Good morning, everyone, and welcome to The Marcus Corporation Second Quarter Earnings Conference Call. My name is Lydia, and I will be your operator today. At this time, all participants are in listen-only mode and 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'd like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir.

Thank you. Good morning, and welcome to our fiscal 2024 second 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 2024 second quarter results and in the Risk Factors section of our fiscal 2023 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 limitation. A reconciliation of…

Thanks, Chad. Good morning, everyone. Over the last few quarterly earnings calls, we've talked about our outlook for the year in terms of two storylines that we expected to play out over the short term. First, we expected two different trends in our divisions with hotels continuing to grow with steady occupancy growth and events in our markets that we would benefit from. While we expect the theaters to be impacted by product supply challenges following last year's Hollywood strikes. Second, in theaters, we expected the year to be a tale of two halves, with the most significant impact of the product supply shortages felt in the first half of the year with stronger product returning in the second half of the year, building momentum heading into 2025. This has played out as expected. But when you peel back the onion, there are surprises, both positive and negative in the quarter. While the second quarter started out very slowly in our theater division in April and May, we really started to see an inflection point in June with films that drew large audiences and even broke box office records. And hotels have got off to a strong start that carried through to deliver a great quarter, which we expect to be followed by an even better third quarter given the events we have going on in our markets. While the quarterly comparisons to last year have been tough, they were not a surprise. We see improvement coming in the second half of the year and our long-term outlook for both businesses remains positive. I'll start today with our Hotels and Resorts division. You've seen the segment numbers, and Chad shared some additional detail on the performance metrics, including our outperformance to the concepts and upper upscale hotels nationally. Overall, the…

Thank you. [Operator Instructions]. We'll go first to James Goss with Barrington Research. Please go ahead, your line is open.

All right. Thank you. One question or set of questions about the hotel sector. You talked about the benefits from the RNC. I'm wondering was there any displacement impact from that event with demand pushed rather summer timeframe that you might benefit from later on. And did this event help tighten the profile of Saint Kate, the Arts Hotel and provide potential justification for additional expansion of their concept?

It’s a yes and no Jim, it's complex what happened with the RNC. Yes, it did move some business later in the summer. So like the Northwestern Mutual Annual conference was moved to accommodate it. So that was probably the biggest move. And so yes I'm sure displacement business and I'm sure some people look at TV and said, "Wow, Milwaukee's cool, I should go there because it's true. But the other side of that is that there was -- and by the way this is all a net positive, but there was a little displacement on the front end because the convention center was pretty much out of business for a few weeks before the RNC came above because just the setup was such an extensive setup. So there were positives and negatives to it, but overall we're really pleased with how it all turned out. As for Saint Kate, yes, you have to look at -- you read my mind, I'd like to have more of them, but we've got to get this one in a place -- and it's so hard to judge when you get a one-timer like the RNC. Again, we think the net positive it continues to build and that concept continues to grow every year and we're pleased with how it's coming along. So we do think about exactly what you're talking about.

Okay. Thanks. And then the Cinema side, I'm wondering at this stage is film flow importantly in numbers game or is it dependent primarily on the quality and/or demographic appeal of the film mix being released. Probably wondering about your read on consumer attitudes towards theatrical attendance at this stage. You're always pretty bullish on it to that.

I think you know my theory is that at the end of the day it is the number of films released. However, I mean, it has to be what I would call a normal slate. If you release 110 films and not one of them is a tent pole that's not what I would call a normal slate. And so I think as we're thinking about the earlier part of the year where the number of films released seemed to be at a higher cadence. What they were releasing I'm glad they were putting movies out there and -- but not tent pole. We talked about -- what is a tent pole, what’s holding the tent pole? Why lots of things can be inside of it? If you just had tent poles, well, you're not stocking your tent full. Or if you don't have tent poles, well, the ceiling is going to be a little lower so to speak. And so at the end of the day assuming the proportion of number of tent pole and then smaller films and sort of a varied slate of different kind of films then I feel that the box office is still relatively predictable. But it needs to be -- because look at people who want to go to the movies. Look at what we are seeing right now. You could just think back a few years, no one is going to a family movie anymore. All of a sudden, we have the highest animated film of all time. You know, Marvel's done. Stick a fork in Marvel, and then we get Deadpool. I saw last night. It was so good. You got to take enough swings and you got to get people back in the habit. Oh, right now comedy's dead. Nobody's going to comedy, although everybody went to Deadpool which I promise you is a comedy. I don't know it seems to be more fun to laugh in a roomful of people than the laugh by yourself on the sofa. That's great. But you want a room full of people around you. And so I think they got to get back to that and build the audience. People have to get back in the habit of going.

Okay. One last one alternative content gained a little more traction when there's less content available. And I'm wondering if in the aftermath as alternative content begins to subside from lack of need, what elements do you feel will have a more lasting impact? And will it be confined to certain days of the week or anything else of that nature?

I think that alternative content will continue to be important to what we do. I've always said I don't think that it's going to become the biggest part of our business, but those last customers are very profitable. Those are high-margin customers and I think that that will be -- we'll need to be strategic and figure out it. The key is for us to know the audiences, to know who that is and to effectively be able to market to them. Because that's ultimately the challenge of alternative content is to be able to market to an audience, you're not releasing something nationally and playing 500,000 runs or something which is what a national run is of something over a month. You can't throw as much marketing in it. So you have to be very efficient. And so our loyalty program which continues to grow and not just ours because it needs all the industries. I think all the industries loyalty programs continue to grow as we get better at marketing and finding those audiences. For example, I'll give you an example, our Indian film Bollywood content we're getting better at it and it's growing. Our St. Louis market has been very strong, Wehrenberg, when we bought them had a very good -- they invested the time and built that audience. And we're growing that. Now it's not huge dollar amounts, but over time, it grows and it can be meaningful and whether it's that or concert films or whatever we might be doing. It's something we have to pay attention to because as I said those last dollars are the most profitable.

Okay. Understood. Thanks for your thoughts. Appreciate it.

Next question today comes from Mike Hickey with The Benchmark Company. Please go ahead. Your line is open.

Hi, Greg, Chad. Good morning, guys, and great job, congratulations on your financing transaction. It's awesome to see that converting [ph]. I guess the first topic on the hotel side really strong growth, at least versus expectations maybe for the first half here. And I get the group data looks good, but sort of your confidence here that you can continue to sort of grow the hotel the second half of '24 and '25. And I guess the backdrop here somewhat Greg is that I think prior quarter you expressed maybe a little softness in leasers. So sort of curious update there and then your confidence for growth?

Yes, Mike, I'll start. As we mentioned in the prepared remarks we did see some continued softness in leisure. I wouldn't say that it was meaningfully accelerating or different than what we mentioned in the first quarter. But as you know, that's been a really hot segment of the business coming out of the pandemic. And so it's normalizing which I think generally we thought and the industry thought was going to happen. What is happening, though is offsetting it is we're seeing other segments of the business that have more than offset it. And that's primarily happening in occupancy. This quarter it even managed to offset the softness at leisure rates to hold rate flat. And so we like the fact that our mix of business gives us the ability and opportunities to win in other segments to offset softness in certain sectors or parts of the business when it happens. And we were able to do that this quarter. And as we go into the second half of the year, we talked about the bookings and what the forward book looks like for group business which looks strong for the balance of the year, good growth both this year and next year that we think will continue to help us offset any softness that we see in leisure, but I would say it's more sort of a continuation of what we saw, but we're managing it.

All right. And then you called out a history, you put some 20 million in capital on that. Just sort of curious maybe the renovations that you did there and how you think that will impact RevPAR or utilization ADR I guess specifically if you want or how that asset should grow after the money you put in?

I don't think we look at specific. We don't talk about specific assets like that. It's a mixture of stuff. When you do something like that part of it is just you have to do it because if you think in the business and keep your assets up. But it is so beautiful and it's -- and the F&B market is still competitive in the banquets market. So now people come in to see how great the asset is, I think there's obviously going to be a benefit to it. It's a little tough to quantify but that is the cost of being in business over time.

Yes. I mean where we see it, Mike, is really in the bookings on the group side of the business and particularly renovated ballrooms, we're seeing that now not just at The Pfister but at Grand Geneva as well. Event planners like fresh space. And that's where after you make an investment like this, you'll start to win some of that over other alternative venues. And I do think that's related to what we're seeing in some of the group bookings. The other piece that Greg said is maintenance capital in nature but also preserving -- in the case of the Pfister, premium positioning in the market in a premium rate and maintaining the asset. So a little bit of defense there on maintaining a leadership position in the market.

Thank you. I guess, topic two with the theatre, it's nice to see you guys be opportunistic with the show place transaction. Curious what sort of opportunity you guys see in the market for similar deals as you look to expand your network now?

I wish I could tell you they were lining up and there were a bunch of deals that we were able to do. But we keep looking. My theory is that when things sort of stabilize out more stuff will break free. And this is the example that -- this is how the company was built originally. And we're about to be 90, 80 years ago, my grandfather built the company by finding landlords the needed help. That said, we can work together to do something. My grandfather bought the skill of running the operation to the landlord that had the real estate and they became partners. And that's the kind of deals we would like to do. And we're out talking to people, as you can see because this deal got done. So we are out talking to people about trying to do these things. And I know our team is out looking and talking to people but I can't tell you. There's a long list of them right this second. But we'll just keep working at it.

Would you guys start to think now you sort of completed the financing piece obviously, that took a lot of time? But now that's sort of cleaned up for you, would you start to consider more traditional M&A in the theatre space is sort of more important on the list of capital allocation opportunities?

Mike, I think it's changed -- the M&A model in the theatre business is fundamentally different than it was pre-pandemic in that buying a circuit of theatres generally can be difficult because in the portfolio of locations, many of them are not cash flow positive. And so you really need to think about paying cash for a circuit and what you're getting and you have to look location by location. What we're seeing in terms of opportunities are more individual deals. And so it's a lot of hard work to do individual locations but that's where the financial returns are going to make sense. And it's singles and doubles, not purchases of 20 locations in a circuit at a time. And that's I think where we're at until stabilization somewhere quite a bit north of where we are today kind of resets and helps everybody understand what the rent levels need to look like in a lease circuit.

Good. I guess, last question, gentlemen staying on the theatre side within the promotional piece it looks like, Greg you're having success there. Do you think that is sort of any indication of consumer that's, I hate to say trading down but sort of seeking value here, Greg? Or do you think that is maybe a factor of just not the best slate and they just need some extra motivation to get into the theatre. And then I guess the follow-on would be now that the slate is looking great for the foreseeable future and sort of like the build-out of that promotional sort of be contra productive I guess versus getting people in prime times with full ticket prices.

No. Look, there's a few things that are going on. I think the dynamics are such that and let's break it like in a couple of different parts like so one of the idea of the return to free popcorn. I mean do I think that's indicative of a weaker consumer? No. I think that free is a powerful word. It was very interesting. We did a substitution. We've made the change. And by the way, we tested this. We didn't just do this radically but without trying to test it. Obviously, our test and sort of manage will ultimately happen. But the idea of moving to -- when you give free popcorn, if you don't want popcorn then what value are we giving to someone on a value Tuesday. And so we suppose what we give you 20% across the concession stand that's going to be a value potentially to more people. That was the theory. And as we tested it seemed to play out okay. But then when we rolled it out and it didn't match our expectations. And so we went back to free popcorn and we change what the offer was. It really seemed to be -- it's hard to quantify which piece of all that is but it's something that we thought, okay, well, you make a mistake and you go back and you're changing and that seems to be a more powerful driver for Tuesdays. Now when I say Tuesdays, let me bring up to your next point, which is, we worry about things being counterproductive. And the answer to that is no because one of the things we think about and this is maybe the overlap of hotels overlapping with theatrical and that is the right price for the right customer at the…

Thank you. And our next question comes from Eric Wold with B. Riley Securities. Your line is open.

Thanks, guys, for getting me in. So a couple of follow-ups on some ones that have been out there. On the pricing question. So I guess on the midweek value pricing and discount Tuesday. I get your rationale, Greg. They just went through why you guys made those changes. Should we make the assumption that those changes are viewed as more permanent changes to the pricing model and kind of promotional model or something that's more of a short term move with the slate and kind of where wallets are right now?

Well, we've announced that it's for the summer. But obviously we'd be considering it to bring it back on a more proper basis. I think the most interesting thing, though, is actually how it looks like. The pricing, what we charge is less -- the $6 or $7 depending on if you're in the car rewards program or not, versus $5 seems to be less impactful than free popcorn, which is really very interesting. But again, at $5 for 10 years, I define anyone to tell me they don't want to raise for 10 years, especially in an inflationary environment. I think that was very understandable. It's still $6 is an incredible value for that.

Got it. And then on the acquisition question around the theaters space. Yes, how far outside of the mid opportunity that comes along? And how do you view the benefits of clustering in the region? I know you talked about that, obviously the -- Chad mentioned the acquisition kind of environment, a lot different than was -- you're kind of looking at one of these and two of these and these to come up. So I mean, if there's a single theater in a faraway place, does that make sense? Or you really need to think with your customer base and loyalty, you really want to -- and maybe kind management have more of a clustering or can you make it work with one?

Look, you could absolutely make it work with one. I mean it's not as good as having a bunch of them because you can get your -- it's not like the old days. The old days, when you had to have an Ad in the newspaper, I mean we're talking real old days here, you wanted to have a bunch of them in the market because you're -- just, because your ad looked so much larger. When you ran all of them on one. And now you get people to your website and it's different in that regard. But still, I do think that there's some marketing benefits to being able to have multiple feeders in the market, whether you -- more for, the ad hoc campaign. $7 Matinee, seniors seven days a week for seniors and kids. Being able to market that so much more efficiently is certainly helpful. Again, not the same as the days of old. And the more times people know your name and hear about you and get your programs are out there, the better off you are. But overall, we can really manage them anywhere.

The only thing I'd add to that Eric, is we certainly the bulk of our locations and the things that really move the needle in terms of customer preferences, those locations are in the Midwest. But we do have single locations in certain markets as far west as Aurora, Colorado, as far east as Philadelphia, where we have a few of them in that market, but a couple of them in that market. But we have done it before. We certainly can do single locations in a given market, particularly if it's a great theater.

Yes, and I mean certainly people have seen my tax all over the country.

So I imagine then that's not limiting your inbounds from a landlord maybe somewhere in a different state because of where you are. You're still getting those calls.

Yes, absolutely.

And then last question on the hotel side, you spoke about the strong group pace that you're seeing in 2025. Is there any way to kind of note, I guess, or kind of think about how much of that may be driven by the convention center expansion versus just normal group business improvements that you may just be experiencing your hotel? I guess what I'm trying to get a sense of, is that just an improvement of the baseline? I don't say just, but is that improvement of the baseline to your hotel business prior to the tailwinds of the convention center expansion really kicking in?

Well, it is a little of both. I mean look, it's the business coming back, it's the convention center getting stronger. There's certain probably a bunch of people who say, well, I'm not booking your convention center until I see it done. But a bunch of people were excited about it. And I give credit to Peggy Williams, our local convention visitors bureau. They've been out marketing hard. And the business flow is better.

Yes, I guess I add Eric is 25, a little bit of both. They are starting to book in, some events further out on the calendar of 2027 that I think they would, quickly say Milwaukee would not have gotten, were not for the expanded convention center, but next year, even near in as Greg said, because they want, some of this is they want, event planners want to see it, next year. It's just a, a little bit of both.

Perfect. Thank you both.

Thank you. We have no further questions at this time. So I'd like to turn the call back to Mr. Paris for any additional or closing comments.

Great. Thank you. Well, we'd like to thank everybody for joining us today. We look forward to talking to you once again in early November when we release the third quarter results. Until then, thank you, and have a great day.

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