Good morning, everyone, and welcome to The Marcus Corporation Third Quarter Earnings Conference Call. My name is Alex, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. [Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, Chairman, President and Chief Executive Officer; and Chad Paris, Chief Financial Officer and Treasurer of The Marcus Corporation. At this time, I would like to turn the program over to Mr. Paris for his opening remarks. Please go ahead.

Thanks, Alex, and good morning, everyone. Welcome to our fiscal 2023 third quarter conference call. I 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 2023 third quarter results and in the Risk Factors section of our Fiscal 2022 Annual Report on Form 10-K, which you can access on the SEC's website. We will also post all Regulation G disclosures when applicable on our website at 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 stakeholders. You should look to our website marcuscorp.com as an important source of information regarding our company. We also refer you to the disclosures 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…

Thanks, Chad. Good morning, everyone. As I shared in our last quarterly call, the third quarter got off to a strong start in July. In Theaters, a string of blockbusters drove huge audiences to see movies on the big screen. And we had a deeper slate of films for the rest of the summer than we did a year ago. In Hotels, favorable weather and solid leisure demand continued to support strong rates and improving occupancy. I'm happy to share that the positive trends we saw in July continued through the end of the summer, and we had a great third quarter with both of our businesses contributing to our revenue and earnings growth. Our teams executed really well, serving our customers with excellence during our seasonally busiest quarter of the year. The third quarter that we are reporting today once again continues our trend of year-over-year improvement and we're very happy to share these results with you. I'll start with Theaters. This quarter, both higher attendance and strong growth in per caps drove our results. While the second quarter this year included a few films that missed the mark and third quarter included a few films that exceeded expectations in a big way. Strong performances from the cultural phenomenon known as Barbenheimer and Sound of Freedom drove customers out the theaters for these must-see films, while a steady cadence of movie releases continued into late summer and supported the habit of movie going, resulting in attendance growth over 15%. The impressive performance of these films underscored an audience appetite for a variety of narratives and it was a great reminder to all of us in the entertainment industry of the power of theatrical exhibition and building awareness of great movies. We continued our trend of significant increases in per…

[Operator Instructions] Our first question for today comes from Eric Wold of B. Riley Securities. Your line is now open. Please go ahead.

Hi, good morning, everybody. Thank you for taking my questions. A couple of questions, I guess one, following the three theaters that were closed in the quarter, anything left on that front to close? And then how is the acquisition or new build pipeline for theater shaping up at this point?

I'm sorry. What - I didn't hear. What did you say about the three that we closed? What was your specific? I lost..

Any more…

Just if there's anything else that needs to be closed?

Not that we know of. I mean, again, these were very special situations in a market that we've got, you know, very good coverage in, and, you know, that business is just going to be picked up in other theaters. And these theaters were - you know, one was a lease that was ending, and the other two were, you know, we just - we had made the decision that we weren't going to make the investments that you need to have. You know, how we feel about having our fiscal plans in top shape and competitive. I think that - I think we were talking about I think it puts our recliner penetration, it's got to be over 90% now because those didn't have recliners.

And then - new build or acquisitions.

No new builds. And, you know, there is - I would say that, you know, we're starting to see some stuff pop up. You know, nothing that we've had an interest in yet, but it feels like, you know, that the ice is breaking up a little bit, but I have nothing to report to you.

Got it. And then shifting to the Hotel segment. Any update on the decision around, you know, Milwaukee Hilton? Can you remind us kind of what the - any deadline is with that and kind of maybe what ultimately needs to be done to that property to kind of get near to the convention center opening next year or the expansion opening next year?

Yes, Eric, we're continuing to work on it. You know, this is one that we hope to have some idea of the path forward by the end of the year and something to share on our next call in late February. But again, it's one where we're trying to make the returns make sense and with a hotel of that size, the capital investment is significant and, you know, we're working on it. So no update right now, but hopefully we'll have something next quarter.

But that's not something where a decision - where there's a deadline looming. You've got time on that one, correct?

Well, no. I mean we have to - we do have to make - there is no - we don't have a deadline to report, but there is - look, there's a lot of things that, you know, that we have to take into account, and, you know, that includes, you know, just the fact that we have - the community has just made a big investment in a new convention center and - or, you know, an addition to the convention center and refurbishing the older section. And, you know, it would be helpful to have this complement that.

Understood. Thank you, both.

Thank you. Our next question comes from Mike Hickey of Benchmark Company. Your line is now open. Please go ahead.

Hi, Greg, Chad. Good morning, guys. Great quarter. Thanks for taking our questions here. I think just two from us. One, obviously, Chad, Greg, you guys don't guide '24. Your peer-set doesn't either. But just curious, so this - as much as you can sort of frame for us your '24 growth opportunity on revenue as you see it today. Obviously, there's some moving pieces on theater side in terms of the strike and impact, et cetera. I'm curious if you think - you also have some leverage in the model in '24 and beyond. That's the first question. Second question is, it sounds like on the hotel side, you've got some pretty good leading indicators there on growth. And so maybe that sort of offsets this question. But just curious, an update on the consumer specifically within that segment. Obviously, the business side being more impacted by the economy and sentiment, and leisure here seems like it's had a heroic effort, Greg, over the last year or two. Just curious if the economy or sentiment or just the pullback in spend is impacting or you think it could impact that piece of your business. Thanks, guys.

Sure. Well, you know, actually we're going to be holding a seance next week to figure out what the theater business is going to look like next year. We just don't know. We have no, you know, I mean, we don't even know when we know what's coming, you know. It is a - as we talked about on the call, right, was - in the prepared remarks, nobody could have guess - nobody ever can guess what a specific as movie is going to do. And if someone would have told me that Barbie was going to just absolutely go bananas and that other films were not going to perform as expected but there were some. You just, you know, there's no telling. And so it all comes down to the number of films released and we don't, you know, in Hollywood, as you know, is not really disclosing, you know, so like, there's been some moves, you know. We know that Dune 2 moved to next year. Well, okay, that's going to fill a little bit of a hole. It left us with a little bit of a hole, but all of a sudden Taylor Swift showed up, you know, She rode in on a horse to save the day. So, you know, we just - it is just a business where you don't know will ultimately come down to the number of films released. You know, if you look at the stats this year, which I think is some great stats to look at. We have about 15% less films released than pre-pandemic and we've got about a 15% decline in box office compared to pre-pandemic. So - and that's an increase from last year. So as the pipeline gets refilled, you know, business will come back. And you know us. We're not looking quarter to quarter, we're looking at the overall, you know, where is the business trending overall. And that's how we see that. On the hotel side, you know, we - the leisure traveler has, you know, I think the revenge travel period is over, but people are still traveling and want to go about and we still have a strong leisure business. But as we talked about today, our pace for Group business is looking more solid, you know, as we look, you know, is improved over last year. You know, in Milwaukee specifically, this market is going to see some real positive benefits from the Republican convention that's coming and the opening of the convention center, which again, not only speaks to just next summer, but really long term. That's a big - that was over a $400 million investment in this market, so - in the convention center. So, you know, good things in the long run.

Greg, just a quick follow-up. You can't control the fan product, obviously, I wish you could, that'd be great.

I think, none of us.

But on your screen count, just to sort of piggyback off the first question you look at, obviously, you're optimizing here, which is a good thing, and it's accretive, which is also a really good thing. But when you look at your screen count, your network, you're sorted down looks like 10% versus where you were pre-pandemic. And of course, you moved the other direction historically and created a lot of value. And I know that sounds like you're incrementally more positive maybe on the M&A market, but just curious if, philosophically or otherwise, you're still motivated here to grow your screen count. And when you look at, you know, the deals that are starting to come through, you say you're not interested. Is that you're not interested, say, in the asset that you're looking at? Is it the price? Is it both? Is it protecting your balance sheet, just given how much you still don't know about '24 slate, maybe the economy? Just curious because, you know, we hold the 79 theaters through, you know, the next couple of years. I think it's less appealing than baking in some sort of M&A as part of your philosophy in driving growth. Thanks, guys.

Look, at the end of the day, it is ultimately - I'll work backwards on what we would acquire for anything. It would be simply - it has to have good economics. And we're not seeing the economics that we'd want to see at this point. And the - because at the end of the day, we believe in growth, you know, that we believe that it's important to grow our businesses. And the - so that's the goal. But on the other hand - but really, the end of day is to have the most cash flow at the bottom line. You know, it feels good to say that I'm a certain size, but I'd rather have more cash flow at the bottom line. And, you know, that's how we think about stuff, and so - but we can do both. But we are just going to have - but we'll be patient and deliberate as we've always have been, and then when we see the opportunities, we'll move.

Thanks, guys.

Thanks, Mike.

Thank you. Our next question comes from Jim Goss of Barrington Research. Your line is now open. Please go ahead.

All right, thanks much. You mentioned earlier in explaining why the apparent underperformance, despite the strong gain in revenues, might have related somewhat to your recovering sooner than the rest of the industry, which recovered a little later. Are you - do you think you're now running at what you might consider a more comparable basis such that the comps would be more true going forward?

It seems like it, Jim. If you look at the comparisons to 2019 that I shared on the Call, you'll notice that we were basically in line in the third quarter, but still ahead on a year-to-date basis. So that catch-up has been progressing throughout the course of the year. And, you know, you remember we were open much earlier. So rehabitualizing the customer to movie going, I think, happened in our circuit sooner, and that certainly benefited us in 2022 last year, which was evidenced by the outperformance numbers that we reported a year ago. So it seems like we're - everybody is sort of getting back on par here as we get to the latter part of the year.

Yes, I think it just gets modulated by...

Okay.

I think it just gets modulated by now by product. You know, It's not going to be huge amounts of, you know, but it just sort of tilts. So, for example, we - as we talked about in the remarks, a good slate of family stuff should adhere to our benefit, you know, over the - you know, for the holidays.

Which hurt us in the third quarter comparison....

Okay.

Versus Q3 last year because we had two films that we pointed out that where we really outperformed the market versus the mix that we had this year, which we did well on, but not as well as we did in terms of overperformance last year.

All right. And a couple of questions about the cluster of films that sort of led the way in the summer. Barbenheimer and Sound of Freedom sort of sucked up a lot of the oxygen in the room. It seemed like Mission Impossible was one of the odd men out, and maybe the Indiana Jones movie did a little bit better, but not quite as well. With your collection or your - of multiple PLF screens, were you able to take better advantage of Mission Impossible than was true in the industry as a whole? Or did it also wind up being sort of squeezed out a little bit in your theaters as well?

I don't remember off top of my head exactly how it played out with that. I - look, I think it still ended up getting a little pinched, but we had more opportunity than anybody else, but it was - it didn't get to have the same. Now, by the way, Mission Impossible, if you look at the history of Mission Impossible, we all went into this. Again, this is why I said, we - you know, we should have a regular weekly seance to figure out what the films are going to do to make predictions, because a bottoms up analysis is extremely challenging in this industry. And if you look at the history of Mission Impossible movies, it actually wasn't a tremendous, you know, underperformance, but it's Tom Cruise. We were all thrilled with what he did last year, with what's it called with Top Gun. Very optimistically. But, but by the way, I love Mission Impossible. I watched that movie over and over.

Yes, Jim, maybe I can add just a little color because I've got the numbers in front of me. I mean, we led the industry with Mission Impossible on our PLF screen. 67% of our opening weekend box on that film came from PLF, but you had Barbie and Oppenheimer debuting the same weekend shortly thereafter, and we used all of our PLFs in that opening weekend, essentially for those two films. So I think the Mission Impossible was probably hurt, really, just by the calendar, more so than anything else. It didn't get a share of PLFs once those other two films premiered.

All right. And one other thing in that area, IMAX took an outsized share of Oppenheimer box office. It really pushed that particular film and did really well with it. I'm wondering if that had any impact on what you feel you might have taken or was it not really that much of a comp issue in your particular markets? And also related to that, they're bringing back Oppenheimer to the biggest screens. Are you thinking of doing something similar given the lack of some of the new content right now?

So IMAX, you know, led with Oppenheimer on the weekend that those films debuted. We had the ability to play both Barbie and Oppenheimer on our PLF screens, particularly because we have a lot of multi PLF locations and because we were doing some flexible scheduling with those two films. So as I look at how we performed on PLFs, both of those films, I think, you know, we got more than our share, certainly of box office from PLFs.

Okay. And on the hotel side, any construction status update aside from the ballroom at The Pfister? Are there any other things going on? And with that completion of that project, are you looking for some pretty good comps going forward with the renovated ballroom?

I'll start with the last part first. The sales teams have had some really nice success in selling that space in bookings, and we'll see that over the next couple of years. But it, you know, it's been really well received, particularly for social events. Active construction projects, we are kicking off the meeting space renovation here later in the quarter at Grand Geneva. And then we also have the rooms renovation at Pfister, which will begin right after the holiday. So that - and that'll continue throughout the course of the spring and end with some of the common space and lobby renovations later in the spring. So the entire renovation at the hotel will be done before the RNC convention next summer. So there's quite a bit of construction activity still happening in the hotel business.

And it's the original part of the Pfister building that's getting the rooms renovation, not the whole hotel. The other hotel was the...

Okay.

Tower was done pre-pandemic. Yes.

All right, that's it for now. Thanks. Thanks very much.

[Operator Instructions] Our next question comes from Chris Potter of Northern Border Investments. Chris, your line is now open. Please go ahead.

Hi, guys. I was just thinking about how well your business is cooking along. And in terms of revenue, with a couple of exceptions, a couple of quarterly exceptions, in 2019, this looks like this most recent quarter revenue was the highest in the company's history. Your long term borrowings, if I'm looking at this right, are the lowest they've been in the company's history. It just doesn't seem like the market is giving you the credit it should in terms of your equity price. And I'm just wondering if you've given any thought to separating the businesses, spinning off the hotels from the theaters. If I had to guess, the hotel business is probably worth as much as the whole enterprise value of the company. Just curious about your thoughts on that.

Well, they say - that's a good question. Look, we...

I'm guessing that separated the market would give them a lot more credit than combined for some reason.

The only comment I could really make on that, obviously, and that is that we constantly look at our structure and what is the optimal structure for the company going forward and what is the best way to manage the balance sheet, to manage the returns, to manage the value of the public market valuations. We are - we look at it regularly. And I have nothing to announce here on this phone call, and - but - and I appreciate the thought and what you've just suggested. And the best I can say is we always look at these things. There's no shortage of investment bankers who would call on us to present the ideas.

Okay, thank you. I just had one more, if I can, and forgive me, I missed the beginning of the call. So if you already spoke about this, but, can you just comment on what the property market is like as you're seeing it, in terms of, you know, these theaters that you close, and if there are other underperforming theaters that might be candidates for sale? What the appetite is for those kinds of properties?

Well, the properties that we closed, one was just coming off lease, so that just is something that we are - we don't have to deal with that anymore in terms of what the obligation is. The - of the other two, one is - has active interest, and the other one has - we just don't know yet. But the math we really did was looked and said, okay, even with the cost of - at an absolute minimum, with the cost of carry because of where they sit in relation to other theaters, we will be better - we can capture enough business in the other theaters that the cost of carriers is just justified being closed. Very unique situation. We do not have too many of those floating around where we can do that.

Understood. Thank you.

Thank you.

Thank you. At this time, we have no further questions, so I'd like to turn the call back to Mr. Paris for any additional or closing remarks.

Thanks, Alex. We would like to thank you once again for joining us today, and we look forward to talking to you again in late February when we release our fiscal 2023 fourth quarter results. Until then, thank you. and have a good day.

Thank you for joining today's call. You may now disconnect your lines.