Good morning, everyone, and welcome to the Marcus Corporation Second Quarter Earnings Conference Call. My name is Jonathan, and I will be your operator for today. [Operator Instructions]. As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer; and Doug Neis, Chief Financial Officer of the Marcus Corporation. At this time, I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you very much. And welcome, everybody, to our fiscal 2018 second quarter conference call. As 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 can include, but not be limited to, statements about our future revenues and earnings expectations, future RevPAR occupancy rates and room rate expectations for our hotels and resorts division, our expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future, our expectation about the future trends in the business group and leisure travel industry and in our markets. Expectations and plans regarding growth and numbers and type of our properties and facilities, expectations regarding various nonoperating 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 could 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, let's talk about our great fiscal 2018 second quarter and first half. Our press release was dominated by the word record on what seemed like virtually every sentence, so we're obviously pretty pleased with the results we are reporting today. We reported record revenues, operating income and net earnings with contributions from both divisions. Our theater division results were not only a record for the second quarter, they represented an all-time record for any quarter in our history. And our hotels and resorts division also reported improvement in revenues…

Thanks, Doug. I'll begin my remarks today with our theater division. November say it all, it was an outstanding quarter for the industry and even better quarter for Marcus Theatres. In fact, as our press release notes, it was the best quarter in our history. There was a phrase that I've used periodically on these calls in the past and that I feel best summarize at these record results for us, "Success is what preparation and opportunity meet." Based upon the quantity and quality of films that were scheduled to be released during the second quarter, we knew that we had an opportunity to have a very good quarter. We also knew the type of films scheduled for release during the quarter were likely to play well with our Midwestern audiences, further enhancing the opportunity. And as the quarter unfolded in the Midwest, there were number of rainier and warmer weekends than we experienced last year, we knew the opportunity was even greater. But it was the other half of that well-known phrase where we excelled, our management team and operational staff led by Rolando Rodriguez was extraordinarily prepared for a quarter like this and their execution of our proven successful strategies, which included the significant addition of amenities, took us to a new level, outperforming the industry by an incredible 10 percentage points. Everyone in our industry had an opportunity for a good quarter. But our preparation over the last months and years for that matter put us in a position to have a great quarter. And for that, I want to begin by congratulating Rolando and the team. They should be very proud, as should our shareholders. There were a number of factors that contributed to our industry outperformance. But we absolutely have to start with our Marcus…

Our first question comes from the line of Mike Hickey from Benchmark.

Just curious on your performance, it sounds like Wehrenberg is definitely doing some heavy lifting as well as the outperformance in both general market. Is this the first quarter that you're really seeing it as, sort of, fire up here and [indiscernible] ways sort of envisioned it. And if so, should we sort of expect more outperformance in that piece of your network over the remaining several quarters here forward?

Yes, I mean, yes, we were starting it -- we're starting to see it near the end of the fourth quarter last year. As you know, we had a heavy push to get things, a lot of the projects completed then, so we saw some of this in the first quarter as well, and we still were completing some projects, but this was by far the -- so far, this is the best quarter that we've seen from that particular segment. And look, we -- last year during the third and fourth quarters, we had a, as I mentioned, a pretty heavy push of those properties with a lot of screens [ph] out of commission and putting in a lot of the amenities, so there's no reason not to think that they're going to continue to do well for the remaining two quarters of 2018 on a comparable basis. You still have to have a food ph product for that. Year-over-year, we certainly expect it ph to continue to outperform.

I'll give you an interesting piece of color, Mike, and that is, we didn't do everything we wanted to do to the theaters, and there's -- and it's like I figured out for 2 reasons because, one, it highlights the benefit of holding our real estate, because the reason we couldn't do everything we wanted to is because it really came down to negotiations with landlords and what they would -- we wanted, it's a different approach. When you lease something than when you own it. And when we own it, we can make a decision in in goals. I think that's proved to be a strategic advantage for us, and I think you all know that. But I think the interesting thing is that if something should happen and we -- we'll keep working with them, but we didn't even do everything we wanted to do.

Our next question comes from the line of Brian Rafn from Morgan Dempsey.

Let me ask -- on the Wehrenberg Cinemas. What was kind of their performance before you guys purchased them on a legacy basis? Were they are performing well? Were they suffering? Was traffic following? And I'm wondering, with the additions of the amenities you've added, if that, kind of, supercharged them? Or were they functioning all right on a legacy basis?

Brian, these were nice theaters and it was a really great followings. And Wehrenberg has done a great job of developing and locating these theaters and they had a good team of people, but it certainly needed capital. And so I will tell you that they were -- they were -- and we had shared this previously, they were -- the year before we took over, they were underperforming in the nation. I can't speak to prior to that necessarily, but that particular year, they were underperforming. And so, yes, there's no question that we've -- As Greg said in his prepared remarks, we've -- we're able to take all these proven successful strategies and apply them. And these theaters are cooking right now. They're doing great and it's not -- as Greg also mentioned, it's just not about the capital, there's a lot of hard work and a lot of great effort by a lot of people. So really transformed these theaters and they're doing great.

On that, [indiscernible], on that transformation. Were you doing beyond just DreamLounger and concessions? And were you doing painting, lighting, carpet: a total rehab? Or was it just kind of selectively theater by theater?

Yes, Brian. Well, we haven't -- it is done -- we do evaluate it theater by theater what we're going to do. But I think that, as Doug was saying, it's sort of what you're pointing out. The amenities are important. But really what it is, is it's an overall approach. And this was a nice house in a great neighborhood that needed to be -- that just needs some love and care, and we brought it in, and that love and care is adding amenities, that love and care is a lot of innovative marketing strategies and then a lot of hard work. So we never say it's 1 thing. It's never just remodel. It's never just pink [indiscernible] it's -- it is the entire package.

Let me ask you, Greg, are there any concepts in food and beverage, concession, anything that they did that was unique, that you may borrow and bring to Marcus theaters?

I don't think there was so much in food and beverage that they did. They were -- they had some -- we've watched some of their -- they did some stuff with dine-in theme that we -- dine-in theaters that were sort of interesting. But more, there's been some -- there's been -- I'll tell you one thing's been very interesting that our guy were tell -- was telling me. Because I asked the question, "What did we learn from them?" because we've talked about this. It's important, not only to what do we bring but what can we learn from somebody? And they've had -- it's [indiscernible] alternative content, the Bollywood content, the Indian films that we've playing. That's been a very successful endeavor for us, on the alternative content market, and they get some real good existing relationships that we've been able to lever across our circuit, the "legacy circuit". Let's call it that.

And then from the standpoint of your loyalty program and its adoption in Warburg, how has that kind of taken off? How successful has that been?

I'm sorry, say it again.

Your Marcus Rewards, your loyalty programs, how successful has that been with them and one, did they have a legacy program like that? And two, what's been kind of your inroads with the Marcus Rewards?

They had a program, but the last program was -- we had a different approach to it, and it's done very well. We converted their members and then we've been very focused on putting new members to it because we think that our loyalty program is an -- is an -- as we've talked about numerous times in the call, it is one of the most important assets in our company and the Theater business. Sorry. I'm focused on it and it's doing well.

Our next question comes from the line of James Goss from Barrington Research.

I was wondering if there is any change to the theater template that's developed and upgrades to existing facilities to evolve to the new style?

Not sure if I completely understand the question, Jim. What do you mean by that? Just to be -- make sure we answer correctly.

Just over time, you've always had very nice properties but over time, as you've done all of the reseatings and the PLF and the various other things, sometimes you get new ideas that might be applied to the older properties. Maybe another way of saying it: what share of your facilities are where you want them to be right now? And are there any of the older properties that might need some updates to get them to the latest standards.

There's a lot packed -- I'll try to unpack that question in multiple parts. I think the first part is, have we evolved? Yes, we have evolved in terms of those -- in terms of how we approach the different -- and so for example, let's take recliners. It's not just recliners anymore. It's, in our PLFs, we're putting in recliners with heated seating. So we're adding that amenity to that via -- we have the -- on the food and beverage concepts.

Our next question is a follow-up from the line of Mike Hickey from Benchmark Capital.

Sorry, I got dropped on my setup there. My fault. I just want to circle back on your thoughts. I realize the second half's slate maybe from a growth perspective, it's maybe a difficult comparable, but looking at '19, sort of curious your view there because when you sort of look at -- amid the top 10, top 15 movies, you see a lot of family kid-centric movies, quite a group of them, actually, and so I'm thinking about your sort of midwestern audience and I think, traditionally, you sort of over index in that genre. But just sort of curious, I guess, broadly your thoughts on the '19 slate and maybe the mix shift towards family-friendly and how you would perform in that environment?

[Operator Instructions].

Okay, somehow we got disconnected there, so I'm not sure where we got disconnected, we kept talking. Jim, are you still on the line?

Oh, it's -- Mike Hickey's on the line.

All right. So Jim if you're done, you can get back -- go ahead and get back in the queue -- if you're not done, go ahead and get back in the queue. Mike are you on the line now?

Yes, I am back, so...

You hung up on -- yes, you got disconnected from us and we got disconnected from everybody, apparently. All right.

All right. So I asked this question to a void, I guess, last time. So I thought I did a pretty job, so I'll try again to. But just curious, I guess the second half of this year, from a slate perspective, looks a bit difficult, I guess, a hard comparable. Maybe the movies aren't there. What we'll see always a best of chance for a surprise hit. But looking at the 19 slate, I'm thinking about sort of the top 10 target to movies. You see what appears to be a lot of potential family-friendly, kid-centric content: Dumbo, Aladdin, Toy Story, Lion King, Frozen and a few more and then thinking about sort of your Midwestern audience, I think, traditionally you've done well in over-indexing in that genre. So I guess I'm just sort of thinking, I know it's difficult, but just broadly speaking I guess your thoughts on the '19 slating, and maybe specifically your opportunity of more family-centric-type movies?

Yes, well you certainly -- you did list a few of them. Disney is, in particular, has a -- looked -- on paper, it looks like a pretty impressive slate of some films in 2019 that -- you rattled off a few of them. I mean, I'm looking at their tentative slate right now and seeing things like Dumbo and Penguins and supposedly -- it looks like an untitled Avengers and Aladdin and Toy Story 4, and the Lion King and even ending the year with a Frozen 2 if they hold to the sketch. And again, we're talking -- when we're talking 2019 like you never quite know what drips and what comes in and out of the schedule. But, I mean, on paper, yes, our guys were looking ahead to 2019 and basically, as you've mentioned, films that tend to play very well in the midwest and that looks good.

Okay, great. And then, have you been asked on the subscription plans yet? If not, I have a question in that direction?

I couldn't hear you. Could you say that again Mike? I'm sorry. It came through a little terrible.

Yes. Sorry. Just curious, if you've been asked yet on some of these emerging subscription plans. I think I've asked you before, but now we have AMC, which looks like to have a fairly compelling offer here that could be sort of a long-term opportunity or sustainable, given where they've priced it. So I realize you have the $5 Tuesday, which apparently has been an enormous, growing success for you, and so that offers [ph] you some variability on pricing for your pay trends. I'm just curious if you could update us, I guess your thoughts on sort of evolving pricing models and the potential maybe that you see in some sort of subscription plan and driving it from no attendance and get revenue from your theater [indiscernible]?

That's a great question, Mike. I don't have the -- I don't have the answer on what does it mean. I think you're right to be watching it. We're watching the whole thing very carefully and what does it mean. I think the lesson, and I think it's a lesson that we saw with $5 Tuesday. And that we see, which I would say is, "Okay, we have our $5 Tuesday. We also have a $20-a-month subscription programs. You come on Tuesdays and it's free now. If you come every Tuesday is $20 and yes, we throw in the popcorn." So we have a very competitive offering. But what we saw, and I think the big highlight is and the big take away and it applies everywhere to this thought, is that as the ancillary markets have been flooded with profit, the Netflixes of the world, the Hulus, everything, the video on demand at very low, low prices. They're impacting the upstream pricing. And so we had seen a lot of value customers migrate to those ancillary products. But when we came out with a competitive offering, we were able to bring them back to the theaters. And that's why we think that these programs are very successful, because we're bringing people, who had left and weren't coming anymore. And when you look at the audience that are there, we see new people coming back to the Theater who haven't been there for a long time. And I think that's a take away and I think that's -- how do we build in it because it's incremental and that's the point. That's what everybody wants to see: incremental business. So how do we develop strategies that drive incremental business?

Yes, Mike, I'm going to share a quick number with you and a stat with you, too. And I think it's really interesting because -- everyone talks about the blockbusters and the top 5 pictures and clearly they were a key driver for this particular quarter. But that second tier of films, that's where, for example, from our programs, I think, has really succeeded. I mean, look at that $5 Tuesday program. Interesting fact: when I look at the top 20 films this particular quarter for us, interesting note that when I look at numbers 10 through 20, we outperformed the nation on 9 out of those 11 films. So I think that speaks directly to Greg's point, is that we have tapped into -- we've been able to, through our various programs, tap into a customer who likes to go to movies who is also price sensitive and they're seeing those second films as well. And we've done very well with that.

Somebody comes in our theater, it's -- on a Tuesday, if what they want to see is sold out, they'll go see something else.

Yes, I've heard that too. It's pretty awesome.

Your next question is a follow up from the line of Brian Rafn from Morgan Dempsey.

Yes, question, Greg, you talked about the Wehrenberg not being able to do because of real estate being a -- having to deal with the landlord. Is there any potential to convert some of those leases to ownership? And of the things that you weren't able to accomplish, is that something that's just deferred and that you're going to be -- whatever innovations or investments you're going to make, you're make down the road?

I hope so. We don't have anything that we're talking right this second. But we do always watch out for that opportunity and we'll continue to plug away at it. My whole point was that as good as it was, it, interestingly enough, it might have been able to be a little bit better.

Yes, okay. And then if you look at the film slate, is there any difference in impact for concessions: food and beverage, depending on the genre? So I mean, do love/romance, is it different from action, different from comedy versus maybe movies for kids? Do you see different impacts in sales of food and beverage and concessions?

Absolutely, depending on what's playing, they have different, some people -- some people -- you have eaters. Sometimes you have drinkers. Sometimes you have -- and our job is to market to the people that are there that week, for the film that's playing that's driving attendance. And to develop programming around our food and beverage that maximizes who's ever in there.

You know what's interesting, Brian, is that, that in the past, we always talked about the fact that the family pictures, the kid pictures, they'd use a lot of -- they were better for concessions. And that's probably still true, however, they're not as good for the up-scale -- the enhanced food and beverage. The kids aren't into bars. And so, from that perspective, we actually have products that kind of deal with both side of the spectrum, again, depending on where the -- what types of films are playing.

But I can tell you, conversely, there's not -- we can't make enough Cosmopolitans for Sex and the City.

All right. Let me ask you, now that you've had the BistroPlex Greendale opened since June, what kind of has been your experience from sales per customer, traffic, number of auditoriums sold out: is it a different -- is the enhanced experience different than the normal -- what you see under normal auditoriums?

Brian, we just don't -- we don't provide that kind of detail that you're asking for, for individual theaters. It's a different product. And so the customer patterns can be different and it's kind of apples and oranges. And so -- but in the end, we're still showing movies and we're serving food, and depending on the time of the day and the type of movie, it's various -- just as much as other theaters. So -- but other than that, [indiscernible] any more detail.

Let me ask you, just on the BistroPlex concept, is that something that we should think about like your flagship where you have Sun Prairie and you have Majestic, but you're not going to be opening dozens and dozens of these of these huge flagships. Is the BistroPlex like that? Or is it something that, as you roll it out, that you may have many of these -- a number of these locations?

Well, I mean, look, like we do, pretty much everything that we do Brian, we do run. We then -- we're now about to do a second one, and we'll see where we go with that. I mean, It's a kind of a -- it's a product that is growing across the country right now. There are more of those. And it's still kind of a specialty product. You're not going to plop these down everywhere. You need the right demographics and the right quantity and -- but we're, I mean, if successful, then we'd certainly see it as a potential growth vehicle to do some more. But you know, we're -- you know how we operate. We're very disciplined in our approach and we we'll see where we go next. We do have another person waiting on the call, here, Brian, so I think -- do you have anything else? Or should we move on to the next question?

Yes. I have one, the installation of the heating in the DreamLounger, that's pretty easy to do?

Yes, it's just a different chair. And so...

We just have a tray.

Oh, you do swap it out. All right. Okay.

[Operator Instructions]. Our next question is a follow-up from the line of Jim Goss from Barrington Research.

Well, so I guess I got cut off somehow. But so partly what I was getting at is if you step back and look at the Wehrenberg acquisition appears to have been your home run. It was perfect acquisition, well priced, right size. It's made a difference in your financials as you've been able to renovate the properties. At this stage, you have gotten used to renovating the various properties, and I was just wondering if there's a share of the earlier theaters that you feel you've [indiscernible] returns by updating them to the latest standards you've been developing? Or if you're pretty well up to date in terms of CapEx and now just need to find that next Wehrenberg acquisition to move to the next stage.

And what I'd said, Jim, I think we got -- we got cut off, but we were talking about, really for the most part, the legacy circuits how we refer to it. It is -- we've really -- it's pretty improved. Are there options? Yes, the other stuff -- we've been looking for things where -- I was talking about our concept of the Mexican Kitchen, which is a Mexican food kiosk we're testing. Because one of the key things that we need is attendance. [indiscernible] -- we have enough attendance to be able to drive enough volume to pay for the cost of putting in the amenities because it's a significant investment. Some of these markets we operate in, we don't necessarily have enough attendance. So what we're working on are some concepts that we can leverage the amenities in smaller [indiscernible] if we have smaller attendance. The -- but -- our macro basis, really, those are really marginal opportunities. I look at -- we're looking for every last dollar. That's our job. But I would say overall, I think our circuit is pretty fully proved.

And it sounds like your food and beverage actions might be the key to the next stage of creating incremental returns on the existing properties out of some of these [indiscernible].

We've done a lot of it. It's in a lot of our [indiscernible] and many of our facilities that are running.

Greg referenced earlier, Jim, our loyalty program as well, and there's still -- we think that there's still ways for us to further leverage that as well. And so, and believe me, the guys -- the whole team is not just saying okay, we're done. They're constantly working on new ways to continue because this is a business that, as I mentioned before, has a lot of leverage and so that incremental customer can be very profitable for us. And so that's what they're thinking about every morning when they wake up.

And what Mike was bringing up regarding subscription program, I was thinking about, too, that would make sense to, at least, being an area to consider.

Watching. Still watching very carefully.

We haven't talked too much about the hotel properties but the fact's that you did sign a couple of properties to manage in El Paso, and they're not the same brands. It's Hilton, a variation, and Marriott. How did you find those? They're sort of out of your geographic sphere. And do you any sliver equity in those? It seems like they are very consistent with what you've been heading toward for the -- in a way, it's sort of -- Oklahoma City. It's probably the closest thing to El Paso.

Houston is probably, Houston -- the Hilton Garden in Houston [indiscernible]. It was simply -- look at what we have. We have a team of people who are out looking for opportunities for us. And because we just -- an opportunity that came by and they liked our story and they liked our message and they hired us. This does not have any sliver equity in it.

At this time it appears that there are no further questions. I'd like to turn the program back to Mr. Neis for any additional closing comments.

Well, listen, thank you, everybody, for joining us today. We look forward to talking to you once again in October when we release our fiscal 2018 third quarter results. Until then, thanks and have a great day.