The Marcus Corporation (MCS) Q2 2018 Earnings Report, Transcript and Summary

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 and operating income during the quarter as well, further contributing to our great results. I'm going to take you through some of the detail behind the numbers both on a consolidated basis and for each division and then turn the call over for Greg for his comments. Now before I dig in these divisions, let spend just a couple of minutes on the line items below operating income. As you see, our interest expenses was is higher than last year, that's due to an overall higher average interest rate during the quarter, rising short-term interest rates on our revolver borrowings and our decision to execute 2 interest rate swaps during the first quarter, converting $50 million of variable rate borrowings to fixed rate accounts for the increase in overall interest cost this quarter compared to last year. We also had an unfavorable swing in our gains and losses on disposition of property, equipment and other assets line this quarter of over $800,000. During this year's second quarter, we had a loss of over $400,000 related to the write-off of seats and other equipment due to our ongoing theater renovation program. Conversely, last year we had a gain this quarter of over $400,000 through the sale of several assets, including couple of formal theater properties. As you know, there can and will be variations in this line item each quarter, depending upon our real [indiscernible] activity and the amount of write-offs we may have related to newly renovated properties particularly in the theater division. I will remind you that another line item on our earnings statement, other expense, is a new line item this year, as we were required to adopt a new accounting standard for patient cost this year. We restated the prior year results to match the new method of presentation, so you'll see a pretty comparable number in the 2017 column. Year-over-year, there was not a material change in this line item, but moving these cost below the line did have the impact of increasing operating income in both years. Of course, the effect in net earnings was 0, this change was just about geography on the earnings statement. And finally, the most significant change in our line items below operating income was, of course, the income taxes due to the new tax law. Our first half effective income tax rate adjusted for losses from noncontrolling interest was 25.3%, significantly lower than last year's 37.3% first half effective income tax rate. I'm shifting gears away from the earnings statement just for a moment, our total capital expenditures during the first half of fiscal 2018 totaled approximately $32 million compared to approximately $55 million last year. Approximately $27 million of our total spend during the fiscal -- first half -- 2018 first half was incurred in our theater division, the majority of which related to our continuing DreamLounger seating projects, premium large format conversions and new food and beverage outlets that we've been discussing for some time now. The $5 million of capital expenditures on our hotels and resorts division was primarily related to various normal maintenance projects. At this early stage of our fiscal year, I have -- still have no reason to make any major adjustments to our previous estimate for capital expenditures for fiscal 2018 of an amount in the $65 million to $80 million range, recognizing that as we pointed out in our recent 10-K and 10-Q filings, the timing of our several of our planned expenditures are still just estimates at this time. We're still finalizing the scope and timing of many of the various requested projects by our two divisions, and we anticipate proceeding with many of these projects as the year unfolds. The actual timing on the various projects currently underway or proposed will certainly impact our final capital expenditure number as well any currently unidentified projects or acquisition that could develop during the fiscal year. So now I would like to provide some financial comments on our operations for the second quarter and first half. As part of these comments, I'm going to remind you of some other accounting changes in the fiscal 2018 financial statements that are important to note as you compare some of the line items to last year. In support to point, while some of these changes resulted in a noticeable variation in specific line items, none of these changes had a material impact on our overall operating income or net earnings. Let's begin with theaters. Our reported box office revenues increased 33.5%, and our concession revenues increased 33% during the second quarter and have increased 14% and 16% respectively year-to-date. The fiscal '18 numbers does include the 2 new theaters that we opened during the second and third quarters last year as well as an accounting change that negatively impacted box office revenues and favorably impacted concession revenues. Now just as a quick reminder, as a result of the adopting the new accounting standard related to revenue recognition during the first quarter, our accounting for our loyalty programs and our Internet ticket fee revenue has changed. In accordance to the new guidance, the portion of the theaters admission and concession revenues attributable to loyalty points earned by customers is now deferred as a reduction of these revenues until rewarded redemption. But prior to adopting this new standard, we reported the estimated incremental cost of redeeming loyalty points at the time they were earned in advertising and marketing expense. So as a result, as you look at our second quarter and first half results for fiscal 2018, while the net effect to these changes in accounting to our theater loyalty program was very close to a net 0 on the operating income line, it did result in a decrease in theater admission revenues, an increase in theater concession revenues and a decrease in advertising and marketing expense. Now where this does become important is when we attempt to compare our theater results to the rest of the industry. The data that we received from Rentrak, a national box office reporting service for the theater industry, represents gross box office receipts reported to it. And so by definition, it would be before any such deferral of revenues for accounting purposes that we or any other exhibitors might record. Thus, we need to add back the impact of this revenue recognition accounting change to our reported admission revenues in order to get numbers that we can then compare to the rest of the industry. So now doing that, according to data received from Rentrak and compiled by us to evaluate our fiscal 2018 second and first half results, United States' box office receipts increased 24.7% during the fiscal 2018 second quarter for our specific 13 weeks. After adjusting for the deferred revenue from our loyalty program, our second quarter box office receipts increased 35% compared to last year. So as a result, as we noted in our press release, we believe our box office receipts during the second quarter of fiscal 2018 outperformed the industry by 10.3 percentage points. When we perform that same calculation for our fiscal 2018 first half, we find that the box office -- the U.S. box office receipts have increased 11.4% during our comparable 26 weeks, meaning that our increase in box office receipts of 15.5%, once again after adjusting for the accounting change, we outperform the industry by 4.1 percentage points on a year-to-date basis. Of course, now we have outperformed the industry average during 16 of the last 18 quarters. Greg will dissect our second quarter performances a little bit more versus the industry in even greater detail during his prepared remarks. Now the second quarter theater increase in our box office revenues was attributable to an approximately 23% increase in attendance at our theaters and an increase in our average admission price of 8.4%. For the first half of fiscal 2018, theater attendance has increased approximately 8%, and our average ticket price has increased 6% compared to last year. Now modest price increase that we took back in October and an increased number of premium large format or PLF screens with the corresponding pricing premiums contributed to our increased average price during the fiscal 2018 period. The second quarter film product was weighted strongly towards blockbuster films and that tends to perform particularly well on the PLF screens. And we are pleased to report increase in our average concession in food and beverage revenues per person of 7.9% for the second quarter and 7.4% year-to-date. Once again, our investments in nontraditional food and beverage outlets continue to contribute to the higher capital spending. I'll also point out that our theater other revenues increased by approximately $2.2 million during the second quarter and have increased by approximately $3.6 million during the first half of fiscal 2018 compared to the prior year periods. Now while a portion of these increases are due to increased preshow ancillary revenues, a larger portion of the increase is related to the accounting change for Internet ticket fees that I've referenced earlier. Prior to the new revenue recognition standard, we reported those fees net of third-party commissions or service fees. And under the new guidance that we adopted last quarter, we are -- we'll now recognize those ticket revenues -- ticket fee revenues based on a gross transaction price. This effect had the affect -- this change had the effect of increasing other revenues and it also increased other operating expense by an equal amount and had no impact on operating income or net earnings. Shifting to our hotels and resorts division, I will start by reminding you that beginning with the first quarter fiscal of 2018, we elected to make an immaterial restatement and report reimbursed costs from managed property on a gross basis. While we've historically had very small management contracts in our theater division, as you know, the vast majority of dollars that have now appeared on our earnings statement as both a revenue item and expense item relate to our hotel division and are now included in our hotel revenue segment data. We restated the prior year to conform to the current year presentation. And given that these amounts have 0 impact on our operating income and net earnings, because we've added an equal amount to our expense section, we have chosen to show a subtotal revenues before cost reimbursements to aid in the comparability to prior years. We've also included cost reimbursement amounts in the footnote to our segment data as well in order to help you with comparisons to prior years reporting. Excluding these cost reimbursement, our overall hotel revenues were up 0.3% for the second quarter and 1.7% for the first half of fiscal 2018, thanks primarily to an increase in food and beverage revenues and other revenues. The largest portion of the increase in food and beverage revenues is due to the opening of the new SafeHouse in Chicago in March last year, and the largest portion of the increase in other revenues is due to an increase in management fees. Conversely, our total revenue per available room or RevPAR was essentially even for the quarter. It was down 0.3% and down to 1.2% year-to-date compared to last year's periods. As we've noted in the past, our RevPAR performance did vary by market and type of property. Breaking out our numbers a little bit more specifically, our fiscal 2018 second quarter overall RevPAR decrease was entirely due to a 0.8% decrease in our average daily rate, or ADR, partially offset by an overall occupancy rate increase of 0.4 percentage points. On a year-to-date basis, our fiscal 2018 first half overall RevPAR decrease was entirely due to an overall occupancy rate decrease of 1 percentage point, partially offset by 0.2% increase in our ADR. 3 of our 8 company-owned hotels reported increased ADR and RevPAR during the fiscal 2018 second quarter compared to the second quarter of last year, and 4 of our 8 company-owned hotels reported increased ADR and RevPAR during the fiscal 2018 first half compared in the first half of last year. Now according to the data received from Smith Travel Research and compiled by us in order to compare our second quarter and first half results, competitive hotels in our selective market experienced an increase in RevPAR of 2.2% during our fiscal 2018 second quarter and 0.1% during our fiscal 2018 first half. It means that we slightly underperformed in this division during the fiscal 2018 periods. Greg will discuss performance versus the industry in greater detail during his prepared remarks. And finally, I'm pleased to tell you that the results of the increased management fees and improved performance in several owned hotel as well as the fact that last year's results included preopening expenses and start-up operating losses from our new SafeHouse in Chicago, hotel division operating income and operating margins increased during the second quarter and first half of fiscal 2018 compared to the same period last year. Now before I turn the call over to Greg, let me briefly address the increase in our corporate segment operating loss during fiscal 2018 periods compared to last year as well. As our stock price increased over the past few years, so has the value of our long-term compensation. So that's also -- so that's impacted the corporate numbers. We've also had an increased legal expenses during fiscal 2018 and that's the line item that will always have variations depending on what's going on at that time. Finally, we have also increased our contributions through our various pension and 401(k) plan as well as our charitable giving in 2018, both in response to reduced income taxes that we're now experiencing. So with that, I'll turn the call over to Greg.

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 Wehrenberg Theaters. Our thesis, when we purchased these theaters in December of 2016, was that we had an opportunity to take our various strategies that had fueled our outperformance at our legacy Marcus Theaters, our secret sauce if you will, and apply them to these acquired theaters, which equally -- with equally successful results. Over the past 1.5 year, we then set about implementing those strategies, including introducing our DreamLounger requirement seating, our theaters' food and beverage concepts, our proprietary PLF auditoriums and our innovative marketing, loyalty and pricing programs. I make it sound easy when I say that, but it wasn't. It took a lot of capital and even more hard work by our dedicating associates to transform these theaters into the entertainment destinations that they are today. But the results are there for you to see. We don't disclose individual theater performance, so I'm not going to share the exact numbers with you, but I will say this, if our total circuit outperformed by over 10 percentage points and our Marcus Wehrenberg Theatres represent only 22% of our first run screens, you can presume that these theaters outperformed the nation by a significant margin. That's preparation in action. And that is not to say that our legacy Marcus Theatres did not perform, they did, and by a very nice margin. Once again, that is a tribute to our team and their ability to maximize our box office results when the opportunity arises. And that preparation didn't just show up in our box office results. As our the press release noted, we added 3 more of our signature food and beverage outlets during the second quarter, adding to what we believe is our industry-leading percentage of theaters with enhanced food and beverage options for our guests. The benefit of this strategy show up in the per capita number Doug shared with you earlier this quarter -- this quarter. Our concession revenues per person were up nearly 8%. And revenues are great, but you still have to convert those revenue into profits. Once again, our team did a great job with this and [indiscernible] by an increase in our operating margin of over 3 percentage points, increasing from 19.1% during last year's second quarter to 22.2% during this year's second quarter. As I've shared with you in the past, there can be a lot of leverage in our operating margin due to the relatively large fixed-cost component to our operating structure. It's our job to take advantage of that when the attendance is there, and our team did just that this quarter. And it was needed, because as you would probably suspected, our film cost increased during the second quarter, due in part to the fact the quarter was heavily dependent upon blockbusters this year. As evidence of that, I'll share with you that 54% of our box office receipts this quarter came from the top-5 films highlighted in our release compared to 47% in our top-5 films last year during the same quarter. As we look ahead, we're excited to continue to invest in both new and existing theaters during fiscal 2018 as we further expand the successful concepts and amenities that have contributed to our industry outperformance. As our press release notes, we have several more theater renovations currently underway, and preliminary work has begun on our second BistroPlex all-in theater dining location at Brookfield Square in Wisconsin. We also continue to be very interested in expanding our circuit with selective acquisitions, if appropriate opportunities arise. We will always be disciplined in our approach, but we also believe that we are demonstrating currently how we can add value to theaters and welcome the right chance to bring our secret sauce to more theaters in the future. Our third quarter started off pretty well, thanks to some of the films noted in our release. We're once again outperforming the industry during these first weeks of the quarter. We're not always -- we're not going to always outperform by over 10 points like we did this quarter, but our goal is to consistently outperform the industry and it is only possible thanks to the preparations we have put in place. Our press release highlighted some of the films scheduled for release during the remaining weeks in the third quarter. We're particularly looking forward to the next couple of weeks. We fully expect comparisons -- September to be more difficult, particularly due to the unexpected performance of the film IT during September last year. We know the general expectation for a difficult comparison during the fourth quarter and that could be, but that's the great thing about the movie business, there's always the possibility of more and more surprises, so we're always optimistic. Regardless, you can count on one thing for sure, we will be prepared for whatever happens. With that, let's move on to other division, hotels and resorts. You've seen the segment numbers and Doug gave you some additional detail. It was nice to report increased revenues and operating income with two recent areas of focus, management contracts and food and beverage leading the way. As Doug shared with you, RevPAR was essentially flat for the quarter and for the first time in quite a while, we slightly underperformed our competitive set this quarter in that key rooms revenue metric. With eight different company-owned hotels operating in five different markets, there can be a lot of variation in individual hotel performance, with a couple of hotels did perform extremely well during the second quarter and contributed to our improved overall operating results. But with three hotels in the Milwaukee market, including 2 of the 3 largest -- including 2 of our 3 largest hotels, sometimes what happens in that market can have a disproportionate impact on our overall averages. In this case, we believe the largest contributor to our declines in RevPAR and ADR in this quarter had to do with difficult comparisons to last year in the Milwaukee market. In June 2017, the U.S. Open Golf Championship was played nearby here in Wisconsin. The positive impact that tournament had on our ADR and, as a result, RevPAR at our 3 Milwaukee hotels was significant. Overall group business also declined slightly during their fiscal 2018 second quarter compared to last year, with the U.S. Open, once again, being the primary culprit. As we've shared you with you in the past, our hotels tend to be more dependent upon group business than some of our competitive hotels, which likely contributed to our underperformance this quarter. We do not believe that what we saw in ADR and RevPAR this quarter is indicative of some trend. In fact, looking to future periods, our group room revenue bookings for the remaining period in fiscal 2018, something commonly referred to in the hotels and resorts industry as group pace, are currently running slightly ahead of our group room revenue bookings for future periods last year at this time. The same holds true for our 2019 group pace, which is also currently running ahead of where we were last year at this time for 2018. From a growth perspective, 2018 is off to a good start with the addition of 3 new management contracts as described in our press release. And we saw some of them benefited those new contracts and the new properties added in the late 2017 show up in our increased other revenues this quarter. We continue to actively review opportunities to add to our portfolio of managed hotels in the coming year. We are also continue to seek opportunities where we might invest equity in the new hotel opportunities as well. And finally, we're investing in our existing hotels will always be important part of our success as well, we're getting ready to begin a significant reinvestment in our Hilton Madison hotel in 2018, and we're also actively preparing for our 2019 conversion of the InterContinental Milwaukee Hotel to exciting new independent, immersive arched-focused hotel. As our press release notes, we recently selected 2 nationally recognized firms to lead this process, we're very excited about what lies ahead for this hotel. Before we open up the call for questions, I want to, once again, thank all the people that worked so hard every single day making ordinary days extraordinary days for our guests. We talk a lot about the investments that we make in our business, but we can never lose sight of the fact that our people are our most important asset and they proved that once again this quarter. With that, at this time, Doug and I will be happy to open up the call up for any questions you may have.

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.