Good morning everyone and welcome to The Marcus Corporation First Quarter Earnings Conference Call. My name is Shannon, 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 over to Mr. Neis for his opening remarks. Sir, please go ahead.

Thank you and welcome everybody to our fiscal 2017 first quarter call. As usual 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 2017 first quarter. Clearly was another excellent quarter for us and a great way to start off our new fiscal year. And while this is only our second year of officially reporting on a calendar year cycle, we didn't hesitate using the word record several times in our press release as it was very clear that many of our reported results today were records for the capital period in prior years and in fact were records for any quarter that we've ever…

Thanks Doug, I’ll begin my remarks today with our theatre division. We're obviously thrilled to be reporting another record quarter for this division. Once again outperforming the industry. As many of you know coming into this quarter, most prognosticators were suggesting that the first quarter might be the most challenging quarter of 2017, particularly compared to the strong first quarter last year. So once again our industry has proven to be very difficult to predict. That's why you've heard me say it many times before we need to be prepared to take advantage of times like this because as we all know history tells us that there will be quarters where the film product is not live up to expectations. Our team was clearly up to the challenge this quarter and partly the particularly strong March at the box office into record operating results. The improvement in March box office receipts was particularly noteworthy because last year's first quarter benefited from the fact that Easter was early as movie going generally increases when students are out of school. In fiscal 2017 Easter occurred earlier in our second quarter. Clearly the investments we're making in our theatres are continuing to make 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 2 million members with the integration of the Wehrenberg loyalty program. The result is record breaking performance for our theatres. Last year’s film slate during the first quarter was particularly weighted towards strong blockbuster movies as evidenced by the fact that our top five films during our fiscal 2016 first quarter accounted for 49% of our total box office results compared to 37% of the top five films during the first quarter of fiscal 2017.…

[Operator Instructions] And we’ll go first with James Goss of Barrington Research. Your line is now open.

Hi. This is Pat Sholl in for Jim Goss. Thanks for taking the questions. I just had a couple of questions on the integration of Wehrenberg. With the new initiatives that you guys have been putting in place, has a lot of the improvement that you've seen in terms of the performance relative to the industry, has that mostly been coming from attendance gains, I think that was kind of what you had been seeing when you rolled these out at the markets here, so is that correct.

Yes, Pat. That would be correct. We have not made any major pricing changes at all at Wehrenberg. And since we have yet to have any new DreamLounger locations open up yet, they were just under construction with our first one, there certainly have been no price adjustments related to that either. So it's really been attendance.

What would be sort of the pacing that you would like to add --

Hey, Pat. I'm going to even jump in there and follow up and say if anything, because we've rolled out the $5 Tuesday program, I don't have the numbers in front of me, but if anything probably, it's -- even maybe had a slightly negative effect on our average ticket price, because just like when we first rolled out the $5 Tuesdays to all of our regional Marcus theaters, as we grow that business, the mix changes slightly. So it definitely has been attendance that’s been driving it.

And I would even add to that a little bit, which is, look at that, that is one of the focuses of the business is we realize the importance of attendance. And that is whether we talked about scheduling show times and $5 Tuesday appropriately pricing, is it maybe the better way to look at it to drive attendance. And because that has lots of ancillary benefits as you know.

Okay. And then putting in those initiatives, has that been kind of what's been driving the acceleration in the membership for the Wehrenberg, I think you posted that at around 200,000 at Q4, is that still roughly where it is?

I don't have an update of the number at my fingertips right now, but yes, it’s certainly -- there's been a strong push path to get new sign ups and just like what kind of playing out exactly as it played out with our original Marcus theaters, Tuesday is a major initiative in that regard, because as you know you get the free popcorn if you're -- only if you're a member and so I think while we're signing people up every day of the week, Tuesday is a key day for us in sign ups.

Thank you. And our next question comes from the line of Mike Hickey of Benchmark. Your line is now open.

I guess I just wanted to check your recliners solution guidance for Q2. Actually Q1, do you have, Doug, where you were in terms of total installations for your network?

At the end of Q1, it was the same as at the end of Q4 last year. So we had no new ones open up in the first quarter. So we're still at that 48% penetration of the original Marcus circuit and only one of the 14 Wehrenberg theaters with the recliners. But that's going to be changing, we've already -- we've opened up a new theater, as you know, in Minnesota that has all recliners. And then as we mentioned, we have actually eight theaters right now under construction or under renovation with recliners, seven Marcus and one Wehrenberg that are all scheduled to open thereabout by the end of the quarter. They will kind of come on during the quarter, but certainly probably won't have a lot of impact in the quarter itself, maybe a little bit mid quarter.

All right. So you've got 8 –

I don't have a screen count at the top of my mind here for you, but I mean we're on pace as we've talked about when we talked about in our K and everything else that, I mean if all these projects hit and we can get them going, I still see us that by the end of 2017 or early in 2018, we're targeting including Wehrenberg to be in the 60 plus percent range in terms of penetration.

Okay. So that was 18 potential new installations for recliners this fiscal year, right, is that the number you had before?

Yeah. Nothing has changed from what we indicated in the K at this point in time. Again, timing is the wildcard, Mike, as you know and Greg alluded to in his prepared remarks in terms of the challenge for example on the Wehrenberg side is that 8 of them are -- 8 locations are released and so we've just got to let that process play out and so we don't have complete control over that timing. We're working hard to try to get the bunch of these projects go and as soon as we can. So, nothing has changed in terms of -- possible that we listed in the 10-K.

All right. That’s fair. Thank you. The second question, looks like the Q1 concession gross margin was down a bit compared to prior year. Theater operations however was up. That sort of performance for the quarter, should that be a trend as we think about the integration of Wehrenberg through the remainder of the year or how should we think about the margin performance profile? Thank you.

So, if you look at -- you’re talking about that concessions cost as a percentage of the concession revenues, that number.

Yeah. I look at it from a gross margin perspective, which was down a bit, couple of hundred basis points maybe.

Well and I will just tell you that that can and does bounce around. I’m looking at that same percentage for fiscal 2016 and we had two quarters that I'm looking at from a cost perspective, you have the invoice, but on the cost perspective, in the second and third quarters, we were at 28.4% and 28.5% and this quarter, we were at 27.2%. So we were lower than the second and third quarters. You're right. It was high. That cost was higher in the fourth quarter. So mix makes the difference. And certainly, we're going to have a slightly new world, as it relates to some of the food and beverage that's going on at Wehrenberg and we’ll be kind of changing that out over the year, but they have some existing solutions -- some existing food and beverage. So you're right, the mix could be changing a little bit, but I wouldn't -- I don't think that it was -- we don't view it as if there was any major shift occurring there.

Okay. And the -- on the theater operations, I guess the same question, the cost was lower, your margin was actually better compared to prior years. I'm just trying to think through the integration here and –

I get it, although again if you look at the first quarter last year, cost was 85.9%, the first quarter this year was 85.7%. So it actually was quite comparable as it relates to the quarter. So I do caution that there is some seasonality to this and so, we get that in the fourth quarter, we get those huge weeks that certainly have the fixed cost of the fixed cost and then we have that huge December and those couple of huge weeks that certainly can have an impact on that percentage. So when I look at that number, I actually saw that it was pretty comparable to look at the first quarter’s number with last year.

Okay. Fair enough. I guess, we'll see how it works out. The last question for me, I think Wehrenberg had three IMAX screens, and of course we had [indiscernible] takeaways from seeing how IMAX has performed versus your UltraScreen, kind of that has sort of maybe changed the mix as you think forward about maybe integrating IMAX in to your greater circuit. Thank you.

We're always open to the idea of working with IMAX. It's -- we haven't made any decisions yet. It's interesting that we have inherited now and we're working with it and we're seeing how things are going with it. It's really too early to tell how it all plays, because really the argument for IMAX is, it's sort of -- it's halo effect on an entire complex. And it has its positives and negatives. I mean, its negatives are you're stuck with whatever they're playing. We have a really -- when we use our screens, our ultrascreens and our super screens, we have a fair amount of flexibility over what can play. And so that's very helpful, especially in the digital world. The IMAX doesn’t have that flexibility, but the IMAX has a very solid brand. And so we’ve really -- all of 12 weeks under our belt, we’re really meeting more like 16 to 18 weeks, too hard to tell right now, Mike, where we're going to go with it. I did check and we're up to 2.1 million MMR members for people that are keeping.

Thank you. And our next question comes from the line of Eric Wold of B. Riley. Your line is now open.

Hey, good morning, guys. Just a few questions. One, a follow-up on one of the original ones around pricing at Wehrenberg, I understand you implemented the $5 Tuesday, so have a I guess initially adverse effect on average pricing. When you think about base level pricing, where were they relative to the markets they're in and maybe relative to where you think they should have been? Is that an opportunity to increase the base level pricing, possibly in to the summer months or is that something you want to wait for the upgrade of amenities to getting those theaters before you take that price?

I think, their pricing, they had fair pricing and I don't think we're going to make aggressive price changes with them off of that, but we're going to improve the theaters and again, I think we got to go back to our theory of the right price for the right customer at the right time and so when we had an UltraScreen or a SuperScreen, we have the ability to get a premium for that premium experience. When, but on Tuesdays, we're going to have a great deal for customers. They're looking for a price that that would be appropriate for a Tuesday and then on the weekends, we will continue to remain competitive and again as we had DreamLoungers, again every time when we add the amenities, we look for the ability to take the prices.

Okay. And then when you put in play, I know it’s again early days here, but when you put in place the $5 Tuesdays promo at those theaters, what was the response relative to what you saw when you first implemented at Marcus, I mean is it similar level of response and demand improvement on those Tuesdays relative to the weekends and we kind of looked at it to get a sense of, only one change you made, but it kind of, you think back to where Marcus was back, then you started making changes and now you’ve immediately grown the results that Marcus, legacy Marcus theatres. How should we think about comparing that to what you think is opportunities with Wehrenberg from where they are?

I think the opportunity is relatively similar. They did have a $5, they had a discount Tuesday program going, $6 actually. They had -- so it wasn't totally brand new, but it wasn’t -- we take a different approach to it obviously and we're very aggressive about marketing it and sharing it with the customers what we do. The one thing interesting about what we've been doing is, we're now what 3.5 years into this. So it's a program that’s evolved and it started off and it was strong and it got a lot of attention and this is doing the same thing there. We're seeing good results there, but it takes time.

And then last one on the theaters, remind us kind of what your situation is with the reserved seating, reserved seating fees and those kind of becoming topic out there, what percentage of your admissions in the quarter were reserved and kind of how we should think about the fee flow from that?

So we’ve put in reserve seating when we go to the DreamLoungers. And we have -- and we referred to the fact that our other revenues certainly continue to increase and Internet ticketing surcharges are a big part of that. It’s certainly a key part of that number. And so I think that's what you see happen Eric is that when you go to reserved seating, I think there becomes a shift towards more people using buying their tickets ahead of time and buying their tickets online and that's where that corresponding benefit then in turn occurs. So as I mentioned, I mean if you look, we had $3 million of increased other revenues for the entire company, with pretty much all theaters and a 1.5 million of that was our existing core circuit, pre-show advertising and the Internet surcharge and the 1.5 million was Wehrenberg with pre-show advertising, the Internet surcharge and then the rental revenues as well. So I mean that's important money, that’s important dollars that flow through to the bottom line.

Do you know what percentage of your admissions for the legacy Marcus circuit was -- were from reserved fees?

It starts to get up. I don't have that off the top of my head, but maybe someone who's listening is going to send that into me, while I'm sitting here, but we used to hover in the single digits. I think it gets up in the 40% to 50% range where you're getting, look, everything is reserve, it’s 100% reserve, but how many you're buying ahead of time I think is the good thing you’re trying to find out.

Okay. That makes sense. And then last question on the hotel side, I know you mentioned that you’re coming out of the Wehrenberg, it’s kind of tough to take price out of ADRs to move those up, as you move out of that, what are your thoughts on, now that you’ve kind of completed the construction, getting into hopefully a stronger year, is that something that you want to lead on in terms of price or is the market competitive enough that you kind of want to sit back and see how that flows?

Well, as a question are we going to be pushing ADRs, is that the general question?

Pretty much yeah or kind of wait until to see how the market responds for us to kind of not be the leader, be more the follower or not?

We would like to push rate, we try to push rate. These are decisions that are literally made daily and hourly. We're constantly looking at and seeing what happens and watching pace and seeing if we have -- and look, if we have the opportunity to push rate, we're going to, but I don't know how, I've been surprised that the world has not been able to push rate more than it has. But I think probably the transparency brought on by the Internet has made that a little bit challenging. And then in Milwaukee, we’ve gotten a lot of products. So occupancies are holding up, but you're not going to be able to push, to absolutely just push rate like crazy, which is we wish we could.

[Operator Instructions] Our next question comes from the line of find of Ryan Hamilton of Morgan Dempsey Capital Management. Your line is now open.

You guys were just kind of touching a little bit on one of the questions that I had. I was just curious if there's any other dynamics that you're kind of seeing with your rewards program and your online ticket sales that are forcing you to or not forcing you, but making you adjust kind of your business or the way you kind of do things?

I’m not sure I completely followed it. Say it again, Ryan.

Like for instance, perhaps, you're seeing more online sales where people are picking up at a kiosk or something like that. Is that making it, so you have less people, maybe working at a collar or register or something like that?

Well, look, I think that you're asking an interesting question. Yeah. We do -- we obviously see that, especially Tuesdays, it really is quite aggressive in terms of people buying online and trying to get their tickets early. But I think that ultimately I do think that this -- that there's going to be just like in a lot of businesses, there's going to be a movie technology that's going to ultimately reduce the reliance on labor. I sort of suspect and we’re starting to see touches of it. When you walk up to a box office, it might look more like you're walking up to, ticket counter with an airline.

Okay. Yeah. I was kind of thinking, maybe you’re adjusting more people to concessions versus at the door or something like that. My other question was, what are the plans right now with that recently acquired retail space? In St. Louis. Yeah.

We’re managing it. If you remember, real estate is, well, well, it’s called real estate, one of our, the hidden business and so we're managing it and we haven't had any terminations to what we’re going to do with it. Yeah.

Thank you. And at this time, it appears there are no other questions. I like to turn the call back over to Mr. Neis for any additional or closing remarks.

Well, thank you everybody for joining us today. Really appreciate it. Maybe, we'll see some of you next week at our upcoming annual meeting. It’s on Thursday May 4th at our Majestic at Brookfield cinema. For those of you can't attend, we certainly will be webcasting the meeting as always. We also look forward to talking to you once again in July when we release our fiscal 2017 second quarter results. Until then, thank you and have a great day.

That concludes today’s call. You may now disconnect your lines at any time.