Good morning, everyone, and welcome to the Marcus Corporation Third Quarter Earnings Conference Call. My name is Josh, and I will be your operator 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.

Thanks, Josh, and welcome everybody to our fiscal 2019 third quarter conference call. As usual, you know, I need to begin by stating the plan and making a number of forward-looking statements on our call today. Forward-looking statements could include, but not be limited to statements about our future revenue and earnings expectations; our future RevPAR, occupancy rates and room rate expectations for 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; expectations about the future trends in the business group and leisure travel industry and in our markets; our expectations and plans regarding growth and the number and type of our properties and facilities; our expectations regarding various non-operating line items on our earnings statement; and our expectations regarding future capital expenditures. Of course, our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties, which could impact our ability to achieve our expectations, are included in the Risk Factors section of our 10-K and 10-Q filings, which can be obtained from the SEC or the company. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that behind us, let's talk about our fiscal 2019 third quarter and first three quarters. Overall, a very good quarter that's massed a little bit by an income benefit last year and by the comparisons related to our new hotel opening. Marcus Theaters reported record revenues and a healthy increase in operating income and on the hotel side without the non-recurring preopening expenses and anticipated initial startup losses related to the Saint Kate. We would have reported a nice increase in our operating results in that division as well. As is…

Thanks Doug. I'll begin my remarks today with our theater division. We're pleased to be reporting another solid quarter for this division. And I'll begin by congratulating Rolando Rodriguez and his outstanding team, both in our corporate offices and in each and every one of our 90 theaters for the hard work and implementation of strategies that effectively converted the same quarterly attendance as last year for our comparable theaters to a sizable increase in operating income this year. Certainly adding Movie Tavern had a large impact on some of our numbers, particularly our record revenues. But the numbers Doug shared with you, 3.3 percentage points of outperformance and over 6% increase in average ticket price, and over 9% increase in average concession and food and beverage revenues per person were all just for comparable theaters. Those are great numbers and are a direct result of long-term strategies developed and executed by our Theater team. The film slate during the quarter was particularly good in July and September, but weaker in August. In general, I think the slate played pretty well in our legacy Midwestern markets with two of the top three films; Lion King and Toy Story 4 particularly strong with the family audience. It was a more top-heavy slate this quarter, with our top five films listed in our press release accounting for approximately 57% of our total admission revenues compared to last year's third quarter, when our top five films accounted for only 38% of our total admission revenues. That can happen in certain quarters, but over the course of the year, it tends to even out. Our top five films over the first three quarters of the year have only contributed about two percentage points more than last year to our total admission revenues. Unfortunately, in…

Thank you. [Operator Instructions] We'll go first to Mike Hickey with Benchmark Company. You may proceed with your question.

Hey, Greg, Doug, congrats guys on the quarter.

Hey, Mike.

I guess my number one question is on the Saint Kate. Obviously, Greg, you added a bunch of color there, so definitely appreciate that. Traditional staff and marketing group business, all that seems to make sense, I'm guessing with sort of in your original plan, it's only a beautiful hotel, but I guess also it was a bit of an experiment. Just curious maybe when you look at occupancy rate of the Saint Kate, so where you're at and where you're trending I guess in the Q4, that's sort of in line or better than you're thinking? I mean I think if I heard you right, it was sort of expect a positive contribution, not in Q4, but probably in 2020? Your thought, I'd appreciate it.

Yes, I think that it's -- I would tell you that it's -- and I thank you and it is – I can’t distribute -- it really did turn out beautifully. Its occupancy rate I would tell you is strong. It is not as strong as -- it's not exactly what we were expecting just yet, but it's close. But we also expected it to -- it's going to take some time. I'm not going to lie, I think as my team would tell you, I'm pretty impatient about the whole thing, but it does take time. If we just Google best hotels in Milwaukee, I will tell you right now, it is one of the best hotels in Milwaukee, I would tell you that, and the Pfister, I think those are the two best hotels. There may be some people who might disagree with me, but those are our competitors. Other than our competitors I think I would win that vote. But if you Google best hotels in Milwaukee right now, it's not on any lists, because it just -- the lists are made up before we opened. We've only been open for 16 weeks and so I have to be patient, knowing that it will take time for people to discover what we've created. And like the Pfister has a 125 years of brand equity built into it. So -- but the initial signs are very promising. One thing that we are -- and I'll tell you, we could make a shortsighted decision, we -- and that's why I sort of hedged a little bit when I talked about where we are right now. If we wanted to drive business, more business into that hotel right this minute, we could really drop rates, and we've been very diligent and deliberate about keeping our rate at a -- commensurate to what we're delivering and because it is an exceptional product. And because what our studies tell us is that it will be hard to get laid back if you drop rate right now to grab business. And so we've been very careful. We probably sacrificed a little business in the short run to maintain the rate integrity so that people understand the rate communicates exactly what this product is.

Thanks, Greg. Appreciate it. Yes, appreciate the color. The -- I guess on the theater side hop on the outperformance and obviously it looks like Movie Tavern is shocking very well. It sounds like it still has some integration efforts there to extract some value, but definitely I guess to Wehrenberg seems like you're fully along the curve. And I guess the setback in, you did Wehrenberg, Movie Tavern, two successful dual theater [ph] in a market where half the screens are still in private hand. So curious just sort of M&A activity, what were you seeing in the market, your appetite given how far along you are with Movie Tavern? And maybe also sort of how the 2020 slate may be play into potential opportunities for you now given that 2020 slate looks like sort of difficult to pick the winners I guess?

Well, let's talk about -- I'll take Movie Tavern first and as it relates to acquisition activity and what we see in the market and I guess, I would tell you as it relates to Movie Tavern. I would tell you -- well, while we're not at the end of the meeting of life when it's looking for a way no more way for -- only for the men please, that's not us. But we are digesting the meal, and what's most important to us is that we deliver on this acquisition. That's our company. We stay focused on what we've done. And so that's where our main focus is right now. I would tell you that just as you compare it to Wehrenberg, I would say that that it's -- the curve is tighter. Wehrenberg had more upside because it had a lot of work to be done, this is less so. We're adding the amenities that we think are important. We're bringing in our marketing programs. We do the PLFs, we're doing the -- we just introduced MMR, Marcus -- Magical Movie Rewards. And so that curve is probably a tighter curve, and so I just want to make sure that we talk about what that looks like. But we still have work to do there. And as you pointed out, we have integration to do. And -- but the good news is, is that we're able to drive volume into these theaters as we wanted to do. That was one of the things that we talked about, that was one of our thesis in acquiring these theaters and that was -- operate them more like theaters and think like we do which is about driving attendance and we did that and we are doing that and we will continue to do that. But then the next trick is now converting that attendance to the bottom line and that's what we're focused on and we're going to stay focused on that. That does not mean we're not doing anything else, but -- and we are looking at other things, but job number one, is do a great job with what we've invested our investors' money in.

Okay. Thank you. I guess last question from me is on, maybe some perspective on 2020 CapEx. Obviously, you're finishing a couple of big projects on the hotel side. Theater you're also sort of pretty far along, I guess on your amenities push, so sort of how you're thinking about CapEx trending intertwined with what you know today? And maybe how you think about the incremental save income, CapEx whether you could think about giving in or buyback or how you would think about those additional monies? Thank you.

Yes, those are -- some good questions in there, Mike. And I tell you it's -- we'll provide some more definitive guidance at our next call because the divisions are working on their capital budgets as we speak and will be presenting them to us in November and December and we'll be taking them to the Board. But bigger picture, just based on looking kind of our broader strategic plan and what -- and kind of know what's coming, leaving any unknown stuff out of the equation right now. I think something that could materialize what that would all of a sudden rapidly increase our capital expenditures, I don't know that next year total expenditures will be significantly different from this past year in that $70 million-$80 million range, I mean is my current ballpark. But it was still some fluctuation that can go either way. It will -- there's certainly some dollars to be spent in the theater division still, as we're doing some additional ROI projects and some more -- there's still a few DreamLounger projects that we can do. There's still some large format screens that we're looking at. There's a new theater that we've -- now we've mentioned that's coming out that in probably 2020 in Tacoma, Washington. There was a small release that went out regarding that, that will be built and that will have some dollars associated with it. And so -- and then what's going to happen, taking this a little farther ahead, Mike, is that, the couple of years following that in particular, it will start in 2020, but then a couple of years following that, we do have some big expenditures ahead of us in our hotel division particularly our 3 largest hotels, the Pfister, the Grand Geneva and the Milwaukee…

Thanks guys. Appreciate it. Thanks a lot.

[Operator Instructions] Our next question comes from Jim Goss with Barrington Research. You may proceed with your question.

Good morning Greg. Good morning Doug. I was first wondering along Mike's line of questioning about Saint Kate. This is a bold move and is there any impact of this move on your stated efforts to gain management contracts with your creativity on display?

I hope so. Not yet. But trust me, we'll be picking that. Look at it, in a world that is moving, they're -- toward experiential travel, which is what this is and more people sort of taking reliance -- trying -- going with independent hotels, we think the experience that we get here will be beneficial to us. But I will also tell you, at this point right now we are really focused on getting that thing right. It's really important.

Okay. And just as a side note, does the 2020 Democratic Convention have any potential pop for the Pfister and the Saint Kate and even Hilton? Or is it just a couple of weeks and it doesn't really have that big of impact?

Well, here's what I would tell you. It is probably a more long-term impact. Okay, here is the deal. Those are going to be -- it's going to be a great week and we've got to work it on, the Ryder Cup coming to Kohler shortly thereafter. We're going to have -- that part -- those are going to be really big weeks. But specifically around the convention, there's also a challenge and that is that our convention center is going to be closed for about six or seven weeks around that convention during set up and take down. And now what we're told is that in cities like -- cities that have these conventions, that they do really pretty good business in the years of the convention just even anyway. So even though we face that, the week will be great, we'll do other business and it should be a net positive for us, but not as much as one might think. But the bigger thing and the bigger positive is the long-term impact on our market and that's -- I mean, I know because I sit on the board of our convention visitors bureau and we already are seeing an increased volume in interest in Milwaukee as a convention destination. And so, I think, the bigger positive is not so much that one week, but -- that's 10 days, but really what it will mean for our community for the next number of years.

Okay. And maybe, Doug, you were just talking about some of the updates you'll need to do at the Pfister and Grand Geneva and Milwaukee Hilton. You just completed the Hilton Madison and I'm wondering is the objective there and in the other cases to freshen up the hotel and justify its current position or maintain current position? Or is it to reshape the image and try to get other pricing justification?

Yes.

Yes. All of the above?

All of the above. I mean, look, if you're going to be in a hotel business, you can own the hotel assets, you've got to take care of them and we do that. We have -- and the Marcus Corporation has a history of doing that, good times and bad. If you recall, as it turns out, the last time that we refreshed these three hotels, the environment wasn't very great out there and yet we still could do it. And because we've got a balance sheet that allows us to do that and we came out of that last recession in great shape, because we were able to invest in our hotels when others couldn't. Having said that, the reason I said yes, the reason why Greg was about to say yes to the same thing, is because whenever we make investments like this, we're always looking at ways of saying other ways to reposition these properties and for the next 10, 20 years.

Yes. Grand Geneva, we're looking and saying, as hard as it is for me to believe, we've owned it for 25 years, and talk about having brand equity. And I was trying to think back on how hard, as we think about the Saint Kate, how hard it was to open the Grand Geneva, we really were starting from scratch in a hotel that was closed for chunks of a year, when it was such a -- it was in such tough shape when we bought it as the Americana, it was closed for the winter. And so -- I mean, every winter. And so -- but it's been 25 years, and it's time to think about what do the next 25 years look like? So some of the investment that we make will be just, because it's time, the carpet needs to be done, the soft goods need to be done, but we're going to also be looking at things saying, okay, how do we position this resort as one of the premier Midwestern destinations as it is now for the next 25 years? And that will mean -- that will have ROI that goes with it.

And maybe just shift over to the movie sector for a moment. With the opening of Brookfield and everything you're putting into that property, it's like every bell and whistle that's going out in the industry right now. I'm just wondering, is that a unique location? And a lot of things are not likely to transfer. Or is it your test kitchen to figure out which of these ideas, especially some of the newer ones, whether it's online app ordering or that sort of thing, are likely to transfer more broadly to your platform? And when will we know what's going on there? How will you communicate that?

I think it's more the latter, but it is a bit of a test kitchen. In that, we are -- but it's not like I would call complete R&D, like, so much R&D doesn't happen because it wouldn't be R&D if you were trying known tested things. But the idea of ordering off an app and ordering off kiosks, I mean, that is -- it's our way of -- it's sort of our design test, more than I would call, like a research and development operation. And how we sequence the ordering, how we do that, how we -- how the customer uses it, it's different than other Movie Taverns. But we may be taking some of what we learned here to other Movie Taverns. So it is -- so yes, it's a bit of a test kitchen. But it's not like completely from scratch. So I think from scratch is the food. But I would say there's a fun irony in that, theater that I would -- that I shared with the group we opened it that night. And that is, when my grandfather 84 years ago, almost to the day, opened the first theater in Wisconsin, it was a former department store. And the Movie Tavern that we built and opened just this last, few weeks was a former department store. And I found that an interesting irony, as we started on another chapter, the Marcus Corporation, And the Marcus leaders.

Absolutely, okay, well thanks very much. I appreciate it.

Thanks, Jim.

Thank you. And our next question comes from Ryan Hamilton with Morgan Dempsey. You may proceed with your question.

Good morning, everyone.

Hey, Ryan.

A quick refresher for me, on the Movie Tavern conversions along with the DreamLounger conversions, are you closing down the entire theater as you do these conversions? Are you just closing down certain screens?

Yeah, just certain screens, Ryan, we phase it in, and we -- and so we'll -- and obviously we're looking at film product. We're looking at a lot of different things, but we typically will do several auditoriums at a time. Get those done. Reopen them. Move on to the next ones.

Okay, sounds good. And then, my only other question is with some of these production studios launching new streaming services, have you noticed any push from them to maybe shorten the streaming window or any other kind of shifts or changes during those negotiations? I know you can't probably get too detailed. But I'm just curious, if there's anything that's outstanding that we should know.

No. The only thing I would say is that we continue to talk about the importance with all of our studio partners, about the importance of the window, not only to us, but to them. And I think -- and I'm not in the studio business, but I have been around, our industry for a long time. And that is in a world where so much is, there's so much product in these -- in the home video market. That it behoves them, to put that halo on some of their best product. The -- that is a -- and if you think about it, I mean, if you think about what's going on with them, why is it, that some of the most expensive things are spending some of the most money on are these, old TV series, Friends, Seinfeld, The Office. Why is that? Because of the time -- those came at a time, when there were such -- so many -- such limited choices, that they amassed these huge audiences, became part of the zeitgeist, and the water cooler talk. And it was a part of the national consciousness. The way to become part of the national consciousness, I would say them for their movies, that they want to play on their streaming services is to be in the theaters. And in that halo of exclusivity, and in that -- where there's a much smaller amount of product just by the nature of its business, we can't play a gazillion things all at one time. And so it puts a spotlight so to speak, on those movies. And I think then it then will then be very beneficial to their services and look at Apple has announced that they're going to play movies in the movie theaters with a window. And I think that's so important. And I think that they are -- they're clearly -- they have -- I think, they're obviously very smart. And know that that's going to be a benefit to them. That just saying, well, we have it for just for our service and our subscribers, well, for some of that that's probably okay. But where they really want to put a spotlight, as I said a halo on what they're doing. I do believe, that that -- that they should use the theaters. And keep that window, because that window of exclusivity is what keeps it special.

I share the same opinion. So thanks for sharing that. That's all I've got. Great, quarter guys, thanks again.

Thanks, Ryan.

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

Well, thanks again everybody, for joining us today. We look forward to talking to you once again in February, when we release our fiscal 2019 fourth quarter and year-end results. Until then, thank you. Have a great day.

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