Marcus Corp Q2 FY2023 Earnings Call

Good morning, everyone, and welcome to the Marcus Corporation Second Quarter Earnings Conference Call. My name is Brica, and I'll be your moderator 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, 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, sir.

Good morning, and welcome to our fiscal 2023 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 2023 second 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 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 second quarter with you and 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 and earnings growth with healthy customer demand and solid operational execution in both of our divisions. In theaters, strong increases in both our average ticket price and average concession revenue per customer coupled with a film slate featuring an increased number of wide-release films drove the division's growth. In our hotel division comparable hotel revenues grew and we continued to see year-over-year improvement in both occupancy and average daily rate. I'll start with our consolidated results. Total revenues were $207 million in the second quarter, an increase of 4.3% compared to the prior year quarter. Operating income was $20.8 million in the second quarter, an increase of 10.1% compared to the second quarter of fiscal 2022. Below operating income the one item to highlight is our second quarter interest expense decreased by approximately $1 million or 24% as a result of our lower overall debt level, which was approximately $35 million or 16% lower than the end of the second quarter last year. Net earnings for the second quarter were $13.5 million, an increase of over 50% compared to the second quarter last year. Finally, adjusted EBITDA for the second quarter was $38.7 million, a 3.7% increase from the prior year's second quarter. We provided a breakdown of our second 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 both of our businesses partially offset by the negative earnings impact of our sale of the Skirvin Hilton late last year. Turning to our segment results. In Theaters, our second quarter fiscal 2023 admission revenue increased 9.4% compared to the second quarter of 2022 with strong growth in our per capita revenues offsetting a decrease in comparable theater attendance of 3.8%. The decrease in attendance primarily resulted from lower performances from the top three blockbuster films this year compared to the top three films last year during the second quarter which was led by Top Gun: Maverick partially offset by an 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 once again included a more balanced mix of smaller and midsized films. According to data received from Comscore and compiled by us to evaluate our fiscal 2023 second quarter results, United States box office receipts increased 13.6% during our fiscal 2023 second quarter compared to US box office receipts during fiscal 2022. Our comparable theater admission revenue growth of 9.7% lagged by approximately 3.9 percentage points, which we believe was attributable to a film mix that was more appealing to audiences in other parts of the U.S. outside of our primarily Midwestern markets. We also believe that a dry May and June with few rainy days in the Midwest kept customers outside enjoying early summer weather and negatively affected attendance. Our average admission price increased by 14.2% during the second quarter of fiscal 2023 compared to last year. The increase in average admission price in the quarter was primarily driven by; one, the favorable impact of full schedule pricing actions taken during fiscal 2022 and at the beginning of 2023 in response to inflation; and two, by the impact of the changes to our Value Tuesday promotion effective at the end of the first quarter of this year. Looking forward, as we have now lapped the one-year mark of the pricing changes we implemented in mid-June last year, we expect our average admission price growth rate to moderate in the third quarter this year, while still growing from the impact of pricing changes implemented at the beginning of 2023 and the value Tuesday pricing changes. This was the first full quarter of the Tuesday changes so we will continue to see this benefit to average admission price through the first quarter of next year. Our average concession food and beverage revenues per person at our comparable theaters increased by 7.3% during the second quarter of fiscal 2023, compared to last year's second quarter. The increase in our concession food and beverage per caps was driven by higher check averages including the impact of higher menu prices compared to the second quarter of last year, as we are still seeing the impact of inflationary price increases implemented during the last year. In addition, the changes to our Value Tuesday promotion, which replaced a free complimentary-sized popcorn, with a 20% discount on all food and non-alcoholic beverages, positively impacted per caps, as our customers bought more items with the 20% discount. We also expect our average concession food and beverage revenues per person to grow at a more moderate rate beginning in the third quarter this year. Our top 10 films in the quarter represented approximately 82% of the box office in the second quarter of fiscal 2023 compared to 84% for the top 10 films in the second quarter last year. While there was an overall larger slate of films in the quarter, there was not a lower concentration among the top performers at higher film costs, resulting in an overall film cost as a percentage of admission revenues that was essentially flat. Theater division adjusted EBITDA of $31.3 million during the second quarter of fiscal 2023 increased 8.7% compared to the prior year second quarter on our higher revenues. Finally, during the quarter we closed three underperforming theaters as part of our ongoing evaluation of individual theater performance and our footprint. The closure of these locations is accretive to earnings and cash flow and the results of these theaters are excluded from our comparable theater financial metrics that I discuss today. Turning to our Hotels and Resorts division. Revenues were $70.1 million for the second quarter of fiscal 2023, an increase of 1.5% compared to the prior year. The sale of the Skirvin Hilton late in the fourth quarter of fiscal 2022 had a $4.4 million negative impact on revenues in the second quarter of fiscal 2023, compared to the second quarter of fiscal 2022. Excluding this impact, comparable hotel revenues in the second quarter of fiscal 2023 increased $5.5 million or 8.5%. Total revenue before cost reimbursements at our seven comparable owned hotels increased over $4.1 million or 7.2% over the second quarter of last year. RevPAR for our comparable owned hotels grew 9.1% during the second quarter compared to the prior year. According to data received from Smith Travel Research, comparable upper upscale hotels throughout the United States experienced an increase in RevPAR of 4.8% during our second quarter compared to the second quarter of fiscal 2022 indicating that our hotels outperformed the industry by approximately 4.3 percentage points. When comparing our RevPAR results to comparable competitive hotels in our markets, the comparable competitive hotels experienced an increase in RevPAR of 10.1% for the second quarter of fiscal 2023 compared to the second quarter of fiscal 2022, indicating that our hotels underperformed their competitive set by approximately one percentage point. As we discussed on our first-quarter call, 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 are catching up, resulting in RevPAR growth rates that were higher than our owned hotel portfolio. In other words, competitive hotels in our markets had more opportunity to grow year-over-year off a lower base last year. Breaking out the second quarter numbers, for the comparable owned hotels more specifically, our overall RevPAR increase during the fiscal 2023 second quarter compared to the second quarter of fiscal 2022 was due to a 4.5% increase in our average daily rate or ADR and an overall occupancy rate increase of 2.9 percentage points. Our average fiscal 2023 second quarter occupancy rate for our owned hotels was 68.2%. Finally, our banquet and catering operations continued to perform well. Food and beverage revenue at our comparable owned hotels was up 6.4% in the second quarter of fiscal 2023 compared to the prior year. Hotel division adjusted EBITDA was negatively impacted by approximately $900,000 from the sale of the Skirvin, compared to the second quarter of last year. Excluding this impact comparable hotel adjusted EBITDA in the second quarter of fiscal 2023 increased $400,000 or 3.8% on higher revenues. Shifting to cash flow and the balance sheet. Our cash flow provided by operations was $55 million in the second quarter of fiscal 2023, an increase of $6.3 million or 12.9% compared to the prior year second quarter. Total capital expenditures during the second quarter of fiscal 2023 were $7 million compared to $9.8 million in the second quarter last year and were impacted by timing of cash payments for projects compared to the prior year. A large portion of our capital expenditures during the second quarter were invested in the guest rooms renovation at the Grand Geneva Resort & Spa, with the balance of capital expenditures going to maintenance projects in both businesses. Based on our current expectations for the timing of capital projects, we now expect capital expenditures of $40 million to $50 million for fiscal 2023, a decrease from our prior estimate of $60 million to $75 million. The decrease in our estimate is the result of a change in timing for a potential hotel renovation project, which we continue to evaluate and we no longer expect to begin in fiscal 2023. We ended the second quarter with $44.6 million in cash and over $265 million in total liquidity with a debt to capitalization ratio of 28% and net leverage of 1.5 times net debt to adjusted EBITDA. Our balance sheet remains strong, which we view 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. Good morning, everyone. In our last quarterly update, we anticipated a solid second quarter. The Super Mario Brothers Movie gave our Theater division a strong start, and we had a promising lineup of films for the summer. Our Hotels division was ready to provide excellent service as we entered the busy summer travel season in the Midwest. I'm pleased to announce that, excluding the divestiture in the Hotel division, both businesses contributed to our revenue and earnings growth this quarter. Our execution has been robust, and despite some surprises both good and bad, our teams were prepared for returning customers this summer. The second quarter we are reporting today continues our trend of year-over-year growth, and we are excited to share these results with you. Let’s begin with Theaters. Chad went over the figures, including our significant increases in per person revenues, with admission revenues per person up over 14% year-over-year. As mentioned in our last call, we expected our strategic pricing initiatives to positively influence our per capita admission revenue and total admission revenue throughout 2023, and they certainly have. The effects of our changes to the Value Tuesday promotion were substantial during the quarter, with admission revenue benefiting from pricing adjustments made late last year and at the start of this year. We were careful and thorough in implementing these pricing changes, testing different versions before launching our new Value Tuesday program in late March. I’m happy to report that our alterations to Value Tuesday are generating the expected results. First, we believe these changes have not significantly harmed Tuesday attendance. With $6 admission for members of our Magical Movie Rewards loyalty program and $7 for non-members, we still offer a notable discount on Tuesdays compared to regular pricing throughout the week and provide great value compared to other entertainment options. We remain dedicated to our value-oriented customers, and we believe our new Value Tuesday offering continues to provide a great deal for them while enhancing the program further. Secondly, our new 20% discount on all concessions, food, and non-alcoholic beverages for MMR loyalty members on Value Tuesdays has led to increased sales per cap, showing a 7.3% rise in the second quarter of 2023 compared to the same quarter last year. Customers are not just opting for popcorn instead of the free complimentary-sized popcorn from our old Tuesday program; we are also witnessing an uptick in sales of other food and beverage items now offered at a discount, enhancing overall concession purchases. We believe the expansion of discounts to our entire food menu offers a more affordable option, increasing both the number of customers purchasing concessions and the amount they buy, ultimately aiming to boost our overall food and beverage per caps. Despite attendance dipping this quarter compared to last year due to weaker performances from top films, the number of wide releases has improved significantly, rising from 19 last year to 29 this year. While not all wide releases perform equally, this quarter brought forth some pleasant surprises alongside a few disappointments. Such fluctuations are typical; some films perform better than anticipated, while others do not. More importantly, this quarter featured a consistent supply of two or more wide releases each weekend, which has helped reacquaint audiences with the moviegoing experience. Looking ahead, the third quarter in our Theater division has started strong with an unexpected success; Sound of Freedom has exceeded expectations and performed well in our Midwest markets, alongside solid performances from Mission: Impossible - Dead Reckoning Part One and the cultural phenomenon of Barbie and Oppenheimer, which resulted in the fourth largest domestic weekend box office ever. We were well-prepared for these films, and I’m particularly proud of how our team generated excitement in our theaters, from vibrant lobby displays to exclusive early access screenings at 65 of our locations with bars and lounges. Our dedicated associates provided great experiences that created excitement and buzz around these films. The combination of Sound of Freedom and Mission: Impossible opening alongside Barbie and Oppenheimer in a single week led to our busiest week since Star Wars: The Rise of Skywalker’s opening in December 2019. The successful performance of these films highlighted an audience demand for diverse, non-superhero narratives, reaffirming the significance of theatrical exhibition. Furthermore, I want to emphasize how our investments in premium large format screens have given us a considerable operational advantage. We have a PLF screen at 80% of our theater locations, and multiple PLFs at 73% of those locations. This allowed us to show both Barbie and Oppenheimer on two or more PLFs in the same theaters during the opening weekend, optimizing our PLF box office. Thanks to our proprietary UltraScreens and super screens, we enjoyed the flexibility to schedule showtimes in our single PLF locations without needing to choose between films, allowing us to showcase both. Consequently, 39% of our Barbie box office and 50% of our Oppenheimer box office came from PLF screens during the opening weekend, a significant advantage for us. According to Comscore data, on opening weekend, our circuit led the industry in gross box office PLF percentage for Barbie by a factor of over two times and ranked second among all US exhibitors for Oppenheimer. As we consider the film slate for the remainder of the year, there is much to be excited about, but we recognize that the writers' and actors' strikes have disrupted film production and may influence future release schedules. The timing of any resolution and the ultimate impact of the strikes remain uncertain. However, I want to clarify that this is not about doubt over whether people want to go to theaters. Audiences want to see movies; this is a supply chain disruption rather than a drop in demand. While the strikes are inconvenient and we cannot yet gauge their impact's extent, we see this as a short-term dispute that will likely be resolved. In the long view, I find reassurance in the successful examples of Mario, Spider-Man, Barbie, and Oppenheimer, which illustrate the significance of theatrical releases in our industry. Shifting to our Hotels and Resorts division, you've seen the segment numbers, and Chad provided some additional detail, including the transition from our reported results to our comparable hotel results following the sale of the Skirvin Hilton last year. We were glad to welcome summer after Memorial Day, marking the start of our busy season. This quarter, our overall revenue before cost reimbursements at comparable properties grew over 7.2% year-over-year. We're witnessing strong average daily rates and improving occupancy. RevPAR increased at all seven of our comparable owned hotels, with six out of seven seeing growth in average daily rates and four in occupancy, resulting in an overall RevPAR growth of 9.1%. While we outperformed typical upper upscale RevPAR growth, we fell behind our competitors' RevPAR growth due to our hotels recovering occupancy faster in 2022 than the competitive hotels in our markets. We are still confident about our assets' performance and their ability to capture a significant market share. Group demand has been climbing, with weekday and weekend growth pushing our group rooms revenue to about 40% of our total revenue in the second quarter of fiscal 2023, up from approximately 38% a year ago, although this remains below pre-pandemic levels. Positive group booking trends are encouraging; our group room revenue bookings for the remainder of the fiscal year are around 8% ahead of last year’s figures, and group pace for fiscal 2024 is running about 7% ahead compared to fiscal 2023. Additionally, banquet and catering metrics for the rest of fiscal 2023 and 2024 show positive trends as well. The industry's outlook for group events remains robust, with an industry data provider reporting a 30% increase in June 2023 meeting and event volume compared to June 2022. Leisure demand is also strong, especially on weekends, while showing signs of normalizing to pre-pandemic levels on weekdays following last year's record demand due to extended leisure stays. Lastly, Chad mentioned our investments in renovations at our owned hotels. We completed the guest room renovation at the Grand Geneva Resort & Spa just in time for peak summer season, and customer feedback has been excellent. In June, our team quickly began the major renovation of The Pfister, starting with the meeting space. We are renovating the ballrooms sequentially to minimize disruptions to operations, and I can tell you that the restored 130-year-old Imperial ballroom is stunning. This is just the start of what’s to come at The Pfister. After renovating the meeting space this fall and winter, we will renovate the guest rooms in the historic tower, followed by lobby renovations next spring. Before opening the call for questions, I want to thank everyone who works tirelessly to make extraordinary experiences for our guests. We emphasize our investments in our business but must remember that our people are our most valuable asset, and they proved that once again this quarter. With that, Chad and I are ready to take any questions you may have.

All right. Wondering, a couple of things. First, Greg, do you have any sense of how linked the writers and actors strike actions might be? Like is one dependent on another, or are they totally separate actions at this stage, would you say?

I really don't have a clear understanding of the mechanisms they are dealing with, especially regarding internal connections. I can speak about the external effects. For instance, when the writers went on strike, there were no late-night talk shows. Although shows like the Today Show and Good Morning America provided other platforms for actors to promote their films, late-night slots were unavailable. Consequently, actors stopped promoting their films altogether, making the absence of late-night shows less significant. Even if late-night shows return, it won't have much impact. They announced today they are returning to negotiations, which seems related to the 100-day force majeure clause, but I was trying to research it and still don't fully grasp it.

I was just wondering if they are issues that get resolved together or if they are just separate problems that happen to coincide.

Above my pay grade.

In terms of how they impact you?

I just don't know.

Well, okay. A couple of other things. How would you – well, what was the impact on your average ticket price per person in July, as the third quarter began, from this preponderance of like high share from PLF? Is it a noticeable impact? I assume, it would be. Is there a way to quantify it?

Yes. I would say, Jim, for us we've had this large PLF footprint and the flexibility that Greg talked about in his remarks in the past. And so, if you're comparing to prior periods, we benefited from having that ability in our prior results. It just really stood out this quarter because you have two big films opening on the same weekend, and it gave us that incremental flexibility. I don't have a quantified impact here in July. We're still reviewing the July results. But look, net it's favorable.

But yes, to your point Chad, our PLF percentage tends to lead the industry in terms of relative performance compared to overall box office. And that's not a new impact.

Okay. And a couple of other things. One with the Magical Movie Rewards, the way you've structured the $6 and $7 pricing obviously is sort of, pushing people to join the club. Are you getting a big uptick in subs? And are there other key benefits aside from the 20% in the dollar discount relative to what you are offering, with the club at this point, because I know you're using that information as data to drive some promotions. So, anything else to say about that?

You are correct. Those are the two main advantages. However, there are additional benefits. If you're a member of the club, you'll receive discounts. We utilize the market to provide discounts, and some of them relate to screenings. Club members get priority, and we are constantly exploring how to highlight the benefits of being a club member.

Yeah. Jim...

And on the hotel side, I'm sorry.

Go ahead, Jim.

Go ahead.

No, I was just saying on the question on MMR, we certainly have seen an increase in the number of MMR sign-ups as a result of the Tuesday changes. I believe the current number is around $5.5 million. I'll circle back on that as we go through the call here. But that's up from roughly about $5 million at the beginning of the year.

Could you explain the disruption at The Pfister and other properties as they undergo renovations? There's never an ideal time for such projects, but will there be a way to assess how these renovations will affect short-term results as they progress?

We are always looking for ways to minimize the seasonal disruptions in our businesses. We have a measurable figure to gauge our performance, but we believe we can reduce the impact significantly. For instance, with The Pfister, during quieter periods, we manage renovations gradually, floor by floor, rather than all at once. For example, recently we renovated the ballrooms and only completed half of the seventh floor, which houses all the ballrooms, ensuring that at least one ballroom is always available for use.

And there's a similar impact just from scheduling on the ballrooms. And we try to do this out of peak season and do it around the gala season. So we're not displacing those events. So we've done this for a long time. Our team is very good at project management and working with our commercial teams to minimize that impact. I don't have a quantified expected impact from it for The Pfister, but we're doing it at our slowest period.

Maybe one last thing then. Do you also implement sort of selective price increases as you go through these renovations so that if somebody wants to stay in one of the newly renovated rooms they might pay a little bit more because of that premium aspect, or is there a different aspect to your pricing strategy then?

No. I mean, we're just looking at overall revenue management considering the current market, and we believe our rooms meet a certain standard. We're not differentiating between good rooms and bad rooms. We want all of them to meet a specific level. We are simply using revenue management tools to enhance our performance.

All right. Thanks very much.

Jim, just to close out on your earlier question it was 5.5 million MMR members at the end of the second quarter. And that compares to around $5 million at the beginning of the year.

Okay. Thanks very much, Chad. Appreciate it.

Hey, Greg, Chad, good morning, guys. Great result. Nice commentary this morning as well. I appreciate all of that. I think I'm good guys. Jim asked all my questions, Greg. Just kidding. A few more on top of Jim's just curious on July guys. You're seeing some of your peer set. You're seeing the numbers for the industry look pretty spectacular. It looks like on a sort of quarter-to-date we're sort of up 18%. Curious, how your network is indexing, obviously you had some challenges that you illustrated in the second half. I'm curious, if you feel like you're back to pace with the industry here. And how you're thinking about momentum, you see this sort of Barbenheimer effect. And if you think if there's going to be a follow-on momentum for additional films coming out. And if you think that's a motivation maybe for the studios to stick to plan here in terms of the pipeline for the remainder of the year versus some movement given the strike?

I'll address the first part and then let Greg comment on the second. We believe we are capturing our share, and thanks to our PLFs, we have benefited from a larger portion of the box office from the two major films released in July. All of these films performed exceptionally well in the Midwest, and we achieved record attendance. During the opening week of both films, we had over 1.1 million visitors from Friday to Thursday. The signs indicate that we are getting our fair share and participating in the box office effectively.

As for what the studios will do, I have no idea. I can only hope they are recognizing how impressive things are. We're not finished yet. While everyone is focused on Barbenheimer, The Sound of Freedom has caught attention and left some executives wondering where it came from. Plus, we have the Teenage Mutant Ninja Turtles set to debut, and it seems promising. There are still strong films out there. However, this recent success with Barbie isn't unprecedented. I don't want to exaggerate its significance for the industry, but it does illustrate what can happen with effective theatrical releases and marketing. Warner Bros. deserves credit for their exceptional marketing. They successfully captured public interest and created buzz for about a month, and it shows no signs of slowing down. You don't see this happening everywhere, so I hope others are taking note and thinking, "If we can achieve this, we will." Unfortunately, I haven't been invited to any strategy meetings.

Greg, how impactful was your Barbie promotion, do you think? You're kind of a legend now I think on TikTok.

Certainly. Here’s the rewritten earnings call remark: Fortunately, Mike, you and a few select analysts on this call understand what you're talking about, because most people over the age of 17 are not familiar with this. I want to mention that we’ve utilized TikTok. Joking aside, for those who haven’t seen it, please don’t feel pressured to look. Our social media team has been exploring various tactics to raise awareness for our business alongside the studios' marketing efforts. The team, particularly those focused on TikTok, has really engaged with it. I believe that among all exhibitors, we have the most unique approach to it. I trust their direction, because our major content often receives a million views. For a chain of our size, achieving between half a million to a million views on content is certainly beneficial to our operations. I will continue to invest in this strategy if it leads to increased foot traffic.

Nice. Yes. And if you continue to meet Ninja Turtles, Greg, Meg 2, The Nun and maybe Troll stand together would be good promo opportunities for you.

I thought…

No pressure.

All right. I guess last question. You were early with your dividend, which was a great indication of strong cash flows coming out of the challenging period with COVID. I'm curious about your thoughts on the dividend moving forward, especially considering there may still be some potential disruptions, but nothing compared to what you have faced. Also, I've noticed your CapEx is a bit lower this year. I'm interested in your plans regarding buybacks, debt reduction, or generally how you intend to manage your capital. Thanks.

Yes. Thanks for the question, Mike. Look the year has been trending really nicely along what we expected. And now we have a new event that's created some near-term uncertainty. But point taken, we're feeling really good about the balance sheet. And as we look at our capital investment in the business, yes, we have some major projects going on in the Hotel business. And the pull down of the CapEx guidance for the year doesn't mean that the projects go away. It's really a timing shift into 2024. So we're still focused on some of those internal investments. And then also – although, we haven't actioned anything yet working on opportunities for inorganic investments as those become available which we don't control the timing of, but we want to be ready for. So then we think about the dividend. And it's an ongoing discussion that we're going to continue to revisit each quarter. So stay tuned.

I will add to that. We evaluate our position every quarter, considering where to go next. We analyze the current work disruptions while keeping an eye on the overall picture for the next three years. We want to be confident in our actions without being swayed by short-term challenges, as that would be overwhelming. As we've mentioned before, our progress isn’t linear; we experience setbacks and advances, but ultimately, we are moving forward.

Chad just a follow-up on that inorganic comment. Can you add any color there? Is that more, I think, kind of M&A on the theater side are you starting to see more opportunities there, or is it just sort of your comfort level now given the rebuilding of the strength in your business and your forward outlook that's making you more curious?

Look we're seeing a few things that we're taking a look at. Nothing to announce today. But you do start to get a better picture long-term of what the pipeline looks like and things stabilizing. So we'll move on those things as opportunities become available, but nothing right now.

All right. Thanks guys. Good luck.

Thank you. Good morning, guys. I only have two questions. I'm going to bring down the average questions for caller pretty dramatically in a segment. So I guess two things. One, on the last question, you made Chad around with the CapEx and the push out of some hotel projects. Any more details on those? Are those completely being evaluated so they may not be pushed into 2024, they may not happen at all? Are they definitely pushing to 2024? Are those related to the PIPs that you're considering on a couple of hotels any details around those?

Yeah, it does relate to a PIP on one of the owned hotels and it really is just us continuing to evaluate trying to make the returns make sense and make sure that strategically, as we think about the portfolio that this is the right move, and then get the right local incentives to the extent that tax credits or other things are available for us. So we're working through it. It takes time and it's a significant investment. So we want to be disciplined about it. And just because of the diligence that we're doing, it is something that's not going to get done this year. I know it's certainly an area of interest and we'll continue to provide updates on it as we go. But right now, it's looking like that's going to be 2024.

Is there a chance that it's not 2024 not at all, or are you committed to the project in some form?

There is a possibility we're exploring. As I mentioned, we are evaluating the situation and trying to make the numbers work while assessing the risks involved in the project. We might find that another strategic option could be more viable. Clearly, we are putting a lot of effort into this to ensure we make the right decision, and there are various directions this could take.

Got it. And then last question on labor. Maybe just update us on the labor situation in both segments. What are you seeing now? What kind of wage trends for theaters and hotels? And then where would you say you are relative to what you would consider kind of 'Full employment' at an average theater and an average hotel?

The general labor environment is feeling similar to last quarter, as wage pressure has eased somewhat. However, it remains present with mid single-digit wage increases, and we find it easier to fill positions. We're seeing increased attendance from new hires instead of no-shows. In the hotel business, we are operating at about 90% of our pre-pandemic staffing levels, and it seems to be stabilizing around that figure. Our focus remains on enhancing customer service levels at our upper upscale properties to meet the expectations that come with the rates we are charging. We are achieving this with fewer resources. In theaters, there is still significant variability in staffing from week to week, especially during the summer season, but we’re managing to get the staff we need. Some weeks do present challenges, but it is nowhere near the issues we faced last year.

Perfect. Thank you very much. Appreciate it.

He guys, thanks. It's great to see how well the two businesses are doing. I had a question about the convertible notes. And almost all of the significant short interest in the stock happened immediately after you issued those notes in early 2020 or late 2020 should I say. And since then, you can see the short interest rise and fall as the share price approaches or falls below the conversion price of those notes. And it's obvious that it's the convert holders hedging out their equity risk. My point is that the convert seems to be a serious pressure on the stock price as it almost always does with small companies and illiquid share structures. So I realize that you can extinguish or redeem those notes early and maybe that's not even your desire to do so, but you could certainly make it more painful for the shorts and less desirable to be short by raising your dividend. So I guess it's not really a question, but more of a suggestion from a long-term optimistic about your prospects shareholder.

I appreciate your comments and feedback, Chris. We are definitely aware of how the convertible notes impact our capital structure. Right now, it's not our top priority, but as we approach the maturity date, we will continue to consider what our refinancing options might look like. As I mentioned earlier regarding the dividend, it is an ongoing evaluation, and I understand your perspective.

And if you permit me to ask one other question. When you consider pricing trends in your hotel business and all of the improvements you've made in the last few years and all the improvements that are going to accrue as a result of your current capital program. Is there anything you can say about what the revenue generating capacity of your hotel business will be in say 12 months relative to where it was in 2019?

I believe that's more influenced by the market than by renovation alone. Much of our work is part of the reinvestment cycle we've extended because we needed to catch up on capital investments. It allows us to maintain our market leadership and be proactive, but I'm not certain I can quantify it or say this will significantly boost our numbers, as we're also considering the potential outcomes if we do not proceed with these initiatives.

Right. I was just going to say, I think, a bit more as a defensive investment of our market-leading positions for these hotels to keep them fresh to command market-leading rates and it's more maintenance capital but it just happens in big cycles over a longer period of time. And we happen to be in a big part of the cycle right now with a few of our properties really because as Greg just said some of this was deferred due to the pandemic.

Hi. Thank you. Good morning, guys. Just a few questions. You mentioned closing some underperforming theaters. Were these money losers that will improve cash flow bottom line or just low cash flow generators that will improve your ROI metric?

They were actually locations that were cash flow negative. These were some of our smaller locations and places where we had other presence. I want to clarify, Andrew, that this is not game changing to the overall EBIT of the division. It is accretive, but these weren't significant cash flow losers.

Yes, I appreciate that. I was trying to understand the cutoffs or thresholds. With the government COVID venue grant money drying up, which benefited many private cinema exhibitors, companies like Reading, Cinemark, and AMC didn’t qualify for that funding. Now that this grant money is no longer available, are you seeing any cinema acquisition opportunities?

There's been some activity, but it's not significant enough to warrant a change. I don't believe there is a substantial amount of high-quality opportunities.

So not a big wave yet for people who are going to wind up and help consolidate this industry that's still fragmented?

Not yet.

Is that right? Okay. I'm looking forward to seeing your TikTok. Regarding promotion, it's clear that the lack of promotion did impact Indiana Jones and Mission Impossible to some extent. Honestly, Barbenheimer might have gained even more traction with better promotion. Are there initiatives that both Marcus and, more importantly, NATO are considering, like the National Cinema Day or National Cinema Week ideas, which were organized on short notice last year? I believe it wouldn’t be wise to roll those out during the success of Barbenheimer. As the summer winds down, is NATO contemplating a broader industry-wide promotion? Additionally, is there any discussion among studios that are releasing films in theaters, but who miss out on promoting their actors, about potentially offering rental discounts to exhibitors linked to your local promotional efforts?

That's a good idea. I hope you send it to them. No, I'm not even there yet because...

You have a direct line to them. I don't. Yeah.

Yes but I...

Direct line in to them I don't. So if you like the idea you should definitely feed it into them.

We are not quite there yet. There hasn't been significant progress at this time. We are trying to encourage them to increase their marketing efforts. I believe that one of the appealing aspects of streaming was the idea that individual movies wouldn’t require extensive marketing. Some of that marketing capacity needs to be revitalized, especially as we emphasize the importance of theatrical releases and their role in promoting other markets. I can share that within our company, we have been putting a strong emphasis on showmanship, which is our approach to promotions in theaters. Over the past year, with Mark Graham joining us and focusing on returning to some traditional strategies, we have centered our efforts on enhancing activities within the theaters. For instance, we organized special events like Barbie-themed parties and offered unique beverages. At one of our theaters, I noticed an Indiana Jones display showcasing archaeological artifacts to create a more enjoyable atmosphere. We call this showmanship, and I have observed positive outcomes from our renewed focus. TikTok is just another example; it is the market leader, and while we haven’t fully utilized it, others have done an exceptional job with it.

And I think some of the feedback from the National Cinema Day was that it was kind of sprung on with short notice and that with some advanced planning it could have been or be a much bigger activity. Have you heard anything via NATO about advanced planning for doing something this time with greater strategic thought?

Look NATO will announce whatever they're going to announce or they're going to on their schedule. Look we're always talking and they go about what can we do to promote the industry and continue to rebuild this business. And I'll leave it at that.

Great. Thank you. Well, we'd like to thank you once again for joining us today. We look forward to talking with you again in early November when we release our fiscal '23 third quarter results. Until then thank you and have a good day.

Thank you. This does conclude today's call. You may now disconnect your lines.