Good morning, everyone, and welcome to the Marcus Corporation's Second Quarter Earnings Conference Call. My name is Cree, and I will be your operator for today at this time. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer; and Doug Neis, Executive Vice President, Chief Financial Officer and Treasurer of the Marcus Corporation. At this time I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you. Good morning, everybody. Again, welcome to our Fiscal 2021 Second Quarter Conference Call. As usual, you know I need to begin by stating that we plan on making a number of forward-looking statements on our call today, 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. 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 in 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 and 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 our assumptions about the release of new movies and the temporary and long-term effects of the COVID-19 pandemic on our business. Listeners are cautioned not to place undue reliance on our forward-looking statements. And 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 2021 second quarter results and in…

Thanks, Doug. As you saw in the release and heard more about in Doug's remarks, our second quarter marks a continued emergence from the depth of the pandemic for the Marcus Corporation. We reached a milestone in our hotel division with positive adjusted EBITDA for the quarter. And while we don't normally highlight the results of any specific month, in June we reached another milestone with both our theater division and our company as a whole turning positive cash flow over the month. Contrast that with what we were a year ago at this time. We reported negative adjusted EBITDA of $30 million in the second quarter. We've come a long way. Now look, we're still reporting a loss for the quarter, and it will definitely still take some time to return to prepandemic levels. But what we're all looking for is progress. And there was a lot of progress to hang our hats on during our fiscal 2021 second quarter. As I said from the beginning, while the path to a full recovery might not be a straight line, and the pace of that recovery might be there faster or slower-than-expected at times, we believe in the long-term viability and strength of our businesses. This quarter was another step on that journey, and we're pleased to be sharing these results with you today. So let me start my remarks with our hotel division. Doug shared some of the numbers with you, including comparisons to our prepandemic fiscal 2019 numbers and the fact that the data indicates we once again significantly outperformed both the industry and our competitive sets this quarter. As you know, our hotels have consistently outperformed their markets in prior years as well. But the amount of outperformance in recent quarters has widened significantly. And while an…

[Operator Instructions] Your first question comes from Mike Hickey with Benchmark Company.

Congrats on the quarter guys. Awesome. Yes. Just a couple of questions from me. On the hotel side, great to see the positive EBITDA in looks like June of the company. That's really a remarkable moment. Any opportunity for us to sort of give us some color on July or maybe 3Q in terms of what we should expect on the EBITDA level, Doug?

Well, I certainly would expect it to be positive again, Mike. I mean we don't provide guidance. We don't provide numbers. But given that we are positive in the second quarter, Mike, and given how strong July is, and here I'm not telling anything out of school here. I mean, the fact is that, as Greg referenced, with the Milwaukee Bucks doing as well as they did, it was a huge boost to the city. It was great for our hotels. The -- I'm not going to share numbers, but the percentage of our -- we shared with you that we -- where we were kind of compared to 2019. Well, that number certainly has improved more in July. I mean, we've had a good July. We really have. Again, we're not back to 2019 levels yet because we don't have the business travel, but it's been quite strong. So look, I certainly think that the wildcard is going to be when we get to the fall, right, because the leisure travel is so strong right now. We have going for us. So we do have -- knock on wood here, if everything goes well with the Ryder Cup and that proceeds as planned right now. We do have that in September. But as the kids go back to school, like we mentioned in our prepared remarks, we're going to see certainly that midweek travel back off again. And we're going to be looking for and hoping that we're going to continue to see momentum in some of the just general business travel. So that will be the wildcard as we get into the later -- the second half or the final quarter of the year, if you will.

The -- obviously a lot of discussion on Disney's approach to windowing, starting, I guess, with Black Widow when they gave some visibility to the data on the VOD side of Disney+. Just sort of curious what you're seeing in theater, if you think it's sort of impacting attendance, whether it's first or second week and sort of your view on, I guess, the longevity of their approach, if you think they'll sustain as we sort of think about '22.

Yes, there's so much noise. Look, first of all, I'll start off with -- we're pleased that they're releasing these good movies and that they're driving the tenants and driving people back to the theaters and getting -- building habit again and getting people to see trailers and the like. I'd tell you the most heartening thing in a way is that the -- I think the numbers that I find really the heartening is that we're almost doing what we're doing with an arm tied behind our back. And when I say that, when we talk about confidence and people being confident, it's not spread equally across the spectrum. We're seeing really more confidence with the younger mail cohort. And so if you think about the fact that the -- that there's less confidence in other cohorts, the numbers we're doing, you could say, okay, well, look at, let's start with where we said pandemic isn't going to last forever. And then the -- and the -- and then the -- and eventually the confidence will return to be more broad-based and we will then -- then you're going to have even sort of a, let's say, a bigger pool to swim in, in which case then the issue for Disney and for any exhibitor really, not specifically Disney, I'm sorry, distributor is going to be, okay, do I want to run the risk of diluting my theatrical performance. I think it's important to remember that people always -- they talk about content as sort of like it's generic, like it's a screwdriver. So if I don't sell the screw driver to the guy who shows up on Thursday to buy the screw driver than my competitor is going to. If you want to see -- let's not pick…

Your next question is from Eric Wold with B. Riley Securities.

I guess, I can't remember which one of you mentioned, I mean, you noted that the box office market share gains you saw, I think it you, Greg, versus prior levels. I'm just sure you've looked around your existing theaters that have reopened. Can you give us a sense of what you're seeing in terms of the competitive set in terms of if there's been any market changes in theaters that have closed? Clearly if they've not opened by now, they're probably not going to open. Has that been -- has there been a reasonable number of those in your areas?

Not -- there's not a lot of that in our markets, Eric. I mean, that's why I think the numbers are kind of real and pretty clean because -- first of all, as you know, I mean, it's -- in some ways it's difficult for us to gain market share because we are so strong in our markets, right, I mean -- so it's -- but yet we still have done it overall just because of the nature of our markets, the nature of just, I think, people coming back to the theaters quicker in our markets. We have the best theaters. And I think we provided some of the best value and some of the best -- as you know, we have the highest percentage of everything in terms of recliner seats and large-format screens and food and beverage. So I don't think it's -- as we look at it, I don't think it's a function of theaters for the most part not opening. It's just that we're performing well. Yes. I think it goes back to -- I'll build on that too and say, first of all, yes, you want to invest in a theater business, there's probably no better -- most improved circuit, the nicest car you can buy is ours because we just made such investments in the business over the last number of years, we're very disciplined about doing that. The team was really strong in making sure we did that. So as people get exposed to that, who might have gone somewhere else, we get some of that. In the markets we do have some competition. I'll tell you, the one thing that's helpful, this was our decision, as we've talked about historically, we made the decision when things were really, really rough. We want them to be open where we could be open. We're -- where the decision was, can we at least perform a little better than being closed, if we're open. That doesn't mean we hit a home run performance. But doing so allowed people who -- this was the only place they could go in some instances. And then also good for your teams, and we wanted to keep people employed. And I've seen this in other businesses that were involved and not necessarily in this public company, but the -- if you let your teams go, it's hard to bring them back. And so I think that was -- that's an advantage for us. Again, we'll always -- will we always have this advantage, maybe not totally, but I think that we get to keep some of it.

Perfect. And then maybe talk about what you're seeing around labor availability, cost headwinds, both at the theater and the hotel division. Are the issues comparable between your two? Or kind of where are you seeing the most pressures? And what are you doing to kind of offset that?

We are -- we're seeing the challenges that everybody is seeing. Again, I think you can -- staying open for us was an advantage because it helped us with our teams. But we're reacting where appropriate. The -- whether we -- just making -- doing our best to keep the teams staffed where we can. And I also -- I want to be careful to make long-term judgments on this because I sort of have this theory, and we'll see it play out whether it's right or not. I mean, look, we know there's going to be pressures in the labor markets. I think that nobody is expecting it to be -- go away permanently. But I think there's a couple of short-term dynamics that we want to wait to see how they play out. And that is -- one is going to be what happens as the supplemental unemployment goes away, especially for -- at some of the -- some of our jobs where they're at the lower end of the pay scales, those become very comparable numbers. Also, I do think there's this -- this is a complete guess. I have no idea if I'm right about this. But I think there's this sort of, hey, you know what, the last year has really been tough. I'm on summer vacation. And I'm really going to wait until the end of the summer to really get back to it if I can do that. And so once that gets past us let's see what things look like.

Okay. That makes sense. And then last question, Doug, I know you're not showing your guidance around '22, typically, and I know it's early. But if we assume everything kind of gets back to normal for the most part into early next year, how much of the lack of CapEx this year would need to be made up next year, I guess, is -- if I think about both maintenance -- normal maintenance CapEx and things have been deferred as well as growth CapEx projects?

Well, look, yes, look, I mean, us spending only $6 million in the first half of the year is pretty unusual. And I certainly see that number going up in 2022. We've got a couple of -- as we've shared previously, we have a couple of big hotel projects that we really want to get at. And we -- the Grand Geneva, we did the immediate guest-facing lobby and got that done in time for the summer here, but we've got more work to do there. And we've got -- we did some things in the room, so we have a bigger project ahead of us there. And so I definitely -- we're not ready to put a number out there yet for that -- for 2022. But it's -- but I mean, I think we're going to get back up into the tens of millions in terms of -- and certainly, my -- our credit agreement allows us to spend much more than that. But I don't see us bumping up against that number, but I do see it going up. The advantage, and Greg just alluded to it, that we have is on the theater side. We spent all that money in the prior 6 years. And so do we have some projects that we want to get at on the theater side? Sure. We've got some maintenance capital, and we have some things that we want to get at. But we have state-of-the-art theaters. And so it -- and every time we went and did the recliner seats and the food and beverage, et cetera, we didn't just do that. We also then renovated the theater itself, proper. And so our theaters look great. And so we have that really going for us in terms of our overall dollar planning for next year.

Your next question is from Jim Goss from Barrington Research.

I've got a few also. First, in hotels, similar to Carville, is -- are you finding any greater receptivity to your interest in management deals? And how many such deals do you feel you need to sign in order to create a meaningful contribution to your results?

I know the team is out working on looking at different deals. And I think we thought there'd be more -- typically, the deals start to come up when there's transactions, but the transaction market is still sort of slow. So until there's more transactions I think that's not going to be -- not have a huge amount of activity, but there'll be continued progress in it. And I think that it's meaningful -- it's meaningful. Look, adding capital is meaningful. It's also meaningful from the standpoint of just growth in the team and feeling that, again, going back to that word progress, that we're making progress and that new stuff is coming our way and that people value our intellectual capital. I don't know if you can put a price on that, but it's really good for our people because it reflects well on -- it's one thing for me to say you're doing great because I think they all -- I think they've done fantastic, and it's a great team. It's another for someone to come out and validate that and send us some money at the same time. So I think there's a value there.

Okay. And Doug, I might ask, you mentioned the early payment on your term loan. I was wondering about the potential to improve your capital structure further in your interest expense levels. I'm wondering what would be needed to position yourselves for argument for better positioning? For example, what are you -- what are the agencies pointing to in terms of factors you can control?

I'm not sure if I completely understand the question, Jim. So the agencies, are you talking about like credit agencies?

The credit rating agencies, I think.

So we don't have a…

They usually have some requirements that they like.

Yes. So here is the thing, is that we don't have public debt, Jim. So we don't have any official ratings on our debt. We do have some private senior notes. And so those are kind of separately rated in a different format just for those senior note holders. And the only thing I'll tell you about that is that the basis of that has always been the underlying assets of the company. I mean, again, so we talk about -- and it's just kind of -- we kind of take it for granted, but it's not -- we shouldn't take it for granted. We have such a substantial balance sheet with real assets with our hotels and our theater real estate. And so the private agency that does take a look at our senior notes, they hang their hat on that. And that's -- sometimes we don't bring that up enough in terms of the substantial assets that we have underlying our balance sheet. So I don't have a -- there isn't something specific beyond that in terms of any ratings agencies in terms of what they're looking for that would improve our position. We -- for us, we've got this great -- we've got a really good credit agreement that we signed. We re-upped for 5 years in January of 2020. So we're solid there. We've built in provisions that when we -- when the pandemic hit, and we bought -- and we took on the term loan facility, and we had to waive some covenants, but we built in provisions in the agreement that gets us back to where we were. So that when -- so ultimately, when the term loan is repaid, and we're back fully repaid. We've already repaid some of it. But when it's fully repaid and we get back to our old covenants, then the collateral goes away and our investment-grade pricing comes back and we move on right back where we were before. So we've already kind of built-in the provisions to deal with that.

Okay. One other thing on the theatrical side. You're talking about the -- some of the key variables like slate windows and all of that sort of thing that there's a push and pull in where the numbers count. And I wonder about the dollars lost from the piracy that might be a very important variable. And as you look down the road, do you think that might have a potential to pull things back from the studio side? But are we sort of doomed to look at levels below $11 billion on a total domestic box office that we've become used to as a fait accompli. And what -- if that were the case, do you feel comfortable that cost cuts can get your profitability back to the levels you've been able to achieve at the higher box office levels?

Well, Jim, it's really -- I'm glad you brought up that point because the piracy is an issue. They all know it's an issue. When a movie opened in the theaters, it -- the best they could get was a grainy copy. Somebody was sitting there with a camera in a theater. And it's a pristine copy when it's -- it's coming out on digital right away. And so that -- I know the studios are concerned about that issue. And so going to add to the list of things. Again, as I was saying, this world that you want to control your IP. The IP is unique. We got to remember that. I was making that comment about time -- people not being patient. Because if Uber said I'm not going to show up for a while, you're going to call Lyft. But again if Star Wars said I'm not going to show up for a while, if you want to see Star Wars, there's really nowhere else to go. So it's a -- it is a -- the piracy issue is really, really important because if you want to watch Star Wars that's been pirated, well, you can do that. So you have to be very -- I think that's something that they want to be sensitive to. Where will we get back to? I don't know because, as you know, we talked about, one of the dynamics that's happening is as windows decline, there's other people who've said I'm interested in being in theatrical. We've tested a Netflix. We played Army of the Dead. And then it showed up as #1 on Netflix right after it opened. Talk about -- I mean I go back to what is the theatrical advantage, one that we don't talk about…

Your next question is from Ryan Hamilton with Morgan Dempsey Capital.

I know I'm kind of at the back of the line, so most of my questions have already been answered. You guys used to touch quite a bit on $5 Tuesdays being such a driver for attendance. Can you touch on that and maybe see how that's being impacted by this turnaround?

It continues to be an important part of our business, Ryan, it really does. I mean we -- today's Wednesday, yesterday was Tuesday, and we had a very strong Tuesday yesterday. I mean, the Jungle Cruise was the top film that was playing. And it continues to be an important component of our outperformance and market share gains.

Sounds good. Kind of along those lines, you've always been kind of creative in finding new ways, original ways to get people to come to the theater. You've been doing single screen rentals. Can you kind of touch on that and maybe how that's impacting business and if that's something you may continue going forward, long term?

I think what you're probably referring to, Ryan, is the Marcus Private Cinema. And we talked quite a bit about that in our last call. And so thank you for bringing that up. Actually, it was really critical to our success and our relative success compared to others in the first quarter. Obviously not as significant in our overall mix in the second quarter. As we started getting new films and as vaccines were rolled out and people -- the comfort level of people going to theaters increased we intentionally dedicated less auditoriums or screens to that program because we could put more people into them often by just selling them the traditional way. Having said that, we are still doing Marcus Private Cinema. There's still a place for that. It's -- we've talked about in the past, and Greg just kind of alluded to it, too. I mean, we've got this fixed building, and we have 7 days a week and quite a few hours per day to fill. And so there are -- we believe there will continue to be opportunities to this program and doing other things in order to potentially kind of fill in times that maybe wouldn't be as busy otherwise. And so we don't have a formal -- I mean, it's too early to say what the long-term plan is in terms of are there certain days? Are we going to have it every 7 days a week or certain days or certain times when we might do the Marcus Private Cinema? We're going to have to kind of just play that out as time goes on. We do think there's going to be a continued place for it.

Yes. I know you guys have always been creative with the [Elektra] series and whatnot. So I mean, I think that’s great. That’s all I have for now, but congrats on the turnaround and good luck going forward.

[Operator Instructions] And there are no questions.

Sounds like – yes, sounds like we’re all set here. So thank you, operator. Thank you, everybody, for joining us again today. We look forward to talking to you once again in about 3 months when we release our fiscal 2021 third quarter results. Until then, thank you, and have a great day.

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