Good morning, everyone, and welcome to the Marcus Corporation’s Third Quarter Earnings Conference Call. My name is Mel, and I will be your operator for today. At this time all participants are in a listen-only mode. [Operator Instructions] Joining us today are Greg Marcus, President and Chief Executive Officer; and Doug Neis, Executive Vice President, Chief Financial Officer of the Marcus Corporation. At this time I’d like to turn the program over to Mr. Neis for his opening remarks. Sir, please go ahead.

Well, thank you very much, and good morning, everybody. Welcome to our fiscal 2021 third quarter conference call. As usual, I need to begin by stating that we plan on making a number of forward-looking statements in 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 and 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 various other mandates 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, restaurant closures are not expected 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. 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 third quarter results…

Thanks, Doug. Before I make a few comments on our operating businesses, I want to briefly pick up where Doug just left off. You certainly have heard us refer to our balance sheet and our real estate holdings fairly often in the past. But I think our results this quarter warrant a couple of comments about what I believe are key differentiators for The Marcus Corporation. In fact, I would argue that today’s announced results are a poster child for the value we believe we’ve been able to gain from owning our real estate and having a diversified business portfolio. We’re thrilled to be reporting a return to profitability this quarter, and I think it’s fair to say this may have been faster than many had anticipated. So let’s talk about this for a moment. Starting with our diversified businesses. Marcus Hotels and Resorts reported a very strong third quarter, with overall revenues at nearly 90% of pre-COVID numbers in the third quarter of fiscal 2019. Our theater business gets a lot of attention as it should. But in this recovery, from an unprecedented time for our customers and our country as a whole, our hotels and resorts business has continued to surprise us and has accelerated our overall company-wide recovery. Those of you who have followed us for a long time know that we have had multiple legs at the proverbial stool over the years, and while our business mix has and still may change over time, our diversified business model has served us well and clearly differentiates us from our theater peers. Another differentiator is our substantial real estate holdings. By owning the majority of our theater real estate, not only do we believe it enables us to be more nimble and faster to market with new amenities…

Thank you. [Operator Instructions] We will go first to Eric Wold with B. Riley. Your line is now open. You may ask a question.

Thank you. Good morning.

Good morning, Eric.

A couple of questions. I guess one on labor. You obviously mentioned the fact you need to hire more staff as the business continues to rebound with both segments. Is the lack of staff to date more driven by the lack of available workers or a desire to kind of avoid higher wage rates? And then as you think about these wage rates heading into next year, how are you thinking about those in regards to kind of seasonal labor? Is it something you envision will to kind of remain these levels or could possibly be to moderation?

First, I think I’ll try and remember all the questions there. But the first one, I think that that’s my memory. Thanks very great test. There is a lack of available staff. I mean, that is the first part. It’s a challenge to get all the work done. And so we’re going to need more people. Look, we will be looking for ways, as I said in my remarks, to work smarter and to use technology and to leverage technology. I mean one of the things we’ve talked about in the past was just thinking about our movie Tavern. One of the reasons we came into the pandemic with our food and beverage app ready to go where so people could order remotely in a low contact environment was because we were already seeing labor issues with our movie Tavern with the ability to attract servers and so the idea of getting the customer to be able to order on the app and then just run the food out was something that we were already focused on. So just what did they say? The intersection of opportunity and preparation is luck. So we were lucky in that regard. So we will continue to focus on that and but we’re going to need more people and as the business continues to come back, we will need more people. And as for what the rates are going to be, you tell me what’s going to happen with inflation, I’ll tell you what’s going to happen with the rates. We’re not modeling an exorbitant increase into our budgets for next year. We’re motoring more of a market increase sort of what we’ve historically been doing. But it’s something I didn’t talk about in my remarks. But the one thing that we have is an advantage in both of our businesses, in both the theaters and in the hotels, which is when you think about it, essentially very high real estate businesses, we adjust our prices every day. And so we can react to inflation with, unfortunately, increased prices, but it does a lot – we’re not sitting here with a 10-year lease, where inflation is eating us away, and we can’t change what we’re at the revenue side of that equation. So it’s a delicate dance, and we will make the changes as appropriate.

The only thing I would add, Eric, is that, look, we’ve already had to make a deal with some rising wages this year. I mean, so the numbers you’re looking at reflect maybe less people but paying some of these people, paying people more. So we’re already dealing with some of that today.

Got it. And then last question, I’ll make this one more distinct, Greg. You mentioned that you expect obviously, CapEx to increase next year. How much of that is getting to hear more towards hotels in a sense that are we getting to a point where the decision has to be made on how much to spend on hotels and renovations versus possibly looking to reduce the portfolio, so to speak?

Yes. I mean, Eric, you nailed it in terms of the calculus that we go through because as these properties, hotels have a cycle of reinvestment. And so that typically our kind of decision-making about properties kind of tends to coincide with those cycles. And so, we’ve look, we’ve already indicated that we’ve done a renovation of the lobby at the Grand Geneva and Grand Geneva is lined up to receive a larger renovation beginning in 2022. And we’ve got other properties that are lined up as well, but that is part of the math that we go through as we think about other properties and where they are in the cycle and how much do you spend? Do you spend it? Do you think about, you referenced monetization, it’s certainly an option. So those are the kind of things that we go through. I mean, to in a call like this, we’re not going to indicate what our current thinking is at any given asset. But we do expect in 2022 to have some increased capital spending in the hotel business because we’ve got a couple of big properties that are due for some of that.

Maybe just ask a different way. Not ask you to call out some other properties, but are there any of those properties where a decision has to be made potentially the decision that you made in 2022 as better not spend?

I mean there are a couple of big properties. I mean, yes. I mean, there’s a couple that I would say, 2022, 2023, there are a couple of properties that are going to be in line that we’ll have to go through that calculus.

Perfect. Thanks, Doug, Greg.

Thank you. We had the next question comes from the line of Jim Goss with Barrington Research. Your line is now open. You may ask your question.

Okay. Thanks. First, I’d like to ask is the streamed availability of films and the shorter windows hurting the legs of most films in that there may be fewer return visits and also then the ultimate theatrical box office. And is this limiting the ultimate potential to return to past domestic totals, especially since some of the smaller films may be more likely to go direct to streaming rather than get a theatrical window.

Well, let’s break that into multiple questions, Jim. The first question, let’s say, is day and date streaming impacting films? I think yes, I think we can see that. I don’t think that’s a big secret. I think we can see a day and day streaming model is not having, is impacting the ultimate performance of a film. The good news for our industry is it’s having a lot of negative impact just beyond theatrical in that there’s a huge issue with this piracy issue. I mean, I guess I couldn’t have anticipated it when they started talking about it. But it’s a real negative for them because it’s just they have a pristine copy out 14 seconds after they release a movie day and date, is not helpful for their whole distribution model. What will the shortened windows mean? And they are shortening? Yes, I really don’t know yet. I don’t think anybody knows yet. Because in a way, the consumer has changed, they expect everything like it’s immediately. Everybody wants everything immediately. And so what does for 45 days, if anybody wants to go see something in the theater, will they even wait, they won’t wait for anything anymore. We talked about that on these calls before bad shape had noted that 45 days for kids today is an eternity. It is an eternity. And so I don’t know what the effect will be of that overall. Your other question relates to what kind of content are we going to see? Are we going to see those smaller or medium-sized films? What kind of window will there be? I don’t know, again, I don’t want to predict. It’s so hard to make predictions right this minute over what things are going to look like ultimately. There’s a lot…

Okay. A couple of things, more market specific. Your concessions gain was significantly better than admissions, and I wonder if you might talk about that relationship and how sustainable that is. And then on the hotel side, I wonder if you might talk about the specific hotels and markets and whether certain areas are doing better than others and what opportunity you’re seeing on that side?

Well, I’ll take the first part of it here, Jim. And so I mean, look, it’s been very consistent over the years that our growth in our per capita spending for our concessions in food and beverage is faster than our ticket price. I mean, we’re very sensitive to the ticket price. We obviously is, one of the key components of our success is our discount day on Tuesdays, and so overall, what we try to accomplish on the admission pricing side of things is by trying to offer the right price at the right time. And so we have difference, we have some discount programs. On the other hand, as we talked about, we’re seeing increases in our overall admission price because of the popularity of our PLFs, our ultrascreens and our superscreens and those are the first theaters that people gravitate to when these big pictures come out. And so we’ve made a big investment in that and we have a higher percentage of those types of theaters than most. And so that’s one of the key contributors to why you’re seeing the increase you are on the admission side. The concession side, look, there’s no way I consider today and tell you that I think we’re going to consistently have 15% to 24% increases in our per capita spending on that particular metric. But if you look at our history, we’ve traditionally had some pretty healthy well over inflation increases in that category as we’ve continued to expand the food and beverage amenities that we offer, we’re really good at it. I mean, I don’t want to underplay that. I mean, we merchandise it well. We sell it well. The product that we offer, and I’m biased, but we think it’s the best in the industry with our pizza products and things along those lines. So we do continue to expect that, that will see healthy increases. But right now, for all the reasons we said in our prepared remarks, there is some explanations for why the percentages are probably as high as they are right now.

Okay. And in terms of the hotel markets or specific properties?

Well, look, this quarter, we called out some special events that occurred and so there’s no question in this particular quarter that we benefited from, here in our Milwaukee market, where we have three hotels. We benefited from the Bucks playoff run, we benefited from Summerfest. We moved into three weekends in September, the Ryder Cup, up an hour north of here in September. So, we had just major league baseball and fans being back and tending and so there certainly were some things that look “normal conditions” we always have very special events in all of our markets, we just didn’t have them last year. And so Milwaukee had a wealth of them this particular quarter and so certainly, that market performed extremely well this particular quarter, but all eight of our properties had increases.

So, I’ll add to that, again, we’ve talked about it. I think we reflected in the remarks too little, but our properties and for the most part, are pretty are really special assets. They don’t play in one narrow lane, whether the Pfister, Saint Kate or the Grand Geneva and others, I could name almost all of them. They aren’t just strictly a business hotel, they play the business very well. They’ve got great group space, but they appeal to the leisure traveler, because they’re special assets and someone does it want to go on vacation, and they really get to experience something that’s special beyond sort of your really strictly group box or you’re strictly business box. And so we’ve had that advantage.

Okay. Thanks. I’ll let it go at that. Great quarter.

Thanks, Jim.

Thank you. [Operator Instructions] Next question, we have the line of Mike Hickey of the Benchmark Company. Your line is now open, you may ask your question.

Hey Guys, Greg, Doug, congrats on an awesome quarter.

Thank you.

What a journey compared to where we were last year. So congrats to your entire team and really remarkable to see that EBITDA creation. Awesome job.

Really appreciate it.

Yes. Two questions. One, I guess, in your hotel and resorts, obviously, leisure was spectacular. It looks like. I think it’s on a segment perspective, maybe a record quarter for EBITDA for hotels and resorts. So great success there on top of your theater in EBITDA. But I guess, historically, when you look at your hotels and resorts, where does the sort of balance between leisure and business or group, I guess, revenue for you? What’s the historical balance between the two? And as we sort of think forward here, maybe the perception is that you have a sustained step down in business travel, but on the flip side, do you think we may also have sort of a sustained pickup here in domestic leisure travel that can sort of offset that? Just sort of curious your thoughts there? And I have a quick follow-up.

Let me do the first part and let Greg do the second part of it here. But I mean, Mike, we’ve always been a little cautious about giving like a mix and saying, this is what our mix is because it really does vary by, we only have eight properties. I mean I’ve typically kind of when I try to roll them all together, I would tell you, historically, if you take the two business segments, group travel and business traveler, the kind of that transient business traveler. Historically, I guess we probably said if you mix everything all together, 60:40 kind of feels like it’s about where it has historically been where those first two groups are 60 and the leisure is 40. Obviously, that’s not what we’re currently experiencing. This is heavily weighted right now towards the leisure traveler and some of the small business, small traveler. That 60:40 mix is probably, keep in mind, our biggest properties are the Grand Geneva, the Milwaukee Hilton and the Pfister. Those three are much bigger than the other five properties. And so you’ve got a convention hotel, you have a resort that can be a lot of leisure, but it also has a ton of meeting space and has a lot of business group typically. And so we probably normally skew a little bit more towards that group. But as you’ve seen, and you saw in the numbers, I mean, nobody, for the most part, has a lot of business travel right now. Nobody has a lot of group travel, and yet we outperformed the industry by 14 points. And so that disclosed to Greg’s earlier comment about the type of properties we have that we have the type of properties that can pivot and in turn focus on that leisure customer. So, I guess that’s kind of how I answered the first half of the question. Do you remember the second?

I remember that. Thanks let me to the prediction. That’s really kind. I tell you, look, the predicting is hard. I’ll work backwards. Look, at the end of the day, well no matter what I say, I would tell you that we’re positioned, as we’ve been now sort of reiterating, for whatever the mix looks like, I think we have the assets, that will play and capture what’s out there. And people look at, one of the things we’ve always talked about, people want to be together, and people like to get out and travel. In whatever format that is, whether it’s their work or for themselves personally. I think we saw this, let’s get out of the house. And to your point, I’m going to extend [indiscernible] thinking, well, people are working from home, they’re going to be itching to get out, right? So okay, that’s good for that consumer that’s going to travel. But let’s assume that that’s going to modulate back and people are going to be going back to the office. Well, they’re going to be having business travel. And I know that the businesses are itching to travel. And then to try to tell you what I can predict in the short run, very hard. The summary we were getting ready for the business traveler to come back in the fall and then we were surprised to the downside that the business traveler wasn’t back in the fall because of Delta. But I’ll tell you, in a small way, surprise, at least I have been on the other side of that, which is I’m still seeing, anecdotally, just I’ll be in one of the hotels, and I’ll look at who’s in the hotel, what’s going on? Just on, here’s the meeting rooms, and there’s meetings going on and association is getting together, and I’ve started the go-to meetings, and I’ve gone to a few gallos. And I’ll tell you the most amazing thing is watching how much money these – because that’s a big piece of our social business and where we have these group, these the convention floors and stuff and the conference this gallo business where a nonprofit is getting together to raise money, and they have their dinner and their fundraiser. And the amount of money they’re raising is staggering. It’s really a record for their events. And then I recently went to one that someone still had virtually, and it really was unimpressive. Looking at a bunch of heads on a screen, just that you cannot replace getting together. And so that’s really good. Now when is that all going to happen? I can’t tell you what quarter that’s going to be for sure. But what does they say in the financial world, the trend is your friend, while the trend is moving in a positive direction.

Right. Thank you for that. Last question for me, and this is sort of last deal, Greg. So be prepared here, but just sort of curious, I guess, on – I mean, I guess we’re early days, new normal, maybe new normals, old normal, who knows. But I guess, in itself, we’re getting closer to the new normal, we are in it maybe. But when you look around and you see sort of the TAC trends and you see the change in behaviors and that’s obviously shaping your current businesses today with hotels and resorts and theaters. When you sort of think entrepreneurial, which, obviously, your company has a big history of doing, do you see the opportunity for a new ventures, new verticals in terms of maybe some interesting restaurant concepts or some hotel concepts that have sort of been shaped by the pandemic that could offer you something interesting on the growth side over the next few years?

Yes. I mean, look, you’re right. We do like to think that way and where is the world going and what are we doing, and I would tell you, I think less industry specific, like, we’re looking at this new business or that new thing. We’re probably really more focused on how do we keep our assets and make them more productive. And we have a program on our theater side, and we call it the future is now. And we’re looking at what are the different things that could go on in the box. In addition to bringing people back, what different things can we do? I was alluding to it earlier? I would tell you, there’s no better way to watching a sporting event than watching it on a movie screen, on a screen in a theater. It’s not call it a movie screen, but in a screen in auditorium, it’s insane to watch something like that. There’s the e-sports stuff that people really are starting to try to figure out and see how that’s going to play out. Again, all the alternative content. We’re really focused on what does – if we look at our business and say, we’re about people getting together in whatever format that is, and we have the facilities to do that, how do we do that? Really, that applies to both of our businesses. And what does it look like on the hotel side, you’re right. The restaurants have been interesting as to sort of that’s come back where we had, that’s been really interesting to see a lot of the people want to get out and eat again, this desire to get out. We are seeing it. We’re seeing our restaurants come back in a lot of cases, it’s not across the board, but it seems to surprise us. I’ll tell you, I’m not sitting, I’m not on this call saying we’re going to do anything with this. But I will not – we have been surprised just to call one little piece of our business is Safehouse. We opened the Safehouse. It’s small little fun, really fun restaurant here in Milwaukee, and it’s an institution. And we were like, okay, let’s open it up. We didn’t know what it was going to do. And it has surprised us. So thinking about how people get together and congregate is what we will do, and we will be looking for the opportunities.

Nice. Thanks, Guys. Best of luck.

Thanks Mike.

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

Thanks, Mel, and listen, thank you, everybody, once again for joining us today. We look forward to talking to you once again in early 2022 when we release our fiscal 2021 fourth quarter and year-end results. Until then, thank you. Have a great Thanksgiving, and have a good day.

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