The Marcus Corporation (MCS) Earnings Call Transcript & Summary

Good morning. Thank you, Greg. While this is my first annual meeting as President of Marcus Theatres, I bet I've been in one of these than most anyone on this stage or in this room, except Steve, of course, he's got me beat. I've only been with this company for 52 years. I started at Marcus Theatres working part time in high school. I must really love movies in this company as I stayed through college and then entered management and joined the Marcus Theatres leadership team over the years. I've been lucky to work closely with Henry [indiscernible]. My longtime mentor, Bruce Olson, and Rolando Rodriguez, But most particularly, I'm appreciative of all the past and present Marcus Theatres associates who helped make moviegoing experience special for all our customers. So let's discuss the year. 2022 was the first year since the pandemic that our theaters were open with normal operating days and hours, but that doesn't mean the year is normal. Instead, I refer to that year is mixed. The year began with studios weighing out the surge of the Omnicom variant, leading to limit film releases during the first quarter of 2022. It was a different story for the second quarter with like a view of highly anticipated blockbuster hits like Top Gun: Maverick, Doctor Strange in the Multiverse of Madness, Jurassic World Dominion. Wow, they did not disappoint, attendance improved significantly as the appeal for new film releases drove more movie goers of all ages to the theaters. Despite the great pop in the second quarter, the overall headline for 2022 was that the number of wide release films were still lagging well behind the pre-pandemic levels. Customers continue to show they want to see movies on the big screen, but they wanted more than the studios had to offer. In fiscal '22, our top highest grossing titles were Top Gun Maverick, Black Panther, Wakanda Forever, Doctor Strange in the Multiverse of Madness, Jurassic World Dominion and Minions: The Rise of Gru. Each of these movies debuted with an exclusive theatrical window, even with west film product, Marcus Theatres, once again outperformed the industry for 2022. For the full year, attendance, average admission price, average food and beverage revenues increased over fiscal 2021. We are proud of these results, especially as we were challenged by the lack of new theatrical releases. As further proof that our customers love to see movies in our theaters, our Magical Movie Rewards program, our loyalty program celebrated its 5 millionth member in 2022. As of this month, we are now at nearly 5.4 million accounts and rising. I hope you are all one of them. Our Magic Movie Rewards members aren't just members because they like movies. They are members because they like movies specifically at Marcus Theatres. And why is that? Because we deliver an outstanding experience. Over the past decade, we have invested over $390 million to enhance our movie going experience through dream lounger reclining seating, premium large-format laser lit screens, signature cocktails and dining concepts as well as in-theater dining. As we look to the years ahead, we will continue our tradition of investment and innovation to keep driving an incredible experience. That may even include increasing the number of PLF screens, testing new food and beverage concepts and introducing new pricing programs to increase attendance and reward our valued customers. For example, at the end of March, we introduced our new value Tuesday promotion, featuring $6 admission for Magical Movie Rewards members and 20% off all concessions, food and beverage and nonalcoholic beverages for our rewards members. While still new, the early signs of this program are very encouraging. Our mobile ticketing capabilities, The Marcus Theatres app and website, let customers skip lines and get right to their movie. We will continue to leverage technology to improve the guest experience and help drive efficiency in our business. And of course, we will continue to invest to keep our theaters fresh and up to high standards. We offer a total out-of-home entertainment destination that couples, families and groups can enjoy for great value. Earlier this year, we launched the Marcus electronic passport, a program that allows customers to purchase a passport ticket with access to every movie that is playing as part of Marcus Theatres film series. The program launched with our best picture passport featuring 10 Academy Award, Best Picture nominees and our Kids Dream Passport program featuring 12 family films. With our big screens and incredible sound, we are also testing and introducing additional entertainment options to host our theaters. In March 2021, we launched our first ever sports viewing auditorium, The Wall, replacing a single screen at our location in Gurnee, Illinois. The Wall combines multiscreen sports viewing with our in-theater dining to create a premium sports bar experience on the big screen. We are also introducing ScreenX. This innovative moviegoing experience offers a 270-degree picture where action is both in front of you and in each side wall. Long term, our plans also include adding new theaters and screens who are financially and strategically appropriate. This is assuming new management contracts or taking over existing leases and acquiring existing theaters or circuits. We will be optimistic in this regard -- opportunistic in this regard, however, always prudent. Now let's look at our first quarter 2023 results. If we were optimistic and hopeful in 2022, I would say we are confident in 2023. We had a great start to the year. During the first quarter of 2023, we saw a larger slate of films that outperformed expectations. From the continued success of Avatar: The Way of Water and Ant-Man and the Wasp to small and midsized films like M3GAN, A Man Called Otto and Cocaine Bear. The first quarter 2023 gave moviegoers a lot to enjoy. As a result, attendance average emission price concession revenues increased during the first quarter when compared to the same period last year. While the quantity and quality of first quarter films were great, we are even more excited about what lies ahead as we head into our summer blockbuster season. The second quarter started with a super hit Super Mario Brothers movie. The biggest film the year so far, this fun movie has reached over $500 million in U.S. box office to date. It is only the fourth film that crossed the $0.5 billion mark in the post-pandemic era. Recently, both Guardians of the Galaxy Volume 3 and Fast X have opened well. In the case of Guardians of the Galaxy, it is holding well in its second weekend. Looking ahead, we have films like a Little Mermaid this weekend, the Spider-Man: Across the Spider-Verse and The Flash, all of them have potential to do extremely well, and that's just the remainder of the second quarter. Add in Indiana Jones and the Dial of Destiny, Mission: Impossible - Dead Reckoning, Dune Part 2 and Hunger Games: The Ballad of Songbirds and Snakes, 2023 has makings of a very fantastic year that will continue to bring audiences back to the theaters. Around Marcus Theaters, we like to say, it's showtime. Every morning, we open our doors and after last film was played through the end of the day, this is our rallying cry. Throughout 2022 and into '23, momentum is building for our business. We see it in the great moves we get to show our customers and we feel it and the enjoyment audience experience at Marcus Theatre. I'd like to share a big thank you to our theater division associates for all they have done over the past years and the great start to 2023. Your work is the driving force behind the momentum we all feel. With that, I'd like to turn it over to Michael Evans for an update on our Marcus Hotels and Resorts Division.

Thank you, Mark. On behalf of our entire Marcus Hotels and Resorts team, we are thrilled to welcome you to the magnificent Pfister Hotel for our 2023 Annual Meeting. I hope you enjoy your time with us this morning. Having celebrated its 130th anniversary just a few weeks ago, the Pfister Hotel in many ways, embodies the essence of Marcus Hotels and Resorts, proud history, unwavering excellence and invested in our future. Went out of bankruptcy in 1962, Steve Marcus led the resurgence of this splendid property into one of the nation's premier historic hotels. It is my honor to lead the team who not only continues to nurture the legacy of the Pfister, but also strategically manages our entire hotel and restaurant portfolio to deliver extraordinary experiences for our guests and create a great place to work for our associates, which, of course, all works to drive shareholder value. I'm proud to share that Marcus Hotels and Resorts had a great year in 2022. While we planned for continued recovery throughout the year, we're already back to pre-pandemic levels by the midpoint. Strong demand in both leisure and group travel, along with high-level execution and effective cost management led to significant increases in revenues and operating income in 2022. For the full year of 2022, Marcus Hotels and Resorts, revenue per available room, or RevPAR, again outperformed our competitive hotel sets by approximately 4.3 percentage points. And thanks to continued improvements in occupancy, average daily rate and RevPAR, the team delivered record adjusted EBITDA of $38.9 million. This is a record for any year pre or post-pandemic. To everyone on the Marcus Hotels and Resorts team, congratulations on an outstanding year. As we keep saying, the key to our success is our people, and thanks for the many ways in which our associates ensure our guests have a memorable stay. Through their work in our exceptional properties, we were again recognized by many prestigious publications as being among the best of the best. As we manage our business, 3 core strategies drive our work, operational excellence and financial discipline, portfolio management and strategic growth. Let me tell you a little bit more about how we are driving each strategy. Operational excellence. By this, we mean our continuous focus on improving the quality of our guest experiences, our assets and our team. Our focus on operational excellence led us through the pandemic faster than expected. In today's post-pandemic world it is propelling our business forward. I'd like to touch on one key area of operational excellence, which is a distinction for Marcus Hotels and Resorts, the quality of our food and beverage programs. Here in the Pfister hotel, for example, is the award-winning Mason Street Grill, the Scene Stealing Blu and the go-to favorite Pfister Cafe. These are not just hotel amenities. These are dynamic destinations that travelers and locals alike prefer when seeking out-of-home dining experiences. Our portfolio currently features more than 40 signature restaurants, bars and lounges. Combined with our event catering operations, we are evaluating our F&B program -- I'm sorry, we are elevating our F&B program to create a culture aligned with the mindset found in successful independent restaurants and bars, delivering an incredible guest experience in our hotels and resorts and in restaurants is always job number one. In today's world, technology plays an important part. Through smart implementation, we can create a more efficient guest experience from booking to check in, to check out, all of which directly impact guest satisfaction. But it will always be our team that distinguishes us from the competition. We are investing in hiring industry leaders who challenge our thinking and bring forward new ideas to help propel our growth. And we're renewing our commitment to associate training programs designed to elevate how we make each guest stay extraordinary. Because as we have said for years, our ordinary day is our guests extraordinary day. Of course as always, we will continue to be financially disciplined. Over the years, we have proven that it is possible to operate efficiently and manage costs without sacrificing quality or innovation. Next is our focus on portfolio management. Over the last decade, we have invested over $180 million to enhance our hotels and resorts. Over the past 2 years, we have made significant investments and the Grand Geneva Resort & Spa as one example. Guests now enjoy a beautifully renovated lobby, lobby lounge, cafe, a new 60-seat outdoor dining venue, brand new guest bathrooms. And by the end of this week, entirely updated guestrooms. Soon, we will begin renovations to our meeting and event spaces. Already Milwaukee's premier space for meetings and galas, here at the Pfister, we are also reimagining the meeting and event experience with fully renovated ballrooms and meeting space. Also, while being careful to preserve the historic heritage of the Pfister, we are preparing to undertake exciting renovations that will result in all new guest rooms in our historic tower and exciting enhancements to the lobby and other common areas. Strategically investing in our properties maintains and enhances their value, drives performance and demonstrates to our guests and associates the premium we place on delivering extraordinary experience. Our investment decisions are focus on value maximization as a determining factor on whether we hold, reinvest or sell a hotel. In December, we announced the sale of the Skirvin Hilton in Oklahoma City for $36.75 million. This was a great investment for our company and our shareholders, delivering an internal rate of return of more than 30% during our investment period. In this case, we determined that we were able to maximize value through the sale with a valuation of nearly 20x the last 12 months EBITDA. It was an honor for our company to steward the renewal of this hotel. Last, we remain focus on smart strategic growth, truth be told, the deal market right now is limited given the rising cost of debt and a challenging financing environment. This, of course, makes a serving transaction even more noteworthy, not only for its return, but for our ability to execute the deal in this market. Nevertheless, we are on the lookout for opportunities to invest in new hotels and increase the number of rooms under management. We may do so on our own balance sheet or as a joint venture partner, like a partnership with search like capital partners to acquire the Kimpton Hotel, Monaco in Pittsburgh. And as always, we are seeking to secure third-party management contracts from other hotel owners like how we manage the Hyatt Regency Coralville, our most recent third-party management agreement. Looking ahead, we are encouraged by the improving dynamics in our business. We continue to grow our revenue, and we are seeing steady growth in group bookings. While the booking window is shorter than in pre-pandemic years, we are ahead of where we were at this time last year. Briefly turning to our start to 2023. The first quarter is seasonally slower, given reduced travel during the winter months. As we shared in our recent earnings release, the lack of snow impacted a very popular ski season at the Grand Geneva Resort & Spa. While we cannot control the weather, we are excited for the remainder of 2023, especially as we head into the busy travel season. Our properties and our team are well positioned to execute our strategy and capitalize on the opportunities we seek. Chad, I'll turn it over to you.

Thank you, Michael, and good morning, everyone. I will start with an overview of fiscal 2022 and then recap our first quarter 2023 results, which we announced earlier this month. For fiscal 2022 total revenues for The Marcus Corporation were $677.4 million, a 47.8% increase from 2021. Operating income for the year was $8.3 million compared to an operating loss of $41.5 million for fiscal 2021. Net loss was $12 million for 2022 compared to net loss attributable to The Marcus Corporation of $43.3 million for the prior year and was negatively impacted by $7.4 million or $0.23 per share of income tax expense. Net loss per diluted common share attributable to The Marcus Corporation was $0.39 compared to net loss of $1.42 per diluted common share in fiscal 2021. Adjusted earnings before interest, taxes, depreciation and amortization or EBITDA is a non-GAAP measure that is often used in our businesses to reflect cash generated from operations after adjusting for nonrecurring items. In fiscal 2022, adjusted EBITDA was $85.1 million compared to adjusted EBITDA of $35.1 million for fiscal 2021. All told, fiscal 2022 was a significant improvement. While our 2 businesses have recovered from the impacts of the pandemic at differing paces, we have realized meaningful and accelerated improvements and are even more confident in the future. We say this often because we stand by it. Maintaining a strong balance sheet, preserving ample liquidity and owning the majority of our real estate has been core to our approach for 88 years, and it will remain that way for years to come. In fiscal 2022, we repaid $46.6 million of short-term borrowings, repaying in full and retiring our term loan facility that we took on during the pandemic. For the entire year, we reduced our long-term debt by $83.6 million. Throughout the year, we pursued select real estate sales when it made sense. By doing this, we received $4.9 million from the sale of noncore real estate assets during fiscal 2022. In addition, net proceeds from the sale of the Skirvin Hilton in Oklahoma City, were $6.9 million. At the end of fiscal 2022, we had $243.5 million of cash and revolving credit availability. Our debt-to-capitalization ratio was 28%, with our balance sheet restored to its pre-pandemic condition. A major milestone in fiscal 2022 was the reinstatement of the quarterly cash dividend in the third quarter with $0.05 dividends paid each quarter, including the first quarter of fiscal 2023. Continued operating improvements in both of our businesses, along with our strong balance sheet and liquidity position, gave our Board confidence in reinstating the dividend, and we were proud to be the first among our theater exhibitor peers to do so. In 2022, not only did we invest in our business and reduced debt, but we returned $3 million to our shareholders. We were able to do so because of our philosophy of maintaining a strong balance sheet and liquidity position and are pleased to resume our long history of returning capital to shareholders. Now on to the division highlights for fiscal 2022. As Mark mentioned, 2022 was the first full year since the pandemic that our theaters were open with normal operating days and hours. A more normal operating schedule, along with several blockbuster films that appeal to a broad range of audiences, resulted in significantly increased divisional performance compared to fiscal year 2021. In fiscal year 2022, revenues from Marcus Theatres grew 50.3% over 2021. The division returned to positive operating income for the year compared to an operating loss in fiscal 2021. For the full year, Marcus Theatres reported adjusted EBITDA of $60 million, a 140.6% increase compared to the prior year. Despite the headwinds faced throughout the year, including a lighter film slate in 2022 compared to pre-pandemic levels, the Marcus Theatres team continued to outperform the competition in all 4 quarters and the full year of 2022. Now on to Marcus Hotels and Resorts. As Michael said, it was the great year driven by strong leisure travel demand and increases in group bookings. Revenues, operating income and adjusted EBITDA increased significantly in fiscal 2022 compared to the prior year period. With improving leisure travel and group bookings, Marcus Hotels and Resorts hit its stride in the second quarter of fiscal 2022. For the second, third and fourth quarters of fiscal 2022 and the full year, the division's revenue before cost reimbursements exceeded pre-pandemic fiscal 2019 levels. Marcus Hotels and Resorts reported positive adjusted EBITDA every quarter of fiscal 2022, thanks to strong cost controls as well as improved occupancy and average daily rate. And as Michael also shared, Marcus Hotels and Resorts achieved record adjusted EBITDA of $38.9 million for the year. As a reminder, this was a record for any year. Revenue per available room, or RevPAR, increased at all company-owned properties and Marcus Hotels and Resorts outperformed its competitive sets for the full year of 2022 by approximately 4.3 percentage points. Now on to the first quarter of fiscal 2023, which ended on March 30, and the results were announced a couple of weeks ago. While this period is typically a more challenging quarter for us seasonally. Our reported results showed a significant improvement over the same period in fiscal 2022 with both divisions reporting increased revenues. This quarter, it was Marcus Theatres that drove our overall performance during the quarter. Total revenues for the first quarter were $152.3 million, a 15.1% increase compared to the first quarter of fiscal 2022. Operating loss was $9 million for the first quarter of fiscal 2023, an improvement compared to a loss of $16.8 million in the first quarter of 2022. Net loss for the quarter was $9.5 million compared to $14.9 million for the same period in fiscal 2022. And adjusted EBITDA was $9.5 million for the first quarter of fiscal 2023 compared to adjusted EBITDA of $3.4 million for the comparable prior year period. For Marcus Theatres, the first quarter of fiscal 2023 included an increasing number of high-quality wide release films that exceeded expectations driving increased attendance, average ticket price and higher concession revenues per person compared to the prior year period. And as a result, Marcus Theatres reported significant increases in revenue, operating income and adjusted EBITDA compared to the same period last year. For Marcus Hotels and Resorts, the first quarter is seasonally its weakest given the slower winter travel season. RevPAR increased at all company-owned properties during the first quarter of fiscal 2023. Revenues before cost reimbursements also increased during the quarter, but operating income was negatively impacted due to several factors, including the sale of the Skirvin Hilton in the prior quarter. Leisure travel continues to drive demand, leading to increased occupancy and average daily rate in the first quarter of fiscal 2023. Group travel continues to grow, especially midweek. While we have repeatedly said, our recovery is not linear, demand is strengthening in both businesses. As we look ahead to the rest of the year, we are well prepared to capitalize on the continuing momentum at both Marcus Theatres and Marcus Hotels and Resorts. And with that, I'll turn it back to you, Greg.

Thanks, Chad, and Michael and Mark. Lastly, we have a presentation we'd like to do for you, dad, a little montage like the wedding montage, but a great video the team has put together that we want to share with you before -- I just want to say a few words before we run it and they revolve around 2 words that precede your name there on the screen. Thank you, other words that I want to say. And I'm going to say it for 3 things. One, thank you on behalf of everyone that you've given your life to this business. I can vouch for at least 58 years of those, along with my brother, David, who is here today. We grew up in this business and it was just part of the fabric of our family. I think we got in trouble with mom quite regularly probably talking about business. And it's because -- it's been -- it's not the all thing in your life, but it's been a central part of your life, and we're all the better for that. So I say thank you for that. I thank you for the lessons that you've taught all of us through these years. And I could sit here for 20 minutes, which no one wants and talk about all those lessons, but I'll pick one because I think it's the best one, and you talked about it in your remarks, and it's the one that sometimes I think people don't understand about you and it's tenacity. You -- when I looks at you, you're always smiling and you're happy and you're easy going and I'm no fun. You're the most tenacious human I've ever seen in my life. Once you -- I mean you smile, you're doing it, but once you've gotten into something, there's no getting you out of it. And it's a great lesson about not giving up and not just saying, well, it doesn't -- I can't do this and end it. No, you dig in and you aren't going to end until there's absolutely nothing left on that bone. So it puts a great lesson. And so I thank you for that. You're laughing because you know it's true. And lastly, I want to thank you for our relationship because I think the world is littered with father son relationships where they work together and it didn't go so well. And that may be more the majority than any case. But you -- I've always felt, we've got these titles, but you've always treat it like a partnership. And yet the respectful partnership of you do -- I do my thing, and you let me do my thing, and let me deal with the things day-to-day, but you're actively involved and being a part of that, and that's been a great -- you brought me through the -- and it really started years and years ago and how you brought me through the company and ultimately brought me in to position of leadership. But I'm grateful for that. And I've told people, whoever I tell we have this great office set up in our offices where we have to shared our conference room and there's our office here. You have an office and I have an office. There so much right now on the winter I've noticed. But you've -- but that -- I've sat in those offices and go, wow, I'm really lucky to have that. Nobody, not many people get to have that. And so I'm thankful for our relationship, and it's made my life better and our company, I think, better. So with that, saying thank you. We will now run your video and let everybody else weigh in. [Presentation]

Greg for sure will tell you, but I think probably most of the other people that I work with on a regular basis, I'm not often speechless, but I'm speechless. That was really terrific. I'm going to take that home and show it to my wife for sure. And it will be in my ride forever. And all the things that so many people have done, whether they are associates of the company, whether they are our directors, whether they are owners in the company, shareholders, firm, just friends. You've made all this possible. I just hang around the room every now and then and I'll complain about this but I guess this day is probably just a about of it because I have this cellphone number handy. But I'm flattered, I'm speechless, I don't know what to say. So thank you very much. I just want to say, I want to speak to our shareholders. Because our 3 rules, I've watched other companies' management dealing with shareholders, submarket in such a very hard time about things that are going on in the company, things that they have no control over, in some cases, and our shareholders, both those who are family members, those who are associates and became shareholders and let's call them outside shareholders who saw our company and its performance over the years. And bought the shares became partners of ours. Have always dealt with us in a very respectful way, in a very helpful way. And they often see things that we don't see that enable us to -- and give us perspectives that we wouldn't otherwise have. And it's a broader perspective that have enabled us to go through so many things. I often think back to what my father went through and my mother when they were dealing with the advent of television and what the effect that had on the movie theater business, which in those days, it was the business they had. It's been pretty remarkable. And so I thank all of you who have been my partners through this ride. And as I said during my remarks, I don't think I've gone very far away. I'm going to make myself available in any way that I can. And we hope to see all of you on a regular basis. So thank you all again. Greg, thank you. Thank you for following the tradition that your grandfather started and grandmother started in this company. And 12 more years, it'll be 100 years.

I just want to add a point. No one said, congratulations on your retirement. And as your new boss -- I love that, so you're still in the payroll. We expect you to earn it. So that brings us to the question-and-answer session. Anybody have any questions and answers, I'll have to have the -- I don't even have the answer, so I pass it off generally, any Q&A? You left him speeches, good work dad. Okay. Going once, going twice, going three times, sold. All right. Before we close, those of you who have attended our meetings in the past know what we offer our shareholders a special thank you gift. We're continuing that tradition today with a $25 gift card and 2 movie passes to show that I'm truly grateful for all your support over the past couple of years and many of you, years beyond that. Please pick up your gift at the registration desk before you leave. That completes today's annual meeting. Thank you again for joining us and for your continued support throughout the years and throughout our recovery. Have a great day.