Good morning, everyone and welcome to The Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Michelle 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. Sir, please go ahead.

Thank you very much. Welcome everybody to our fiscal 2016 fourth quarter and year-end 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. Our forward-looking statements could include, but not be limited to statements about our future revenues and earnings expectations; our future RevPAR, occupancy rates, and room rate expectations for our hotels and resorts division; 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 fourth quarter and our completed fiscal year. As our press release noted, we’re reporting record revenues and operating income for both the quarter and the fiscal year, thanks to a record performance from our theatre division in both periods, once again significantly outperforming the industry. Results from our hotels and resorts division were down this quarter, but for the full fiscal year, we reported increased operating income versus last year and we're also outperforming in…

Thanks, Doug. I'll begin my remarks today with our theatre division where the number certainly speak for themselves. It’s tough to compare a 13-week and 52-week numbers to 14-week and 53-week results last year, especially when last year's results included the highest grossing film of all time. But thanks to our Screenvision incentive payment and yet another quarter of sizable box office outperformance, we reported another record quarter in our theatre division. And as our press release notes, this wasn't just a record fourth quarter, it was the best quarter we've ever reported in our history. And of course, fiscal 2016 also was a record year for us. Thus, I want to start my remarks by congratulating Rolando Rodriguez, our management team and the entire theatre operational organization for their performance. Let me give you a little secret. Our theme for this year's annual report will be the phrase, deliver great experiences, achieve great results. And our theatre division performance in fiscal 2016 epitomizes those profound words. Our press release went into a fair amount of detail and now Doug has provided even more information about our theatre division's fourth quarter and fiscal year. Other than adding that the strength of the fourth quarter film slate was a four week span in late October into early November and noting that we were pleasantly pleased with the performance of Rogue One: A Star Wars Story, which lessened the impact of going up against Star Wars: The Force Awakens last year. I'm not going to use my time today to talk further about what just happened. Rather, I'm going to focus my remarks today on two topics, the Wehrenberg theatre acquisition and our plans for fiscal 2017. If you have additional questions about our reported results, I'll be happy to try to…

[Operator Instructions] Our first question comes from the line of Eric Wold with B. Riley. Your line is open, please go ahead.

Quick follow up on, Greg you mentioned the Wehrenberg acquisition and possible 1031 [ph] track charges you talked about in the past. If you were to do something on that you have to complete it within six months. Correct me if I’m wrong on the timing, so just remind us what is the timing for when you have identified one or more assets and then is the six month clock start from the closing of the Wehrenberg transaction or closing of when you identified the asset. And then based on those, have you identified assets that you know about naming them that you think would fit as a possible 1031.

So the way the timing works is that you have 45 days after the close of the original transaction to identify, Eric. You have six months from again the closing of the original transaction to then follow through and execute on that. So the short answer is yes we have met the requirements of the identification process that day has come and gone and June - we closed on December 16, that’s June 15 - mid-June of 2017 would be the six month date.

And is that, do you have to close on the sale of hotel or can it be a definitive agreement with the closing letter.

Any subsequent transaction and this goes either way with a regular 1031 transaction or a reverse 1031 transaction. The transactions themselves the pairing the matching transactions have to occur within that six month time period.

And then a couple questions on Wehrenberg, I understand you're limited in terms of where the private company but you mentioned that the per screen hour at the box office per screen would be similar to what markets had a few years ago before kind of the enhancements that have been done in the theatres. Can you give us a sense of kind of where they're kind of food and beverage per screen is relative to market same timeframe and then also maybe some kind of general thoughts on margins.

Sure, on both of those. So, on the food and beverage side, Eric, I was actually - it was remarkably close to what our percentage was back then as well. So we’re right now, because they have some food beverage I mean besides the traditional theater type stuff as Greg mentioned is his prepared remarks they have several in lobby concepts, they have dabbled with some in theater dining a little bit as well. Having said that it's not as anywhere near as extensive as where we are today. So when I look at their current percentage of the concessions in food and beverage revenues as a percentage of box office that's one way of looking at it. That percentage is also very close, very similar to where we were back in fiscal 2013, 2014 before we really got heavy into our various investments. From a margin perspective their margins have historically not been as good as ours. But good but there's not that quite as good as ours.

And if we - last on, if we look at the ramp that Marcus had in terms of box office and food beverage per screen over that you know call it three four year period. Should expect a similar ramp timing for Wehrenberg, I mean all the theaters kind of, lot having done their kind of consider, all them fair game for improvement and then conversely have you learned enough for the past few years that can actually make that ramp faster Wehrenberg versus what you experienced in markets.

I'm going to answer questions two ways, Eric, first in terms of the bridge on what the ramp will be, I'm not going to predict exactly what the ramp will be. But in terms of our putting in - but we are going to be improving the asset actually at a faster pace than we did here. That's because we frankly we have the experience now, we know what we're doing, the team is seasoned and so our game plan is to move very rapidly to improve the assets.

As far as timing in this year as I mentioned I think the reality is that you know it will be second half of 2017 when things will start to happen. It terms of again we're not going to put you know we're now in the industry is now much farther along in this process than when we first. We were in the front end of this thing we were one of the first theater companies to really jump in on a bunch of these amenities. So I don't think that anyone is necessarily predicting the same kind of dramatic increase improvement that we saw in our first four locations for example. Eric, we had locations where it doubled. I mean it was you know as you know in [indiscernible] similar things. But we certainly do expect some improvement and I will tell you this too. Greg talked about the fact that there's the improvements that the capital investments and then there's the other things and we're already working on the other things and we've already - there's already been improvement in their - just by introducing more formally our $5 Tuesday program and we're working very hard to integrate the loyalty program and we've done some other operating changes to kind of do things more the way that we you know have been very successful of doing not to knock where Wehrenberg was doing because as I said they've been very successful but we've been continued to try to add some of our operating elements as well and we've already seen some improvement that in regard.

Yeah. Exactly. The operating improvements the team moved very fast on that front. And that was similar to what we did here, we were making these operating improvements here before we’ve physically been able to do all the physical things. I'm going to highlight one distinction here and that is that where we have the - it's talks of the benefit of owning our own real estate. One of the reasons we’ve been able to move very quickly in the existing market circuit was because we own so much of the real estate we can make decisions and move up. And in Wehrenberg, we own the real estate, we can make decisions and move on them. But there's Wehrenberg involved in some of these locations and we're going to have to get a proper deal struck before we can make that investment. And so that may be the only thing that could slow things down a little bit but what we're really pushing and moving things along.

Our next question comes from the line of James Goss with Barrington Research. Your line is open. Please go ahead.

I have a couple also. First, I was wondering about the immediacy of the benefits from your theater upgrades. And like is there sort of a pent up demand when the locals see that occurring and have you had any pricing pushback. And how have you tried to measure that.

So help me out a little bit more on the first - second - each separately, the first question, help us out a little bit more Jim in what you're asking there.

And I'm just wondering if you know usually the reseating and the other amenity additions to the extent that they haven't been available in the theater have been pointed to have say a 40% return. I think that seems to be a common thing I heard about it from the industry. Is that occurring almost immediately upon opening the doors with the upgrades or I suppose your phasing in the upgrades to your not closing a theater and you probably do half of the time or something like that. I'm just wondering how quick you see those returns occurring in the return on investment.

I don’t know the exact speed of it we see the initial pop. We see it moving the word gets out but then it's something that you know we can view the market and work on it, teams are out there selling it because you got to go sell it and we continue to see grow even in year over year. So I’m not sure that I think that our - I’m not sure that we follow much of a different pattern than anybody else.

And I do appreciate your comment Jim, about the fact that you're right there is some disruption while this is going on as well because we keep these theaters open and you take out auditorium in blocks at a time and so that's - there's an art to that as well in trying to minimize the negative impact. So I would just say that that was an astute comment to mention as well. And I would echo what Greg said is that is that we certainly see an initial pop but it's not just [indiscernible] and then we're done, it certainly growth to it.

What was the second part of your question?

On pricing, are there some price upside that you can have too much price upside, I’m wondering how feel your way into that, what's appropriate to spur demand in that push back.

I'm glad you asked that because it talks to our strategy which I think is one of the benefits of having been in the hotel business to understand the concept of revenue management. The revenue management is the right price for the right customer at the right time. And that's the philosophy for the approach that we've taken. So whatever our pricing, if someone says you know well, wow, if someone ever does it, I don't think we get too much of it. But there's an opportunity for a customer at a certain price point to experience our facilities. So whether it's $5 Tuesdays or Young at Heart Fridays or Student Thursdays for $5 there are ample opportunities to get an awesome experience in our theaters at a price point that’s affordable. And yet when that demand is more strong, Friday and Saturday night the price point is appropriate for that as well. And so I think by providing those different avenues and as I said, getting the right customer at the right price at the right time we're able to maximize our revenues and do a good value to the customer.

My shift to Screenvision for a moment, you’re sort of the king standing and in terms of Screenvision now being bought by AMC, yet AMC is selling its MCMI stake and I wonder how that dynamic might change with them more involved in Screenvision potentially. Does it mean anything to you?

They haven't called me to discuss their game plan, so I don't know what they’re planning.

No, will it have any benefit to you or you become a bigger player sort of the way [indiscernible] had or is there anything that might change aside from the one-time payment you were able to receive that you mentioned.

No, Screenvision has been a great vendor and we've had - we worked together as partners because it's very important part of what we do and what are experience is. I'm not sure that’s’ going to change.

Both are good companies and certainly is healthy to have two solid stable competitors in that regard as well. And so certainly we're happy to see Screenvision continue to have a strong footing.

And are you getting any greater appetite for alternative content given your information database with your rewards program and the ability to target audiences in that way?

Well, you bet, that's where this is all going. The idea of being able to talk to our customers and know what they like to build a community to have an engaged customer base. I mean what a great opportunity rewards program is offering us and the ability then to go to those customers and say we have a product for you that you’re going to like. And then you add to that you know with virtual privies start to go away. I think there's really a very interesting dynamic in the alternative content world, a lot of opportunity there.

My last thought is. Any progress in identifying additional management contract from a hotel side?

We're working on it.

There's always a pipeline we’re working on and it's just like the transactional market and it tied to the transactional market sometimes because right because it's not normal that someone just changes management companies. It's usually some sort of transaction or something that's causing that change to occur.

Well the market will slow that means there's less velocity of the management.

So we're watching this. So the kind of related topics but we've got you know we're certainly working on several things and it’s hard to predict when they hit.

[Operator Instructions] The next question comes from the line is Mike Hickey with The Benchmark Company. Your line is open. Please go ahead.

When I guess when you look at your Wehrenberg network now and you think about your future reclined insulation and other amenities. How much competitive pressure is there in that network or is it fairly raw I guess from competitor amenity programs.

How much competitive pressure is - how much competition does Wehrenberg have?

Yeah.

They're in a very competitive markets, but I think is similarly to us. They've done a good job of making sure they've built out their markets and again a sort of market specific too.

I guess I'm just thinking if you put a recliner insulation and the average meter within that network is a competitor with a recliner or is it fairly compelling I guess from a competitive standpoint.

I say it’s compelling.

Also curious on, I guess you sort of expressed your desire that you’re still open to continued deals which obviously makes sense, but given the size here, but Wehrenberg increasing your network plus 30%, your appetite may be less material or how do you think about I guess the size of future deals and I'm guessing you know leverage would be a consideration here, I guess you historically my view at least [indiscernible].

I mean I'll speak to the leverage part of it first, Mike, and say that all right so we just absorbed this transaction and our traditional debt cap calculation is we're still at 42% which is when you think about how much real estate we have in our balance sheet. It certainly would suggest that we still have plenty of capacity. As Greg mentioned earlier in kind of reference to a different question, certainly we took on some more leases as well. And so you know leases are financing, and I don't think anyone should ever think anything other than that. And so we certainly are - need to continue to be cognizant of that and that's going to be a growing area for us with increased rent exposure that we do with some of the mental math that converts that to debt essentially and make sure that we always keep in mind that you know you're signing onto the leases in that regard. But we certainly have capacity.

But to the point Mike, we somehow got to 80 years, 81 years, by making sure we had a fortress balance sheet and being sensitive for that and not. And so nothing is going to change that is going to make us - we're going to always be very sensitive to making sure that our balance sheet is strong. That's how we got to it, we are and allows us to make - to do things that we do. As for bandwidth for the growth of the ability grow and absorb. But we've got a very talented management team, Rolando and his gang are very good, they're very talented and they have bandwidth. But we will always be - but that's it - but you’re asking exactly the right question, it’s always the question I'm going to ask them. Okay, what can we take on because what we do you know we are a company that has always been about quality not quantity and so we want to make sure that whatever we do we can do with quality. But we have bandwidth to continue growing, absolutely.

I guess one last try to add this correctly here. The [indiscernible] you have, any data or view on sort of the organic versus share shift growth list from theatres where you put in recliners and bars. If I remember you may have been looking to add amenities to a theater or two where this kept direct pressure less competitive pressure sort of in single markets. I’m not sure if you’ve done that or not but if you have any data there in terms of the growth list that would be more organic versus shift that would be helpful.

Mike, we don't release that data as you know, so we're not going to be able to give you specific data on that but I will say that we've been pleased with our investments, we've been making some of these investments in markets where we are the sole operator and we've been pleased with what we've been able to accomplish with that.

And our next question comes from the line of Wayne Archambo with Monarch Partners. Your line is open. Please go ahead.

Just on the Wehrenberg acquisition, I don’t you’ve been mention this or not, are you retaining the management team, are they being phased out.

We retained certain people from the management team yes, not everybody.

And secondly are you closing any of their facilities?

No, I'd actually thought I don't think so.

Yeah. There is a pause, this is not a trick question. I just…

No, no. I paused because I was like, well yeah, did I miss something, no, no we’re not.

I mean there's you know again there are leases and things like that that this was a little different from owning but no we bought 14 theaters with 197 screens with the intention of operating 14 theaters with a 197 screens.

But as we get you know once we get to know the assets and really understand what they produce and where they fit into their markets because that's you know we're good but we have to own them for a while, but then you know you never know, we’ll make decisions.

Are they all leased?

No, out of the 14 properties, Wayne, six of them are owned with a fee based with the income, I’m sorry with the real estate including also that 84,000 square foot retail center and then there are eight theaters that are leased.

Those leases there's a wide variance on expiration of those leases?

Certainly.

And do you know what the per capita income is in those markets relative to your existing markets.

I don't have numbers at my disposal, Wayne, but I would just in general say that it is very comparable to the types of markets that were already in. I mean St. Louis and Milwaukee have been compared often I mean two [indiscernible] towns. They are in other states that we’re already in, in Rochester and Illinois. So very comparable to the types of markets that we’re already in which is why it wasn't surprising to us that our per screen average of these theaters is very similar to where we were prior to a lot of our improvements.

And lastly does this preclude you from doing any further deals this year or are there other properties out there that are for sale that you'd be interested in or is this going to keep you pretty tied up for the rest of the year?

Doesn't preclude at all, we're just talking about that. I mean it's - keep in mind this is a very fragmented industry. Once you get past the - we're now number four in the US and but other half of the screens in the country are owned by like 800 guys and a lot of families and a lot of different dynamics at play and so it's not as if there are you know lots of marketed deals that are going on. It’s a case where you just keep relationship going and you talk to people and the timing needs to be right for some of these families and so we just kind of keep our - we’re being very intentional about it and we're being very diligent about watching the marketplace.

I often talk about the theater business itself and things about the theater business and the hotel business. The theater business is a completely uncorrelated asset really almost any business because it doesn't really you know it doesn't really - it doesn’t - it’s really product dependent. It can be - it can be modulating by this economy, when the economy slower that can be good for the theater business. But really the big issue is what the product is and that's true that the transaction market appears completely uncorrelated too, it really depends on more specific family issues and desires and where they are in their life cycle more than does any specific overarching macroeconomic view.

Did you see any resurgence in the drive in business, a lot of drive-ins have closed but the ones that are in Boston market seem to do quite well. Any sense of - is there a resurgence in that business at all.

I’m just trying to think about how Uber might fit into the drive-in business. I have no idea. We are not involved in that at all and are primarily in Midwestern markets, you don't see a lot of it, Wayne, you just don’t.

Our next question comes from the line of Brian Rafn with Morgan Dempsey Capital Management. Your line is open. Please go ahead.

Let me ask you on Wehrenberg, how are you guys going to brand that, are you going to retain the name or is that going to be Marcus Wehrenberg and also when you look across their feeders, what's your sense of, are they dated, are you [indiscernible] counters, lighting, kiosk, electronics. How up-to-date would that circuit be?

As your question branding, we are maintaining the Wehrenberg name but we are going to overlay the Marcus name into it. So you will know it is a Marcus leader but Wehrenberg is an extremely strong name in the markets, it's existed in with a rich history. So we've going to take advantage of that. As for the work - the theaters need work. I mean they've been - they've got great bones but they need a lot of work to be up to date with what we all here know and have come to know and enjoy is very robust facilities.

You mentioned they had, you guys - do they have any ultra-screens or the Dolby Atmos system, I'm assuming they're all digital cinemas that they're not the old real stuff…

That's correct. They're all digital. We’ve mentioned, they actually have - they have four large format screens, one of them is proprietary, they call I mega screen and they have three IMAX theaters - screens at three of their locations. And so up until now we haven't had any IMAX screens, but now we do, now we have three at three of these Wehrenberg locations.

Just out of curiosity, the size of the theaters, of the six that you now own, is there acreage enough that you can expand parking or maybe add a free standing restaurant or they pretty tight slots?

They’re a little bit of lots and things like that. I mean they’re very typical to what we do, but the interesting thing you know is that they’re actually the opposite, you don't really need to expand parking. Because when we go to recliners, which a lot of these seats are going to get out with, we got a recliner, when you cut that seating capacity in half, you don't need as much parking either.

Do they like you guys do they have within their circuit, do they have a flagship like you guys have with the Marcus Palace at Sun Prairie or the Majestic, anything in a large scale.

Yeah, it’s called Ronnies. Very well-known theater in the St. Louis market.

And then you have done such a great job with food and beverages, it comes from your legacy, your restaurant side, certainly the hotels that you guys run. Are there any concepts that they have a food beverage that interest you or it's at all some part of what you guys run.

Oh no, actually they do and that's when you bring up a good point because the one of the things we talk about with this or really any acquisition is we certainly have a lot of ways that we think are very are best in class operating procedures but you know what you know Adam and Eve were the only originals. So it's good to see what other people are doing and learn from what they're doing and we have some - we've seen some things on their circuit that we think maybe that will be able to learn from them.

In the past is there any opportunity as with lease expirations or landlord turnover that you might pursue purchasing some of the real estate and some of the - I think the eight theaters that are leased?

As you know that's something we like to do. It's part of what we think is an operational advantage for us. So if we can we will.

If you can you will. Just out of curiosity, 71 degree weather in February, what does that do - and obviously with heating and small plowing obviously there's a benefit to that but does at all with dramatic changes in [indiscernible] impact foot traffic?

It can Brian in tiny little segments of time, right. One of the things that we talk about every year, inevitably in our second quarter it’s now our fiscal second quarter but in the spring we talk about in the Midwest that every year we go through a few weeks where you know as you know we've been consistently outperforming the industry and by some sizable amount of times. But inevitably there's always a you know a few weekends in the spring where some Midwesterners when the weather turns nice the Midwesterners love just to get outside and we see that we get impacted a little bit. When you look at it in the totality, we are performed by what 6.5 points this past fiscal 2016. So in the totality, it's a blip but during that particular time period sure I mean you know when you live in the Midwest and all of a sudden it turns nice, everyone thinks I don't want to be outside. So exactly, great point, maybe we've already seen in the spring blip now.

And then just Doug, just a sense of maybe your top 10, 15 picture film slate what percentage of revenues, can you put a flavor on 2016, you mentioned a little bit about some of that, the animated is the family pictures impacting food and beverage I get that or like a Take Five Lounge but just from a revenue mix on the admissions.

So from a revenue mix, Brian, I’d tell you that for 2016 it was a little deeper of a film slate than it was last year. Our top five pictures for example and that we listed in our earnings release in our press release were about just under 20% of our total box office. Last year, our top five pictures were about 23%. So on the edges, just a slightly you know slightly less dependent of course you can pretty much hang that entire thing on Star Wars last year. So Star Wars, I mean if you have the number one picture of all time, then that's probably going to end up skewing the numbers a little bit.

And Doug, you talk a little bit about the R2 when you're renovating things what blocks or auditoriums you closed. Are any of the theaters going to be completely shut down or are you just going to work them auditorium by auditorium.

No theaters will be shut down.

And at this time it appears there are no more questions. I would like to turn the call back to Mr. Neis for any additional or closing comment.

Well thanks everybody for joining us today, I appreciate that. We look forward to talking to you again in late April when we release our fiscal 2017 first quarter results. Till then thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.