Marcus Corp Q1 FY2023 Earnings Call

Good morning, everyone and welcome to The Marcus Corporation First Quarter Earnings Conference Call. My name is Maxine, 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 this conference. As a reminder, this conference is being recorded. Joining us today are Greg Marcus, 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, operator, and good morning and welcome to our fiscal 2023 first 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 first 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 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 stakeholders. You should look at 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 of adjusted EBITDA to the nearest GAAP measure is provided in today's release. All right. With that behind us, let's begin. This morning, I'll start by spending a few minutes sharing the results from our first quarter with you and I'll discuss our balance sheet and liquidity. I'll then turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we are seeing ahead. We'll then open up the call for questions. This morning we reported another quarter of revenue growth as we continue to see demand improvement from the customers in both of our divisions. In theaters, a significantly better first quarter film slate with a greater number of wide releases drove significant attendance and revenue growth, leading to our overall improved results. In our hotel division, comparable hotel revenues grew as we continued to see year-over-year improvement in both occupancy and average daily rates. Consolidated revenues were $152 million in the first quarter, an increase of 15.1% compared to the prior year quarter. Consolidated adjusted EBITDA for the first quarter was $9.5 million, a 182% increase from the prior year's first quarter. We provided a breakdown of our first quarter numbers by segment in our press release. And as we will discuss today, our earnings growth in the quarter was driven by strong results from our theaters business. Below operating income, the one item to highlight is our first quarter interest expense decreased by approximately $1 million or 26% as a result of our lower overall debt level, which was approximately $72 million or 28% lower than the end of the first quarter last year. Turning to our segment results, our first quarter fiscal 2023 admission revenue increased 24% compared to the first quarter of 2022 with an attendance increase of 13.9%, driven by a significant increase in the number of wide release films debuting in the quarter which Greg will discuss further. The film slate for the quarter not only featured more wide releases, but included a more balanced mix of smaller and mid-sized films that exceeded our and industry expectations and attracted diverse audiences. According to data received from Comscore and compiled by us to evaluate our fiscal 2023 first quarter results, United States box office receipts increased 26.3% during our fiscal 2023 first quarter compared to U.S. box office receipts during fiscal 2022. While our performance lagged by approximately 2.3 percentage points, we believe this was attributable to the Omicron variant of COVID-19 more significantly impacting other regions of the country during the first quarter of fiscal 2022, resulting in a higher percentage of box office growth in 2023 nationally than our primarily mid-western markets. We believe this is supported by our strong results last year when we outperformed the U.S. average box office by 4.7 percentage points during the first quarter of fiscal 2022 as compared to U.S. box office receipts during the first quarter of fiscal 2019. Our average admission price increased by 8.8% during the first quarter of fiscal 2023 compared to last year. The increase in average admission price in the quarter was primarily driven by an increase in our 3D ticket sales for Avatar: The Way of Water, which like the fourth quarter of last year, accounted for approximately half of the admission per cap increase and represented 11% of tickets sold in the first quarter of 2023. In addition, strategic pricing actions taken during fiscal 2022 in response to inflation contributed to the balance of the increase in our admission per caps. Our average concession, food and beverage revenues per person at our comparable theaters increased by 5% during the first quarter of fiscal 2023 compared to last year's first quarter. The increase in our concession, food and beverage per caps was driven by three items. First, more customers bought concessions, food and beverage. We refer to this as our hit rate which we define as the ratio of concession, food and beverage transactions to box office transactions. Second, customers bought more, resulting in higher check averages. We believe customers are buying more as they make an experience of going to the movies and in part due to a new food and beverage menu introduced in the fourth quarter of last year, which we believe has positively impacted check averages. And third, prices were higher compared to the first quarter of last year as we are still seeing the impact of inflationary price increases implemented during 2022. Our top 10 films in the quarter represented approximately 74% of the box office in the first quarter of fiscal 2023 compared to 85% for the top 10 films in the first quarter last year. While there was an overall broader slate of films in the quarter, there was not a lower concentration among the performers at the top at higher film cost and the rest of the slate performed better than last year's first quarter, resulting in an overall film cost as a percentage of admission revenues that was essentially flat. Turning to our Hotels and Resorts division, revenues were $55.8 million for the first quarter of fiscal 2023, an increase of 6% compared to the prior year. The sale of the Skirvin Hilton late in the fourth quarter of fiscal 2022 had a $3.5 million negative impact on revenues in the first quarter of fiscal 2023 compared to the first quarter of fiscal 2022. Excluding this impact, comparable hotel revenues in the first quarter of fiscal 2023 increased $6.7 million or 13.6%. Total revenue before cost reimbursements at our seven comparable owned hotels increased over $4.8 million or 11.5% over the first quarter of fiscal 2022. Typically, the first quarter is impacted by our normal seasonal winter headwinds that are predominantly Midwestern portfolio of owned hotel properties. And while this winter was certainly no exception, demand was also negatively impacted by an unusual lack of snowfall that limited the ski season at our Grand Geneva Resort & Spa. We did continue to see improved conditions for group events compared to the first quarter last year. RevPAR for our comparable owned hotels grew 17.5% during the first quarter compared to the prior year. Breaking out the first quarter numbers for the comparable owned hotels more specifically, our overall RevPAR increase during the fiscal 2023 first quarter compared to fiscal 2022 was due to a 6.6% increase in our average daily rate or ADR and an overall occupancy rate increase of approximately 5 percentage points. Our average fiscal 2023 first quarter occupancy rate for our owned hotels was 50.8%. According to data received from Smith Travel Research, comparable competitive hotels in our markets experienced an increase in RevPAR of 25.6% for the fiscal first quarter of 2023 compared to the first quarter of fiscal 2022. Again, our competitors are playing a bit of catch up. We believe that after our owned hotels outperformed the comparable competitive hotels with significant market share gains during 2020, 2021 and 2022, the comparable competitive hotels have begun to catch up resulting in RevPAR growth rates that were higher than our owned hotel portfolio. With this said, the RevPAR index for our hotels remains in excess of 100, indicating that we continue to take more than our share of the market, while normalizing closer to our pre-pandemic index levels, which historically ran above 100. In addition, the impact of the slow ski season, which has a greater impact on room demand at Grand Geneva during the winter months allowed other hotels and our competitive set that are not reliant on the ski season to capture some market share during the quarter and resulted in our lower RevPAR growth. Finally, our banquet and catering operations continued to perform well. This is reflected in our food and beverage revenues, which were up 4.7% in the first quarter of fiscal 2023 compared to the prior year. The hotel adjusted EBITDA was negatively impacted by approximately $500,000 from the sale of the Skirvin compared to the first quarter of last year. As we compare our adjusted EBITDA to the first quarter of last year, it's important to point out that in the first quarter of 2022, our expenses benefited from operating the hotels below our targeted staffing levels due to labor shortages in the first half of last year. With an improving labor market, we have been able to sustain more appropriate staffing levels for the current demand and occupancy levels. Resulting in a negative impact to adjusted EBITDA from higher labor costs with increased staffing levels compared to the prior year first quarter. We continue to work through finding the right balance of labor and there were some pockets of labor staffing and efficiencies in the first quarter resulting from a softer first quarter than expected at some properties. With this said, while our staffing levels are higher than last year, they are below our pre-pandemic levels. It is also important to highlight that we have seen a significant improvement in customer satisfaction scores compared to our scores last year in the first quarter when we were short staffed and we believe customer satisfaction is key to the long term performance of our upscale at hotels and resorts. In addition, in the first quarter of 2022, adjusted EBITDA benefited from an all hotel buyout at one of our condo hotel properties. The event that doesn't happen every year and did not recur in the first quarter of 2023. Finally, the first quarter of 2023 was negatively impacted by unfavorable timing of maintenance and repairs compared to the prior year. Shifting to cash flow and the balance sheet, our cash flow from operations was a use of cash of $7.7 million in the first quarter of fiscal 2023, compared to cash provided by operations of $6.5 million in the prior year quarter, which included approximately $28 million of nonrecurring income tax refunds and government grants. Excluding the one-time benefit from receipt of these items in the prior year, cash flow from operations improved approximately $14 million or 64%. 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 capital expenditures during the first quarter of fiscal 2023 were $9.5 million compared to $3.1 million in the first quarter of fiscal 2022. A large portion of our capital expenditures during the first quarter were invested in renovation projects in the hotels business, with the balance going to maintenance projects in both businesses. At this early stage of the year, I have no reason to make any major adjustments to our previous estimate for capital expenditures for fiscal 2023 of $60 million to $75 million, recognizing that the timing of several of our planned expenditures are still just estimates at this time. We are still finalizing the scope and timing of various projects and the actual timing of these projects will impact our final capital expenditure number for the year. We will update our capital expenditure estimates as the year progresses. We ended the first quarter with $10 million in cash and over $223 million in total liquidity with a debt to capitalization ratio of 30% and net leverage of 2.1 times net debt to adjusted EBITDA. We continue to believe in maintaining a strong balance sheet with a manageable amount of debt, including owning the majority of our assets. We view the strength of our balance sheet as a strategic advantage that provides flexibility and allows us to move quickly to invest in growth for the long term when actionable opportunities are identified. With that, I will now turn the call over to Greg.

Thanks, Chad, and good morning, everyone. Today is May 4, a very important date to Star Wars fans out there because, as they say, may the fourth be with you. We entered the year with a plan for growth and with the optimism that 2023 was expected to deliver another year of improvement in our businesses. During the last couple of years working through the pandemic, the pace of progress between our two businesses has been different and changes from quarter-to-quarter. Throughout 2022, our hotels division led the recovery back to pre-pandemic revenue levels and delivered a record year, while our theater division had an extended recovery that continued into 2023. The first quarter that we are reporting today continues to make year-over-year progress, and we're pleased to be sharing these results with you. I'll start with theaters. Chad went over the numbers with you, including our continued significant increases in per person revenues. As we shared with you on our last call, our theater division got off to a much stronger start than last year with higher attendance driven by a significantly stronger film slate led by carryover, Avatar: The Way of Water and Puss in Boots: The Last Wish. We were pleased to see the quantity of wide release films with exclusive theatrical windows increase significantly with 21 wide releases in the first quarter of fiscal 2023 compared to 12 in the prior year's first quarter. Wide release films are what really drives our theater business. And we've talked in the past about the importance of having a more consistent cadence of new theatrical wide releases to rehabituate audiences to movie-going. This year's release calendar started a run of more steady weekly theatrical releases that began earlier in the year compared to the first quarter of last year. It was also helpful that a number of films outperformed industry expectations for both their openings and their overall runs. We were particularly thrilled to see this outperformance come from a variety of genres and mid-sized films, including Megan, A Man Called Otto, 80 for Brady and Cocaine Bear. Having a balanced film slate that includes a healthy portion of box office coming from these mid-sized films is critically important to the overall ecosystem of film entertainment. Chad shared that our admission revenues per person grew nearly 9% year-over-year, half of which was attributable to an increase in 3D ticket sales driven by Avatar. I'd like to provide an update on our various strategic pricing initiatives that contributed to the other half of the admission per cap increase in the quarter and those initiatives that we expect will impact per caps throughout 2023. As we approach ticket pricing, we're always trying to balance supply with demand to optimize price and maximize attendance. Our company has a long history with revenue management in the hotel business where we are essentially pricing rooms dynamically every day, also known as delivering the right price to the right customer at the right time. We try to apply that philosophy to our theater business. While we don't go as far with dynamic pricing in our theater business, over the last nine months we've made several adjustments to pricing for peak demand periods, while also continuing to provide discounts for our value-oriented customers. These changes include premium pricing with higher ticket prices on holidays and weekends as well as lower ticket prices on certain weekdays such as Student Thursday and, of course, our hugely popular and newly rebranded Value Tuesday. We led the industry in 2013 when we launched our first Tuesday discount program known as $5 Tuesday. The concept was simple. Approximately 50% discounted ticket on a weekday with otherwise low attendance with the goal of appealing to value-oriented customers who stopped coming to the movies at our regular prices. To make it an even better deal, we provided a free complementary size popcorn, but we quickly discovered that there was a significant group of price-sensitive customers who stopped coming to the movies or never came at all who have become regular moviegoers at this price point, and it became an important component of our customer base. I'm proud to say that we've been committed to our value-oriented customers since the launch of our Tuesday discount program. And we held the Tuesday ticket price at $5 for a long time, nearly 10 years. Last year's inflation put pressure on our costs across the business. We started to explore how to adjust our Tuesday pricing while still providing a great value for our customers and making the program even better. We tested several different Tuesday changes in different markets beginning in October last year, and we were pleased to roll out our new value Tuesday program on March 28. Our new program features $6 admissions for members of our free to join Magical Movie Rewards loyalty program, $7 admissions for non-loyalty customers, 50% of surcharges for our UltraScreen and SuperScreen premium large-format tickets, and perhaps, most importantly, 20% of all concessions, food and nonalcoholic drinks for MMR loyalty members. Instead of a small free popcorn, which appeals to many, but not all, our customers can now enjoy all of our great menu items from pizza to burgers, sandwiches, wraps, wings and traditional concessions at a 20% discount on Tuesdays. Whether the customers pick up their order from the concession stand or have it delivered to their recliner seat in-theater dining, they now can try all of our great food options at a great value. We believe that the expansion of Tuesday discounts to our entire food menu provides a more affordable offering that will increase the number of customers who are buying concessions, food and beverages and also increase how much they're buying with the goal of increasing our overall F&B per caps. While our new Value Tuesday program launched on the last Tuesday during the first quarter, in the week since its launch, the results have been positive as we expected from our pilot tests, we have not seen a negative impact on attendance or market share as a result of the admission price changes, and we're seeing positive impacts on our per caps. Anecdotally, customers have been pleasantly surprised when they learned of our new expanded discounts on food and beverage. As we look ahead, the second quarter in our theater business is off to a great start. And of course, I have to start with the Super Mario Brothers movie, emphasis on the word Super. It's a great film that has blown away all expectations, and it has played exceptionally well in our circuit with family audiences. Beyond just this smashing success of Mario, April has continued the recent trend of a more balanced, steady diet of wide release films across several genres with Dungeons & Dragons: Honour Among Thieves, Air and Evil Dead Rise all exceeding expectations. Last week, Chad and I were with our theater team at CinemaCon, and there were a couple of key observations that we came away with. First, there was a significant increase in the excitement and energy around theatrical exhibition overall. The momentum in our industry feels much more positive than it did a year ago or even just a couple of quarters ago. And our studio partners delivered a message that reaffirmed the importance of theatrical exhibition to the overall filmed entertainment ecosystem and our role in elevating their content. We are encouraged by the additional releases that have been added to the film slate for 2023 in the recent months, and we're projecting 100 to 110 wide release films for the year. Second, we got a closer look at the film slate for the rest of 2023 into 2024. And based on what we saw, we are really excited with what's coming. There really is going to be something for everyone from action films like Fast X, Indiana Jones and the Dial of Destiny and Mission: Impossible - Dead Reckoning to family and animated films like The Little Mermaid, Elemental and Haunted Mansion, superheroes like The Flash, Spiderman across the Spiderverse, Guardians of the Galaxy Volume 3 opening this weekend, plus so many more in genres like comedy, romance, drama and horror. We believe it's going to be a great summer with films that will continue to bring audiences back to the theaters. Shifting to our Hotels and Resorts division. You've seen the segment numbers and Chad shared some additional detail, including the bridge from our reported results to our comparable hotel results following the sale of the Skirvin hotel late last year. Given that most of our company-owned hotels are located in the Midwest, we typically lose money in the division during the winter months and the first quarter of fiscal 2023 was no exception. Add the winter without snow in our neck of the woods and you get a very disappointing ski season. So we certainly had some challenges in hotels for the quarter that the team worked hard to navigate through. There are a few highlights in the quarter that I would like to point out. Overall, revenue before cost reimbursements at our comparable properties grew over 11% compared to the prior year. We continue to see strong average daily rates and improving occupancy. RevPAR grew at all seven of our comparable owned hotels with average daily rate growth at all seven hotels and occupancy growth at five out of seven hotels, resulting in overall RevPAR growth of 17.5%. As Chad mentioned, while we underperformed the RevPAR growth of our competitive sets, when you dig into why, it was ultimately because the occupancy at our hotels recovered faster in 2022 than the competitive hotels in our markets. In other words, competitive hotels in our markets were able to grow occupancy more than us this year compared to last year because of how far behind they were in our occupancy rates last year. We still feel very good about the performance of our assets in their markets and their ability to take more than their share of the market. Group business in the quarter continued to grow over the prior year, particularly midweek and the bookings continue to look good. Our group room revenue bookings for the remainder of fiscal 2023 are running ahead of where we were at the same time last year. Banquet and catering pace for the remainder of fiscal 2023 is similarly ahead of where we were at this time last year. As we prepare to renovate the meeting and banquet space at Grand Geneva this year, we feel good about the outlook for group business. According to a recent Expedia survey, 71% of meeting planners surveyed indicated group travel is more important now than pre-pandemic. We believe our properties will be well positioned to capitalize on this trend. Leisure travel, which has been so strong for our owned hotels since the beginning of the pandemic, did show some potential signs of softening. This is not particularly surprising given the cold winter and wet spring we experienced in the region, but we will continue to watch closely for further indicators of broader changes in leisure demand. Finally, Chad mentioned our investments in the quarter in renovations in our owned hotels. Yesterday, we announced the renovation and redesign of Grand Geneva Resort & Spa’s 358 guest rooms will complete in time for Memorial Day weekend at the end of this month. This is the third investment in a series of recent extensive renovations for the resort, which included a lobby and lobby lounge renovation plus the launch of a 60-seat outdoor dining venue in 2021, completely new guest room bathrooms and heating and cooling for guest comfort in 2022. And now, newly transformed guestrooms and suites featuring a warm contemporary design. Starting this week, all guests checking in will enjoy the newly redesigned rooms. In the coming months, we will finish this phase of the resort renovation with redesigned meeting and event spaces. I've talked in the past about our special hotel assets that performed so well with leisure, group, and business travel customers. Grand Geneva is a truly special asset that has appealed directly to the leisure traveler that attends a midweek conference and stays for the weekend. We are thrilled to complete this project and open the refreshed rooms in time to deliver an exceptional experience to our guests this summer. Finally, I would like to once again express my appreciation for our dedicated associates at the Marcus Corporation. Their outstanding work and commitment to serving our customers is responsible for our success, and we appreciate all that they do every day. They are our most important asset. So, on behalf of our Board of Directors and our entire executive team, thank you to all of our associates. And with that, at this time, Chad, and I would be happy to open the call up for any questions you may have.

Thank you. Our first question today comes from Eric Wold from B. Riley Securities. Please go ahead, Eric. Your line is now open.

Thank you. Good morning, everyone. I have two questions regarding the hotel segment. When you mentioned that competitive hotels in your market are beginning to catch up with the gains you've made over the past two to three years, what are you observing as a consequence of that in your market? Is the overall demand increasing sufficiently to allow you to make necessary adjustments in pricing or marketing to respond to this changing competitive environment?

No, I don’t think so. We are not lowering our prices to stay competitive. We have been consistent with our pricing philosophy. One advantage we've had is how we operated during the pandemic; we made a conscious effort to open and conduct business as early as possible, which allowed us to keep our teams in place when other hotels in our markets were closed for much longer. This gave us a competitive edge. Historically, we've been able to make investments during downturns and perform better because of our balance sheet structure, and this situation is no different. As things improved, we emerged ahead, though there is some catching up to do. Ultimately, we still end up ahead in market share, even if there is some catching up required.

Yes, Eric, I would just add, it's not really changing what we're doing. When you think about our ADR increase, all seven of our hotels grew ADR in the quarter. And we still continue to grow occupancy at five out of the seven for the division overall. So we're still growing. It's just the other competitors in our markets have more occupancy to fill, but we're still leading the market.

Got it. That's helpful. After the sale of the Skirvin hotel in December, could you provide a better sense of the general time frame for when the other hotels might face spending decisions? This will help us understand when we may or may not see an increase in spending that could impact the model.

Yes. So we've got a couple of others that we're looking at, Eric. And I would expect sometime mid to late summer, we'll have a real good sense on what the timelines on those projects look like whether or not we're going to be moving forward with them. We're still trying to do everything that we can to get cost firmed up to get other external support, frankly, for some of these projects. And so, we're working through that dynamic and that takes some time. But we'll have more to say, we hope, in the next couple of quarters.

Got it. And I guess to follow up on that, what is the main point on that? At this point, do you know kind of what the amount is likely to be on required on those properties and whether or not you think that spend, you'll get the ROI from it versus the sale? Or at this point, is that amount still a question mark?

I'll start, and then I'll let Greg comment. We have a clear understanding of the investment needed. The key consideration is whether the return on investment for the project justifies that investment, and how we can secure local support in certain cases to ensure these projects are viable.

We are allocating funds to our hotel business, but we can't determine the exact timeline for our investments yet as it depends on various external factors related to specific assets. These significant assets require certain levels of external support that may exceed our current balance sheet. I am referring to equity financing and public funding, and the outcomes of these will influence our decisions. If we decide not to proceed with a specific project, we may redirect that capital elsewhere, but that process could take some time, so we do not have a clear timeline at this moment.

Got it. Thank you both. Appreciate it.

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

All right. Good morning. You mentioned that Avatar was represented about or accounted for about half of the increase in admission prices. And I assume that's because it was tended to be viewed on PLF screens. So I was wondering if you could talk about the PLS share of the mix in the first quarter and how you think that would work in the following quarters.

Yes, that's right, Jim. So the half of the increase in the per cap was due to the increased mix of 3D ticket sales.

3D MPLS, that’s the word.

Yes, right. So the half represents 3D. The overall PLF mix this quarter was actually a couple of points lower than it was last year in the quarter. And when you look back at the mix of films with Spider-Man playing into Q1 last year, that's really why. Though we're not talking about big changes. So our - I'm not going to give our exact PLF percentage of total ticket sales, but that's generally been pretty stable because we've built out the number of PLFs and done that in most of the places where we can do it. We added one PLF screen in the first quarter this year. We continue to look at are there other opportunities in the circuit to add PLFs, but I don't expect big step function changes in our PLF composition like we were building pre-pandemic.

Okay. So were you charging an up charge for both PLF plus 3D in the ticket pricing?

The change in the percentage of PLF in our total ticket mix was not significant. The main contributor to the increase was 3D, which accounted for half of it.

Okay. Thanks for clarifying. I'm sorry, Greg, were you going to say something?

Well, I was just going to say, what it does reflect is, we have probably one of the more significant installed bases of PLFs in the industry relative to size. And as there's been a move to customers wanting to experience that way, it's been to our benefit.

Okay. And the food and beverage increase that you're referring to, is this sustainable? Is this the new level we should assume in the future that you have customers used to this? And is that the way it should be and we can grow from there in terms of the purchases and more per order and higher prices?

I think if I had a crystal ball, I can't say for sure. There are various factors to consider, like whether an increase in customers and longer lines will affect per capita spending. The economy also plays a role, which can swing either way. Families might choose to dine out or go for a big meal at the movies. One thing we do know is that our change to Tuesday has positively impacted our per capita spending, and we believe that could offset other factors. As we improve our app, which is still in the early stages, it will enhance our ability to upsell and present last-minute offers. When there's a long line and a young concession attendant is busy handling a rush, they might not focus on upselling every customer. However, the app can seamlessly upsell. We're already starting to see signs of this increase, and while I can't predict everything that might happen, I truly feel it's a positive development.

Okay. And maybe finally, any sense what share of the Tuesday audiences are second in a week, some who went Friday, I think you've talked about that phenomenon. And does your rewards program provide data on all of these.

It does. We can see who's coming, though I don't have that information right now. Some theaters might know off the top of their heads, but I'm not aware of that number anymore. We know there was a measurable percentage that attended, which is one of the reasons we appreciate it. As we return to a more regular release schedule, we will have more opportunities for this as well. With fewer releases, there are simply fewer chances for people to attend multiple times. We've always recognized that this was a benefit for a specific audience. Our rewards program can track this, and with the recent changes to Value Tuesday and the discounts for program members, we anticipate more members joining. This will enhance our ability to track and improve our relationships with those customers.

All right. Thanks very much. Appreciate it.

Wait, the text came in. Maybe we can answer your question. Let's see what the answer was.

It was specifically about the upcharge for 3D in the UltraScreen, which is a $3 upcharge. So, it's an extra dollar in UltraScreen for 3D.

Maybe the answer on overlap will come in shortly. Thanks, Jim.

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

Thank you. Hi, Greg, Chad. Good morning, everyone. Congratulations on a solid quarter. I have a few questions. Greg, you mentioned CinemaCon, and I agree with Amanda that it was a big event this year. You highlighted some important discussions that emerged from the conference, but I would appreciate it if you could elaborate on the film product. This seems critical for connecting the current box office with pre-pandemic levels. Do you have any additional insights regarding the commitment from traditional studios in delivering wide releases or other film products? I know you've adjusted your projections for this year, and I’m interested in your thoughts on whether there’s enough in the pipeline to help us reach pre-pandemic volume levels for this year and next. Additionally, how do you view the streamers? It seems like you’ve been somewhat cautious about them. It looks like Amazon and Apple are making significant efforts this year to release films in theaters, including some major titles. I would like to hear your thoughts on that, and I have a follow-up question.

I will speak generally, and Chad can provide some specific release numbers. However, I’m not ready to celebrate just yet. We need to continue advocating for the value of theatrical releases as a vital part of the ecosystem. It’s encouraging to see key players acknowledge this importance, and the positive sentiment we’re experiencing is that many are expressing a desire for additional revenue. I would characterize this as a combination of affinity, awareness, and revenue. For those producing film content, it starts with the basic desire for more money—who doesn’t want that? That means placing films in theaters. Remember, in the past, traditional advertising primarily focused on recovering marketing costs, but it’s different now. Aside from generating revenue, there’s also increased awareness. When films appear in ancillary markets, they carry significance for viewers as they browse through their streaming options. People may recall a film and feel compelled to watch it again. Affinity is also crucial for any product. It’s about the memories associated with it; for instance, families have traditions of going to the movies together every month, which is important to them. Many have shared how significant movie outings were during the pandemic. Children won’t say they remember watching a film on a couch with their parents; instead, they’ll cherish the experience of seeing it in a theater for the first time. It’s about the connection formed during that outing—holding hands, sharing popcorn—which is vital. These elements are precisely what we observe at events like CinemaCon, where both traditional studios and streamers recognize their significance. This eagerness to participate is encouraging, and we must continue to advocate for this business model. While there are emotional reasons for appreciating theaters, I’ve outlined a solid business case for their continued importance. We will keep promoting this, and the increasing number of films entering the ecosystem reflects those efforts. Chad, feel free to share specific insights on this.

Yes. I mean just in the numbers. So as you probably noticed, we took up the guide on the number of wide releases a touch. We're now at 100 to 110. And I'd just say we tend to be a conservative bunch. So there feels like there's probably some upside to the range as we progress through the year, things seem to be dropping in this year more than they seem to be sliding out of the calendar year. So that's a very different feeling than last year. And from what we're here, what our film buying folks are hearing is there may be a few more things that hopefully dropping to the holiday period later in the year. So we'll see. But on the bridge back to pre-pandemic wide release numbers at the top end of the range at 110, you're starting to get within throwing distance of the 115 to 120 that we had before. So we're not there yet, but we're making progress. And when the streamers start to lay in incremental content, we're very encouraged. What helps, that I'd add to Greg's comments is when the films from the streamers perform well and overperform like Air did and continues to play really well in our circuit. I think that just hammers home the case as to why they ought to do this. So some of the other titles coming later this year, whether it's Napoleon or Killers of the Flower Moon, things like that, we're excited about how those films may perform to continue to persuade the value of the streamers of the value proposition.

Thank you, Greg. I value your insights. It seems that your theater count has declined this quarter, and I'm curious if that relates to the distinction between owned and managed theaters or your overall perspective on the matter. This decline appears to contribute to the ongoing trend of screen closures, which has seen about 5% of screens go dark since the pandemic. I'm interested in your thoughts on whether we have reached a turning point with these dark screens, considering whether the closures are temporary or permanent. Do you believe there are still more screens that need to be removed from the system? On the other hand, you have historically added significant value by acquiring theater networks and enhancing them with upgrades like recliners and improved food and beverage options, which has helped grow your overall EBITDA. While your theater count is decreasing right now, are you actively pursuing deals to acquire new theaters, especially with the positive momentum from events like CinemaCon and the support from studios and streaming services that suggest the theatrical experience will continue to thrive? Are you currently considering opportunities to increase your screen count rather than reduce it?

I will address the first part of your question regarding the contraction, and then Greg will cover the M&A aspect. We have recently closed a couple of locations—one during the quarter and one after. We continuously assess the performance of individual locations based on their financial results, attendance, local market competition, and the presence of our other theaters in the area. In these instances, we identified the theaters as underperforming and believed that, in one case, our customers would prefer to visit one of our more attractive theaters in the same market. We consider this process as pruning our portfolio to ensure we are making sound decisions. It's an ongoing evaluation. However, regarding those specific theaters, you should not expect them to reopen; those closures are permanent.

I understand your point, and I want to clarify that while some may believe many theaters will close, that isn’t likely to be the case. Landlords typically evaluate their properties, and unless a theater is truly obsolete or the land has a better use, it’s unlikely to close. Generally, these buildings are not easily adaptable for other uses. We've seen some reconfigurations in the past, but it’s not common for one type of tenant to seamlessly replace another. As leases are restructured, theaters tend to remain in operation. Even some of the potentially obsolete theaters are not going to disappear and won’t significantly impact national box office revenues since most of the earnings come from larger theaters. There isn't a considerable market share to gain where we operate. We are primarily looking to shift market share when we close our deals. Regarding mergers and acquisitions, there hasn't been substantial activity. We are monitoring situations where bankruptcy is involved, but it's challenging to pinpoint their status at the moment. If there are opportunities where landlords are seeking new tenants after rejecting current tenants, we would consider an acquisition if the terms are favorable.

I believe that one of the dynamics in the small space is that, since most of it is private beyond the large circuits, private circuits were significant beneficiaries when the grants and SVOD money came into play. They received substantial government funding, which provided them with considerable flexibility. Many are likely waiting to see how the situation develops and where it stabilizes. Some are just content being in the business. We've always noted that this is a sector where operations don't follow a standard pattern. It's not like typical buying and selling where something gets sold in five to seven years, as is common in private equity. These are often family-owned businesses that sell when it suits them. If there's no one available to run the business or someone wishes to exit, that is when selling happens. However, there may be individuals who feel that the recent experiences were challenging and are ready to act once things stabilize. The financial pressure isn't as significant as one might expect.

Regarding that specific asset, it is a strategic asset. We assess every asset daily, and we are currently evaluating that one. Positive developments are occurring in the market, particularly with the convention center expansion. However, at this moment, we are not ready to provide details about that asset. Nonetheless, it remains significant.

All right. Thanks gentlemen. Good luck.

Our next question comes from Ryan Hamilton from Morgan Dempsey Capital Management. Please go ahead. Your line is now open.

Hey, guys. Thanks for taking my calls. Since I'm kind of at the back of the line, most of my questions have already been answered. You've touched in the past about kid-friendly films being better for food and beverage concessions. Are you still seeing that with movies like Mario? And is that being magnified with the use of technology in your app?

Yes, we've experienced very strong food and beverage per caps in the last quarter we reported. While I haven't yet seen our April numbers since today is the last day of our fiscal April, I believe the trend is continuing based on regular reporting. One observation regarding family films is that families often share menu items, which can lower the per caps. However, we are selling more items, and our focus is on EBITDA and cash rather than per caps, so ultimately, it's a positive outcome.

Awesome. Awesome. Well, like I said, most of my questions have been answered. So I appreciate the time and may the fourth be with you. Thanks.

Thank you. Our next question comes from Chris Potter from Northern Border Investment. Please go ahead, Chris. Your line is now open.

Hi. Can you talk a little bit about what you think the real estate values might be of your hotels and owned theater properties. I ask because as a longtime shareholder is frustrating to see where the stock is trading, relative to how well the business is now doing and how close you are to getting back to 2019 levels. And I think that if people appreciated more how valuable your real estate holdings are, the stock would not be trading at such a discount to their market values. They might even be putting a 6% or 7% or 8% cap rate on your expected EBITDA. Anyway, anything you can talk to about what you think your real estate values might be would be helpful.

Yes, you're absolutely correct. This is a crucial point. While I can't provide a specific valuation estimate, I believe that our company warrants a sum of the parts analysis when investors evaluate it. Each part is significant. For instance, the hotel cash flow is clearly identifiable and has comparable multiples. The theater real estate potential can be assessed by looking at our overall cash flow and determining the necessary rent coverage, then applying the appropriate multiples to that cash flow. This analysis is indeed the right approach, and I share your viewpoint. We need to improve our narrative in conveying this information, and we will continue to engage in this discussion because you are correct.

Yes. The only thing I'd add on to that is that from time to time, we do sell the hotel assets, and we sold the hotel in the fourth quarter, providing a data point on valuation for our hotels are worth. And there's a slide in our investor deck that talks about that. So I agree with Greg, certainly that some of the parts and using different multiples for our two businesses is the right way to look at it. The other thing I'd add is, because we own a significant portion of our theater real estate, we have superior free cash flow generation. And as I think our business continues to improve and our free cash flow gets to a more normal run rate on an LTM basis as we go through this year, evaluating the company on a free cash flow basis is something that investors ought to be looking at.

Okay. Thanks for that. Just one other question. So given where the stock is trading, the discount is trading at relative to those levels we were talking about, why wouldn't you be buying back stock now? I mean it's the equivalent of buying your theater and hotel properties at a huge discount to their market value.

Yes. So good question. With something we continuously reevaluate in returning capital to shareholders. As you know, we turned on the dividend back with the third quarter last year. We've paid three of those now. And as we get through a year where we have a significant CapEx that's going and being reinvested in the business and projects that we believe have very high ROI to benefit our shareholders for the long term as that starts to add and as the business continues to recover and we generate more free cash flow, we will continue to look at the right mix of dividend and potentially share repurchases depending on where the stock is trading. So it will be an ongoing item that we'll continue to evaluate.

Okay. Thanks, guys.

Before we get to Chad's question, I want to clarify something I mentioned earlier about the 3D aspects. In our PLFs, there's a $3 upcharge for the Ultras and an additional $3 for the regular stream 3D, which means a total of $4. We were discussing the benefits of 3D in relation to Avatar. Ultimately, I believe this isn't a significant topic since 3D is not our core business; it's more of a unique event that occurs occasionally. I wouldn't recommend basing future projections solely on 3D, and I just wanted to ensure that was clear.

All right. Well, we would like to thank you once again for joining us today. If your schedule allows, please feel free to join us in person or via our webcast for our Annual Shareholder Meeting next week, Thursday, May 11, at the Pfister Hotel in Milwaukee. We look forward to talking to you once again in early August when we release our fiscal 2023 second quarter results. Until then, thank you, and have a good day.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect your line.