Good morning, everyone, and welcome to The Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Lauren, and I'll be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session toward 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, Executive Vice President, Chief Financial Officer and Treasurer 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, and welcome to our Fiscal 2018 Fourth Quarter and Year-End Conference Call. As usual, you know I need to begin by stating that we plan on making a number of forward-looking statements on our call today. And these forward-looking statements will include, but not be limited to, statements about our future revenue and earnings expectations; our future RevPAR, occupancy rates and room rate expectations for our Hotels and Resorts division; expectations about the quality, quantity and audience appeal of film products expected to be made available to us in the future; expectations about the future trends in the business group and leisure travel industry and in our markets; expectations and plans regarding growth in the number and type of properties and facilities; 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. And factors, risks and uncertainties, which could impact our ability to achieve our expeditions are included in the Risk Factors section of our 10-K and 10-Q filings, which can be obtained from the SEC of the company. We'll also post our regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2018 fourth quarter and our completed fiscal year. As our press release noted, we are reporting record revenues for the fourth quarter, and a record revenues in operating income for the fiscal year. Thanks to, here's the word again, record performance from our theater division in both periods. And that is despite significant acquisition and preopening expenses during the quarter related to the Movie Tavern acquisition. Our Hotels and Resorts division also reported record revenues during both periods. And if not…

Thanks, Doug. I'll begin my remarks today with our theater division. And as you have now seen, it was yet another record quarter and year for this division. So let me begin by once again congratulating Rolando Rodriguez, his outstanding leadership team, and our tremendous associates in all of our theaters for their outstanding efforts and results. It was not a typical fourth quarter. Everyone knew we didn't have a Star Wars or Jumanji this year to bolster our December results. So the general consensus going into the quarter was that it would be a down quarter. But then October and November came along with several very strong films, and we were able to build enough of a cushion to withstand the expected more difficult comparisons in December. In the end, despite the lower average admission price that Doug shared with you, attendance increases drove us to another box office increase, capping off what turned out to be a record year for the movie theater industry. As reported, we once again outperformed the industry during the fiscal 2018, this time by nearly 2 percentage points. We performed in line with the industry during the fourth quarter, but our performance was more nuanced than that. As well as we performed in October, we believe it may have been even better, if not for the fact that our hometown Milwaukee Brewers went deep into the playoffs, likely taking some of the intention away for movie going during their stunning run. Even with that, I will also tell you that we are outperforming in the industry into the final 2 weeks of the year. Historically, these final 2 weeks are 2 of the busiest weeks of the film year, which means that the percentage of films that sell out show times increases significantly.…

[Operator Instructions] And will go first to Jim Goss with Barrington Research. Your line is open.

I have a few. First with regard to the Movie Tavern integration. You discussed the DreamLounger's initiative in some of those locations, but to the extent that this is a somewhat different strategy, as you said, the 40-60 versus 60-40, are there ways that there'll be cross-fertilization of ideas from Movie Tavern that might be applied to the rest of the Marcus and Wehrenberg theaters? And maybe perhaps other ideas that might go into Movie Tavern from the traditionals platform?

Absolutely, Jim. It's going to go both ways. This is clearly a two-way street. We actually, we had a meeting the other day, we were both talking about some of the investments that we were already making. And we were discussing some of the things that we're learning from Movie Tavern. Some of how their menu design contributes to their per capita. And we were very intrigued by that. And yet, it's going to be -- so we're going to learn from them. We don't have the market cornered on good ideas, and I think I've always said that the first thing, the most important thing is to know what you don't know about anything. And so we're trying to figure out what we don't know, and we're learning at it, we're learning from them. And they'll learn from us as well, whether it's our marketing programs, and some of our food and beverage. I mean, while this is different. This is not like we're -- we were a simply orchestral, we just become a rock 'n' roll band. We are musicians. And we have food and beverage throughout our circuit now. And so it will work. Some of the things that we're doing will be things that we bring to them, and some of our menu design will go to them. And ours at [indiscernible] is I know is fantastic. And I think it's the best piece in the industry. And so with things like that, they're going to go the other way. But it's going to be a two-way street.

Do multiple specialty dining options in the same auditorium help or hurt? Or do you reach some limit where maybe it becomes a bit of a food court, and that might be good or it might be bad, have you figured that out to this point?

I'm not sure if I understand the question, Jim. I mean, we don't have them set up food courts right now. I mean, and the in-theater dining locations, I mean, if you go to our Majestic and Brookfield, we've got a Reel Sizzle, we've got the Zaffiro's, all being generally served in the front counter. So I'm not quite sure if I understand the question.

Okay, well it seems like a Reel Sizzle, for example, might be separate. There are -- some of the bar concepts might be separate, some of the other things might be more of a takeout type of location. But I wondered how the whole thing evolves, if there is a pattern where people have different dining options, maybe with the common seating or something like that or if that's redundant, and it might be detract from the overall effort?

Well, I think that you have to draw a distinction between two different kinds of theaters, right? So if you have a theater like our Palace in Sun Prairie, that theater has sort of what you're talking about along the lines, it's got a Zaffiro's, it's got our Take Five Lounge, it also has in-screen BSV. So there is in-theater dining, similar to a Movie Tavern. But that sort of -- that's what we view it as a great model. That's really more of a traditional model with the added feature of the in-theater dining. Now take that compared to a Movie Tavern. A Movie Tavern or a BistroPlex, for that matter, is all in-theater dining. In which case, there isn't a large central component where you come into and you can find different outlets. There's a bar, but then you go in and it's designed to eat in the theater and consume the product in the theater.

Okay. Different area, could you provide an update on use of data, how proactive are you? And what are the key uses? Are they primarily to suggest to your customer base what movies are coming out that might interest them? Or are there some other things you are doing at this moment?

That's -- you hit on a very important point. And that is, this idea -- that the value of our data, the value of our loyalty club, and all the data will come from it. The obvious one is, of course, if you like this movie you will like that one. But we see it as an opportunity -- but, then -- but there's other data there, so we can look. When we're trying to make a decision about something, we're able to look and see what kind of -- what's going on. So for example, we recently had a thing -- we had a series of films that we were playing in our theater, and the question was, what was the per cap from that specific seat, from that specific series of films. And because knowing that, you can then make good decisions. In the old days, we wouldn't know, but it's very easy now to look, half of our transactions are loyalty transactions. So we now can say, okay, for the customers that went to this movie, what was their per cap, what were they spending. And so we're able to then to really see that data in a much more granular level. So whether it's making better business decisions from the data that we're getting or also developing a kind of relationship with our customer. We have a very passionate. We were fortunate. Movies are a business where the customer is very passionate. And it's one of those businesses where the customer might actually tattoo the product onto their body. That's pretty good. I can only think of few of those. And so the ability to lever that and to know what they like and to know what their desires are in the movies give us a window into them and then allows us to use that data to develop a deeper relationship with that customer. And I'll tell you that we're just on the front end of that. But that is something that's really important to us as a company.

As is it also, and I'll let it go at this, but has it also allowed you to sort of optimize your screen usage, in terms of which auditorium are used for which movies based on what you're anticipating the take rate would be in given movies?

Not yet, but you're exactly -- that's when I talk about business intelligence, that's another one of the things, where I think ultimately, we will be able to deploy that. We're really at the front end of really sort of -- we've got this giant stack of data, and we are just starting to figure out how we can lever it.

Our next question comes from Eric Wold with B. Riley. Your line is open.

Two questions. I guess one on the theater side. You noted potential tentatively to present EBITDA margin for Movie Tavern in year 1. I guess first off, is that an apples to apples EBITDA kind of margin, you're kind of with the legacy Marcus Wehrenberg or is that including kind of upfront cost? And then two, would you think to be reasonable EBITDA margin for the Movie Tavern circuit over the next, maybe, 2 to 3 years, you incorporate some changes? I'm assuming you will be always below Marcus levels, but can you push it up meaningfully without kind of upsetting the apple cart?

So the answer to your first question is that the numbers -- when I gave that kind of 10% to 15% range, I was not trying to incorporate any -- the onetime cost that we're going have this year. So I mean, that's going to be added to it. That will make it worse. I was -- when I refer to the first year, I'm just talking about the fact that it takes some time, right, just like it took us 2 years to get Wehrenberg to where it is. It takes some time to be able to get it to where we really think we can potentially take this chain. So certainly, we'll encourage you to layer on the additional cost, the onetime cost on top of that. As it relates to where we're going to end up, it's -- I don't know, I'm not ready to give you any sort of numbers in that regard yet, Eric. I would say this, when you've got $15 million or more in rents, right? That single-handedly will take the our 28 and 29 down to a much lower number. And then the fact that it's mostly the higher-end food and beverage and not popcorn and soda, certainly it does the 2. So I don't know how much more we'll be able to move that, maybe it's going to be more a case of moving this from the low end of that range to the high end of that range. It could be something as simple as that. I'm not ready to say that we'll take it beyond that 15% yet, because I don't know.

I apologize, you discussed this on the original Movie Tavern call. But is there an option? And if there is, would you consider acquiring the real estate need those theaters down the line to avoid these statements? Or is that not an option?

To all the landlords, my phone number is 414, yes -- yes, we would if the opportunity presents itself.

Okay. And then last question on the hotels, and on the Saint Kate renovation or kind of rebrand. Maybe give us a sense of kind of what was the main driver to that shift away from Intercontinental, kind of is -- and kind of what your thoughts are on how that all changed, the demographic that we're targeting, average daily rate, all of those items? Appreciate it.

Sure. It started with just the natural -- we did -- our license agreement had come up with Intercontinental, and it was a question of, okay, what do we do in a very competitive hotel market? And the market, the Milwaukee hotel market is very competitive. How do we -- and sort of, again, we are trying to -- just like we do in our theater business, we're always looking forward and saying what's next, what's coming, what's on, what's the future of our business. And one of the things that we were seeing was this move towards experiential travel. That's a huge, huge, a huge thing. The second piece was that we -- and sort of sub-set of experiential travel in the category of the only originals were Adam and Eve, we aren't the first guys ever doing an Arts Hotel. We are doing it in a way that I think is unique and nobody has done it before. But the country is seeing art-focused hotels pop up. So we went and saw all of them, and then said, okay, here's how we would do it. So this idea of experiential travel. And this idea of how do we create something that for us, the hotel business, a lot of times, and I've said this many times, is that we generally don't generate the mayhem, we are supply, and we tap into the demand and hope to get our share as we model these things out. In the case of a hotel like Saint Kate, we expect, and we hope that this is going to be something that's going to increase demand in our market, that somebody in Chicago or Madison or Seattle, I hope, but more likely Chicago, says, "Hey, you know what? We have a weekend ahead…

Our next question comes from Mike Hickey with The Benchmark Company. Your line is open.

Just a few questions from me. You talked a bit about you want obviously, the market here is not showing well. I was just curious sort of your relative performance and EBITDA of Q1 slate versus the GR you serve? And I think you mentioned the cold weather, which was extreme, I think, in some of your markets. So how we should sort of expect your performance in Q1 versus the market? And I guess within that too, now that you've closed Movie Tavern, just sort of wondering how attendance is tracking there, maybe even before you closed? How well it attracts just the general slate versus the overall experience that you're serving the consumers the guests at Movie Tavern?

So the first part of the question. Look, I mean, you know where the market is in terms of the film slate, we've gone over the reasons. I mean, the carryover just wasn't there in January, and now, of course, going up against Black Panther is pretty rough. Weather has hurt us, there's no question about it. We've had weeks where we have done fine against the market, and we've had weeks where we haven't done so well against the market. And you can pretty much line those up against -- and you can directly see the impact of not just cold. And you're right, it got so cold. Usually cold is not a problem, but when it gets 26 below without windchill, yes, people stay -- they hunker in. So we saw direct impact of the cold. And this last month, we had incredible amount of snow. And so we've -- it's hurts us. There's no question.

It hurts more than cold.

Yes, it does. And this last month, we've had a lot of snow. And so it has hurt us. And you can directly line up to any given week where if we don't do as well against the market you can pretty much point to the weather and say, yes, look at that. So I'm not -- I mean, we still have multiple weeks ahead of us here in the quarter. So I don't know where we're going to end up overall in the performance. But we've had some weeks where it's been a challenge versus the industry because of the Midwestern snow.

On our Movie Tavern. First -- the first thing I will tell you, we've had it now for a whopping three weeks. So it's really hard to tell you that. I would -- I would be -- I don't think it would be not a great idea to say, "Oh, here's how it's going." We are -- look, we're seeing good things. We're pleased. Our $5 Tuesday program, we started immediately four days after we took it over. And we're seeing some good signs. But it's just too early to really say anything at this point.

Okay, fair enough. I guess back on the integration of Movie Tavern. Compared to Wehrenberg, it looks like you've got sort of the wind at your back here, at least from my perspective, maybe that's not true, let me know if it's not. But it seems like it's probably, at least on the service, looks to be a bit smoother here. How does that -- if that's true, I guess, how does that sort of play into your thinking on follow-up deals? Obviously, you had a fairly large pause between Wehrenberg and Movie Tavern, I am guessing part of that was just giving the integration set and starting to extract value like you have. But how do you think about timing, I guess, then moving forward? And maybe just broadly your view on, I think I've asked you a lot, a lot of people do, but just the M&A landscape here in general?

I'll preface, I'm about to say the same. We are alert to any deals that will come our way. And we will analyze any deal that will come our way, if it make sense to do it. But really, we are head-down focused on this acquisition. This is the biggest acquisition we've ever done. And it doesn't have -- it's important to distinguish us from Wehrenberg, and we've talked about this before. On the one hand, it doesn't have the complexity of Wehrenberg in that it doesn't have all the significant and deep capital investment that we needed to make. But other hand, this is a business that's going back to knowing what you don't know, that we don't totally know yet. And so we are head-down focused on making this a success. But on the other hand, it's not -- if we see something really good that comes along, we're going to take advantage of it too. You know us, we're balanced, that's how we look at things. But we also know that you can -- you have to be careful as to how you approach things, and that's how we will always do it.

Our next question comes from Brian Rafn with Morgan Dempsey Capital Management.

Great, great year again, as always. What -- if you look at Movie Tavern, what is from a technology standpoint, where are they today with UltraScreens? You talked a little bit about the DreamLoungers, but like Dolby Atmos? And then is there a physical big renovation in kiosks and counters and carpet and lighting? Where are they right now versus maybe what you saw when you walked into Wehrenberg?

As I just said, it's -- let me start with PLF. They have 3 PLF in their circuit, so they really don't have much. And they certainly have no Dolby Atmos. So our approach to PLF is much different than theirs has been. Their seating isn't necessarily consistent, in even among those 3. So we have a consistent plan for what seating should look like, our recliners with heaters, with Dolby Atmos sound. Because we don't just view PLF as just large screen, it's the whole experience. So that's why our approach is different. That's probably the biggest gap. Their DreamLoungers, because there -- they have DreamLoungers now. Once you join the family, you all have DreamLoungers. There's our good shape, they have a -- there's -- they now a good chunk of the circuits are already covered, and there's more of the big, just added 3 more are just ramping up now. So there's not that. And the theaters themselves generally are in good physical condition, again, different from Wehrenberg. Carpeting is in good shape. The places look good. I've seen every single one of them. And I can tell you that, well, of course, there are some that are -- will need a little more care than the others, but on balance, and the vast majority, the assets are in very good shape.

Okay. With Movie Tavern, from the standpoint, you touched a little bit about it adding in your $5 Tuesdays, but like alternative content, independents, the Indy's, the retro series, those type of things, the One Sweetheart Friday or whatever, how much do they have an alternative program?

They do have an alternative programming that they are doing, but not as robust as what we've done. But part of the -- the thing that it goes back to what Jim was talking about, the advantage of knowing our customers and the data that we believe from our loyalty program. One, they go hand in glove in that -- be able to because of the challenge, historically, an independent product has been the ability to tell the customer about it. And if you can't tell the customer that something is playing, you can't get them to your theater. And if you -- but the problem is, you need to be able to get to the customer. So until you have a robust loyalty program, which they don't have, then you can't get to that customer. So as soon as we get the technology in the place we need it, we're going to roll out the loyalty program. We know that we know when we -- then we will be able to talk to the customers and we're able to deliver that and take advantage of more independent product.

Okay. What -- and when you finish off the Brookfield BistroPlex, how would you differentiate the Movie Tavern experience or the layout, the physical assets versus BistroPlex, what might be some of the differences?

We're evaluating that right now, Brian, it’s about the best I can tell you. I mean, we're looking at -- we had -- we just closed on Movie Tavern, and based on some of the early conversation, we're learning from them as well. So we're evaluating kind of the components of Brookfield, for example, and so I don't know if it's fair to distinguish yet, because we had a one BistroPlex, and now we have 22 Movie Taverns. And we're going to kind of look at them and figure out like for this next one, we'll figure out the best of the best, and figure out how we want to provide the food and beverage experience. And so it's -- there's some similarities, a bar right when you come in, the in-theater dining, but there's also some differences and we're working through those right now.

And Movie Tavern has a few different approaches to it as well. So we're looking to see from what they have, what works the best.

All right. What -- how do you -- are you branding it Marcus Movie Tavern? Or are you just leaving the stand-alone brand?

Movie Tavern by Marcus is now the brand.

Movie Tavern by Marcus, okay. This is again, very, very early. What is the potential to build out theaters in those nine states that you're not in? And/or the ability to maybe add in maybe a branded legacy Marcus theater, now that you are in those areas, that you start to get understanding those geographies?

Brian, are you getting paid by my theater guys? Come on. Absolutely, that certainly that is a possibility. Once you're in a market, it makes an expansion there easier. And also it makes sense for us as well to do that. But there's nothing planned right now.

No, no, it's getting way ahead now. I thought the kind of the depth of the top, I don't know 15 or 20 the movie slate for 2018, how did that play out and as far as a percentage of revenues?

Yes, I'm very quickly Brian going to my schedule here, and I will tell you that answer. For the full year, the top -- I'll put it this way, the top five films they're really focusing on the blockbusters, it's skewed a little more towards the blockbusters this year. So I'm looking at a number of about 23% versus about 20%. Black -- top pictures that you saw on the list Black Panther, Avengers, Incredibles 2, Jurassic World, Deadpool, those were our top five. So it skewed at a percentage basis, slightly towards the blockbusters. When you get down to about the top 15 that -- there's not much of a difference. It's not significantly different.

And then from the standpoint of the Movie Tavern, what relative to ticket sales and automated kiosks and things that you have like at Marcus, the Internet sale, is it about the same? I mean, are they about where you guys are?

We're making some technology improvements there as well right now. And so they have a lot of the same elements, but we are -- certainly the technology is one of the things I mentioned in my prepared comments is one of the key focuses we have right now. We're at the top of the hour, we have one more call here Brian. So I think, if you have any additionals, you can let me know, but I think we're going to move on now, okay?

[Operator Instructions] Our next comes from Andrew Shapiro with Lawndale Capital Management. Your line is open.

Just a few questions. With this sizable acquisition involving new share issuance, how many of the 2.45 million shares issued, how many ended up being registered and distributed to the secondary? And what shares remain on lockup terms, if any? Or is that already available subject to 144 sale opportunities?

So of the 2.45 million shares, they were all registered immediately on that Friday morning we filed that occurred. And then you should have seen, there was some press releases that have announced the closing of the offering. All said and done, 1,725,000 shares were sold by the selling shareholder that closed on February 6. So that means they have 725,000 shares still that are subject to allot.

Now if that was registered, could they sell those shares all at once? Or is subject to 144? Or it's back under some form of a lockup?

So we have a shareholder agreement that also was filed at the same time on that February 1, Andrew, that you certainly you can take a look at. It does provide some limitations in terms of their ability. And it provides for certain windows that are available for them. So there are a variety of provisions within the shareholder agreement that limit their ability to just sell them.

Right. And then you've talked about your integration update and from Wehrenberg and then what you expect here, is it generally in sight as to your time to absorb this before undertaking, let's say, an acquisition of 20-plus theaters again, which would -- you said this is your largest to date that you've done. And if you did another one like this, it would seem to be one that would be involving potentially a combination of debt and/or equity. Is it a year, two years or do you think even longer before we would see this kind of opportunity again?

Andrew, I'll take this. We set no time limits or anything. As I'll just reiterate the point I made before. We are open to any opportunities that will come our way. We will evaluate what comes our way when the opportunities present themselves. As you know and I know, these are not regularly scheduled transactions. But our focus right now is on this transaction and making this a success for our shareholders. That is where our focus is, and so -- but I do thank you for asking this question. I do want to take 1 minute, because I do want to -- there's something that wasn't in my prepared remarks. But I do want to thank and congratulate and acknowledge Doug and his team, and Tom Kissinger and our legal team on a really successful issuance of these shares, I think, that everybody would agree it really went very well, and we are very pleased, and it was a lot of hard work and it's a key component of this transaction. And so I want to just thank them right now. So thank you for asking this question.

The last question from me. The National CineMedia announcement that you guys made with respect to Movie Tavern, I guess it was either this morning or yesterday. I was just wanting a little more clarification. Was this a switch, a renewal? And if it was a renewal, what is incremental versus the relationship that those screens had before with National CineMedia?

So our legacy circuit has been a Screenvision customer, Movie Tavern was prior to us taking over was an MCM customer. And what you saw yesterday announced with MCM was the fact that we did in fact sign on, call it a renewal, call it -- but it was basically a new agreement we signed with MCM for the Movie Tavern theater. So they retained the Movie Tavern business. So we now are utilizing both of the major firms.

Excellent. And I guess it's pretty too soon to tell, I guess, your relative experience with each, since you guys run both of them now through your system?

Yes, I mean, it's again, it will be a safe to say certainly some of the value of this is that will -- we -- just I'll repeat what Greg said earlier, we have three weeks. So it will be certainly a learning experience for us, and that will certainly be valuable.

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

Well listen, thank you, everybody, once again for joining us today. We look forward to talking to you once again in late April, when we release our fiscal 2019 first quarter results. And until then, let's hope spring comes soon. And thank you, and have a good day.

That concludes today's call. You may disconnect your line at any time.