The Marcus Corporation (MCS) Q1 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the Marcus Corporation First Quarter Earnings Conference Call. My name is Stephanie, and I will be your operator for today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today is Greg Marcus, President and CEO; and Doug Neis, Executive Vice President and 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, Stephanie, and good morning, everybody. Welcome to the fiscal 2020 first quarter conference call. As usual, I do need to begin by stating that we plan on making a number of forward-looking statements on our call today, all of which we intend to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act. Our forward-looking statements may generally be identified by our use of words such as we believe, anticipate, expect or words of similar import. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected, including, but not limited, to the adverse effects of the COVID-19 pandemic on our theater and hotels and resorts businesses, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness and the duration of the COVID-19 pandemic and related shelter-at-home and social distancing requirements and the level of customer demand following the relaxation of such requirements. Our forward-looking statements are based upon our assumptions which are based only upon currently available information, including assumptions about our ability to manage difficulties associated with or related to the COVID-19 pandemic; the assumption that our theater closures, hotel closures and restaurant closures are not expected to be permanent or to reoccur; the continued availability of our workforce following the temporary layoffs we have implemented as a result of the COVID-19 pandemic; and the temporary and long-term effects of the COVID-19 pandemic in our business. Listeners are cautioned not to place undue reliance on our forward-looking statements. Additional factors, risks and uncertainties, which could impact our ability to achieve our expectations identified in our forward-looking statements, are included under the heading Forward-looking Statements in the press release we issued this morning announcing our fiscal 2020 first quarter results and in the Risk Factors section of our fiscal 2019 annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and the current report on Form 8-K that we filed this morning, all of which you can access on the SEC’s website. We’ll also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com. With that behind us, let’s begin. Under normal circumstances, we’d now proceed to spend 80% of our time during our initial remarks looking backwards and talking about the quarter we just reported with only about 20% of the time dedicated to looking ahead. Well, as I think we can all agree, these are not normal circumstances. So our plan today is to flip that 80-20 rule around. I’ll still begin by spending a few minutes looking back at this past quarter and briefly sharing a few numbers with you. But then I’m going to pivot to more current topics such as the balance sheet and liquidity. And once I do that, I’ll turn the call over to Greg, who will focus his prepared remarks on where our businesses are today, what we’ve done to date and are continuing to do to manage through this crisis and what some of our plans are for the future. When we open up the call for questions, we certainly would be happy to revisit the quarter and answer any follow-up questions, if needed. I also want to note that, today, we filed a Form 8-K which extends the SEC filing deadline for our first quarter Form 10-Q by up to 45 days, although we’re hopeful that the delay will be no more than a week or less. The SEC provided this filing deadline relief, recognizing that companies such as ours with 100% of our businesses closed and many of our employees temporarily laid off, might require extra time to prepare all the necessary disclosures that go along with unprecedented times such as these. Further complicating matters for us is the fact that this is the first quarter that, as a newly designated large accelerated filer, we must comply with what I’ll refer to as enhanced XBRL tagging procedures. With all of the extra disclosures required this quarter, many with numbers that require this enhanced tagging, our SEC filing service needs a little more time to complete all of the necessary work required to get the Form 10-Q ready to be filed, and we need more time to review their work. What I can tell you, however, is that we believe strongly that the numbers we’re reporting today will not change in any material respect between today and the date that we file our Form 10-Q. So you’ve seen the numbers. And with all the theaters closed for the last 9-plus days of the quarter, our hotels experiencing a rapid increase in cancellations beginning in March and culminating with the closure of, first, our restaurants and bars, and subsequently, the hotels themselves, and with all the nonrecurring items we had during the period, it’s likely not coming as a surprise to anyone that we reported a significant loss this quarter compared to last year. It’s obviously very unfortunate because, as noted in our release, our theaters, in particular, were off to a very good start through the first two periods of our first quarter, thanks to a combination of both strong holdover films from fiscal 2019 and several new films. As the press release notes, we did have several non-recurring items this quarter directly related to the impact of the COVID-19 pandemic. First off, we incurred approximately $5.5 million of property closure expenses, split almost evenly between our two divisions. The vast majority of these expenses represented payroll continuation payments made to associates temporarily laid off in order to bridge the gap between their last day working and their eligibility for unemployment benefits. We’ve always said our associates are our most important asset, and this was just the right thing to do under very difficult circumstances. In addition, with almost all our theater and hotel properties closed as of March 26, 2020, the ending date of our first quarter, accounting guidance required us to review virtually all of our assets for impairment as of that date. The way the accounting rules work, this becomes a point in time, almost completely mathematical analysis that relies heavily on projections of future revenues and cash flows. For most of our long-lived assets, with many years of useful lives left, we were able to quickly conclude that future cash flows of each asset support the carrying value of that respective asset. But for assets that have shorter lives, particularly leased assets with lease termination dates that are approaching, the mathematical impact of near-term negative cash flow impacts the impairment analysis. As such, we concluded that an impairment charge of approximately $6.5 million was necessary for several theater properties. We also carry a trade name intangible asset on our books, the value of which is determined mathematically using a discounted cash flow methodology based upon future revenues. With no revenues projected for several months subsequent to the March 26 date, we were required to recalculate the discounted cash flow value of this intangible asset, and the result was an additional $2.2 million impairment charge on this asset. In total, we reported $8.7 million of impairment charges this quarter. We included a non-GAAP reconciliation of our net loss and our adjusted – our adjusted net loss and our adjusted EBITDA with our press release in order to show you the impact these nonrecurring items had on our reporting results. Now in the midst of the current situation, it would be easy to just focus on the challenges we faced at the end of the quarter, but there were several positive trends during the quarter that should bode well for us when we begin reopening. Our press release highlights several of these items, including the fact that both our theaters and hotels once again outperformed their respective industries during the quarter, and that includes significant outperformance for our Movie Tavern theaters. Our theater division also continued their positive trend of reporting meaningful increases in their average ticket price and average concessions and food and beverage revenues per person. It’s also worth noting and spending a minute on income taxes for a couple of reasons. First off, we obviously reported an income tax benefit this quarter due to the pretax loss, and the effective income tax rate used was within our previously expected 24% to 26% range. Looking ahead, however, due to provisions included in the CARES Act that was enacted on the first day of our fiscal 2020 second quarter, we anticipate that our effective income tax rate and resulting benefits for the remaining quarters of fiscal 2020 may increase if we incur losses that can be carried back to prior years that had a higher federal income tax rate. Of course, our actual fiscal 2020 effective income tax rate may be different from our estimated quarterly rates, depending upon actual facts and circumstances. And this benefit of the CARES Act won’t just reduce any reported net losses we incurred. We believe it will also result in significant liquidity benefits for us this year. Based upon a preliminary review of the provisions of this legislation, we believe we’ll be eligible to receive an income tax refund in the $15 million to $25 million range in fiscal 2020 related to new rules for qualified improvement property expenditures and net operating loss carrybacks. We would also be able to apply any net tax loss incurred in fiscal 2020 to prior year income for what may be a significant refund in fiscal 2021 when our fiscal 2020 tax return is filed. Shifting gears away from the earnings statement just for a moment, our total cash capital expenditures during the first quarter of fiscal 2020 totaled approximately $10 million compared to approximately $43 million last year, which included the cash component of the Movie Tavern acquisition. Most of this year’s dollars are spent in our theater division on several projects, as noted in our release. And of course, as also previously disclosed, we have placed most future capital expenditures on hold for the time being. But before I turn the call over to Greg, let me also briefly comment on last week’s announcement regarding our new financing. I don’t need to tell you that The Marcus Corporation has been a conservatively run company for its entire 85 years of existence. Two of our core philosophies have been owning our own real estate whenever we can and maintaining a strong balance sheet. Well, I would suggest that those core values have never been more important. As a result of these long-standing management philosophies, we entered this crisis from a position of strength. For example, our debt-to-capitalization ratio at the end of 2019 was a very modest 26%. And in addition to our owned hotels, we own the underlying real estate for the majority of our theaters, representing over 60% of our screens and an even larger percentage of our revenues and cash flow, thereby reducing our monthly fixed lease payments. This is a significant advantage for our company relative to our peers. With a cash balance of $126 million at the end of the first quarter, combined with our ability to significantly reduce our monthly cash needs during the period that our theaters and hotels are closed, we believe that even if all our properties were required to remain closed for the rest of the year, we would have had sufficient cash to sustain our operations, even without the new financing we announced last week. With the new $90.8 million Term Loan A, we have provided for an additional insurance policy to further enhance our liquidity, which we believe positions The Marcus Corporation to weather this current storm well into 2021, if needed. With that, I’ll now turn the call over to Greg.

Thanks, Doug. As Doug noted earlier, I’m going to focus my remarks on where we are today, what we have done to date and continuing to do to manage through this crisis and what some of our plans are for the future. As you can imagine, there are a lot of unknowns yet about what the future months will look like, so our plans will continue to evolve as the situation unfolds. The fact is, that while the COVID-19 pandemic has affected everyone, our two industries, movie theaters and hotels, are among the hardest hit. Within this unprecedented environment, our priority, as it has been throughout our history, is the safety and well-being of our associates, customers and communities. This has guided everything we have done so far and will guide us in the weeks and months ahead as well. As leaders, we always try to anticipate the challenges and opportunities that lie ahead and plan for them, but I don’t think anyone could have imagined a day would come when we would be forced to temporarily close all of our movie theaters and hotels. I’ll briefly share how we are managing through this crisis in a minute, but first, I need to acknowledge our team. Extraordinary times call for extraordinary solutions and extraordinary leadership. Our executive team faced the challenges head-on and has worked literally night and day to develop and execute strategies that will get us through this crisis and put us in a strong position for continued growth over the long term. We’re very fortunate to have such an experienced and dedicated leadership team. We’re working to strike a balance between taking care of our people and helping to slow the spread of the coronavirus, while, at the same time, making decisions that are in the best, long-term interest of the company, our associates, customers and shareholders. This is a delicate balance but vital. The hardest part of all these decisions is the impact the temporary closings have had on our associates, many of whom have been laid off. Caring for and valuing our associates has been the foundation of our culture since the day my grandfather opened his first movie theater back in 1935, and it’s more important today than ever before. As Doug noted, we provided short-term compensation to these associates who were laid off in order to bridge the gap until they could receive unemployment benefits. We are also continuing to provide health insurance for those who are in our plan. In addition, a group of our associates came forward with an idea to help their fellow coworkers, creating an effort called Marcus Cares. This is a resource center that includes communications, temporary employment opportunities, job search tips, benefit information and a private Facebook page where associates can support each other. I’m so proud of the team that led this effort. It’s what makes our company great. Since the coronavirus crisis began, the company has been working proactively to preserve cash and ensure sufficient liquidity to withstand the impacts of the current situation and ultimately emerge in a continued position of strength. In addition to the new financing we announced last week and temporarily suspending quarterly dividend payments, as required by the amended credit agreement, we’ve already taken and intend to take in the future a number of additional measures to enhance liquidity, including discontinuing all non-essential operating capital expenditures; temporarily laying off the majority of hourly theater and hotel associates, in addition to temporarily reducing property management and corporate office staff levels; reducing my salary net of might-adds by 50% as well as reducing the salary of all other executives and remaining divisional corporate staff; temporarily eliminating all Board of Directors’ cash compensation; actively working with landlords and major suppliers to modify the timing and terms of certain contractual payments; evaluating the provisions of the CARES Act and utilizing the benefits, relief and resources under those provisions as appropriate; and evaluating the provisions of any subsequent federal or state legislation enacted as response to the COVID-19 pandemic. We believe these and other steps will enable us to manage the short term while helping to ensure our success over the long term. So now the good news is that we, along with the rest of the country, are now turning our attention to reopening and what that will look like. We are developing plans for how we will ramp up our operations once state and local authorities issue their guidance. With that in mind, let’s spend a few minutes talking about how this may play out, starting with our hotels and resorts. When we closed our hotels, it was not because of any governmental requirements to close. Our restaurants and bars are within – our restaurants and bars within our hotels are required to close, but the hotels, themselves, were considered essential businesses under most definitions. We closed our hotels due to a significant drop in demand that made it financially prudent for us to close rather than stay open. As a result, the timing of reopening our hotels and resorts will likely be driven by an increase in demand as individual and business travelers begin to travel more freely once again. The economic environment in place as this reopening happens will have a significant impact on the pace of our return to normal hotel operations. Hotel revenues have historically tracked very closely with traditional macroeconomic statistics such as the gross domestic product. After past events, such as 9/11 and the 2008 financial crisis, hotel demand softened for a period of time, particularly among business transient and group business travelers, as travel budgets tightened in uncertain economic times, whether the return to more normal demand is relatively rapid as it was after 9/11 or occurs over the course of one or more years as it was after the 2008 financial crisis is unknown at this time. Conversely, we now anticipate the hotel supply growth will be limited for the foreseeable future which can be beneficial for our existing hotels. As we speak today, it is still uncertain what it will look like when Milwaukee hosts the Democratic National Convention in August 2020, the status of the Ryder Cup in September 2020, which is scheduled to be held approximately one hour north of Milwaukee, is uncertain at this time as well. We are having discussions regarding what social distancing or other measures might be required when we reopen that may limit our initial revenue potential. We will continue to be in constant contact with the Hotel Trade Association and our various brands as potential operating standards are developed, some of which may be temporary and some of which might become the new operating standards in the future. Regardless of how this unfolds, I am confident that our Hotel Division President, Michael Evans, and his outstanding team will effectively manage this reopening process, and we look forward to welcoming guests through our hotel, restaurant and bar doors as soon as safely possible and delivering services that align with demand at that time. The timing for when our theaters will reopen is uncertain as well. As you may know, some states began allowing theaters to reopen beginning last week. But as we speak today, the vast majority of theaters throughout the United States are currently still required to be closed under various state and local government restrictions. We will continue to monitor and follow those restrictions until lifted. And even as states begin lifting their restrictions, we don’t plan to reopen theaters until we feel we are ready to provide a safe and welcoming experience for both our associates and our valued customers. We were encouraged by recent federal guidance for a phase reopening of the U.S. economy that included the reopening of movie theaters in Phase 1, albeit under strict social distancing guidelines. Prior to closing our theaters, we had announced a social distancing seating plan that effectively reduced each theater’s auditorium’s capacity by 50%. Our current expectation is that when we do reopen, we will open to similar capacity limitation. Keep in mind that a reduction in capacity does not necessarily translate to an equal reduction in potential revenues. Reduced capacity may potentially impact attendance on $5 Tuesdays and on opening weekends of major new film releases, but other showings may be relatively unaffected given normal attendance counts. And based upon our past experience, we believe the customers impacted on those $5 Tuesdays and opening weekends may adapt to reduced seat availability by shifting their attendance to different days and times of the day. This is what happened when we pioneered recliner seating in our theaters, capacity was reduced as a result. We believe that the exhibition industry has historically fared well during the recession, should one occur as a result of the COVID-19 pandemic, and we remain optimistic that the industry will rebound and benefit from pent-up social demand as home sheltering subsides and people seek togetherness in an attempt to return to normalcy. A return to a new normal may span multiple months driven by staggered theater openings due to governmental limits, reduced operating hours, lingering social distancing requirements and a gradual ramp-up of consumer comfort with public gatherings. We are exploring a number of additional measures within our theaters to help support that consumer comfort. This includes exploring ways to offer a low to no-contact experience for our guests. For example, one of the initiatives our team is focused on is the use of technology to offer a nearly contactless food and beverage experience. You may recall that last fall at our new Movie Tavern in Brookfield, Wisconsin, we introduced the ability to order concessions in our enhanced food and beverage offerings via our mobile app. We are working towards making this technology available at all of our theaters, and we think this has the potential to be widely embraced by our guests. We also expect to initially reopen with older film product and other creative concepts to help excite customers to return to theaters. We expect the film studios to work closely with the exhibition industry to provide the necessary product at favorable terms to facilitate a phased reopening. A significant number of films originally scheduled to be released in March through June of 2020 have been delayed until later in fiscal 2020 or fiscal 2021, further increasing the quality and quantity of films available during those future time periods. And as we speak today, most studios have kept their release schedule for films in place beginning in July of 2020 with the first major release scheduled being Christopher Nolan’s new film, Tenet, followed in the next weeks by Disney’s Mulan. If those films hold to those dates, then we need to recognize – if those films hold to those dates, and we need to recognize that this is still an if, then I could see all or most of our theaters opening several weeks before that in order to get our people and processes ready for the new movies. Our press release highlighted a number of other films scheduled for the second half of 2020 that may generate significant box office interest as well. However this plays out, I’m certain that Rolando Rodriguez and his incredibly talented team have prepared to adapt and manage us through this reopening process and ultimately deliver a truly great movie-going experience to our guests. I would be remiss if I didn’t address one other issue before we open the call up for questions. There has been some speculation that the COVID-19 pandemic may result in a change in how film studios may distribute their product in the future, including accelerating their release of films on alternate distribution channels such as premium video-on-demand and streaming services. In fact, in a couple of cases, films that were scheduled to be released to theaters have instead been released directly to those alternate channels. We believe that these select few instances are isolated and were a response to the immediate circumstances of nearly 100% of movie theaters being closed worldwide do not reflect the change in permanent distribution plans of these studios. Other films with greater expected box office potential from these same studios were delayed rather than released early, and comments from the film community, in general, have been very supportive of the importance of the theatrical experience. Are there always discussions around distribution strategies? Yes, sure, there are. But it’s important to remember that the exhibition industry has been an $11 billion to $12 billion industry in the U.S. and approximately $40 billion worldwide. The film studios derive a significant portion of their return on investment in film content from theatrical distribution. In fact, just this past week, the Head of Selling said the following, and I quote, “There is no economic model – it doesn’t exist – to recover the size of the investment in a big theatrical movie without theatrical revenue.” We believe distributing films in a movie theater will continue to be an important component of their business model. In this rapidly changing environment, you can rest assured that we are continually reviewing the situation in both our businesses, and we will make our changes to our plans as warranted. Our company is built for challenging times like this. Our leadership team, managers and associates have stepped up to the challenge in ways that go way above and beyond. And for that, we are most grateful. We also very much appreciate the confidence and support of the investment community during this challenging time and always. When we get through the storm, and we will get through this, I think people will want to do all the things they used to do, go outside, go out to dinner, see a movie, meet with customers and travel. Perhaps, they will value it even more. And when that happens, we will be there for them. With that, at this time, Doug and I would be happy to open the call up for any questions you may have.

And we’ll go first with Jim Goss with Barrington Research.

Good luck to all of you through this crisis. I was wondering if you could talk a little more about the nature of the reopenings on the hotel side versus the theatrical side. It would seem like the theaters could pretty much open simultaneously at some stage, but the hotels are more likely to be uneven, just as your closings were uneven. And maybe I’m wrong on that, but I wonder if you could talk about that. And also maybe talk about the nearly contactless food and beverage, maybe go into a little more detail on just how that’s being executed.

Sure. Well, look, I think that there’ll be, I think, uneven – yes, I think that’s the word. I think they’ll be generally uneven, depending – it depends on the market. So if you look at a market like Milwaukee. Might we open all three hotels at the exact same time? Probably not. We might – we’ll phase in as demand – and that’s just unique to us, right? As demand starts – as demand builds, we’ll be able to respond to what’s coming. And frankly, each market will be separate in that regard. Theaters, you’re right, a little more homogenous. However, still, I think that we’ll be – we won’t open everything all at once. I don’t think we’re just going to flip the switch because we’re going to be testing and trying, again, things to see how they’re working, to understand, again, to take the efficiencies of demand. We might not have every complex open in the market right away, but it would move faster than hotels, I think. But frankly, I think we just don’t know, again, all demand dependent. Speaking to your question about the contactless experience. Yes. We – so we’ve got this focus on what we call low to no contact, how do you make that whole experience in really either of our businesses. And they both lend themselves to it with technology, a low to no contact experience for the customer. In the theater side, you can start off and you can order your ticket on your phone, so you don’t have to go to the box office. You can order your concessions on your phone. It’s – we’ve been working on it now for, I don’t know, maybe for well over a year. But I think about nine months ago, we were starting to roll it out and test in some of our theaters, and then we really rolled it out into the Brookfield Movie Tavern. And you can order anything on your phone and say, I like to pick it up at x time. We may offer delivery to your seat. But again, to be contactless, you’ll go and you’ll – your order will be set up at a pickup station so that you can just go sort of like you’re going into a many modern casual dine-in – no, fast-casual places where they’ve got a setup for people who preorder and you pick your order up in a setup area, and then you can go into the theater. You scan your phone on a scanner. You don’t have to have the ticket ripped. There’s no one – you can scan the phone. The usher will be 6 feet away, but they’ll be able to just see that you have a ticket, and then you go in. We will have cleaned each theater between showings and sanitized the seating. We’ll have more of a checkerboard seating style. We do have 7 feet between rows. So we’ve got this distance on front to back, and then we’ll put seats in between the customers as they sit down. And that’s how we see it as a pretty low to no contact experience. And the one thing we’ve been talking about as we talk to municipalities about this because I think that they think about these more along the lines of a concert facility. But in a way, these are much different than that. We don’t have 1,000 people all showing up at one time. We’re able to spread the shows out. We can – thereby, we make sure who goes in the lobby, who doesn’t go in the lobby. You can sort of keep that at a very low level because you’re just letting – as you’re just done through show scheduling. And the other thing, you get to a movie theater, and you don’t talk. There’s no – you just sit there quietly. There’s no air being expelled and just your breathing. But really, that’s – there’s not a – it’s not a more emphasized kind of thing. So it’s an environment that we think can be properly addressed through good social distancing.

Okay. Maybe my last question then would be – the $64,000 question is your opinion about customer attitude toward taking the “risk of attending even if you are socially spaced” and whatever approaches you might have to mitigating or reducing those concerns. Are there – like do you intend to funnel people through a channel and take their temperatures or something of that nature? Or are there other things you have in mind? But I think you’ve gone through quite a bit already. But are there any other opinions you have about the attitude people might have about coming back to even a supposedly safe environment?

Yes. We – first of all, it will be about – there’ll be a number of things that we’re going to do. We haven’t decided everything yet, but we know that all of our associates will be wearing proper PPE in terms of having the masks, gloves, and there’ll be a very visual sanitation process going on so that people can see that this is a clean environment. This is – so that – so from our – and our employees’ temperatures will be taken. They will – I mean when they come to work, the – so that we know that our employee base is going to present a safe experience for our guests. We also offer masks to our guests if they want them, and there’ll be – and there’s other things, too, that we’re looking. And I’m sure at the end of the day, look, the one thing – we’ve seen some survey work and it basically says half the people will pretty much come back, are comfortable or at levels – others showing what experience and the time that we’ve created a safe environment for everybody. The – so I think that that’s how we’ll get there.

All right, well thank you very much. I appreciate it.

Next, we will have Mike Hickey with The Benchmark Company. Please go ahead.

Greg, Doug, hope you guys are doing good here, definitely unprecedented challenges. But look, solid execution from your team. So tough work, but good job. The – I guess as you think about reopening here, can you give us some perspective on revenue or attendance that you read from your theater and hotel segments be cash flow positive?

Mike, I’ll start with – so on the hotel side, and this is – this kind of follows on a little bit as well to Jim’s earlier question. There is not a one-size-fits-all answer to that question. And it was evidenced by the fact that we close – we didn’t close them all down initially as well. So a property – a big-box property with lots of outlets, et cetera, functions differently with a different cost structure than a property that’s more select service like the AC in Chicago as an example and et cetera, et cetera. So each of our eight owned properties and then you get into our managed properties as well really are different animals, and so our team is really focused in on a property-by-property basis what those metrics might be. Keep in mind that when we close, and a lot of times, people ask us about occupancy. And while certainly occupancy is important, RevPAR is more important. RevPAR is the combination of rate and occupancy. And so we’ll be doing – and we are doing, and we will continue to do a lot of analysis. And we’re in the process of really trying to get a good handle on that right now to understand for each property what the right RevPAR, what the right occupancy levels need to be in order to be – in order to reach that point where it’s incrementally time for us to be opening up. And so it really will be a hotel-by-hotel decision and market by market. On the theater side, look, I mean, you’ve all heard the statistics. I mean the “occupancy statistics” that are sometimes attributed to the theater industry that talk about total occupancy be at 20%, give or take. I mean I’ve heard 20% to 30% or different numbers. But of course, that number doesn’t mean a lot when you look at it in total because as we addressed in our prepared remarks, we’ve got $5 Tuesdays in weekends that are really busy. We’ve got the other days that are less busy, and they all average out to those kind of numbers. So we’ll do a lot of our analysis surrounding that as well. I mean, as Greg mentioned in his prepared remarks, we’ve seen prior evidence of times when capacity has been reduced when – how customers react and adapt to the situation by, in turn, going to different showtimes, going to different days as well, and so there’s a lot that goes into that analysis as well. And we’re not going to state that there’s some given revenue number. It’s – that also could be, as Greg indicated, we’ll be looking very closely at the markets, and there could be scenarios where maybe not initially, not every theater could open in the market. There could be markets where they all open at once. So that’s not probably – it’s a long-winded answer to say that there’s not a single number that I can share with you that says that’s the magic point where we now reopen.

Because another thing, too, to build on that, Doug – to build on that just a little bit is going to be just, again, that we will react to what’s coming in the door. In a hotel, if it’s a certain percentage, if we’re doing a certain AER and occupancy, we will have to have a – we will provide a service that is commensurate with what’s coming in, and it may not be the service that we had before but still a high level of service. But it would just depend on, as I said, on what we’ve got – what right side of the ship to what’s coming in. And by the way, just on the theater side thing, just because – to make it more clear in case I wasn’t clear. To go back, the reason – the experience we were talking about with the recliners is since we were among the first in line of our markets to put recliners in, what we saw, first, was that big share shift. And while there was only – as that share shifted, there was only a certain amount of seats, even when you had all of them going. And in that, we found people, well, okay, they came later, they came earlier, they found other shows to go to so they can get to see what they wanted to see. So in that regard, if there’s excess demand, we think it will slide into these other show times or days.

The – appreciate that, guys. The – I guess, again, on your reopening, you mentioned increase in demand. I guess that’s not impossible to measure when you’re closed. You can look at economic considerations, slate, et cetera, peers. But when you think about reopening, obviously, there’s an expense there. Of course, you anticipate inflecting and being cash flow positive. But I guess how do you factor in what appears to be sort of the real possibility of a second wave that – not necessarily would close you down but could sort of compress your attendance or your occupancy? And so does that – is there a way to measure that? Or how do you sort of balance that consideration into your reopening process?

Well, I guess I would say that we don’t – it’s really hard to have any idea what that might look like or when that might come or will there be a therapeutic before that happens. I mean what – that’s so hard. So for us, and this is where I’ll pass to Doug as to say, we want to make sure is that we have the balance sheet to be able to work through whatever that might be because it’s just – that’s the unknown, and that’s why our balance sheet is the way it is. And I’ll let Doug take it from there.

Well, the only thing I’d add, Mike, is that – and it also harkens back to some of our comments earlier is that we see technology as being an important part of this and because that can also help from a cost perspective and a cost structure perspective. We were focused on that before this happened. Before this all happened, what did you hear from us call after call? Our number – our biggest opportunity was to deal with labor costs and shortage of labor and just, in general, labor costs and rising labor costs. Well, the fact of the matter is, is that technology could help us in this situation, staff properly and have a cost structure that still allows us to have it be – make sense for us to be open and operating and profitable ultimately.

Last one for me on that point, assuming we get back to sort of a more normalized future, which I’m sure we will. And you sort of used this disruption to embrace change with technology. What – is this meaningful to sort of your future profitability profile compared to what it’s been historically?

Mike, again, I mean, it’s – we don’t know. I mean the fact of the matter is, is that if a larger percentage of customers embrace ordering their food, for example, their concessions, that certainly could impact how we staff, but we haven’t – I mean, we have – I don’t have numbers to share in terms of saying that, well, if all of a sudden, 20% or 30% or 40% or whatever the percentage is, but we certainly think that it’s – that, that would be overall helpful, and we thought that was the case before this happened.

And that’s why we were developing the software we were developing. And I do think that we’re ahead of a lot of the industry, actually, in this and that we were – just because of the labor markets. And we were like, yes, we got to – we need to be able to employ technology to the best of our abilities, and so that’s why we were in a position actually right now to be able to literally flip the switch to say, okay, okay, all of our theaters, you can order online. We had to put a little bit of technology in some of them. But for the most part, we’ve been thinking that way. So it’s just accelerated that.

Thanks guys.

[Operator Instructions] We will now take Eric Wold with B. Riley.

Thank you. Good morning, Greg. A couple of questions, not to harp on it. I think some of the same ones have been asked every which way to Sunday already. But I guess on the – on kind of the reopening plans of hotels, I guess trying to understand kind of the thought on how you’d make the decision because, clearly, you’ve got to turn on the switch to begin accepting reservations for a certain date before you may know what demand is starting on that date for hotel occupants. So I guess are you looking at when flights start kind of getting rebooked again, when events start kind of coming back into play in Milwaukee and other markets? What kind of gets that decision point to when you want to flip on and start taking reservations? And then how easy is it to initially staff a hotel at low levels? Clearly, you can open half the floors and offer half the rooms and kind of commensurately kind of bring in half the cleaning staff and hotel staff, et cetera. But how easy is that to do versus a theater?

Well, it depends on – well, let’s see, how will we know? That is the big question. How do we know when the right time is. I think, look, we’ll start to – as the economy start to open up, and this – we will start to see a demand for travel. And you can look at the other countries to see sort of as they open themselves up sort of what that curve had looked like, so we’ve got some level of guidance that will be a part of that. It will then also have bearing on where these properties are. One – so for example, the Grand Geneva is a – is really a drive-to property, right? So for us, we actually think that as people become comfortable with traveling – and what we do believe that leisure is going to be the first travel to come back, right? So that’s where we’re going to be looking. So as the leisure guests says in Chicago or Milwaukee or in other sort of Mid- to Western areas around yours is, I want to – if I could just get away. I’ve been locked in my house for the last number of months. I want to get away to just take a couple of days, go somewhere. A resort like the Grand Geneva is actually easy to get to. You don’t have to get on a plane to go there. And for the most of our – for most of our properties, they’re not in gateway markets. So we’re not international markets, so we’re not sitting there waiting for international flights to book up again. So I think that there’s going to be a fair amount of emphasis on drive-to business. And again, it starts with leisure. But we’ll – and again, we sort of – we’re just going to have to wait and see and watch and see as the economies open up. And as I said, we can use guidelines, such as what’s come out of Asia and Europe as they’ve started to reopen their economies and their lodging facilities. It’s a gradual growth, but it does grow into a – you start to see business show up again. And then, I’m sorry, was that – what was the other question?

Just kind of on the ease of operating hotels with lower staffing, yes.

The ease. It’s not easy, but I know our teams are working very hard on it and trying to figure out what is the right amount of staffing to be able to put in place as we start things off. That’s – we won’t have – for example, we’re not going to have it first as much banquet business because there just to be – given sort of the way the world is going, they’ll probably start to be subbed now that we socially distance, that kind of a thing. But we would just bring staff back as the business demands it.

Okay. And then second question, the last question, I guess, on the theater side. I know you’ve done a great job in past years with the – you have a $5 Tuesday promotion kind of shifting attendance into that slot and kind of making a new big day of the week. And you said there’s been talk about, obviously, consumers naturally migrating to the other days in this post-COVID environment. Would you try to kind of help that migration? I mean do you see a room to kind of – maybe not necessarily promote but somehow kind of proactively push people to go to Monday, Wednesday, Thursday, not only to spread attendance, but also possibly to ease the burden on your staff in kind of that post-COVID environment kind of reduce kind of the pressure kind of on you guys as well?

We haven’t made plans to yet, but I wouldn’t put – I wouldn’t doubt it that we might do some stuff like that. Again, we’re going to have to get a look and see what the business looks like in getting there.

What I would add, Eric, is that, look, this is another case – this is another situation where the – having a loyalty program with now 4 million members really pays off because we have the ability to communicate. And so we have been, during this time of being closed, as you can imagine, we have kept in touch with our customers, and we have and continue to try to keep them engaged. And so it’s already proved extremely beneficial just in this time. And if we were to decide to do things along what you’re suggesting, that would be a vehicle that would allow us to do that. And so that it’s once again a case of where that program becomes extremely important, and that’s how we would do it.

Perfect, thank you both.

And we will now take Ryan Hamilton with Morgan Dempsey. Please go ahead.

Good morning, gentlemen. I’d like to echo a previous caller on the solid execution from your team. It sounds like you are doing the most with the hand that’s been dealt, so kudos to you. Most of the questions have been answered. I guess I’ve just got one. Any conversations with vendors, supply chain issues that may come up as you plan on reopening anything on that front?

What kind of issues?

Well, maybe inability for them to provide, as they have in the past, maybe if they’re struggling along the lines of staffing or whatever it might be? I’m just thinking outside the box a little bit.

I mean we’ve been in constant contact with all of our key vendors through this process, Ryan. And obviously, you have to start with the studios. And so that’s – so it’s on the theater side. That’s – and so obviously, we’ve had – we remain in constant contact with them. And as we – in our prepared remarks, we talked about some of the plans to initially open up possibly with library product and things along those lines until we get to the point where the new films are ready to debut, but we continue to talk to all of our vendors. And at this point in time, there – we really don’t see any problems with our existing suppliers on the theater side, and I believe that’s generally true as well on the hotel side. They all seem to be in the...

And on the food and beverage as well, I’m just – again, I’m just thinking from staffing and maybe the inability for them to get certain products, maybe menu changes, just kind of getting a picture for what it might look like when you do reopen. Maybe a limited menu, I’m just thinking here.

Well, I think our menus might be a little bit limited when we open, not necessarily because of just of the inability to get something but more along the lines of just trying to keep the process easy to be able to social – properly social distance, things like that. That’s where we might start, not because we’re having the vendor that we have – we’ve heard of anything in vendor issues. And I will – we’ll just adjust the menu.

Okay. Thank you very much.

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

Well, we certainly like to thank all of you again today for joining us. Tomorrow, we’ll be holding our first-ever virtual annual meeting at 9:00 AM Central Time. Interested parties can listen to a live audio webcast and view presentation slides by logging on to the Investor Relations section of the company’s website, www.marcuscorp.com, or through the direct link that’s provided in our press release that was dated April 15, 2020, and selecting guest when logging in. Shareholders can log in with the control number that was provided on their proxy card. We also look forward to talking to you once again in approximately three months when we release our fiscal 2020 second quarter results. Until then, thank you, and stay safe and stay healthy. And please, have a good day.

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