Good morning, everyone and welcome to The Marcus Corporation Fourth Quarter Earnings Conference Call. My name is Chach, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference.

[Operator Instructions] As a reminder, this conference is being recorded. Joining us today are Greg Marcus, Chairman, President and Chief Executive Officer; and Chad Paris, Chief Financial Officer and Treasurer of the Marcus Corporation. At this time, I'd like to turn the program over to Mr. Paris for his opening remarks. Please go ahead sir..

The Way of Water. The balance of the increase in average admission price was due to strategic pricing actions and our Value Tuesday pricing changes, implemented earlier in the year. For the full year of fiscal 2023, average admission price increased 10.9% compared to the prior year.

Our average concession food and beverage revenues per person at our comparable theaters increased by 3.1% during the fourth quarter of fiscal 2023 compared to last year, driven by inflationary price increases implemented during the year and higher check averages across our circuit.

For the full year fiscal 2023, per capita average food and beverage revenues increased by 5.2% compared to the prior year. Theater division adjusted EBITDA of $14.7 million during the fourth quarter of fiscal 2023, increased approximately 5% compared to the prior year fourth quarter. Shifting to cash flow and the balance sheet.

Our cash flow from operations was $34 million in the fourth quarter of fiscal '23. For the full year, cash flow from operations was $102.6 million compared to $93.2 million in the prior year, which included approximately $28 million of nonrecurring income tax refunds and government grants received during fiscal 2022.

Excluding these nonrecurring items from the prior year, cash flow from operations grew $37.4 million, an approximately 57% increase. Total cash capital expenditures during the fourth quarter of fiscal 2023, were $12.9 million. And for the full year fiscal 2023, total capital expenditures were $38.8 million compared to $36.8 million in fiscal '22.

During 2023, the majority of our capital expenditures have gone to renovation projects in the hotels business with the balance going to maintenance projects in both of our businesses.

As we have shared with you previously, we expect a ramp up in our capital expenditures in fiscal 2024, as we continue several renovation projects in our hotel division and invest in maintaining and enhancing the customer experience in theaters.

For fiscal 2024, we expect total capital expenditures of $60 million to $75 million, with $40 million to $50 million in hotels and $20 million to $25 million in theaters. Of course, the timing of some of these planned expenditures could impact our actual total capital spending during fiscal 2024.

During 2023, we reduced long-term debt by $10.5 million, ending the year with a debt to capitalization ratio of 26% and net leverage of 1.2 times net debt to adjusted EBITDA.

While we invested in our businesses and reduced debt, we also returned $7.5 million in capital to shareholders in fiscal 2023 through our quarterly dividend, which we increased to $0.07 a quarter in the third quarter. We remain committed to returning capital to shareholders, while maintaining the strength of our balance sheet and liquidity.

We ended the fourth quarter with over $55 million in cash and $276 million in total liquidity. As we have discussed before, we have always believed in maintaining a strong balance sheet with a manageable amount of debt, including owning the majority of our assets. We believe our strong balance sheet is a strategic advantage.

As Greg will discuss further, our recently announced investment in a joint venture to acquire Loews Minneapolis Hotel is a great example of our financial flexibility and ability to move quickly when opportunities to invest in future growth arise. With that, I will now turn the call over to Greg..

A Film by Beyoncé. Overall, we were very encouraged by the progress the industry made in 2023, reconnecting with audiences and the commitment the studios have continued to show to theatrical exhibition as they realize how important it is to their investments in movies. As for our execution our team made a lot of progress as well.

We had a strong year of per capita revenue growth with average ticket price, growing 10.9% during the year. As we've shared previously, we made a number of changes to ticket prices from our price optimization and revenue management initiatives most notably our Value Tuesday changes.

While our pricing initiatives are the primary driver of our increase in average ticket price, I do have to thank Taylor Swift for 1.2 points of our per cap increase for the year. Our Marcus Passport program that we launched at the beginning of fiscal 2023 has been successful in bringing customers out for more consistent moviegoing.

This program allows customers to purchase a passport ticket with access to every movie that is playing as part of Marcus Theatres, film series. Our film series showcased multiple movies celebrate specific genres holidays, franchises, filmmakers and more.

The program launched last year at this time with the Best Picture Passport featuring the 10 Academy Awards, Best Picture nominees followed by additional series throughout the year including, Winter and Summer Kids Dream Passports for each -- each featuring 12 family films.

Flashback Cinema Passport, Hunger Games Passport, The Chosen Passport, Disney Pixar Passport and a Holiday Season Screening Passport. We expect to continue to expand our Marcus Passport offerings in fiscal 2024. We grew our Magical Movie Rewards loyalty membership by 14% to over 5.8 million members.

We continue to develop more ways to leverage MMR, Magical Movie Rewards to deliver marketing and promotions tailored to our customers' preferences. We have additional investments, in technology planned for our loyalty program in 2024 that we expect will drive greater insight into our customers and enhance our marketing programs.

And finally, like in our hotel division, the theater team has made significant improvements in labor management with a focus on guest per labor hour and operating hours' management.

We decreased operations payroll and benefits, as a percentage of admissions and concessions revenue by approximately two percentage points in fiscal 2023, compared to the prior year. Overall, it's been a year of great improvement and strong execution by our theaters team. And we're proud of these results.

Looking ahead, in the near-term, we expect the shutdown of movie production during the Hollywood strikes last year will have a negative impact on the number of wide releases during fiscal 2024. As I've said previously, the disruption from the strikes was not helpful to the industry, just as we were getting our momentum back in 2023.

Thankfully this is behind us and movie production ramped back up, but it does create a short-term content supply challenge. As of right now, we are projecting 95 to 100 wide release films in fiscal 2024 with the box office that is back-end loaded to the second half of the year.

As is seen in the daily domestic box office reporting, the first quarter was off to a slow start given the lower number of wide releases in January and February.

With that said, we are thrilled with the early reviews and strong advanced ticket sales for Dune Part 2 and see a stronger margin to gradually improving release calendar as we head into the spring and summer.

In the long-term, our view remains optimistic on the business and industry and we expect the product supply will get back to and potentially exceed 2023 levels in 2025. Finally, while we closed 600 performing theaters during fiscal 2023, we continue to evaluate opportunities to grow the circuit again by adding interactive locations.

These opportunities may include management contracts, taking over existing theater leases or partnering with landlords and acquisitions. We believe our strong balance sheet positions us well to execute on the strategy as attractive growth opportunities arise.

As Chad discussed in his remarks, in 2023 we returned $7.5 million to shareholders through our quarterly dividend. The Marcus Corporation has a long history of returning capital to shareholders and we remain committed to paying a dividend.

As we move past the more significant capital investments in our hotels planned for this year, we will continue to reevaluate the level of dividend and potential share repurchases to return incremental capital to shareholders to the extent we don't have actionable investment opportunities.

We have said many times, we view the world through a long-term lens. Our rate of improvement will vary from quarter-to-quarter and year-to-year, as it likely will in 2024 but I'm confident that we will continue to make consistent long-term progress.

We manage the business day-to-day but at the same time look at the overall performance of our investments with the goal of long-term sustained growth and industry outperformance. Finally, I would like to once again express my appreciation for our dedicated associates at the Marcus Corporation.

Their outstanding work and commitment to serving our customers is responsible for our success and we appreciate all that they do every day. They are our most important asset. So, on behalf of our Board of Directors and our entire executive team, thank you to all of our associates.

And with that, at this time, Chad and I will be happy to open the call up for any questions you may have..

Thank you. [Operator Instructions] Our first question today comes from Eric Wold from B. Riley Securities. Please go ahead..

Thank you and good morning, everybody. So a couple of questions. I guess one, you know you talked about the Milwaukee convention center expansion and kind of the group pace you're seeing this year kind of with and without the RNC then into next year.

Can you maybe dive into the those kind of figures a little bit more in terms of kind of what rates you may be seeing versus last year and kind of how -- I guess more broadly how you expect the expansion you mentioned to kind of boost kind of occupancy and RevPAR maybe in the region overall in the coming years?.

Well, Chad I think looking up for some specific data to try and help give you some color on that, Eric. But overall, it should be beneficial to the overall market. That's the whole point of the convention center.

The convention center actually was designed -- just to give a little color on what they did is -- we have a very tight -- we have a limited season here at Milwaukee. It isn't beautiful 12 months a year. It's getting better though this winter.

But -- so one of the challenges that we had with the convention center was its size and it basically could handle one convention at a time. Now -- and what would happen is, there's that setup and takedown period that happens when you bring in a new convention.

And during that time, the convention center, you can't use the convention center, which – look, the reason we build a convention center is to provide an economic benefit to the entire community whether it's through selling hotel rooms and the room tax and all of that generates and the economic activity that generates or car rental or ride-sharing usage or retail or restaurants, all of the things that a convention center brings.

It's the generator. It's not the entity itself. But the problem was it doesn't generate when it's in setup or take down. So when they built the center, when they made the decision to expand the center, the idea -- look, obviously, we can handle bigger conventions and the RNC is an example, of that.

But what should be -- what we're aiming to have happen with it is that you can back to back conventions. And so -- and that -- and we certainly, have room in our hotel supply especially, on the west side of our town, to handle more customers.

And that -- and that should be -- the benefit of having the convention center being able to handle back-to-back conventions, to just help the existing supply of hotels get better. And that should drive over time higher rates and better occupancy..

And so Eric, let me take the part on [indiscernible] sorry Eric, let me just take a part on the -- on your question on the impact of the RNC. When you look at the third quarter, I'm not going to get into the specific impact of what the sell-out for the week means in terms of, the rate that that's going to be at.

But in terms of the uplift to the quarter for the portfolio overall, you should think about this as like an 8% to 10% RevPAR uplift for the division in the quarter. And there's a lot of other things that happened in that quarter. It's our peak season. It's our biggest quarter of the year. So, there could be other puts and takes.

But when we just look at what the RNC could mean that's sort of how we think about it..

That helps. Maybe to just rephrase my broader question, a little bit differently. Obviously, the -- they can handle now 2 times the number of the conventions. I'm not going to make the assumption that the number of conventions in town doubled.

But let's say, take a number, let's say the number of conventions that the Milwaukee hosts goes up by 50% annually, because of this.

If you were to get what you normally get as your share of bookings and room rates and food and beverage from the convention business and that goes up by 50% as you maintain your share of that increased convention business annually going forward, what could that be into kind of annual revenues and EBITDA because of that?.

I don't know, that we have that number. I don't think, it's that robust though. Even if that were to happen, because remember it is our busiest season and we still have -- it will displace some business. It will drive some occupancy, but it will also displace some business at higher rates, but that's not a straight 50% add-on.

So I don't know off -- top of my head, what we're projecting at the convention center for -- what it will mean. We can’t find that data..

Yes. And I'd just say Eric, in terms of how they're booking events into the center, the building is going to open in May. And some of the event planners are going to want to see it done. And so, the impact is probably more of a late 2025 into 2026 type of -- hitting the new run rate.

And so we'll have -- I think have a better sense of what the feedback is from event planners, as they get through the first summer here, with the center opened and then we can start to quantify what that impact could mean to us..

And even on top of that like for example, there's a -- right after the RNC, there's a conference of event planners coming here, to see the new convention center. They have their annual conference and they go check out whatever that I guess the shiniest, newest thing is. And they're coming here.

And so, that's when they're going to be able to evaluate, our convention center, our hotel product, the whole market. But remember, these things are planned out years in advance. So, this is -- you got to have sort of a really long-term perspective on this. It's great for the long term, but its good to build on..

Okay. And -- just two more quick questions. I guess one on -- just quick on the theater side. I know you closed a number of theaters last year.

Is there anything -- I know if you can only come for valuation, but is there anything you can think of that's -- this year that's likely to be closed or exited?.

Yes, I don't know -- we did quite a bit of pruning last year, as we look at underperforming theaters. And as we look at lease maturities this year, nothing significant Eric, if its one or two maybe but right now nothing currently planned.

Okay.

And then – lastly -- with the Loews Minneapolis agreement, I guess one, how robust is the pipeline right now for additional deals maybe relative to how it was a year or two ago? And then, would you put that $2 million to $5 million investment kind of towards the lower end or the higher end of, what you would consider for future deals?.

The pipeline is better than it was a year ago. It's not like -- we're not -- it's not going crazy because the market is still -- it's still been somewhat -- with the financing markets, it's still somewhat tough to get transactions done and get buyers and sellers to come together.

I read today that the housing market, that now the homeowners are starting to understand what the value is and so the transactions are happening there, so maybe that will happen in the hotel market. But there are transactions happening and so we have, and we've got more we've and we're seeing better flow.

As for the dollar amount it's probably, I was thinking about, it's probably in the range, remember we have two partners on this deal, so we're only really picking up a third of the equity overall and we'll take some limited partners even on our end as well. And so it's probably somewhere, it's probably somewhere in that range even going forward..

Yeah, I'd say it's pretty average. You could see us do deals in this structure in that $5 million to $10 million range, depending upon how big the asset is and how many other folks we have in the deal. But this is, we'd like to do more of these with this structure..

Got it. Thank you both. Appreciate it..

Thanks, Eric..

[Operator Instructions] The next question on the line is from Jim Goss from Barrington Research..

All right. Thank you. I'd like to pursue a little more on what Eric was just raising. I know you always are rethinking for business mix and in recent years, you've taken this light approach to hotels, but it does reduce the relative impact of the hotel space on your business mix.

Now, this might be a little bit more than some of the other equity stakes you've taken in some of the hotels, but I wonder if you could just talk more broadly about what you think the mix should be given how hotels have acted recently for you relative to some of the issues you've had in the theatrical side..

Jim, I don't think that we have a set mix at this point. It's going to be sort of what, where do we see the best opportunities for our capital? And right now we're seeing opportunities on the hotel side.

To the extent that theater opportunities pop up, we're looking at them as well, and it's just sort of, I can't sit here and say, well, we've got X percent figured for each one right now, the best opportunity looks to be on the hotel side, but we'll see what happens with theaters and I don't know what's going to happen with that mix.

Neither of our, for us, we want to grow our businesses always, but neither of them really has at our, has big scale benefit.

We don't see huge scale impacts, because whether theaters, the scale really comes from marketing big national movies, which the studios are doing, and from hotels, it's the big, generally the national marketing elements of the big hotel companies, and so it's not that, that doesn't mean we have to say, okay, we've got to get to a certain scale size.

We just want to keep growing them, creating opportunities for our associates, creating opportunities for investment. .

Okay. And the, I don't know if I recall you saying it was a, basically a third each for three partners, so this does seem like a little step up in the equity that you've taken relative to some other recent transactions, so that's of interest.

Also, IMAX on its call was talking about a greater number of domestic opportunities for IMAX locations, and I know your, your focus is on your own PLF brands, but I wonder if you have any appetite in any of your areas for additional IMAX involvement, and also, is there a likelihood you would try to continue to pursue the multiple PLF brand option that you have in a number of your locations?.

Look, it all comes down to what the deal looks like. Right, as of now the deal hasn't, you can imagine, IMAX has our phone number.

They know how to find us, and we've talked, of course, we've talked to them for years, but when we sit down and do the math, it makes more sense to continue with our Ultra Screens and Super Screens, which have performed beautifully, and I would tell you, I think I've talked before, but historically, probably the first PLF in the history of the business came from us many, many years ago.

And with the first UltraScreen which that theater doesn't even exist anymore. I think how long ago that is. And but -- it's a numbers question, Jim and we just -- right now we like ours..

The only thing I'd add to that Jim is -- and we've talked about it a little bit during the year is the operational flexibility that we get from our UltraScreens in terms of scheduling and content and flexibility to what we're showing. It allows us to be really nimble, particularly in locations where we have multiple PLFs.

And we are looking at for 2024 a few opportunities to add some PLFs to the existing circuit and conversion. So, not huge numbers, but we did some of that in 2023 and we're looking at a few more..

But I would also tell you Jim, our PLF percentage I think is amongst the highest in the industry. In terms of attendance, PLF -- relative attendance, PLF is very high in ours..

All right. And one final one. You and others have talked about some additional alternative content popping up here and there. And I know you've been very creative in say creating a discount day. I think you were one of the early ones in doing that sort of thing, maybe the first.

Do you have any similar thoughts to create some habit toward alternative content, maybe target? I'm not even sure what I have in mind exactly, whether it be a certain genre movie or something like that on another weekday, day or something like that to maybe take advantage of the opportunity and the data you're able to exploit with your loyalty program to create an event that might make more out of the day than it would have been otherwise as you did with the discount day in movies?.

Well, I don't -- Jim that's -- I would tell you that, I like your thinking. And I don't have anything to tell you right this minute specifically, but trust -- but you hit on all the exact points, right? And we talk about how we're going to -- how we will continue to build with alternative content. And it is -- you're absolutely right.

Our loyalty program is hugely important so that we can -- because as I just talked about a minute ago, at a national level, the scale is really important from the studio side, right, because they really need to be able to -- look no matter, how good an alternative content get that's still going to be the huge piece of our business.

But our last customers are our most profitable. To the extent that we can build up our alternative content business, the ability to reach and talk and know who our customers are is of paramount importance and we are stressing that inside the business.

And then, the idea of, could you create a day's, I'm not sure if it's a date, but the underlying importance is this idea of our business is one of momentum and no matter what it is, the more you come the more you want to see. And so figuring out how to develop more frequency in an alternative content environment is extremely important as well.

So you are on to the important stuff. It's still R&D. We are working on things like that. A perfect example is Passport. Our Passport program is how do we sort of eventize and create something special around a bundle of alternative content? Harry Potter was unbelievably successful.

And that really in a way was alternative content, because it's repertory content at this point. And we've got our Oscar Passport that an alternative content right this minute, some of it could almost be. But it's how do we do things like that and know our customers better.

And that's where it does become important to have -- to leverage our loyalty program. So you're right on..

All right. Well, thank you very much. Appreciate it..

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

Thank you, operator. We'd like to thank everyone for joining us today for our business update. We look forward to talking with you again in early May, when we release our first quarter results. Until then, thank you and have a great day..

That concludes today's call. You may now disconnect your lines at any time..