The Marcus Corporation
Q1 2021 Earnings Call Transcript

Published: 5 May 2021

[Operator:]

Good morning, everyone, and welcome to The Marcus Corporation First Quarter Earnings Conference Call. My name is Celine, and I will 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 Doug Neis, Executive Vice President, Chief Financial Officer and Treasurer of The Marcus Corporation. At this time, I'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

[Doug Neis:]

Thank you very much, and good morning, everybody, and welcome to our fiscal 2021 first quarter conference call. As usual, I need to begin by stating we plan on making 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, including, but not limited to, the adverse effects of the COVID-19 pandemic on our theater and hotels and resorts businesses, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness and the duration of the COVID-19 pandemic and related government restrictions and social distancing requirements and the level of customer demand, following the relaxation of such requirements. Our forward-looking statements are based upon our assumptions, which are based only upon currently available information, including assumptions about our ability to manage difficulties associated with or related to the COVID-19 pandemic, the assumption that our theater closures, hotel closures or restaurant closures are expected to be permanent or to reoccur and our assumptions about the release of new movies and the temporary and long-term effects of the COVID-19 pandemic on our business. Listeners are cautioned not to place undue reliance on our forward-looking statements. And additional factors, 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 2021 first quarter results and in the Risk Factors section of our fiscal 2020 annual report on Form 10-K, which you can access on the SEC's website. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com. So with that behind us, let's begin. Our call will follow the usual format, which is where I will start with spending a few minutes briefly sharing a few numbers from our quarter with you, and I'll also discuss our balance sheet and liquidity. I'll then turn the call over to Greg, who will focus his prepared remarks and where our businesses are today and what we're seeing for the near term and longer future. We'll then open the call up for questions.

[Greg Marcus:]

Thanks, Doug. During our year-end earnings call in early March, I opened my remarks by recognizing that there still may be some bumpy weeks and/or months ahead of us, but that we were very encouraged by number of green shoots that were springing forth in both of our businesses. Well now, two months later, I think we all agree that most of the news since then has been largely encouraging and some of those green shoots are starting to bud. The rollout of vaccinations has gone better than expected with over 50% of the eligible adult population having now received at least one shot, both nationwide and most importantly, in our markets. As you know from prior calls, I'm a huge proponent of the vaccines and their role on getting this country and our businesses back to normal. There's still work to be done to get more people vaccinated.

[Operator:]

Thank you. We'll go first with a question for Mike Hickey with The Benchmark Company. Your line is open.

[Mike Hickey:]

Hey Greg, Doug, congrats, guys, on the quarter and taking the questions. Obviously, we're seeing, I think the drumbeat, I think a positive evidence cinema is coming back. So in Asia seeing in the US seeing in your circuit specifically just sort of curious how opportunistic you think you can be on potentially growing your network given that we are seeing the bounce back and we are seeing theaters like ArcLight and Pacific go dark in California, just curious if do you think you can grow your network here and if you looked at those deals specifically?

[Greg Marcus:]

Look, I think the first thing and I'll repeat what others in our industry probably similarly situated say. First job one is just keep our get our balance sheet, keep it solid get ourselves in the right place. We will look for as we talk, we will look for opportunities to grow the network as we can with great properties. Yes, I know I have to notice that are quite a thing, it caught my attention. What caught my attention, first, I would, what ArcLight is not reopening, ArcLight is reopening. I'll take that bet with anybody who wants to bet me on that. Those theaters are so productive nationally that they will reopen. I just don't know whom will control them. We certainly welcome those discussions, not that I can speak to right this second, but I think that any -- look at, I would say, I said the story, think we're one of the best operators in this business. We have great food and beverage, we have great experience and I think our hotel side helps influence our theater side from a level of, if you really want the quality operator, where your team and because we've not only do we do just great theaters period, we understand hospitality, which probably becomes even more important as we go on. So for people who have theatre properties, they've got some significant investments to the extent that we can come in and help them as we get through it, we are all open ears to do it, nothing to report right the second, but we are open and available to discussions.

[Mike Hickey:]

Thanks, Greg. One more, I guess on from Netflix you're seeing Zack Snyder's upcoming film, Army of the Dead, which sounds pretty exciting. It looks like it's going to have exclusive theatrical release one week looks like window and it's getting some fairly broad distribution from some of your peers. Curious do you plan to show this down and the opportunity you see from OTT content maybe being part of new normal?

[Greg Marcus:]

Yes, we are playing it. It's in the world of experimentation and it's an experiment, obviously a very short window. Look at and I talked about this before. I'm not sure I talked about it on our calls, but there is such a tremendous amount of content out there to the extent that the over the top players start to extend some of that to theatrical. That could be the other side of what might make up for decreasing windows is going to be more content and at potentially more advantageous terms. I don't have anything to tell you about that today. I can't tell you that what's going to happen, but I mean I think it's -- what a great -- but the interesting thing the Oscars were, it was -- they were challenged because nobody even knew the movies. It's hard to put a regular because some of these movies tend to be lesser than the commercial films, but there is something to the benefit of, I don't know about you, but I become a TV expert, look at the truth, the matter is, most people that watch, and I'm a big moviegoer, the study show most people to go to the movies are big consumers of content, just generally. And so you watch stuff on over the top on TV and watching trying to find something to watch with all these services, it just gets harder every single day and jumping between apps and trying to remember well, I was going to -- well, maybe I'll watch that and then I've got go to -- I mean things just disappear quickly and the theaters we can't have unlimited product at any given time, right, I mean it's not right now basically what the ultimate prison is complete and total choice, the unbounded choice and that's sort of what you almost gets struggles over top figures. Okay, so what are we going to have at any given time? How many pieces of content, 10, 15. I mean, so you get that halo and that spotlight put on certain pieces of content that I think would be good for it's great with it look at. They know for the studios, the historical studios have known that forever. I think that the over the top can start to take advantage of that as well and potentially provide a theatrical window because our economics dictate that and then have it be exclusive on there, I think it's so interesting to me, someone people seem to view content sometimes as a widget. But you know what, if you want Star Wars, you really only have one place to go do it, and that's Disney+ after it's been in a movie theater, you can't go watch it on anybody else's place. And so they get to maintain their exclusivity and yet they can run it in theatrical first and get those front-end dollars which are really important, that's per capita dollars. So I think that there is going to be, I think, I don't have anything for sure to say, but there should be hopefully more content that will come our way that we can use the spotlight. And I will say, Frances McDormand was right. I went to the movies and saw Nomadland this week -- this last weekend. And I went with my wife and I met with another couple of who'd actually seen it already on TV and they were so into it, they want to see it again. And they said, it was just a different experience. And do you think that kind of film, you'd say, that's not a big theatrical tent pole that's not -- that doesn't, but the theaters benefit. But the truth is, first of all, I had some Western visitors, which visually were very appealing. But the story, if you know the story, I mean these are some really intense stories of people who are homeless, and they said you just seeing their faces on the big screen, 50 feet, we were even in on a monster, we weren't in a PLF a premium large format, we were in just a 50 foot screen, but that all-encompassing immersion was different than being at home and that, I mean, I walked out of there and I thought, wow, this experience is just so differentiated. There is no difference between watching over the top and linear, it just isn't, but there is a big difference in watching something at home with your phone and the lights and the dialog and watching something in the theater where you sit there and do that. So it gave me great comfort for the long term of this business once we get past what's going on now.

[Mike Hickey:]

That's great.

[Greg Marcus:]

That's kind of a long story. That's good. You really moth-like. For you.

[Mike Hickey:]

Yes. It's awesome. Last question from me, on the hotel side, the Grand Geneva Resort & Spa asset really shining here in a difficult time. I mean is this something that you look for a bid on Greg? Or is this sort of like the trophy asset you wouldn't want to sell? And secondly, Summerfest, is this just confirmed and sort of how is that tracking and how big can that be on a comparable -- obviously comparable basis that it would be huge? Just curious, your thoughts on that event and if it's having a positive it can be. Thanks, guys.

[Greg Marcus:]

On Grand Geneva, I mean, yes, well and even better, the guy said, we think we found a new line of business that should in terms of because one of the things that was really -- that we had a lot of it was use athletic stuff and you dance and sort of -- athletics and dance, we got people in that first quarter who we typically don't see they think that's going to be a line of business, it's going to be good for us for the long term. We don't have any -- again, it's going back to our comments on the transactional market. I think it's impossible to even really figure anything out in that regard. It's a great irreplaceable asset, and thank Kevin for it right now, it's been really important to us in this quarter and really pretty amazing. As it goes to Summerfest, Summerfest moved into the fall and so far we're hearing is still on. It's a really interesting dynamic, a lot of the festivals a lot of it -- this is a really interesting thing I'll speak the movie business. I think summer leisure should be pretty good around here as we've talked about. So I'm not sure what I think that what we might see for festivals not being here is going to be made up just for people wanting to get out and get on the road and get out of their houses, I know that feeling personally I want to be out. The theater side, though, should benefit and it's not going to be a lot to do in terms of getting entertained really anywhere. I mean in the country, so many of these acts have had to cancel because if you think about it, if you're performing act, how many shows can you do a day? One? Probably not two, and you're going to play to a limited size audience. With that, if you can only half fill a venue that limits what you can do and not knowing what the constraints will be, and you've got a plan there so far ahead and the theaters, even with capacity restrictions, we usually had show times, and we can stretch out the, even if we have limited seating capacities for individual shows, we're actually able to sort of virtually increase our capacity by just adding show times on the earlier and later periods. And people are looking to get entertained. I think it's go to a baseball game or watch a movie, that's going to be getting out of your house. So I think that it should -- again, positives and negatives on both side of the business. Again, I'll just be happy when we get past all this, that is positives on all sides. But I think things we'll see different impacts on either side.

[Mike Hickey:]

Nice. Thanks, guys. That's all.

[Greg Marcus:]

Thanks, Mike.

[Operator:]

Thank you. We have our next question coming from the line of Eric Wold with B. Riley Securities. Your line is open.

[Eric Wold:]

Thanks. Good morning, Greg and Doug.

[Greg Marcus:]

Good morning, Eric.

[Eric Wold:]

So just a couple of questions, I guess, one is can you kind of talk about -- can you talk about the beginning the market share gains you're seeing on the theater side and kind of came back later obviously you acknowledge that some of that is due to theaters that haven't reopened yet, and you've obviously gained share at their expense. I guess, obviously that dynamic can change as people come back. But I guess, thinking about the markets that you're in, have you seen theaters permanently close in those markets any way to quantify, what that impact could be is everything kind of starts coming back online?

[Greg Marcus:]

No, not yet. Two are to quantify, we don't know necessarily what will open. I just saw one in one of our markets that we thought was going to close and now it's reopening. Look, there will be stuff that will close and that reopen again. My guess is that's going to tend to be the stuff that's really obsolete or right on top of something else. But if you know, otherwise, it's got a -- if you're a landlord and you've got a piece of real estate, that's a movie theater, again, you may take whatever it is, you may find someone to operate it take what you get in the door. So when it all shakes out, I think there'll be less theaters than there are today. And in some of our markets, that could benefit us in the smaller markets because as I said the obsolete stuff tends to be in the smaller markets. And so could we see people driving a longer distance to go to a movie because something closer to them was closed and yet still is in some of our markets? We might see some of that. I don't think I could ever quantify it just yet, but as I've seen in the past on these things, Wold, this isn't the first and the movie business is upside down. And usually what will happen is not as much as you think some will close, but not as much as we all think.

[Doug Neis:]

And Eric, just so the numbers, I mean, absolutely, when you're comparing to the national numbers, of course, we're going to look better because we're more open than not compared to I mean what Regal, which was closed the entire time. Having said that, keep in mind, we started the quarter with only 52% of our theaters open, ended the quarter with 74 I think is what we said it was. So we didn't have all of our theaters opened either during the quarter and yet we still have that kind of performance. So I don't want to say it was all just because some theaters were closed nationwide.

[Eric Wold:]

Got it. And then on the concession trends, obviously great. So it seems like gain, you're going to talk about that being driven by the combination of shorter concession lines and more in our bordering, assuming lines eventually get longer as people come back is a way to parse out as tough, but what you saw came from the outside of the benefit in terms of what kind of tailwind could come back as more people feel comfortable ordering on that obviously is easier to promote people to grow bigger basket sizes? We're not on an app, is there anyway to think about what the sustainable number could be versus historical levels?

[Doug Neis:]

I think it's really hard to do that right now, Eric. I mean it's even -- I mean we're surmising that the app ordering and the online is helping. But it's still hard to quantify exactly, because we also have the shorter lines and in this particular quarter, we had three family films with -- where we did a lot of really good MPC business. And so we saw most of our growth, we saw was in our traditional concession business. So it's hard. I mean, certainly, we've always said, I mean this is pre-COVID and everything else, we've always known in this industry that shorter lines helps. And so as you can bet, we're going to be trying to figure out how to continue that dynamic in all. And it's not just be throwing people at it, it's going to be the technology part of it as well to be able to just kind of keep that dynamic because we just know and we've seen it now is actually not in the way we'd like to document it, but we are able to actually document how much impact it has.

[Greg Marcus:]

I would believe that too is, I think, your comment, Eric, is exactly right about building basket. So that's niece way of saying I hadn't heard that before. I'm going to steal that, hope you don't mind. But the idea of upselling, right. I mean, you just don't especially you get busier too, right. Look at the app won't ever missed the upsell opportunity, the human standing behind as they with line tend deep is the humans of kid is saying how do I just fill the popcorn bucket as fast as I can, I'm not worrying about, hey, do you want to go from a medium to a large soda. So the app, I think as we -- that's the opportunity on the revenue side there. But the other side, let's not forget is the labor side of that, because if we can get more people to order on the app, that means less concession stand labor now. Now we deliver to the seat and so that may be -- that will offset a little bit of that, but we do think that there are two pieces of this equation that should be financially beneficial to us.

[Eric Wold:]

Got it. And the final question, the $10 million to $40 million of potential assets that could be sold that you highlighted, Doug, and you talked about it on the last call as well. How would you quantify that versus the total universe of potential assets contributes excluding hotels and larger properties the surplus? Is that kind of the upper end of the surplus asset basket? Or is there a way to think about what could go beyond that $10 million to $40 million?

[Doug Neis:]

Look, it can go beyond that number. We haven't put a number out there, but we've got more than that, and we are trying to give a range for what could get done in the next year or so and in some of these outliers and some of these other things might go a little longer and so I'll just say it could be higher than that in the long run.

[Eric Wold:]

Perfect. Thanks, guys.

[Operator:]

We have our next question coming from the line of Jim Goss with Barrington Research. Your line is open.

[Jim Goss:]

Thanks. I might start by following up on what Eric was just asking regarding the real estate. What do you envision your own versus managed properties ultimately being in terms of an end game in the hotel division?

[Greg Marcus:]

Well, wholly-owned, I don't see a lot of new wholly-owned acquisitions right this second. So my guess is short to medium term, it's going to be looking at stuff we can do, where we're going to take management contracts, some small co-investment, where we acquire assets with partners to build out on that platform. I think we're seeing the benefits of some diversity right now. I think that's been, as we said, the greatest news has been really very helpful other hotels have been helpful and we're seeing the benefits to our to right now, it's going on our business of having that. Where does the world go? We're going to be opportunistic and we will direct capital when we get back to the place that we can start directing capital where we see the best returns.

[Doug Neis:]

And so just a follow-up on that, Jim, I mean the growth would skew things a little bit more right, so some growth that we expected to probably be more likely on the less capital intensive side, the only other thing that would change and maybe you're also headed towards was might we reduce the number of owned properties we have and we've talked about that in the past as you well know and obviously, this is probably not a seller's market right now. And so it's hard to predict exactly when we might revisit a strategy that might include monetizing any assets if it was at the appropriate time. But obviously, two things could happen, right, we can end up with less of those and we -- but we also can end up with more with a less capital intensive as well. But we have no timetable on that right now and so that's how it could change.

[Jim Goss:]

Okay. And also on the hotel side, you've usually given a little bit of an update on your latest project, Saint Kate - The Arts Hotel. Any comment on how that seems to be going and what your expectations are for that?

[Greg Marcus:]

Well, it's going okay. I mean, we're open for business. That was a positive for that hotel in a way, it was really is a tough. I mean it has been unbelievably well reviewed. I think we all know that it's gotten one kind of Nast awards, it's one in USA Today, Best in the Country award. I mean, it really has been well received from an accolade perspective. And not only that the guests, if you look at Tripadvisor, traveler reviews is now the number three hotel in Milwaukee from traveler reviews and in its class, because Tripadvisor, it makes is all sorts of hotels up there is no -- it doesn't pay attention to class, rates you against the frankly the Hilton Garden Inn, which is a nice hotel, but it's not really what you would call it that the concert as saying, hey, it is the number one reviewed hotel by travelers in its comp set and that team has really done a fantastic job of running the hotel and that's current reviews. So what happened was, but the problem we have is we really didn't get a chance to establish it. The one thing I've learned early on as we opened it was nobody knew what a Saint Kate was, and we needed to be able to get those accolades so people Google best hotel in Milwaukee right after they see the tie between The Pfister and the Saint Kate, and then the Hilton right behind it, I'm going to give an ad for everybody. And yet then all of a sudden, what nine months in, we're closed. And so we really didn't get a chance to establish it. But because it was so well regarded, when we got the chance to even just going to get number our math early on was, are we better off open and close and even if it was closed, let's get that at least get the public spaces open at the Saint Kate, get the artist get going again, make sure the galleries are fresh, because that's one of the cool things about it, the galleries change out and we did that. Now we've just as we open for the weekends, we got some NBA basketball teams in there that was originally as we were in the spring. Now we've opened seven days a week, and we're starting to get traction there. So we're pleased with the reaction we're getting. We got a lot of room to go and a lot of room to grow, but the team is committed, and they know they have something really special on their hands. And so we're confident that it's going to take time. It is a new brand. And so to establish a new brand takes some time, but it really is -- there is nothing like it, it's really a special place. So we'll be patient with it.

[Jim Goss:]

Okay, thank you. And over on the theater side, so IMAX has been over-indexing and I believe the PLF experience in general has been outpacing or taking the larger share to normal. Have you had that same experience? And do you think it will continue beyond the initial return of customers? And maybe separately, regarding the impact of windows and streaming, if that creates a skew to blockbusters and fewer smaller films, how will that affect your overall business?

[Doug Neis:]

Well, let me tackle the first part of it here. Yes, sure, we've definitely -- I mean, we were over-indexing with our PLF, proprietary PLF or ultra screens and super screens before and now you have less product and just less attendance in general, there's no question that people if they're going to go to the theater, they like seeing it on the big screen and their seats are available. So it's not a case where well that's shows sold out now go to a different auditorium. And so I think that's certainly contributed to our increase in our average admission price this quarter although the fact that we had probably a higher percentage of PLF sales. And we expect that to continue. Jim, I mean the fact of matter is that that's where those are always the first shows that sell out when we have the new big blockbusters that come out. And so even with the price premium that's where people gravitate and so that's why we spent some of the capital dollars over the last number of years, increasing the number of super screens and ultra screens that we have, The Mid Rivers Theater that we've mentioned in our press release that's reopening on Friday, we have added a super-screen where it's what the customer wants. And we have, we believe, the highest percentage on a percentage of theatres that have these large format screens in the country, we believe. It's certainly among the top 10 chains. So yes, we are over-indexing and expect to continue doing that.

[Jim Goss:]

And I'm also asking is that disparity wider than it had been earlier and is that persisting?

[Doug Neis:]

I understand the large screens are gaining a larger share of revenue, but I wonder if the degree to which that over-indexing is taking place right now is greater than it was earlier.

[Greg Marcus:]

I'm not sure if I know, but I wouldn't be surprised if it was, but I think what to be careful to draw any conclusion right now, what the world is going to look at. The consumer who now says I'm going out is may be treating themselves as something they haven't done in a while. We know there's a lot of stimulus dollars floating around. They may have a few extra bucks in their pocket because they weren't able to spend so much because they were sort of in a lockdown phase. So very tough to I think to extrapolate going forward. Although the overall trend has been to the PLF, I think it was happening before any of this all happen. So I do think that you'll continue to see a trend in that direction. I just don't know what you can extrapolate from it. I want to talk about the small things, the small things for a second. Again, I don't know what's going to happen in terms of will the small films go away? Again, the trend had been away from those. But there is some things that are changing in the world that might impact that in the other direction and that is again so much over the top content being produced. What are the two -- the big incremental cost to a studio to release a smaller film that they grappled with, right, P&A, prints and advertising. Well, VPFs are burning off so the cost of prints is going to start to go away. We've talked about this before in terms of I thought maybe there will be an independent film potentially much easier for independent films to play on our screens, they don't have to pay a virtual print fee. They used to -- it became -- it was a very interesting dynamic years ago what happened in the day of film before digital came along was if you had a big move and it played for long times before going to any ancillary markets, you could do is not as care of anything a print and you have a print it would play out one theater that you've moved that same print another theater and then to another theater, and you'd have a total war out that means your cost of P in the P&A goes down. But now we go to the world the VPFs, there was no care of adding a print anymore. Well as VPF go away, it's going to be better than care of adding prints, there won't be any print cost. And then advertising, that's what's going to be incumbent upon us. And I will tell you we are not there yet as a company, we have to get better at it. My ad monetization to the team has been, we got to figure how to help the studios get rid of their cost of advertising using our on the small films using our loyalty members. We've got to be able to get to those customers and help them -- and maybe become better at local marketing as well. We may be able to then spend some -- as terms are appropriate, spend local marketing dollars in a way that weren't spent before to drive traffic. And so if the studios can get rid of that incremental class virtually have no incremental cost of putting a film on our screens and so they give us a window and let us use some money for the advertising, it would be out of the rents. There may be an interesting dynamic coming forward. We just don't know what that's going to be, I'm not going to tell you, I have the answer, but I would also tell you don't discount it either.

[Jim Goss:]

So the notion of working with Amazon and Netflix that sort of thing with some of the films that are only going to go on those services might be something that you and the rest of the industry can pursue.

[Greg Marcus:]

Yes. It goes back to the same comment I made earlier. If it can be in the theater and then it's exclusive on their service, it's still exclusive on their service and will drive traffic to their services. Of course they're going to want to do some specialties, that oh, it's premiering anything, but there's a lot of content that I think again, these are not wages, you cannot, it's not like you can decide which washer and dryer you want and then you can pick any one of them. If you like a piece of content, it is exclusive to wherever it's playing.

[Jim Goss:]

Makes sense because you don't really want the blockbuster to be in 12 of your 14 screens or something like that because you need to some variety to get the rest of the audience.

[Greg Marcus:]

Yes.

[Jim Goss:]

Okay. Well, thank you very much. I appreciate it.

[Doug Neis:]

Thanks, Jim.

[Operator:]

Thank you. At this time, it appears there are no more other questions. I'd like to turn the call back over to Mr. Neis for any additional or closing comments.

[Doug Neis:]

Well, certainly, I want to thank everybody once again for joining us today. Tomorrow, we'll be holding our Virtual Annual Meeting at 9

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.