Good morning everyone, and welcome to The Marcus Corporation First Quarter Earnings Conference Call. My name is Skyler, 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 towards the end of this conference. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer, and Doug Neis, 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 everybody to our fiscal 2019 first quarter conference call. As you know, as usual I do need to begin by stating that we plan on making a number of forward-looking statements on our call today. Our forward-looking statements could include, but not be limited to, statements about our future revenues and earnings expectations; our future RevPAR occupancy rates and room rate expectations for our Hotels and Resorts' division; 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 our 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. Factors, risks and uncertainties which could impact our ability to achieve our expectations are included in the Risk Factors section of our 10-K and 10-Q filings, which can be obtained from the SEC or the Company. We'll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that, once again, behind us, let's talk about our fiscal 2019 first quarter. It's no secret that the period the industry was facing a challenging comp this quarter and with all of the non-recurring items we had going on during the period, I suspect it didn't come as a surprise to anyone that our reported results were down this quarter compared to last year. Thanks to the Movie Tavern acquisition, we once again reported record revenues for both our theatre division and the company as a whole, but that's…

Thanks, Doug. I'll begin my remarks today with our theatre division. As you know, our industry expectations for 2019 as a whole have generally been pretty positive. Expectations specifically for this first quarter and 2019 were pretty low. And then, fortunately, those expectations were well-founded. We all knew we were going up against the number one movie of 2018, Black Panther, but you're always hopeful that a few movies will break through and lessen the impact. We had a couple of movies like that in March, and Captain Marvel and Us, but clearly it was not enough to dig us out of the hole January and February put us in. February attendance declines were expected because of Black Panther last year, and in January, we just didn't have the stronghold over films from the 2018 holiday season, like we did last year, with films such as Star Wars, Jumanji, and The Greatest Showman. As Doug mentioned, during the first quarter of fiscal 2019, colder and snowier weather in the Midwest likely negatively impacted the performance of our comparable theatres compared to the U.S. averages, and with the majority of our renovations now completed for our legacy circuit, our relative performance in any given quarter will likely be partially dependent upon film mix, weather, the competitive landscape in our markets, and the impact of local sporting events. As for film mix, we believe it likely worked against us in January and March, when we outperformed on the most popular films last year, and maybe slightly for us in February, when we slightly underperformed on the big film last year. As we look ahead, the film mix for the remaining three quarters of the fiscal year, we certainly are hopeful that we'll have our share of films that our legacy circuit has…

[Operator Instructions] Our first question comes from Jim Goss with Barrington Research. Your line is now open.

Thank you. Good morning.

Good morning, Jim.

Good morning. I was wondering about the impact of the DreamLounger upgrades in Movie Tavern, expected or achieved already, and you know versus the traditional footprint, are in Wehrenberg. Is this a different sort of thing or is it consistent with the other experience?

We're too new to tell you right this second Jim. Just because, frankly they're just finishing up, we're seeing some good results though, in the...

As a reminder Jim, when we bought it, I believe, I hope I got my numbers correct here. I believe 12 of the 22 theatres already had the recliners. We just finished up three, and literally just finished them up. I mean, I think couple of them finished up in early April, and there's a couple more potential to do. So we're just really just now trying to evaluate how if it reacts any differently in theatres like this versus other type theatres.

Okay. I'm curious too of the motivation for the implications of introducing the Movie Tavern brand into Milwaukee?

The implications, you know, I mean, look.

Yes. Are you thinking of expanding it into the existing markets or are you just – I'm just sort of wondering exactly how broadly like – will it be treated as a separate brand within the Marcus development?

Well, it's clearly a separate brand. I mean that's for sure, we want to maintain its brand identity because there's brand equity. We call it Movie Tavern by Marcus. So we modified it a little bit. I guess this is what I'd say luck is when opportunity meets preparation. We just happen to be doing this. We were good. We were – because the movement is the Movie Tavern is – our acquisition of Movie Tavern is the actualization of what's been going on in our business of this movement of food and beverage. And so we were already planning a theatre here. As you know in Brookfield to do this, and so when – as it just happened the timing worked out. And we said what, let's – there should be a Movie Tavern. Let's use the brand that we have.

Okay. And on the hotel side, the Hyatt in Schaumburg, are you getting an equity? Are you contributing an equity sliver in that property, and are there any things you can talk about in terms of financial terms? And also are there pricing adjustments for Saint Kate and for the Madison Hilton with those renovations?

So your first question Jim, it's a pure management contract in this case here. So there's no equity involvement in the Hyatt Regency Schaumburg. So if you read the release, it's a fairly large property right, 460 some rooms, I believe. And so from that perspective, certainly the management fees, it's a larger property, so it will be a little on the higher-end of overall management fees, but as you know, those doesn't – even on the higher-end those dollars aren't huge. It's just nice incremental dollars that you add to that. Theoretically, if you don't have to add too much to your infrastructure, it can be a nice way to leverage the infrastructure that you have. So that's the answer to the Hyatt question. I will have Greg address Saint Kate, I guess you said.

It's Madison Hilton.

Saint Kate and Madison Hilton, since you are renovating both?

On the Hyatt thing, I will say that for us to, we want to be thoughtful about how we invest our intellectual property, which is really what we're doing when we take on a management contract like this. But for us, perfect fit. It really is – it's close to home. So supervision is relatively easier. And it sits right in the markets that we know very well and so we think we can add value in a real special way to the property. So for us it makes lot of sense. Back to your question about the Saint Kate and Madison Hilton, yes, let me just finish it there. But first of all, Madison Hilton is a more straightforward renovation that is one where, we knew it was time and the market is – it reflects the way to raising pricing there and we expect to take advantage of that. On the Saint Kate, this is going to be a completely new product. Its different product from what was it, what the InterCon was. And we expect to get compensated for that and we think it's going to be special enough to drive a higher rate. The challenge for that hotel we'll be just establishing itself because we're coming out of the box as an independent, but there's no other market I'd rather do that in other than Milwaukee because it's our home base again leveraging our strength. We know this market extremely well. So I see that as a very good opportunity for us.

Okay. Thanks very much.

[Operator Instructions] Our next question comes from Mike Hickey with The Benchmark Company. Your line is now open.

Hey, Greg. Hey, Doug. Hopefully, you guys are good. Thanks for taking my questions. I've got three. I guess the first one. Just curious on subscription, obviously sort of the trend continues. One of your peers is getting pretty considerable traction in terms of drawing moviegoers to a subscription plan that also looks to be profitable. But just sort of curious, your thoughts – your updated thoughts, I guess Greg on how you see maybe the medium to long-term potentially subscription plans? And also I guess more specifically where AMC has perhaps close to one of your theatres if you're seeing any sort of share impact on your attendance, if you're losing the attendance to AMC because of their subscription plan. I've two follow-ups. Thanks.

We are looking at that extremely closely Mike. As you can imagine, I think, the advantage to – the first question is, what is subscription going to look like or what are our thoughts on it? I mean we are looking at multiple different versions of the model to try and figure out where it's going to go and how it's going to work. I will tell you what we're seeing with AMC is in our markets. We are seeing big share shifts that we can see. They're certainly not a trend. Individual theatres you can see some share shift one way or the other, but it works in both directions. So there's not a big noticeable trend. Now that being said, I think it's a much more compelling product on the coast where the pricing is a lot higher. And so maybe for us, it's insulating us. So we may not be a good proxy to see how AMC is doing. And since they don't – they're not coming over and sharing all their internal numbers with me. I can't tell you for sure how it's going. I can only say what we're seeing here with our theatres and so, but that being said it's an important thing for us to look at and we will of course figure out the best way to actualize on some sort of program.

Okay. Thanks, Greg. It's helpful.

By the way, the one thing we always say, Mike is, as you look at we have a subscription program it's called Tuesday and you get free popcorn. So it's a pretty good price.

Yes, okay. I guess the second one thinking about Disney, Fox combo and thinking about sort of the rise of all these new streaming services, including Disney's. Just curious how you think that could impact your windows, your film windows moving forward. There's sort of a feeling I think coming out of cinema kind of perhaps there will be a little bit more flex from the traditional 90-day window as these others sort of look to add content to grab there – to sort of grow the sub base on the streaming service. So your thoughts there would be really helpful. Thanks.

We don't comment on specific windows other than to say that. I would say, look at it's a window is extremely important to what we believe to maintain the value that that exclusivity, the windows exclusivity, and that is extremely important to maintaining the theatre business. And as we all know, last year it was nearly a $12 billion North American business. And I think the studios have to – and want to begin have to be very careful with and I know their goal is to maximize the profitability of their content across a vast spectrum of outlets, but they don't want to – but they have to – so they want to maintain the profitability of the theatrical experience and for us as we all know it's a high fixed cost business, so those lost customers are very profitable for us and for them. So we have to remain vigilant in our belief that the window is important and we continue to work with the studios with that as a foundation.

Thanks, Greg. Last question from me, for Doug. When you look at on the theatre side, your admission and concession gross margins, for last two years they've been pretty steady, admission around 22%, concession around 72%, that's come in a bit, I think as you expanded your menu. So when you think about the Movie Tavern contribution, obviously you've noted the overall margin is a bit lower than what you have in your legacy circuit. But just if circuit, but just if you can give us any sort of view on how impactful you think it would be on those two segments in terms of so that your longer-term margins moving forward?

No, absolutely. So, on those two particular ones, which are – where the bulk of the costs are, talking about maybe the easy ones, first which is the kind of the food and beverage, the concessions line in that margin, and you're right. Historically, that has been running, if you view it from a margin perspective, that line and then using the concession revenues above, it's been running what you said, maybe 70%, 72% give or take, and that was a mix obviously, as we probably had a higher percentage of that probably, we have a higher percentage of those kind of non-traditional food and beverage outlets than probably any other theatre chain out there. So that was probably already higher than most or lower margin than most if you want to say it that way. I think if it in the inverse with the cost of sales. By adding Movie Tavern, the kind of the numbers you're now seeing in this quarter and of course we only had it for two of the three months, I do think somewhat are starting to reflect what you're going to see in a going forward basis, in that that will be that margin in those terms will be in the 60s, because of the mix of the business, right? Now, as I shared with you, our average concession per capita is on an inclusive basis, we're not disclosing what individually is for Movie Tavern versus our – of course our legacy theatres, but that number increased 22%. So obviously, the dollars increased and it kind of gets matched because of the quarter was so weak from an attendance perspective. But that's a pretty significant increase in our overall per capita number, by adding Movie Tavern. So it's again, we're working right. This will bring more dollars to the bottom line at a little less margin. On the theatre side, on the theatre operations side, what you're looking at here is this is what Greg was talking about, I mean that number has historically, there's been some consistency from quarter-to-quarter with the inconsistency, the variability is typically being the – how busy we are, right? Because, as Greg indicated, this goes to that whole leverage issue and this quarter was pretty weak from that perspective, right? We had a pretty high cost of sales or pretty low margin on that particular kind of combination of admission revenues and theatre operation expenses. And so that's really what Greg was addressing in his comments is that, can we do better? Yes, we think we can do better with that. Is it going to always be higher in – higher cost of sales, lower margin in a period like this when box office is down 16% 17%? Yes, because there's a higher fixed component of those costs. The biggest change with Movie Tavern will relate to that food and beverage and concessions line, not so much in the theatre operations line.

Okay. And then, I guess do you have the contribution in the quarter from Movie Tavern?

Not. Yes, I mean that's not a number that we're going to disclose at this point in time, it could be that when we have a larger sample size, we'll address that. But for two months, we're not going to provide any specific numbers at this time, Mike.

Okay, all right. Thanks, guys. Best of luck. Have a good weekend. It should be strong.

It should be.

Yes.

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

Well, thank you everybody for joining us once again today. As we just kind of concluded those last question section, we're looking forward to what should be an outstanding weekend as I think you have probably read or if you haven't read, advance sales for Avengers: Endgame are breaking all records, it's broken all the records we have for any pre-sales for anything. So we're looking at what should be a really good weekend and a start for the summer season for us. Maybe we'll see some of you in less than two weeks at our upcoming Annual Meeting on Tuesday, May 7, that will be held at the Majestic Cinema in Brookfield, Wisconsin. For those of you can't attend, we certainly will be webcasting the meeting once again as well. We also look forward to talking to you once again in July, when we release our fiscal 2019 second quarter results. Until then, thanks and have a really great day.

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