The Marcus Corporation (MCS) Q1 2022 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to The Marcus Corporation First Quarter Earnings Call. My name is Ruby, and I will be your moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer; Doug Neis, Executive Vice President and Chief Financial Officer; and Chad Paris, Corporate Controller 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 very much, and good morning, everybody. Welcome to our fiscal 2022 first quarter conference call. As usual, I do need to begin by stating that we plan to make 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. Listeners are cautioned not to place undue reliance on our forward-looking statements. The 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 2022 first quarter results and in the Risk Factors section of our fiscal 2021 annual report on Form 10-K, 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. The forward-looking statements made during this conference call are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, we routinely post news releases and other information regarding developments at our company that impact our investors, customers, vendors and other shareholders. You can look to our website, www.marcuscorp.com, as an important source of information regarding our company. We also refer you to the disclosures that we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP measure used in evaluating our performance and its limitations. A reconciliation of adjusted EBITDA to the nearest GAAP measure is provided in today's release. So with that behind us, let's begin. This morning, Chad Paris, our Corporate Controller and Treasurer and our next CFO, effective May 15, following my retirement. And I will start by spending a few minutes sharing the results from our first quarter with you and discuss our balance sheet and liquidity. We'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we're seeing ahead, and then we'll open the call up for questions. This morning, we reported another solid quarter that continues our postpandemic recovery trend of significant improvement in year-over-year revenues and adjusted EBITDA. We also continued our sequential streak of positive adjusted EBITDA in both of our businesses and on a consolidated basis for the third straight quarter. We were able to deliver these results despite the fact that the outbreak of the Omicron variant negatively impacted both of our businesses. On the theater side, we had a lighter film release calendar, as originally anticipated, as studios waited out this most recent surge. On the hotel side, office reopenings were delayed on top of our normal seasonal winter headwinds at our predominantly Midwestern portfolio of owned hotel properties. Given the significant changes in the state of the business today compared to the environment we were operating in a year ago, Chad will provide comparisons to our prepandemic fiscal 2019 first quarter as he gets into the results of each business. But at a consolidated level, revenues increased more than 2.5x over the prior year, growing from $50 million last year to over $132 million in the first quarter this year. As a result, adjusted EBITDA increased by nearly $21 million, improving from negative $17 million last year to positive $4 million this year. We provided a breakdown of these numbers by operating segment in our press release, where you can see that our theater division again contributed to the majority of our first quarter adjusted EBITDA. We ended the quarter with the divisions contributing a combined $7 million in adjusted EBITDA prior to unallocated corporate expenses. Below operating income, our first quarter interest expense decreased by $750,000, primarily benefiting from lower short-term debt and reduced borrowings resulting from our improved operating results. The reduction in interest expense was partially offset by reduced gains from disposition of property, equipment and other assets this quarter compared to last year. I'll now have Chad provide some brief financial comments on our operations for the first quarter, beginning with theaters.

Thanks, Doug. We continue to experience increased per capita spending by our customers in our theater division. Our average admission price increased by 6.4% during the first quarter of fiscal 2022 compared to last year and increased by 18% compared to fiscal 2019. Continued strong customer demand for our large-format premium screens was the primary driver of this overall increase in our average admission price as well as more new films compared to last year, when a limited supply of new films resulted in a higher mix of legacy library titles shown at discounted ticket prices. Meanwhile, our average concession and food and beverage revenues per person at our comparable theaters increased by 5.7% during the first quarter of fiscal 2022 compared to last year and has increased by 36.1% compared to fiscal 2019. We believe our industry-leading mix of nontraditional food and beverage options, the mix of films, shorter lines at the concession stand, the emphasis we are placing on encouraging guests to purchase their concessions and food and beverage ahead of time, either online or using our mobile app, on top of what we believe to be pent-up demand for a return to normal, likely continues to contribute to our increased per capita revenues. As a significant number of theaters in both our circuit and the industry as a whole were closed during large portions of the first quarter last year, we believe a comparison of our results to prepandemic results in fiscal 2019 may be the best way to compare our performance to the industry this quarter. When you compare our first quarter fiscal 2022 admission revenues to fiscal 2019, our admission revenues were down 39.4% during this quarter, including the pro forma impact of the Movie Tavern acquisition, which was part of our results for 2 of the 3 months in the first quarter of '20 -- fiscal 2019. According to data received from Comscore and compiled by us to evaluate our fiscal 2022 first quarter results, United States box office receipts decreased 44.1% during our fiscal 2022 first quarter compared to U.S. box office receipts during fiscal 2019. As a result, we believe our admission revenue decline once again outperformed the industry average by 4.7 percentage points during the first quarter of fiscal 2022. Due to the impact of 2 strong blockbusters released or showing during the first quarter of fiscal 2022, which were The Batman and Spider-Man: No Way Home, the first quarter box office was more weighted towards our top movies as compared with the first quarter of fiscal 2021 and fiscal 2019. These films drove significant PLF sales but, at the same time, resulted in higher film costs as a percentage of admission revenues. With that said, we are thrilled with the success of these films and their contribution to our improved results. During the quarter, we were impacted by several labor challenges, including increasing hourly wages and a ramp-up in staffing levels as we prepare to better serve the growing number of customers returning to theaters for the upcoming movie slate following a busy holiday season, in which we operated well below our targeted staffing levels. While we made progress adding and training new associates and retaining many of our loyal associates, the shifting and uneven movie release schedule further complicated our ability to efficiently manage our labor costs. While we were better positioned with our staffing levels entering the second quarter, we know we can do better, and we expect our labor efficiency to improve as we move to a more steady release of new films. Shifting to our hotels and resorts division, comparisons of our total revenue and total revenue per available room, or RevPAR, to last year does not provide particularly meaningful numbers. We believe comparing to prepandemic levels in fiscal 2019, however, does help provide perspective on the pace of the current recovery. First quarter total revenue for the division was over 95% of 2019 levels, which was a postpandemic high. Now to be fair, the Saint Kate was closed for the majority of the 2019 first quarter during its conversion from a branded property. But even if you take the Saint Kate out of both years' numbers, our fiscal 2022 adjusted first quarter revenues were still a very healthy 91% of adjusted 2019 levels. Greg will further discuss some of the differences between the mix and the business done and where we are today in his remarks. But we are encouraged by the overall continued progress in the recovery of the business. Our RevPAR for our 7 comparable owned hotels decreased just under 16% during the first quarter compared to the same quarter during fiscal 2019. According to data received from Smith Travel Research for the fiscal 2022 and fiscal 2019 periods and compiled by us in order to compare our results, our hotels outperformed comparable upper upscale hotels throughout the United States during the first quarter by 2.1 percentage points. The data also indicates that our hotels outperformed competitive hotels in our markets by approximately 8.6 percentage points during the first quarter, again, compared to fiscal 2019 results. Breaking out the first quarter numbers for the 7 comparable hotels more specifically, our overall RevPAR decrease during the fiscal 2022 first quarter compared to fiscal 2019 was due to an overall occupancy rate decrease of approximately 15.7 percentage points, offset by an 11.5% increase in our average daily rate, or ADR. Our average fiscal 2022 first quarter occupancy rate for our owned hotels was 48.9%. Shifting to cash flow and the balance sheet. Our cash flow from operations was $6.5 million in the quarter and benefited from 2 significant nonrecurring items. First, as we shared on our last call, we received an income tax refund of approximately $23 million in the first quarter as well as state government grants so $4.3 million accrued during our fiscal 2021 fourth quarter and received early in fiscal 2022. As a reminder, our cash flow from operations in the first fiscal quarter is historically impacted by seasonal changes in working capital resulting from the slowdown in our businesses following the peak holiday season and by the timing of various year-end accounts payable and compensation payments. Total cash capital expenditures during the first quarter of fiscal 2022 were $6.6 million. A large portion of these dollars were spent on the first phase of a guest room renovation project at our Grand Geneva Resort & Spa, with the rest going toward normal maintenance projects in both of our businesses. We also had proceeds from the sale of noncore real estate of $3.4 million during the first quarter, and we continue to take advantage of opportunities within our substantial real estate portfolio. We believe we may receive additional sales proceeds from real estate sales during the remainder of fiscal 2022, totaling approximately $5 million to $15 million depending upon demand. Finally, before I turn the call over to Greg, let me also briefly comment on our balance sheet and liquidity position. As our press release notes, our liquidity remains extremely strong, with nearly $241 million in cash and revolving credit availability at the end of the first quarter of fiscal 2022. At the end of the quarter, we had no borrowings on our $225 million revolving credit facility. We ended the first quarter with a debt-to-capitalization ratio of 37%. As we head into the busy summer months for both businesses, we expect this ratio to continue to improve. We remain committed to our philosophy of owning our real estate whenever possible and keeping the balance sheet strong. With that, I will now turn the call over to Greg.

Thanks, Chad. We entered the quarter expecting it to be our most challenging of the year, facing our normal seasonal headwinds during the winter months in hotels, uncertainty as the Omicron variant ran its course and a limited new film or lease calendar. I'm pleased to report that we navigated these challenges to deliver results that outperformed the industry and continued our trend of significant year-over-year improvement in both businesses as the recovery from the impact of the pandemic continue. More importantly, we exited the quarter with exciting momentum in both businesses as we head into the spring and summer. As you know, we view the world through a long-term lens. Our recovery path is not a straight line, and our rate of improvement will vary from quarter-to-quarter, but we continue to make consistent progress. It's particularly gratifying to see our team shifting their focus from navigating through a pandemic to accelerating our recovery and looking ahead to once again growing our businesses in the future. The first quarter that we're reporting today is yet another step in our recovery, and we're pleased to be sharing these results with you. So let me start my divisional remarks with our hotel division. Chad shared some of the numbers with you, including comparisons to our prepandemic fiscal 2019 numbers and the fact that the data indicates that we once again outperformed both the industry and our competitive sets this quarter. Chad mentioned it earlier, but it bears repeating, total revenues for the division were over 91% of 2019 levels for the quarter after adjusting for the Saint Kate. The composition of the revenue is different than it was 3 years ago, with higher ADR, lower occupancies and a different mix of customers. There is more recovery still in front of us, but in aggregate, we are getting closer to where we were. As expected, occupancies were at seasonal low point for our hotels. But overall, it was a solid quarter in which the division contributed over $2 million in adjusted EBITDA. Leisure customers continue to lead the way, particularly on weekends. We are pleased with the continued strength of our average daily rate during the first quarter, growing more than 10% over last year. Omicron's impact on the quarter was mitigated by this being our seasonally slowest time of the year. We did have some cancellations early in the quarter, resulting in rebookings from later in the year, and in general, it resulted in a delay in a more robust reopening of offices. However, in the last 60 days, there has been a noticeable change compared to where we were at the beginning of the quarter, with more large companies now implementing their return-to-office plans. We continue to believe that in order for the business traveler to return to prepandemic levels, it begins with employees returning to offices. That then can lead to businesses getting comfortable with their employees getting back on the road to see clients, potential clients, remote offices and plants, et cetera, et cetera, as well as going to group events and conferences. While we are still in the early innings of the business travel recovery, our view seems to be playing out in the data. Recent industry surveys have indicated rising expectations for business travelers to take at least one trip to attend conferences, conventions or trade shows in the next 6 months. Industry meetings volume grew significantly from February to March, and the average number of attendees per meeting continues to increase, nearly returning to its prepandemic level in March. These indicators aligned with a significant improvement in our group room booking activity, which accelerated during late February through today. Our group room revenue bookings for fiscal 2022, commonly referred to in the hotels and resorts industry as group pace, are now running within 15% of where we would historically be at this time in prepandemic years. And let me pick up where we were. We're running now within 15% of where we would historically be at the same time in prepandemic years and are up significantly from where we were at this time last year. We are encouraged by the increased amount of activity and leads we are experiencing, and our sales teams remain focused on continuing to close the gap as business travel activity recovers. Banquet and catering revenue pace for fiscal 2022 is also trending, similar to the improvement in group pace, running behind where we would typically be at this time in prior years but closing the gap. We continue to experience very strong wedding bookings, and some of the bigger clients in the past are once again looking for 2022 and beyond. Overall, we generally expect our revenue trends to track or hopefully continue to exceed the overall industry trends for our segment of the industry, particularly in our respective markets. As in the past, our results from this division will vary by quarter due to the seasonality our properties historically experienced. But on a relative year-over-year basis, we look for continued improvement during this ongoing recovery. And as I've said in the past, we believe we have special assets that make our portfolio unique. These assets have allowed us to successfully pivot to serve an increasing number of leisure customers during the pandemic, and we will continue to pivot to optimize revenue management and deliver outstanding service to returning business travelers and group events. So now let's shift to our theater division. [indiscernible] over the numbers with you, including our continued increases in per person revenues, our outperformance in the industry and our third straight quarter of positive cash flow, with nearly $5 million of adjusted EBITDA in the quarter. We delivered these results despite a limited film release calendar that was impacted by Omicron, with several films shifting out of January and February to later in the year. The Batman delivered a blockbuster performance leading our box office results for the quarter, with the balance of the box office resulting from a mix of continuing strong runs from several films that debuted in September, including Spider-Man: No Way Home and Sing 2 as well as several films debuting in the quarter that performed well, such as Uncharted, Scream and Dog. All of the top 5 films in the quarter debuted with an exclusive theatrical run prior to release on streaming services compared to where we were a year ago, when 4 of the top 5 films in the first quarter were released day-and-date. The growing audiences in a widening variety of genres for films released to exclusive theatrical runs reinforced several themes related to our customers. First, our customers are increasingly comfortable coming back. Survey data released by the National Association of Theatre Owners regarding consumer sentiment towards movie-going is now indicating the percentage of those surveys saying they are, very or somewhat comfortable going to the movies is at 87%. As the comfort levels have increased, our customer base is broadening. Second, we believe the question of whether our customers would return to watch movies on the big screen has been answered. There is strong consumer demand for affordable out-of-home entertainment, and customers are coming back with the immersive theatrical experience they simply cannot get in their living room. The blockbuster performances, Spider-Man: No Way Home and The Batman, illustrated that big movies will bring back huge audiences. But beyond these big movies, solid performances from an increasing number of films are showing there is demand for the theatrical experience for more than just the tentpoles, and we continue to see more customer segments returning to movie. A growing number of family films have returned to theatrical success with Sing 2, Sonic The Hedgehog 2, Fantastic Beasts: The Secrets of Dumbledore and, more recently, The Bad Guys, all delivering solid performances. Films such as The Lost City and Everything Everywhere All at Once are seeing women and older adult audiences return to the movies. So while everything is certainly not yet back to normal, particularly as it relates to the quantity of films being released theatrically, we continue to gain confidence as we see more of our audiences return. In short, to borrow a line from Field of Dreams, the performances of these films are reinforcing that, if you build it or, in this case, release it, they will come. Last week, I joined our theaters team at CinemaCon and was able to get a firsthand look at some of the exciting films in the slate from many of our studio partners. The strength of the release schedule for the rest of this year and 2023 continues to improve with a fantastic mix of films from not only the major franchises but exciting new original stories as well, with the next few months being particularly strong. Tickets for this weekend's debut of Doctor Strange in the Multiverse of Madness have presold at a postpandemic pace, second only to Spider-Man: No Way Home. And while they are still several weeks away from their premier, early advanced ticket sales for Top Gun: Maverick and Jurassic World: Dominion are also starting out strong. But beyond the strength of [indiscernible], what was extremely important to hear was a commitment to theatrical exhibition from our film studio partners. You've heard me talk before about our belief that no other distribution channel for film content matches the experience of watching a movie on the big screen and our belief in the importance of an exclusive theatrical exhibition window as a means of maximizing the performance and monetization of film content over its life cycle. Last week, we heard our belief echoed by film studios as the data is beginning to prove out that an exclusive theatrical exhibition window sets up strong subsequent windows, including premium video on demand and streaming platforms. The magic and gravitas of exclusive theatrical exhibition delivers an experience that elevates the perceived quality for a movie, building long-lasting demand for its brand that other channels of distribution do not. This has long been our belief, and it was encouraging to hear several films videos reaffirm their commitment to exhibition and announced exclusive theatrical exhibition windows for films beyond just the tentpoles. The length of exclusive theatrical windows may vary from film to film. While many windows are getting -- while many windows are settling in around 31 to 45 days, there will also be some films that run shorter and others that may run much longer, such Spider-Man: No Way Home, which ran for an 88-day exclusive theatrical window. So as we look forward, we continue to believe 2022 will be the year of the return to an exclusive theatrical release window for the vast majority of new films. And our film -- and our view was confirmed last week. As an industry, we will also continue to encourage our studio partners to increase the number of films released theatrically as well as encourage additional content providers to take advantage of the unique theatrical experience as a means to showcase some of their best content. Chad mentioned earlier our opportunity to improve labor efficiencies as the business continues to ramp up. Our response to cost inflation is being addressed on multiple fronts: improving labor efficiency, continuing with cost management discipline we implemented during the pandemic and growing higher-margin concessions in food and beverage revenues. In the second quarter, we are also implementing targeted price increases for our premium large-format screens on certain days of the week. This is an area where our customers continue to show a strong preference and willingness to pay for this premium entertainment experience. While delivering magical movie memories -- while delivering magical movie experiences to our customers, we will remain at the core of our theater business. We continue to develop additional entertainment options within our theater locations. This quarter, we launched our sports viewing auditorium, The Wall, at our theater and Gurnee Mills. This one-of-a-kind sports viewing experience, combined with industry-leading food and beverage offerings, debuted during March Madness to positive customer feedback, and we continue to refine the customer experience and develop the promotional strategy. We're still in the early innings of this project -- of this concept experiment. But personally, there's no place I'd rather watch the games than the experience I get at The Wall. This quarter, we also launched testing in select markets for new subscription models known as MovieFlex and MovieFlex+. We believe these subscription programs are a way to drive recurring traffic through our theaters, and we're testing a unique approach designed to promote attendance for some of the smaller films that play an important supporting role around tentpole features. While we are in the early stages of testing with these programs, we believe they represent potential seeds for future growth in our theaters. Finally, I want to briefly remark on the strength of our balance sheet and liquidity position. We've always maintained the core philosophy of owning our real estate, limiting our exposure to leases and managing our debt at levels that we believe are prudent for the businesses that we own. We've informed this view with our 86-plus years of experience owning and operating these businesses, and we believe it has served us well, providing operational flexibility and effective risk management for when the unexpected occurs. We believe we entered 2022 from a position of competitive strength with less debt and relative leverage, a minimal amount of deferred rent and a great deal of more flexibility than our peers. As opportunities for investment and growth in both businesses develop, we will be well positioned to execute. For me, it is incredibly exciting to get back to focusing on growth, our strategic priorities and the exciting opportunities that lie ahead. Before I wrap up my prepared remarks, on behalf of our Board of Directors and our Chairman and my dad, Steve Marcus, I want to express my thanks and gratitude to Doug Neis, our Executive VP and CFO, who will retire next week after 36 years of service with The Marcus Corporation and 25 years as our CFO. Many of you may have gotten to know Doug over the years, but for those of you who haven't had the privilege of working with them closely as I have for so long, we could not have asked for a stronger leader to navigate the changes and challenges we faced over his tenure. In particular, his steady leadership over the last 2 years has been critical to our successful recovery. I'm happy to note that Doug has agreed to continue to provide advisory services to the company after his official retirement date in order to ensure the transition of Chad is seamless. He will very much be missed. We wish Doug, his wife, Sue, and their family the very best in his well-earned retirement. Doug, you have not only been a great asset to our company. You have and will continue to be a good friend. I could not ask for more out of our work relationship. I was always grateful for what you brought to our company, but the last 2 years really highlighted that impact even more. Meanwhile, we're extremely pleased to welcome Chad as our new CFO, upon Doug's retirement. Upon joining us last October, Chad has worked closely with Doug and quickly immersed himself in our businesses, systems and culture. We're fortunate to have found someone with Chad's knowledge and experience, and I'm confident that he will be a great addition to our executive team, and I expect he too will become a good friend as well. I would also like to provide a reminder that our Annual Shareholder Meeting is next week, May 10 at 9:00 a.m. Central Time. We are excited to hold our first in-person Annual Shareholder Meeting in 3 years. And we hope you can join us at the Movie Tavern in Brookfield. Further details regarding the meeting can be found in our proxy statement, which can be accessed on our Investor Relations website, investors.markuscorp.com. Finally, I'd like to once again express my appreciation for our dedicated associates at The Marcus Corporation. Your outstanding work and commitment to serving our customers is responsible for our success, and we appreciate all that you do every day. So on behalf of our Board of Directors and the entire executive team, thank you to all of our associates. With that at this time, Doug, Chad and I will be [indiscernible] on the call for any questions you may have.

[Operator Instructions] Our first question is from Mike Hickey of Benchmark Company.

Greg, Doug, Chad, congrats guys on a strong quarter in a difficult market. Doug, good luck, man. It's been great. We're going to miss you.

Thank you, Mike. I really appreciate that. Right back at you.

We appreciate you. Yes. Welcome, Chad. So first question from me, I guess, at CinemaCon, one of the -- no doubt a lot of compelling products and some big budget movies coming out. Obviously, attendance is going to reflect that. So when you look at the total scope of film, primarily sort of wide releases, it looks like we're still at a disconnect in terms of the volume of wide releases where we were prepandemic. So just sort of curious of your thoughts on how the industry closes that gap and whether or not you think some of the OTT providers that are creating experiences that would be great in theater, namely Amazon, Netflix and Apple, can start to sort of get product into your theaters, especially on sort of a more agreeable film window that's sort of selling at 45 days. I have a follow-up.

Mike, look, you're exactly right. We are not back to where we were from a content perspective yet. And look, it's one of those things where it's really -- I think there's a bit of a lag time that were -- that you bump into in this business from someone even if they plan to change their mind. The -- and I think there's been -- it's been great to see some minds changing. I think we all know there was this [indiscernible]. Streaming is the -- isn't going to be all [indiscernible] of everything. We never understood it. I think if you've been listening to our calls long enough, you would know that we've said that we can't see that actually making sense. And I think that, that is being born out. Streaming is here, I mean, but as I've said a million times, streaming -- the real battle is streaming versus linear TV. Yes, it is competitive because the more product being pumped into the home, the more competitive it is for the TV business. But at the end of the day, the theater is a differentiated experience. And so I'm being repetitive, but I think it's important to repeat that whole thing. But if you look at movies put into production, there's a great stat I saw recently. And you would see that in 2019 or -- sorry, 2020, production just slowed down, too. I think the pandemic really weighs -- just slowed down a lot of production. One of the things we're bumping into right now is in addition to that is the postproduction houses are really busy. They face the same labor issues as everybody else, and they're running behind. And so as we said in a bunch of times, this is going to be -- this is not a straight line path. It's the road will be little bumpy from time to time. But the trend and as -- I guess I learned from our industry that trend is your friend, the trend is really positive. Everybody is talking and saying, "You know what, we understand that the film is better. It performs better on streaming. It performs better in all the markets when it opens up in theatrical." And we heard -- that's what we heard the studio is saying. We're seeing it being written about. And so that bodes well on the business because we do provide that unique experience, that ability to spotlight and highlight a film. And we see production has moved back up again, just generally film production in general. I don't know where, but the number ultimately shakes out for all of us, but I think we're going to move in a positive direction.

Greg, do you want to touch on Netflix, Amazon, Apple or your thoughts on that?

Look, we're in -- we talk to all these guys. We're in discussions with them. We're trying to figure out how to work with their models. And I don't have anything to report today on the phone call. But yes, we're talking to them. And we continue to think -- and look, we've been testing different ideas. Different exhibitors have tried some different things due to pandemic. I guess the best I can think of it is to say that, as been reported in the press, we are open to playing their films. We believe we -- one of the statistics is a great statistic that the people -- I don't know they talked about it enough, is that the number of people who go to the -- that there's a huge overlap between people that go to the movies and people who stream content. That is a -- that's a very big group. And so because consumers of media just tend to be big consumers of media. And so we -- that's where we make the cases and look at -- we're not competitive in a way. We're complementary. And when we're working, these guys -- I think there's -- and look, they -- I think they're going to -- at the end of the day, they're going to want to maximize the revenue from their IP because they are in this very competitive segment. It's getting more competitive in the streaming business every day. And so they -- and it's expensive. And so they got to get that money back, and there's multiple ways to get that money back. And I think all too often, people treat their content. They said that certain people talk about content like it's a widget or it's a screwdriver. Now I'm sorry, but if I go to this hardware store, I couldn't tell you -- I'm sorry to the screwdriver manufacturers that might be on our call, probably none. But if there are, I apologize upfront. But I couldn't tell you what screwdriver I was buying, which one was better than the other. And -- but a film's content is not like a screwdriver. It's intellectual property, and it is unique. And I'm sorry, if you want to see -- actually, I'm not sorry. If you want to see a movie that you like, if you want -- when -- Doctor Strange is going to be out this weekend. When it comes out on stream, there will only be one place to go see it, on Disney+. It is unique. It is not [an opportunity]. It is not an [intangible] screwdriver. And the people that want to go see that will have the ability, and they will have to be in the Disney+ family to be able to see that, and that's true for something that's going to be on Netflix or on Amazon. To the extent they make content that people want to see, they can only go to that streaming service when does it -- when it runs exclusively. And that will be a benefit to their members and only their members. And yet it will have that patina after being played in a theater, a halo. And we think that for certain films that can be mutually beneficial, and I -- and also that will drive incremental revenue. And probably -- it will probably not drive any decrease in revenue on the streaming side. So it's -- I think it's a winning combination for them. History is born out that theatrical is complementary and certainly ancillary markets, not competitive to the ancillary markets. And I think we're heading in that direction as they're starting to see that, too. Nice. And sorry for the [indiscernible].

Love the passion, man. It's great. Second question from me on -- I mean it's -- obviously, we've got some uncertainty here, economic and otherwise. I see that in the markets this morning. But clearly, you're confident here, and your business, you're bouncing back strong. Product is coming back on cash flow. I think you're sort of flattish for the quarter but sort of 3 quarters in a row of flat to up, and you look back prepandemic, you lost $11 million in free cash flow in the first quarter, so you're way higher than that. So all that being said, how do you think about potentially reinstating your dividend? And how would you approach that? I'm guessing you're sort of inching to it, but I guess just given your confidence and your cash flows, the dividend was such a nice piece to your return profile. And I think, obviously, the market is somewhat rewarding capital return here on value stocks.

Yes, that's a really good question, Mike, and I will certainly confirm that we're having lots of discussions about that. We have been really, for most of our entire history, a dividend-paying stock. And we certainly anticipate returning to being a dividend-paying stock. We're watching -- considering the timing very carefully, I mean, we've got several puts and takes to think about regarding that. But that certainly -- so I can't sit here today on this call and tell you which quarter that might, in turn, become a reality. But it is on our radar. We expect to return to being -- paying dividend. I can say with certainty that when we do first return, it won't be at the same levels that we left when we -- when the pandemic hit. We still have some restrictions that we're operating under with our bank agreements until we get back to our old covenants. We're on our way back to getting back to our old covenants, and so that comes into the consideration and all this. But it does allow us to start paying a dividend. It's just won't be at a level that you saw previously initially. And then hopefully, we'll be able to, as things normalize, continue to focus on that. It's an important part of who we are, and I would expect that it will be in the future as well.

Our next question is from Eric Wold of B. Riley Securities.

Great working you, Doug, over the years. Definitely, it's hard to see you go. A couple of questions. I guess, one, obviously, a lot of the focus on inflationary pressures, wages, labor, has been the case for a while. What have you seen over the past, maybe, 12 months or even more recent in terms of how price sensitive consumers have been, both in the theaters and in your hotels? I mean do you expect still continued ability to completely cover increased costs through price? Is there a risk that may not be the case? Where have you seen some pushback, if at all, from your moves around that?

We have -- each business is different. I think that we've seen -- we have seen a fair amount of elasticity. I mean as we're reporting, our rates on the hotel side -- some might say the hotel side, our rates -- really in both areas. But our rates on the hotel side have been very, very aggressive like the rest of the hotel world. The -- and so we've been able to manage that. I don't -- we will continue to react to the market as we can and test the waters and continue to work the price there. The theater side, we've been able to selectively -- we're being tactical with what we do there. Mainly because of that, we're trying to rebuild the business and bring people back to the theaters, and they're a little -- they're not as far on the curve as the hotels are. So with that, we're being more selective. But that doesn't mean we're not doing it. But it just means that -- I can tell you right now, the guy's on [20]. They're sitting at around [20 to 24]. So that's where the theater has it. They're sitting around. Rolando and his team are sitting around trying to figure out how to manage that labor as tightly as they can manage it. And yet at the same time, they are taking selective price increases where they can. Again, it's just not -- that's [one across the board], but we -- like, for example, like on a Tuesday, we've instituted $1 charge -- upcharge for our PLFs or our premium large-format screens, and we didn't have one in the past, for those who aren't members of our loyalty club. It's technical things like that, that we're doing. We are not doing things like raising the price of an individual film like some of our competitors are doing. But we're taking price increases during different dayparts. We're -- so we are -- and there's elasticity in that as well because at the end of the day -- I mean I don't know about you, but the last time I went to a professional sports league, those tickets are pricey. And that's -- as we talk about 6 out of the last 8 recessions, the theater business got better because people start to trade down because they still want to go out, and we know this. I saw an article, and there was an article in The Wall Street Journal today that talked about how bananas people are to get out of their houses and how the world is trying to go back to people don't want to be at home anymore. And that bodes well for our travel business. But if the economy were to start -- I've always said the theaters are an uncorrelated asset. As we go -- if the economy were to have any struggles, that tends to bode well for the theater business because people want to go out and they're looking for less pricey entertainment. And so we will have room to move on that pricing as well, too.

Got it. And then second question, what are your views on kind of the acquisition environment on the theater side right now? Obviously, we've seen some moves by some of the competitors. Are you seeing anything that fits your criteria? Do you think you would get increased inventory and potential targets as funding sources change? Have some of the acquisitions that have been done not checked all the box? And I guess trying to see how attractive are you in the environment and how could that change maybe over the next 12 months in your favor.

We have -- there has not been a lot of activity. And we've seen -- we saw a small transaction just recently. We've not [asked] at the market. We saw it in the market that was announced. But it was a pretty, really relatively small transaction. We'll look at anything. At the end of the day, we're going back to the core precepts of our balance sheet needs to be in great shape. It's a business where scale is helpful, but it's not paramount. And so we are -- I still don't have anything to tell you. The activity is pretty quiet. There's not much happening yet. But as you know, Eric, we could see that, that environment change as the business stabilizes and continues to stabilize then maybe people will say, okay, now I know where it is. I've written this out, and it's time to sail off in the sunset. And we will -- we can potentially be available. We'll have to look at it as it comes about.

Our next question is from Jim Goss of Barrington Research.

And I will also begin offering congratulations to Doug. It's been great to be able to work with you for many years, and you're a fine executive and a fine human being. Chad, you've got a tough act to follow, so good luck to you, too. I would actually like to start with exclusive theatrical window comment. Are there any holdouts notably? Or I think most of the major studios have conformed to a 45-day type exclusive window, haven't they?

I can't think of anybody who hasn't -- I mean we don't have -- we don't have -- we don't discuss strict the conversations we're having with people. But I -- most everybody got a window because I think they know. I kind of explained this before. So like doesn't -- why do you want to create an unlimited number of seats on the first day? You want to talk about the [indiscernible] laws of supply and demand. Why would you want to on day 1 create an unlimited -- basically an unlimited inventory? The whole concept of windowing is selling the same thing to the same person over and over again. And you're growing your highest per capita channels first. And all you do is destroy that. And when you go to that situation, and again going back to now and to maximize your -- the value of your IP and the revenue coming off your IP, is counterproductive. But I've always said, and I guess if anybody from Apple is listening, they can come back and tell me I'm wrong, but it was never lost on me that on day 1, when Apple would release a new iPhone, just historically, and you go back to the -- when they were just -- really, the earlier years, people were lined up around the building. I find it hard to believe that how many iPhones they would sell on day 1. And yet they created that demand. They restricted the supply, and it worked so beautifully to their advantage. We should all take a lesson than that.

Right. With the issues Netflix has faced lately, have -- has there been any change in the tone of conversation with it in terms of potentially introducing having some sort of window? I think Mike was bringing this up before. But also, I'm wondering, if you were to do a theatrical window for some of the streaming content, would it be day-and-date? Or would there be any chance that you have at least a week or a few days of exclusivity in that?

Look, I'm not going to get into what we discuss with the different distributors. And so we've never done that in the past, and so we're not really going to go through that now. We're open to whatever -- we're open to different models. We tested different things. We think what's best for us and for everybody is to have some sort of window. It helps to [map]. Again, we think it's counterproductive. Day-and-date doesn't seem to work very well, but we're open to any of these good ideas.

Okay. And I know you've said in the past some time that certain of the films tend to play in your markets better than others. Are there any of the major releases coming up that you think will be particularly good or bad in the Marcus Midwestern-type markets?

I can't think of anything that's going to be particularly challenging in our markets. I can think like we performed very well on family films. So we'll tend to overperform there. So I think like Lightyear will be one where we could overperform. The -- I'm trying to think off the top of my head of any of the new stuff that's -- the stuff that's -- I don't see stuff that I think would naturally underperform on. I don't know, Doug, can you think about anything off top of your head? Or Chad?

The odd couple for us is that, as you said, we indicate -- we performed very well on the family films. We also tend to perform pretty well on horror and kind of the scary stuff. And so I'm trying to think, and there's a few pictures coming out that might kind of fit that category as well, and so -- but as I was kind of mentally thinking about the slate, I'd echo what Greg said. There's nothing jumping out at me that, in turn, says, oh, this is a bad mix for us. I mean I don't -- or that's an unusual mix for us. So I don't think it's material.

Okay. And on the hotel side, I know business travel has lagged somewhat. Are there any additional specials you're trying to provide for leisure travels combining stays with food and beverage or anything like that to make the most out of that opportunity?

It's not one where I think we have to do much discounting. Look, we do that where you -- when we -- during softer times, you're going to see us packaging golf in Lake Geneva with our resort. We will do it selectively where we have quieter periods to drive some demand, but we haven't had to do too much of it because, knock on some wood, the leisure traveler has been bound to force.

Okay. Last thing, the Searchlight relationship. Is there any way to -- you might frame out what sort of broader expectations we -- you should have in terms of frequency of investment opportunities you can get out of that relationship? I know it's going to be very uneven, but is there anything you might say that my point is in that direction?

I wish I could give you the frequency number, Jim. I really don't have one. Look, we are actively looking for things to do and for transactions to do with our investment partners. But I mean, look, at the end of the day, the thing that we do is we were about -- we're about quality, not quantity. I mean we don't have -- we're not trying to just put money out for putting-our-money-out's sake for the sake of putting out money. We want to make sure our investors do well. And we're certainly going to go do our best. You make mistakes occasionally? Yes, I wish we were perfect, but we're not perfect. But we want to find -- so we're going to be careful and be thoughtful about what we do. And the transaction market at our end hasn't been crazily robust. It's been -- there's stuff happening, but it hasn't been -- but we're actively looking for stuff. And we have the capital available to do it with our partners and when it becomes so.

Our next question is from Andrew Shapiro of Lawndale Capital Management.

Can you hear me okay?

Yes, we can, Andrew.

So first off, Doug, congratulations on a retirement well deserved. It's been more than a decade, I think, we've engaged with you, and I really enjoyed that over the years and look forward to continued discussions with you on the industry, et cetera, and maybe having you on one of the boards that we do stuff with in the future. I think it would be great.

Thank you very much, Andrew.

With respect to some of the comments that were made, I agree with your comments that big event premier, the red carpet and box office run success drives the streaming's popularity. And you also spoke of the uniqueness of studio IP. Now that IP and promotion cost studios hundreds of millions of dollars. And at the point that when that IP streams, it has to be de-encrypted to be seen. And it's at that point when there's a perfect high-quality pirated versions emerge. Can you comment on what you have heard from the studios, your private discussions at CinemaCon and just what you know in general about the impact of the increased piracy that studios have experienced during this COVID period and day-and-date period of putting up their IP that way? I mean we have heard that like Matrix 4 was like one of the most pirated movies of all time within 4 days. Are you -- have you heard and seen things like that? And what's the takeaway on all this?

Andrew, that is a great question. And I'm not saying it's a great question to stall because that's usually what people do. No, that's simply a great question, and your cue reminded me of some I didn't talk about with day-and-date because, yes, piracy is a gigantic problem. And yes, they're talking about it, and they know about it. And yes, the minute you create that, you put it on, you stream it digitally, you create the opportunity for that pristine copy as opposed to the guy with the camcorder in a theater, which -- where somebody maybe is walking in front of the thing, and it's not in focus all the time, and it's just clearly not like being able to grab that pristine copy. And they are seeing it the minute they put it on a PVOD or streaming anytime they go digitally into the home. And it's been -- every film just sees a gigantic pop when they do that. And they know that it's really a negative. So it's just another reason to, again, grab as much revenue as you can from theatrical first and then move it in near ancillary markets. So thank you for that great question.

Did you get -- have you gotten feedback from studio execs that in recognition of this, I mean, just proved to be a really big change in hit and impacted their models such that that's one of the motivators, not only for them to return to exclusive windows but, in a sense, they've learned their lesson and they probably won't be leaving those exclusive windows so quickly?

I can't say that I've had those -- no, I might not have them anyway because it would be -- our theater team might be having them more directly than I'm having them. But I know -- but look, it's -- we know the MPAA is focused on piracy. They talked about it. That's what Charlie Rivkin, his speech -- a big topic in his speech was the problems of piracy and how they're working to try to fight it. But it's like radar detectors with the police, I think. I hate to say it. It's unfortunate. There are people who are -- it's hard to stop them, but they want to steal. It's really hard to stop them from stealing.

Our next question is from Ryan Hamilton of Morgan Dempsey Capital Management.

Ryan, so we're on the top of the hour. So give us your best shot. Give us your best one.

Yes, I know. I'm at the end of the line here, so most of my questions have most probably been answered. Just real quick on price increases you talked about on the theater side. Any comments on the concessions, food beverage? Any comments on price increases on the food and beverage side?

Price increases. I'm sorry. I didn't quite [indiscernible].

Yes, price increases.

I basically would echo what Greg said earlier about -- and the context was primarily in the admission pricing when he's answering it, but it's the same approach on the concession side, too. It is very tactical. I mean we have taken some selected increases. We're -- just like we're seeing the labor cost challenges, we're seeing some rising costs in our cost of product. And so we're trying to be smart and tactical about any price increases that we take. We're no different. I mean you go to any restaurant or anywhere else, go to a ball game, you're going to see those same prices going up. We have the unique challenge of -- as Greg indicated, we're trying to rebuild the business as well. So we want to be careful and smart about it. But it's another issue that our team is watching and working very carefully on.

So I'll follow up with the call later. Doug, congrats on a successful career. Fantastic working with you over the years.

Thank you, Ryan.

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.

Thank you very much. I want to thank everybody for joining us here today and Greg and all of you that are on the call as well. Thank you for your kind words. I personally would like to thank everyone listening to the call for your interest and support of The Marcus Corporation over the years and certainly during my time here with Marcus. I am particularly grateful for the relationships I've built with many of you during that time -- my time here. It has been an honor and privilege to work for such an amazing company and an incredible family for over 36 years. So while I look forward to this next stage of my life, I will most definitely miss all of you and my second family here at Marcus. Greg and Chad will look forward to talking to you once again in early August when we release our fiscal 2022 second quarter results. Until then, thank you, and have a great day.

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