'm pleased to report that our owned hotels had a solid group booking period in the quarter. Looking ahead it's not easy to read the crystal ball for our hotel industry and our hotels in particular. We know comparisons to last year during our fourth quarter will be negatively impacted by the fact the last year had an extra week including the busy New Year's Eve holiday. This year's fourth quarter will end on December 29. So we won't have the benefit of New Year's Eve this year, which will negatively impact our food and beverage revenues. Group business continues to book with relatively short lead times. So it is hard to look too far ahead. We also continue to closely watch will tell supply in our markets and we continue to watch the macroeconomic factors that impact our industry. When you put it all together we think it is likely their fourth quarter will have some difficult comparisons but we tend to agree with most industry experts who suggest that overall continued modest improvement in RevPAR is achievable in the near to intermediate term. Of course there are a number of factors many of which we have little or no control that can impact future performance in our hotel business. And from a growth perspective we talked about how we've stepped up our efforts to increase our visibility as a national hotel management company and we hope to add to our portfolio managed hotels in the coming year. We are seriously evaluating more than one opportunity at the moment as well as continuing to advise on the new Marriott Hotel under construction Omaha, Nebraska that we will manage when it opens in 2017. Conversely, we continue to actively review opportunities to sell one or more owned hotels, hopefully while retaining management when so desired. With that, at this time, Doug and I will be happy to open the call up for any questions you may have. But before we move to Q&A I do want to make sure to say thank you to all of our associates who work so hard every day with a saying around here. Our ordinary day is our customers’ extraordinary day executing on that is not easy and so for that I say things. Now let's move on to Q&A.

Thank you. [Operator Instructions] We’ll go first with Mike Hickey with Benchmark Company. Your line is open.

Hey, Greg and Doug. Congrats on a great quarter.

Thanks Mike.

The curious on your view on AMC and Carmike it looks like the deal at least an increased chance of happening so and sort of wondering what your playbook is in terms of any potential DOJ stand of theaters on that stale and Orlando at this point has any sense of what the potential assets would look like that may come to auction.

Michael I really don't think it's a good idea for us to comment on somebody else's transaction. You know obviously to the extent that and we talk about this [indiscernible] that there will be theatres that are available to market we're going to look at them and we'd be interested in acquiring them if the metrics make sense.

All right. Fair enough. I guess on the recliner installs based on what you've announced so far. How many theatre installations. Do you expect to have in the Q4?

In Q4 I don't believe there will be any more that will open up in Q4, we work really hard to try to get everything offset hereby the end of October with the couple of additional locations. As you know we opened up our Country Club Hills. That is going to be – let me amend what I just said, I mean we've already talked about in the press release. That's why I wasn't talking about beyond that, but for a Country Club Hills did open up about a week or so ago. And so that 16 additional screens that we didn’t even have and they're all dream under all locations. And then our Orland Park Theatre in Chicago also is just finishing up as well. I believe we have all of the main auditorium open and the UltraScreen will be opening up shortly, but it hasn't already and so we do actually have two new theatres, 31 screens that are part of that 48% that Greg was talking about, because it's already now essentially completed. But those last two are actually fourth quarter additions.

Okay.

We're in the process now of taking a look at 2017, so I don't have any report in that perspective yet, but as Greg said in his prepared comments, we do anticipate having some, some additional installations.

I would just add Country Club Hills looks fantastic. It really the team did a fantastic job on that theatre. If anybody in that area should check it out were really turned out beautifully. Well in part is as Doug said by most all the recliners are done it's not all done the lobby as well, but we can have a go or under some pretty heavy construction but it should be done shortly.

Okay. So Doug just to clarify is that 21 theatres then in Q4 that then converted to DreamLounger compared to 13 prior year, is that right.

Yes, 21 theatres will have now completely converted to all DreamLounger and then of course we have some other theatres that might have just Ultrascreen or Superscreen DLX’s, but we have 21 theatres now that have that are completely converted correct.

Okay. Thanks and the last question for me. Just curious on the theatre side how your current performance is relative to market in October. Thank you.

Thus far we continue to outperform for the first three and a half weeks or so of October we are outperforming again versus the industry.

Hi guys. Good luck.

Thank you. Our next question comes from the line Eric Wold with B. Riley

Thank you. Good morning. Obviously phenomenal continued outperformance on the theatre side versus industry? Can you maybe try to dig in a little bit in kind of give us a sense of the trends you're seeing on the remodeled theaters in competitive zones versus ones or maybe not so competitors zone try to get a sense of kind of how much of has been driven by increase repeat visitation versus the share shift.

I can. Let me answer that question two ways there. One is, increase the performance – has been performance of the entire circuit. And it's coming from and I the reason I say this is because I'll tell you the ones that were - the theatres that have all the bells and whistles. They're very competitive and even where we're going up against in competitive zones are or competitive areas it's call that we are outperforming and because I think that we have a very robust package that is very attractive the consumer. But that being said as we as we talk about it really it goes beyond. The just the physical improvements for making the theatres and what we're seeing is really a lot of the marketing programs you know we do the grassroots marketing we do they know our loyalty program, it is really everything coming together and working across the circuit and the strategies that we're using to take advantage of finally knowing who are customers are you know again I keep saying this keep on it and I think that we're just at the beginning. I think there's opportunities for us that we haven't been able to even be able to mine yet because we're just we're just really on the beginning of the loyalty journey understanding who our customers are and so I say this really goes beyond simply just the theatres where we're get it - we're doing that but it's organic and share you can drop to your question if you're trying to drop by how much organic growth they're getting from the theatres where they put all those in. I'm not sure that you have a pull that numbers that we're going able out the numbers that we're going to – that we presented.

And Eric, I'll even give you an additional number to support what Greg just talked about, so in this third quarter the – I shared with you that comparing the kind of the misaligned weeks box office, national box office was up 9.3% and we were up 19.8% with those misaligned weeks. 42, we just discussed it with Mike's earlier question that we have 21 theatres now that have the DreamLounger recliner seats and two of which just opened they weren't really part of the third quarter at all. So 19 theatres had the DreamLounger during the quarter. 42 of our theatres outperformed the industry. So this is much broader than I mean I'm not trying the now slate the DreamLounger a big part of what's been going on, but this is a broader than just that.

Well, Rolando those theatres are outperforming the industry. If I different into the numbers a little bit kind of just taking the simple ratio of concession revenues to admission revenues that declined year-over-year in Q3 for first time in quite some time we go back is obviously tough with the shift in the fiscal year. Anything that's possibly attributed that is that timing of when these maybe some of the remodels have open, is the film mix or anything there or might kind of trend to grasping a straw here?

Yes. No, actually you hit on two of them actually, some with the timing. The reality is that when you look at when the additional manatees opened last year and this year, we've actually only had – in these comparable time periods we actually only had two new Take Five Lounge open in the last year. We haven't had as many in this past year. We've had a few pharaohs and real sizzles open up in this past year, but just on a year-over-year basis in this quarter, we've now lapped a lot of those newer ones. So that’s a little bit of that. Film mix absolutely had a play – part of this as well as I noted, we've certainly have seen some of these kids' pictures do well and that's not going to drive a lot of liquor sales. So certainly there is a little bit of film mix going on there. Look, this was July; a big part of this particular quarter was July and August. We've talked about in the past that during the summer we see a slight tilt in the mix related to the $5.00 Tuesday for example. And so in general, our concessions are a little less. On Tuesday’s than they are in other nights because of the free popcorn for our members of the loyalty program. So it becomes not any one thing, it becomes a mix of all these things and that's kind of the dynamic you're looking at in this particular quarter. We've been very price conscious too and we have not done anything with our pricing for a little while now. That will certainly be something we'll be taking a look at in the future.

Perfect. And last question on the Screenvision comments you made potentially for the $3 million milestone payment in Q4. Is that the only potential milestone payment in the current agreement and then can you provide us when the current Screenvision expires?

The answer to the first question is yes. This is the big milestone payment. Once we reached the milestone, our agreements had a slightly different formula driven to it that we think will be advantageous to those well given the amount of attendance that we’re driving through our theatres, but it's the only milestone payment. And Eric, we haven't disclosed the length of our contract.

I don’t think you did, but had to try. Thank you.

Thank you. Our next question comes from the line of David Loeb with Robert W. Baird. Your line is open.

Good morning.

Hi, Dave.

Hi, Doug and Greg you’ve answered around this. You talked a lot about the theatre performance, but I wonder if you could just sort of distill it down. The 14.7% comparable attendance, what do you think are the biggest factors driving that?

Again I'd say it's everything, it’s the recliners, it’s the food and beverage and it's the strategies that we're using with our loyalty programs and the marketing around all of that - Dave I would point to one thing and say here's how we did it but it's a lot of things, there’s a lot of tired people on 20 because it's a lot of things.

Yes. And it does seem to be although the numbers obviously fluctuate, you seem to be driving these gains with a variety of different kinds of film lineups?

Yes. I mean we have stuff we perform better on, but we know what that is but just given the nature of where our leaders are and but what we perform very strongly with women films with women oriented films we do very well with that, we do very family films. The more urban stuff is a little more challenging for us because of the markets were in but we play better on the coasts.

And then I've talked about this before David but one of the things that the team has been very, very good at that and this is where I think it's still the tip of the iceberg is, we're looking ahead we're looking at the film lineups you just addressed it. The film lineups vary from quarter-to-quarter and our team looks ahead at what that line up looks like, they look at the genres, they look and say if anything missing. Are we little lacking kids or we lacking in some horror pictures or you name and I mean that’s all the different types of genre and then they look to try to fill in with that. And again now that we have the ability to communicate with our customers for the first time, we can tell them about that we can them about special series and things along those lines. I missed last night, I think last night at our theatres we showed Christmas Vacation it's one of my wife's all time favorite movies and I would – we hope to try to get to see that. But again there was we look for holes in the schedule and we try to show some bring back pictures and show things like that.

Even in your family so you were competing in World Series.

Yes, exactly.

Sorry, Greg.

No, go ahead.

No. I was commenting on folks World Series appetite. So next question from me.

Go ahead, David.

In hotels how is October been so far, what kind of trends you are seeing in transient group?

The business right now has been a little bit soft. I don't think that I’m going to tell you anything different than you're hearing anywhere else in the industry right now. You know businesses this quarter, we're feeling some softness.

In our markets the fall is a pretty good time for us. It starts as you know it starts to drop off probably you know particularly when you get there probably December in a lot of our markets and we're certainly, we're looking ahead we're not we think we're going to be we're chasing some room nights in December we know that and so it's - I'm not sure as we've said in our prepared remarks I think that the fourth quarter is going to be a little bit of a challenge for us, it's going to challenge for our markets and our goal is certainly if we continue to outperform whatever those markets are so. Our challenge has been in the little bit of a group business, the transit I think has been, okay, but the group business is little soft.

And then final topic. Greg, you mentioned looking at acquisitions does the move in your stock price make those transactions a bit more likely. I guess what I am try to figure out is how are you looking at your cost of capital here and does that influence your potential acquisition decisions.

David I would say that it does not influence our discussions because as you know our balance sheet is in pretty good place and so any acquisitions that we're going to do I think we're in a pretty good place to use our balance sheet to do that you know so and that's because we know that, we don't know where our stock price is going to be day to day and but we want to be prepared to be able to take advantage of the opportunities that come our way - and that's how we manage our business.

In terms of the kind of lifecycle investments on the part of some of the smaller family owned theatre circuits. Do you see more of those coming up in the near future?

I don't have a crystal ball. I don't if more are going to come up you know we've had a pretty robust periods of people are doing okay, but the other side is they're facing some pretty significant capital investments. That is the way the industry is going and if you're going to be competitive, we’re going to have to reinvest in the theatres and that puts us again in the place we've got experience doing it and I would say the market is active. I know I would not - the market is active the stuff to look at but you know we have to will be disciplined about it and look to make investments where we can do what we've done here and that is find stuff that needs investment and to be prepared for the future.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Jim Goss, Barrington Research. Your line is open.

Thank you. Returning to screen vision for a minute. Given that Carmike had still has a somewhat of an ownership element with the screen vision, but some of that relationship must shift a little bit there absorption by AMC some of that goes through even if they still are affiliated with screen vision? Does that make room for you to sort of takeover some of that position that I would imagine screen vision still has an interest and having sort of an anchor tenant to the fact that they would give you a $3 million milestone payment and with that alter your economics at all.

No, no we have nothing to really comment on that we've gotten that that we haven't heard anything as to what the and I don't think you have either nobody's start - what the dispensations going to be screen vision with Carmike and screen vision and all that until that happens I don't think with anybody in even a position to start the guess and I'm not going to guess what's going to happen.

Okay. You also mentioned the 48% receded to this point. So there are some theoretical maximum before which there would be certain ones you would not be anxious to receive for one reason or another as has been the case for some of the others.

There's a theoretical maximum move people have been talking what they - where they think it's going to end up and look at you start – as you redo the years just as they come up in their lifecycles I think that if you're going to be in the business and you're saying I quote someone in our business always as we build in theatre of yesterday the theatre of tomorrow and we like to think we're building theatre of tomorrow. And so you know in the cycle through them. I think the percentage will increase probably as rapidly as it has but that we keep looking at them and as we said as long as they meet the hurdles we're going to keep doing them.

And you raise an interesting point too because to the extent that a lot of cases theatres tend to be least properties that since you have a higher ownership position which gave you a greater flexibility to go more aggressively and do it. You may have less of the same driving factor of leased renewals to think about that. What is the process you go through in terms of thinking about when you should be changing and renovating theatres.

Well, just so my data saying has a saying you know if the customer can see it is too late. And so we try to use that as our barometer sometimes we miss but we're trying to we know we these things have lifecycles we know how long we take and so as the theaters come up on their lifecycle we start to look and make sure that we get them in the right place to make the improvements that need to be made and so we work within those lifecycle.

Okay. Just a couple of other quicker ones. Alternative content I am wondering if that's any part of the you know your customer and reward program data usage. If that ties in for career utilization or screen based.

Yes, I think you know again and I and Doug started to talk about it and I'll get out of the get look. It's not a huge part of the business just yet, but I think that it's going to continue to grow we're seeing growth we're seeing growth in the numbers we're seeing it again use net royalty program to be able to drive. That's what drives our marginal I think one of things is driving our marginal improvement over anybody else is the ability to take advantage of that. And we're just at the beginning of it. I mean we're not even I mean I know that we have a lots of opportunity to do more things. So but I don't - I can't tell you where I think it's going to end up I just don't know but I think it's going to continue to grow as we get better at it as more becomes available. And you know again even whether the business is strong or weak I think that that gives us the ability to be marginally better.

The quantity is certainly increasing as well Jim. I mean I haven't done a tabulation for this, but we will certainly do it for the – at the end of the year, where we’ll tabulate and say look that we showed this many alternative content features this year versus last year. And I expect that number will reflect again, an increase in quantity that we've been seeing in the last couple years.

And it’s our hope. If we get sports, sports could really be meaningful. And there is some, but it’s some of the more majors. And I think as contracts turn over and the viewing and the way things are presented moving from a linear broadcast format to a more on-demand format may change some of dynamics and allow us to participate in some of that, I hope. Nobody has offered me anything just yet, so I'm not going to get up here and say that's going to happen for sure. But it's a pretty great place to watching a sporting event than you had in the food and beverage is really great experience.

Okay. And lastly, in terms of the strategy you laid out for your hotel group. Trying to lighten up on the capital investment, maintain management contracts. It sounds like a very interesting strategy. I'm wondering how you think it as you look back on the initial stage of trying to do that. How successful you think that might be if it's going to post more of a challenge than you thought it was as you sort of created the strategy?

I guess Jim, I’ll say this. We've never set up an easy strategy to execute because in our case, our portfolio is made up of – Today now eight distinct assets, different markets, different types of assets. So really we view it truly as an asset by asset type decision and strategy. I'm telling you what you already know is that certainly the tax consequences of several of them are significant and so. Again, the second half of that strategy that you didn't mention is that and in some cases it might require us to find something to buy first in order to be able to effectively do at 1,031. So there is – this painting a picture is saying that there is multiple elements to that strategy we're still talking about it because we still think it's a good strategy and a valid strategy but you know what you won't get us to do and is that we're not going to ever talk about well which hotels we're looking at or where are we in the process there, it’s a very sensitive process and the markets change constantly. I mean the transactional market is always there but there are some good and bad times during that transactional market. So we're just going to be very disciplined and very opportunistic, two words that I probably use the most when I talk to investors.

I guess the only thing I'd add to that – Doug is right, it is a strategy we are working on, we continue to work on it and yet we're also, we face the same things you know about the vicissitudes of the markets and when things can sell and trying to deal with tax issues because at the end of the day. We do have very strong hotel assets and so we're not in the - we don’t have to do something just to do something, we know what we want to do, we know we want to execute on but we're going to be smart and disciplined about it because we feel comfortable with the assets that we have, we maintain them, they're very well maintained and they tend to be very, very solid assets for the most part.

All right. Thanks very much.

Thank you. [Operator Instructions] Our next question comes from the line of Brian Rafn with Morgan Dempsey Capital Management. Your line is open.

Good morning guys. Great quarter. Awesome.

Thank you.

Let me just ask you on the food and beverage, you guys certainly have made great progress in there. If you were to kind of look at food and beverage and strip out the popcorn in the IC and the sorts and the candy bars and looked at some of your higher ran, your chicken or your hamburgers, you know more of a full meal say a Take Five or Sizzle Reel or your Big Screen Bistro. Are you seeing a positive growth in the sales check per customer and what I would call more of a meal versus just the snack in your different theatres?

Well, I mean the short answer is yes. The more nuanced answer Brian is that – and we saw a little bit of it this quarter is that on a quarter-to-quarter basis we'll see some swings depending on the type of film product that we're showing. So the mix of how much of it comes from those other food and beverage concepts, the full meal type things that you're referring to will swing from quarter-to-quarter. But overall, we're pleased with the – per capital that we're getting. We think there's always room to make them better and our teams got active strategies on every one of these concepts in terms of how to continue to drive incremental revenues from these concepts. But look the reason why we've kept doing them is because they're meeting our return thresholds and so we've – so my short answer is yes.

Yes. You guys do a fabulous job. When you look at some of the other major chains, do they have a higher end food content as you guys have or they a little more just popcorn and soda?

What you're seeing is people are getting into more of the - you call it high end, let’s call it a more developed and robust food and beverage mix, but I would tell you that of everybody I've seen I would say that we probably have, not probably. We have I think the best offering. Everybody else is doing it now. I think maybe I just come from the fact that we've been in the food and beverage business side for 50 years. So we approached it. We approached it from a food and beverage oriented perspective and quality and understanding. That just needs to be something different. I think that's been – worked to our advantage.

You guys have hallmark. You guys are so good at that. You really have done a fabulous job on that. Let me ask you on some of the retro series that you talked about kind of looking for holes in that. What kind of attendance traffic do you get if it's not a matinee and in a prime slot. And then a question out of ignorance. You get a favorable negotiated share with the Hollywood. How does that the revenue – or is that something you keep the 100% - how does that revenue might read on those retro series?

Brian, our teams are going to work very well. I like that idea of keeping 100%. I like that.

I got a new goal.

Not that 100%. It really varies from product to product, it just depends on what it is we're showing and who it is. What to take of the distributor. Really at this level, it's not a huge absolute dollar contributor, but it's becoming meaningful and it's growing. And I think it's something that we’ll continue to build as people start to view us as a place to see alternative content to. You can't just show it once in a while because people forget about you. You have to build to habit and so we're building that habit and we're starting to see the fruits of that. But it's an investment and it’s an investment of our time and our screen real estate.

Okay. If you look at the – you've got the Tuesday night $5.00 night, you’ve got – I think the Tuesday college student night or high school student night or whatever. What kind of a runway do you have? Is the Tuesday $5.00 night, is that really the primary focus and Thursday is an add-on or is Thursday that $5.00 student night is that also viable candidates for further growth in attendance in food and beverage concession sales?

Yes. We view both. We don’t view it as well. Okay, we are done. We've got as much as we can out of Tuesday and Thursday. Our team is constantly challenging itself to try to continue to improve on what's been some pretty remarkable results. And Tuesday is the focus. That’s everybody, right. But Thursday I think is a growth area for us as well. So look I mean, we're three years and actually we're just coming on the three-year anniversary of rolling the $5.00 Tuesday program out. So it's been pretty remarkable to continue to see that how that has continued to grow and we established in our markets.

I think the bigger – from it frankly as we talked about in the call earlier and that is we continue to think about the revenue management strategies across the entire spectrum of films that we show at times that we show them. How do we maximize that how do we offer the right price. The right customer at the right time and straight out of the hotel playbook but that is what we do.

Okay.

That is now is mainstream. So that means premium pricing.

Okay. Let me ask you Greg you talk about the markets rewards a loyalty program. As you evolve that type of thing. Right now you're able to understand your customer to monitor - you able to send emails and that drive some traffic. But as I view it, it’s kind of a little bit of a one way communication you kind of surveilling kind of monitoring. Is that ever a two way gateway where your customer might someday talk back to you? Or is that currently being done.

I think you're right. There are opportunities to talk back to us we are very active on social media. I'm active on social media. We've got Marcus theatres active on social media and you know we want the customers to talk back to us we actually go out and this is one of the great question that you ask. One of things that we are very focused is you know is that we - when you come in you give us your loyalty card now we know who you are. We send a certain subset of that the people who show up a survey and say how did you do - how do we do. How is your experience and then they answer and they reply and we get and we're very focused on how scores are. And so we look to so it is a two way communication I think our opportunities are that kind of two way communication really providing more content to our customers. You know that you only get if you are a loyalty club member, shouldn't just be a sales pitch every time, we want to give them content. We want to make this a very robust program that really people want to be a part of it and it's not just a sales pitch but what it is great offers it's great content, it's the ability to talk to us, it’s really all those things.

Okay. Without going to the markets Country Club Hills if you guys just open new [indiscernible] flagship scale like Sun Prairie in the majestic or is that just the average theater. What you call the entertainer…

Nothing average about that theatre.

Okay. All right.

I mean it is really - it's spectacular. I mean we took the structure and basically got it and I mean and all of our - you see that all of our amenities as you said DreamLoungers one of the screen two super screens Take Five Lounge, Reel Sizzle. I mean it's got all - it's got the whole package there and so it’s, so there's nothing ordinary about that theatre. Last question Brian we are coming to the end of the hour here.

So just one on the M&A when you're looking at selective you know other theatres or whether they be spin-offs, subdeals with the DOJ or whatever or somebody selling. How attractive is you actually owning the real estate underneath the theatres. Is that a deal killer or is it much like the hotel chain where you want to be less perhaps capital intensive going forward.

Its not a deal killer but we prefer it.

Okay. Thanks guys.

Our preferences is on the theater side is we like - we like owning the real estate - but if it doesn't have it. It doesn't mean we're not to look at it. I mean the point to make it's a good place to finish Brian and that is you know we've been in this business for a long time and owning our real estate has continued to work to our advantages, Doug pointed out, we have a huge percentage of recliners because we're not having to negotiate with landlords and cut new deals with landlords and trying to figure all that out. We can move, we can be nimble and this has happened before in our industry and we think that every time that it happens it seems to drive home the point when you own your own real estate man you can really get ahead and get out front.

Awesome. Great quarter guys. Awesome job.

Thanks, Brian. End of Q&A

Thank you. Now I would like to turn the call back to Mr. Neis for any closing remarks.

Thank you everybody once again for joining us today. We look forward to talking to you once again at the end of February now when we were release our fiscal 2016 fourth quarter and year end results. Until then thanks and have a great day.