Good morning, everyone, and welcome to the Marcus Corporation Third Quarter Earnings Conference Call. My name is Michelle, and I will 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 would like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you, Michelle, and good morning, everybody. Welcome to our fiscal 2020 third quarter conference call. As usual, you do know that I 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 government restrictions 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, and the temporary and long-term effects of the COVID-19 pandemic on our businesses. 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 third quarter results and in the Risk Factors section…

Thanks, Doug. I am going to begin my remarks where Doug left off, discussing our balance sheet. This is my first chance to comment on the actions we took in late September to further strengthen our balance sheet and liquidity and I think it will be helpful to explain our thinking. We have an 85 year history of prudently managing our balance sheet. As Doug shared earlier, we entered this crisis from a position of strength with a debt to capitalization ratio of 26%. That conservative approach to our balance sheet has proved to be particularly important during this current environment. We always have been and will continue to be thoughtful and opportunistically managing our balance sheet. Immediately, upon the onset of the pandemic, we went to our banks and increased our liquidity by a 364 day term loan, closing on that financing in April 2020. With a significant number of unknowns in those first months of the pandemic, we believe adding the short-term borrowing was the prudent thing to do. While we now have the majority of our theaters and hotels open, there remains uncertainty regarding the pace of the recovery. We continue to be confident that both our businesses will recover, but our thinking always has been and always will be long-term focused. With our long-term focus in mind, we also have – always had the philosophy as our debt portfolio should match our asset base. Our assets consists primarily of fixed and long-lived assets and thus we’ve always tried to have a significant portion of our debt fixed and long as well. With the 364 day term loan scheduled to mature in April of 2021, we were presented with an opportunity to amend our current bank agreements, extend our term loan by another five months, and adjust…

[Operator Instructions] We’ll go to our first question from Eric Wold with B. Riley Securities. Your line is open. Please go ahead.

Thank you. Good morning guys.

Hey, Eric.

Couple questions, I guess, one on the theaters and one on the hotel side. Greg, you just mentioned about the theaters identify certain fixed cost items you could reduce to bring down that breakeven point. I know you are not going to say what that breakeven point is. But can you at least identify what those fixed costs were and all those more likely to be short-term or can they be permanent?

It’s – those number, breakeven to being close. Let’s just make sure that we are talking about same thing.

Yes. Yes.

The – it’s – look, they are looking at everything throughout the board. First of all, just – and some of it’s, when I say some of the costs were temporary. We – to get people, for example, to get people in accustomed environment, we were a little – we were, I would say heavy on some of the labor to get people to – we agree there is people to – show people, okay, how do you operate in this new environment. I mean, literally, I mean, I have to tell you how detail we were and our team was and I’ve given such credit. We were – you can use your foot to open the door, because we’ve got these room pedals that sort of sit on the bottom of the door that looks like a clamp and you put your foot down on it, you can pull the door on your foot to touch the door. I mean, it’s that level of detail. So to have people to have explain how to order online and how to get tickets online and to promote that. So, some of that then got cut back. That was a piece of it. And then just adjusting to the – learning to adjust to what the volume is in the theater with our processes and then also but it’s throughout the organization. We’ve asked our teams at the corporate level to cut back as well and to be – we were thoughtful about every dollar we spend and it hasn’t been easy. So, Rolando and the team, I thank them. This has been a huge challenge. This is they exemplify what leadership is. And so, some of that – look, it’s as we train to run the marathon, we gotten in better…

Okay. Thank you. And then, on the hotel side, can you talk about the decision to reopen the Saint Kate’s rooms? I know in the past, you talked about you only opened a hotel as there was lose less cash or generate more cash than being closed. Is that the case here without actually drawing away from two other properties in Milwaukee? Or is this more a move kind of just to prime that property, get it ready for when business has returned?

I think you read my mind exactly, Eric, it was – you are exactly on point two. It’s – I don’t know how – we don’t know, there is no advance bookings. We had – we’ve had so many – this is such a special hotel. It’s so interesting, I mean, to the – when I go back to – we first opened the Saint Kate, we were trying – I don’t know, I Googled and we were getting here, man, this will tell us fantastic. It’s so unique and so interesting and so amazing. And so, I go on Google and I Googled best hotels in Milwaukee and it wouldn’t show up and I was like oh! We just haven’t been around on that to be on the list. Well, now we are on the list. And so, that’s kind of – and that’s the word with such an – I thought such an important word among all the others and we’ve gotten just – so many words. We are the most recognized hotel in Milwaukee for sure and frankly, probably one of the more recognized hotels in the country if you sort of add it up. That we thought it was important to have rooms opened. Now one of the advantages of being in Milwaukee is, we are able to lever some management across the hotels. And so, the incremental cost of being open isn’t much very much. We may shifted a little bit of business. I think you are exactly right about that. But we want to be – well, it’s hard to tell one of the best hotels in the town and then not be available to guests.

Got it. And then just a last question on the hotels. What are you seeing with the competitors’ ADRs in the markets you are in? And then, what have you done in response to those? Are you being flexible at all? Or are you mostly really holding your own?

I would – look it is market dependent and ADRs are down in lots of places. Then where we could, where there is demand, we were able to hold ADRs in some areas, as well. And so, it just depends on what’s going on and mix of business and we’ve shifted business in different – we’ve got some lower rated business that we moved around. So, I would say, I give it a B on in terms of people not going completely to raising to the bottom, because they know there is – this is – there is not a lot of – there is probably not a ton of elasticity. Look, they want to attract people, but people that are traveling are just not travel, so.

Very good. Thanks, Greg.

Sure. Thank you.

Thank you. And our next question comes from the line of Jim Goss with Barrington Research. Your line is open. Please go ahead.

Okay. Good morning. Over the past several years, I felt the industry, as the theatrical industry has addressed the footprint issue by cutting seats, with reseating rather than fewer screens. At this stage with the pandemic contributing, do you think there will be any cut in the number of screens in the industry? And if so, how would you look at the impact potentially on your competitive position or even your M&A potential given that you are in a lot of smaller markets where maybe some of those theaters might be more at risk?

Well, I do think, Jim, there will be a shrinking of the theater footprint. I think that the odds are that that there will be players who will have to reorganize. And it’s interesting, I think it’s important to people – remember, reorganization doesn’t mean they are going away. Jim, I’ll take a little bit more than a 14 second outlook and it’s hard to the average lame person understand it. I know you understand that. But, as a company, they reorganized they are – frankly, the investors are already in there. They’ve been jacking for position in their debt for months and months and months. They are waiting for the loans they’ve been loaning to own. They are going to end up owning these and they are going to end. And then, if you look – believe in the long-term health of the business, which I do. I believe people want to be together. People want to go to the movies. They are itching to get out right now, I think it’s, we know that theatrical is a significant revenue stream for a lot of these companies, frankly, societally, I think it’s important. I mean, we really talk about the communal experience and we do we talk about it being good for our – being good, because customers enjoy being with other people. But even beyond that, society – a society is only strong as it’s common bonds of trust and sort of now think that society would prefer to have people of different backgrounds and thoughts altogether in a room rather than sitting at home alone in their silo, thinking about just what they believe and as I think societally it’s good. So, I believe we get long, long run – the long run in the future of…

Okay. So, the overall number, the 40,000 or 43,000 whatever the figure is, right now, you don’t think will materially change to it’s going to decline?

No, no I do think it’s – I do think it will decline. I can’t put it my finger on what it will be, but I do think it will shrink

Okay. The other day…

But, Jim, let me just make one other point on it.

Yes.

No one should draw a percentage of revenue to theaters of the straight-line depreciation – the straight-line mathematical exercise. If a certain percentage of those theaters go away, it’s a very – probably small percentage of overall revenue, because they are the smaller obsolete theaters.

That’s a good point too. Yesterday, you had an announcement of - maybe an increased link with Comscore. I wonder if you can talk about that a little bit. Are you somewhat outsourcing some of your theater management operations? Or just engaging with them in certain aspects that they do maybe to a greater extent? I am just wondering how we should read into this math?

There is much to read into it. I think Comscore wanted to promote that we were their customer.

Okay. Fair enough.

And Jim, they’ve got a very good product that we use at the theater level – theater management system. And so, that’s what it is. I don’t think there is any larger issue other than it’s a very good technology that we were pleased to continue to use and expand our usage of.

Okay. And maybe lastly, the surplus real estate issue you mentioned and you said potentially tens of millions of dollars that sort of thing, what would be the decision driver in doing something with regard to some of this real estate? And might there be property swaps that might benefit you the hotel or theater side that you might consider rather than monetizing them directly?

Well, I’ll break that into two. And one is going to be demand. We – the – because we are not at the fire sale of these properties. Again, that’s the most important point. It’s really got something where frankly just it was good to get our focus on what we have there. And so, that focus now is really get us – let’s make sure that we maximize with that going on. That being said, we don’t need to – where – we don’t need to fire sale at anybody. And so, but the increased focus, paying the – taking our resources and devoting to making that happen is I do believe important. Now that’s surplus real estate. It’s not something we would trade right now. What we trade is real estate, yes, sure, and in certain markets it had made sense. We would be open to that. There is nothing that happening right this second and I don’t think until the world settles down with something that like happen. But it’s not unheard.

No, typically, there is a tax ramification if you do a property swap and our both the hotel and the theatrical parts of your business in the same area in terms of that tax issue?

Real estate is real estate when it comes to that particular issue, Jim. So, yes, if you sell real estate and buy real estate, essentially, I mean, the trade that you are kind of referring it to, then it does – you got to do it right. But and meet certain qualifications. But, yes, it does ultimately qualify for the 10/31 treatment that I think you are referring to.

Alright. Thanks very much. Appreciate it.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Mike Hickey with The Benchmark Company. Your line is open. Please go ahead.

Hey, Greg, Doug. Good morning guys.

Hey, Mike.

Hey, Mike.

Hey, I guess, congrats on the hotel side for the quarter. Definitely, pretty good performance makes sense reopened. Looking at fourth quarter, it looks like, sort of the virus influence sort of crapped up in some of the states where you have concentration with some of your business units, Wisconsin in particular where you own five of the hotels and I think your screen count is around 27%. So, just curious what you are seeing in the fourth quarter in terms of sort of consumer behavior under sort of that spike in infections that you are seeing in Wisconsin and other two states?

Well, it’s been a little hard to tell right now, what’s – look, I think, look, our businesses would typically slow down in the fourth quarter. Hard to know, I mean, it’s interesting. I looked at – I can’t – I will say, which was I looked at the list yesterday of some of our theaters and how they were doing. I looked individually on an tenants level. I thought I looked at some of the areas that have been the hardest hit and those theaters are not necessarily among the lowest performing theaters. You think there would be a natural correlation to that. At the end of the day, it does talk about on the theater side about, what people feel is, of all the indoor things that could be going on that theaters are among the safest things and all the indoor – because of the nature of what – it doesn’t intuitively feel that way until you think about it. And we’ve talked about this before but the intuition is, theater concerts like, they’ve sort of go to that direction. Would you go out to eat? Sure, I would go out to eat, someone would say. But in a restaurant and done properly restaurants can be safe environments too, but if you are going to just compare relative environments. In a theater you go in, you don’t face – you face all one direction. You don’t talk to anybody. You don’t – you have a mask on, much are going to some concessions. You are socially distanced with everybody. The fact that we have recliners, keeps you seven feet between seats and we see checkerboards and you have six feet between you and people to your sides. So, because of all the things that we’ve – you order online. Low to no contact. All thing that we’ve been putting in place and people are learning about it. The people that are interested are saying, you know what, it’s that – see there is a comfortable and safe environment. And is that our customers are – it’s helpful to have that and so, we got more product to cause more people to talk about it. But, yes, no, I mean, I think that we have to be sensitive to what might happen with the virus and what’s going on. And but I do think that if they do start to – that there will be attention focused on it post-election and hopefully then it’s a shorter tense attack at what’s going on and then, because we learn from experience and then we get things in control and start to move back into a better place.

Did you mentioned what you are seeing in the hotels, in terms of sort of recent trends on the virus?

Again, I think it’s still sort of hard for us to tell. I didn’t really talk about it, because, we are seeing it’s pretty – it has been what we’ve been seeing sort of all fall, which is, it gets relatively quiet during the week and it’s again – the person driving this is consumer leisure and then it gets stronger during the weekends. And then for example, like Geneva, right now we are in a bit of low, again it’s hard to tell well with Halloweens, so that’s one thing that you are going to kind of one weekend. But it’s even more generally, we are sort of in between golf and before ski season. And so – but once we get some snow and get some skiing and it gets colder and it’s starting colder this week, that that should be good for Geneva in the weekends. And so, again, I do think that that as the – it’s fair to say, let’s watch what’s going to on we don’t have any insight to it yet, but it’s a fair concern. But again, I think, that will get attacks and then we’ll get moving again.

Okay. On the leisure side, I mean, normally your fourth quarter and first quarter, I think are sort of low occupancy quarter s, just given the lovely winters you have there in Wisconsin. But do you think it might be different over the next couple quarters just given how constrained are summer months have been and how you are doing? I know, you are pretty creative like Geneva and other properties in terms of promotions and special offers. Are you doing, sort of incentives that could bring people on the leisure side more than normal in the fourth quarter and first quarter?

Yes. Our teams have been – I’ve given such credit. Michael and team, they’ve been unbelievably responsive to trying to come up with ideas for how to drive and look at. I think even as you – we are all seeing it. This is – we are not in a great period and we are trying to just make the best with what we have here and we will try to make a little M&A. And so, I am not sure the dial is going to get moved generally huge neither direction. But that being said, they’ve – we’ve been working on promotion like this week all of a sudden 60 here and they are very quickly getting out them to markets and people, hey come to my golf, the weather is beautiful. And so, they moved very quickly on it. But other things, marketing it is a quick getaway. Marketing vacations, marketing the idea of – if your kids are remote, or if you are remote, everything you are doing is remote, come in stay at our hotels. Come in because - and we have set up like Geneva, we’ve got the ability to help them with learnings, set up with tutoring and to take advantage and say, if you are stuck at home and nobody is going anywhere, come and have a change of environment and come to where we are and come to have a – come to where you can be outdoors and enjoy all the amenities that we have that you can enjoy safely. So, the teams are very creative and coming up with ideas to try and take care of – to do just that.

Cool. The last question, you touched on a bit, but it looks like we had at least one to stress, so potentially in the market in the U.S. on the theater side, I am sure there is a lot of them. And of course, when does that obviously user get a pretty good discount on any asset? So, just sort of wondering your motivation to be a buyer here or is it just still too uncertain for an operating environment to be opportunistic?

I think it’s going to depend on the situation. We – there is nothing right to second. I think some of the opportunity for a company like ours will be, as people are rationalizing their footprints to potentially pick up theaters from landlords and cut deals that are – that looked that we’ve been cutting in the past to say, look at landlord, you might be getting offered something very low. We would be able to come in and maybe we are going to be partners. We’ve done deals like that. If we go back in the history of the company, which by the way, it’s our 85th anniversary we celebrated at the – on Sunday and we are celebrating this week. But my grandfather, I know, one of the ways he built the business as TV came along. So, let’s talk about the fact that this business does endure some significant shocks that the – and it endures, key word being endure. The – he went around to all people who were getting theaters back and say, and look, we are going to be partners and we’ll bring – and because it’s going to come back at some level and he was right. And so, I think there could be opportunities like that, as we look forward and we will be focused on trying to take care and do that. And then looking at other opportunities with people who own things who need the management teams. We have that. We certainly– that we have a great team that understands this business.

Alright. Sounds good guys. Thanks Greg, Doug. Take care.

Thanks, Mike.

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 additional or closing comments.

Well, thank you everybody. We thank you for joining us once again today. We do look forward to talking to you once again in early 2021 when we release our fiscal 2020 fourth quarter and year end results. Until then, thank you. Have a great day.

That concludes today’s call. You may disconnect your line at any time. Ladies and gentlemen, have a good day.