The Marcus - Q1 2023

Transcript

Operator (participant)

Good morning, everyone, welcome to The Marcus Corporation Q1 Earnings Conference Call. My name is Maxine, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press * 0 and an operator will be happy to assist you. As a reminder, this conference is being recorded. Joining us today are Greg Marcus, President and Chief Executive Officer, and Chad Paris, Chief Financial Officer and Treasurer of The Marcus Corporation. At this time, I'd like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir.

Chad Paris (CFO and Treasurer)

Thank you, operator. Good morning and welcome to our fiscal 2023 Q1 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 Q1 results and in the Risk Factors section of our fiscal 2022 annual report on Form 10-K, which you can access on the SEC's website. We will also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com. The forward-looking statements made during this conference call are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. In addition, we routinely post news releases and other information regarding developments at our company that impact our investors, customers, vendors, and other stakeholders.

You should look at our website, marcuscorp.com, as an important source of information regarding our company. We also refer you to the disclosures we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-GAAP measure used in evaluating our performance and its limitations. A reconciliation of adjusted EBITDA to the nearest GAAP measure is provided in today's release. All right, with that behind us, let's begin. This morning, I'll start by spending a few minutes sharing the results from our Q1 with you, and I'll discuss our balance sheet and liquidity. I'll 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 open up the call for questions.

This morning, we reported another quarter of revenue growth as we continue to see demand improvement from customers in both of our divisions. In theaters, a significantly better Q1 film slate with a greater number of wide releases drove significant attendance and revenue growth, leading our overall improved results. In our hotel division, comparable hotel revenues grew as we continued to see year-over-year improvement in both occupancy and average daily rates. Consolidated revenues were $152 million in the Q1, an increase of 15.1% compared to the prior year quarter. Consolidated adjusted EBITDA for the Q1 was $9.5 million, a 182% increase from the prior year's Q1.

We provided a breakdown of our Q1 numbers by segment in our press release, as we will discuss today, our earnings growth in the quarter was driven by strong results from our theaters business. Below operating income, the one item to highlight is our Q1 interest expense decreased by approximately $1 million, or 26%, as a result of our lower overall debt level, which was approximately $72 million, or 28% lower than the end of the Q1 last year. Turning to our segment results, our Q1 fiscal 2023 admission revenue increased 24% compared to the Q1 of 2022, with an attendance increase of 13.9% driven by a significant increase in the number of wide-release films debuting in the quarter, which Greg will discuss further.

The film slate for the quarter not only featured more wide releases, but included a more balanced mix of smaller and mid-sized films that exceeded our and industry expectations and attracted diverse audiences. According to data received from Comscore and compiled by us to evaluate our fiscal 2023 Q1 results, United States box office receipts increased 26.3% during our fiscal 2023 Q1 compared to U.S. box office receipts during fiscal 2022. While our performance lagged by approximately 2.3 percentage points, we believe this was attributable to the Omicron variant of COVID-19 more significantly impacting other regions of the country during the Q1 of fiscal 2022, resulting in a higher percentage of box office growth in 2023 nationally than our primarily Midwestern markets.

We believe this is supported by our strong results last year when we outperformed the U.S. average box office by 4.7 percentage points during the Q1 of fiscal 2022 as compared to U.S. box office receipts during the Q1 of fiscal 2019. Our average admission price increased by 8.8% during the Q1 of fiscal 2023 compared to last year. The increase in average admission price in the quarter was primarily driven by an increase in our 3-D ticket sales for Avatar: The Way of Water, which like the Q4 of last year, accounted for approximately half of the admission per cap increase and represented 11% of tickets sold in the Q1 of 2023.

In addition, strategic pricing actions taken during fiscal 2022 in response to inflation contributed to the balance of the increase in our admission per caps. Our average concession food and beverage revenues per person at our comparable theaters increased by 5% during the Q1 of fiscal 2023 compared to last year's Q1. The increase in our concession food and beverage per caps was driven by three items. First, more customers bought concessions food and beverage. We refer to this as our hit rate, which we define as the ratio of concession food and beverage transactions to box office transactions. Second, customers bought more, resulting in higher check averages.

We believe customers are buying more as they make an experience of going to the movies and in part due to a new food and beverage menu introduced in the Q4 of last year, which we believe has positively impacted check averages. Third, prices were higher compared to the Q1 of last year as we are still seeing the impact of inflationary price increases implemented during 2022. Our top 10 films in the quarter represented approximately 74% of the box office in the Q1 of fiscal 2023 compared to 85% for the top 10 films in the Q1 last year. While there was an overall broader slate of films in the quarter, there was not a lower concentration among the performers at the top at higher film costs.

The rest of the slate performed better than last year's Q1, resulting in an overall film cost as a percentage of admission revenues that was essentially flat. Turning to our hotels and resorts division, revenues were $55.8 million for the Q1 of fiscal 2023, an increase of 6% compared to the prior year. The sale of the Skirvin Hilton late in the Q4 of fiscal 2022 had a $3.5 million negative impact on revenues in the Q1 of fiscal 2023 compared to the Q1 of fiscal 2022. Excluding this impact, comparable hotel revenues in the Q1 of fiscal 2023 increased $6.7 million or 13.6%.

Total revenue before cost reimbursements at our seven comparable owned hotels increased over $4.8 million or 11.5% over the Q1 of fiscal 2022. Typically, the Q1 is impacted by our normal seasonal winter headwinds at our predominantly Midwestern portfolio of owned hotel properties. While this winter was certainly no exception, demand was also negatively impacted by an unusual lack of snowfall that limited the ski season at our Grand Geneva Resort & Spa. We did continue to see improved conditions for group events compared to the Q1 last year. RevPAR for our comparable owned hotels grew 17.5% during the Q1 compared to the prior year.

Breaking out the Q1 numbers for the comparable owned hotels, more specifically, our overall RevPAR increase during the fiscal 2023 Q1 compared to fiscal 2022 was due to a 6.6% increase in our average daily rate or ADR and an overall occupancy rate increase of approximately 5 percentage points. Our average fiscal 2023 Q1 occupancy rate for our owned hotels was 50.8%. According to data received from Smith Travel Research, comparable competitive hotels in our markets experienced an increase in RevPAR of 25.6% for the fiscal Q1 of 2023 compared to the Q1 of fiscal 2022. Again, our competitors are playing a bit of catch up.

We believe that after our owned hotels outperformed the comparable competitive hotels with significant market share gains during 2020, 2021 and 2022, the comparable competitive hotels have begun to catch up, resulting in RevPAR growth rates that were higher than our owned hotel portfolio. With this said, the RevPAR index for our hotels remains in excess of 100, indicating that we continue to take more than our share of the market while normalizing closer to our pre-pandemic index levels, which historically ran above 100. In addition, the impact of the slow ski season, which has a greater impact on room demand at Grand Geneva during the winter months, allowed other hotels in our competitive set that are not reliant on the ski season to capture some market share during the quarter and resulted in our lower RevPAR growth.

Finally, our banquet and catering operations continued to perform well. This is reflected in our food and beverage revenues, which were up 4.7% in the Q1 of fiscal 2023 compared to the prior year. The hotel adjusted EBITDA was negatively impacted by approximately $500,000 from the sale of the Skirvin compared to the Q1 of last year. As we compare our adjusted EBITDA to the Q1 of last year, it's important to point out that in the Q1 of 2022, our expenses benefited from operating the hotels below our targeted staffing levels due to labor shortages in the first half of last year.

With an improving labor market, we have been able to sustain more appropriate staffing levels for the current demand and occupancy levels, resulting in a negative impact to adjusted EBITDA from higher labor costs with increased staffing levels compared to the prior year Q1. We continue to work through finding the right balance of labor. There were some pockets of labor staffing inefficiencies in the Q1 resulting from a softer Q1 than expected at some properties. With this said, while our staffing levels are higher than last year, they are below our pre-pandemic levels. It is also important to highlight that we have seen a significant improvement in customer satisfaction scores compared to our scores last year in the Q1 when we were short-staffed. We believe customer satisfaction is key to the long-term performance of our upper upscale hotels and resorts.

In the Q1 of 2022, adjusted EBITDA benefited from an all-hotel buyout at one of our condo hotel properties, an event that doesn't happen every year and did not recur in the Q1 of 2023. The Q1 of 2023 was negatively impacted by unfavorable timing of maintenance and repairs compared to the prior year. Shifting to cash flow in the balance sheet, our cash flow from operations was a use of cash of $7.7 million in the Q1 of fiscal 2023 compared to cash provided by operations of $6.5 million in the prior year quarter, which included approximately $28 million of non-recurring income tax refunds and government grants. Excluding the one-time benefit from receipt of these items in the prior year, cash flow from operations improved approximately $14 million or 64%.

As a reminder, our cash flow from operations in the first fiscal quarter is historically impacted by seasonal changes in working capital resulting from the slowdown in our businesses following the peak holiday season and by the timing of various year-end accounts payable and compensation payments. Total capital expenditures during the Q1 of fiscal 2023 were $9.5 million compared to $3.1 million in the Q1 of fiscal 2022. A large portion of our capital expenditures during the Q1 were invested in renovation projects in the hotels business, with the balance going to maintenance projects in both businesses.

At this early stage of the year, I have no reason to make any major adjustments to our previous estimate for capital expenditures for fiscal 2023 of $60 - $75 million, recognizing that the timing of several of our planned expenditures are still just estimates at this time. We are still finalizing the scope and timing of various projects, and the actual timing of these projects will impact our final capital expenditure number for the year. We will update our capital expenditure estimates as the year progresses. We ended the Q1 with $10 million in cash and over $223 million in total liquidity, with a debt-to-capitalization ratio of 30% and net leverage of 2.1 times net debt to adjusted EBITDA.

We continue to believe in maintaining a strong balance sheet with a manageable amount of debt, including owning the majority of our assets. We view the strength of our balance sheet as a strategic advantage that provides flexibility and allows us to move quickly to invest in growth for the long term when actionable opportunities are identified. With that, I will now turn the call over to Greg.

Greg Marcus (President and CEO)

Thanks, Chad, and good morning, everyone. Today is May 4th, a very important date to Star Wars fans out there because as they say, "May the fourth be with you." . We entered the year with a plan for growth and with the optimism that 2023 was expected to deliver another year of improvement in our businesses. During the last couple of years working through the pandemic, the pace of progress between our two businesses has been different and changes from quarter to quarter. Throughout 2022, our hotels division led the recovery back to pre-pandemic levels, revenue levels, and delivered a record year. Our theaters division has had an extended recovery that continued into 2023.

The Q1 generally played out as we expected 2023 to develop overall, with theaters leading the growth and improvement in our results, with the hotels still growing comparable revenues, at a more moderate rate of growth than in fiscal 2022. With the normal seasonal headwinds in our hotel business, the Q1 is always challenging, it's incredibly helpful when we're able to get off to a good start as we did this quarter. The Q1 that we are reporting today continues to make year-over-year progress, we're pleased to be sharing these results with you. I'll start with theaters. Chad went over the numbers with you, including our continued significant increases in per person revenues.

As we shared with you on our last call, our theaters division got off to a much stronger start than last year, with higher attendance driven by a significantly stronger film slate led by carryovers Avatar: The Way of Water and Puss in Boots: The Last Wish. We were pleased to see the quantity of wide-release films with exclusive theatrical windows increase significantly, with 21 wide releases in the Q1 of fiscal 2023, compared to 12 in the prior year's Q1. Wide-release films are what really drives our theater business. We've talked in the past about the importance of having a more consistent cadence of new theatrical wide releases to re-habitualize audiences to moviegoing. This year's release calendar started a run of more steady weekly theatrical releases that began earlier in the year compared to the Q1 of last year.

It was also helpful that a number of films outperformed industry expectations for both their openings and their overall runs. We were particularly thrilled to see this outperformance come from a variety of genres and mid-size films, including M3GAN, A Man Called Otto, 80 for Brady, and Cocaine Bear. Having a balanced film slate that includes a healthy portion of box office coming from these mid-size films is critically important to the overall ecosystem of film entertainment. Chad shared that our admission revenues per person grew nearly 9% year-over-year, half of which was attributable to an increase in 3D ticket sales driven by Avatar. I'd like to provide an update on our various strategic pricing initiatives that contributed to the other half of the admission per cap increase in the quarter, and those initiatives that we expect will impact per caps throughout 2023.

As we approach ticket pricing, we're always trying to balance supply with demand to optimize price and maximize attendance. Our company has a long history with revenue management in the hotel business, where we are essentially pricing rooms dynamically every day, also known as delivering the right price to the right customer at the right time. We try to apply that philosophy to our theater business. While we don't go as far with dynamic pricing in our theater business, over the last nine months we've made several adjustments to pricing for peak demand periods, while also continuing to provide discounts for our value-oriented customers. These changes include tilt pricing with higher ticket prices on holidays and weekends, as well as lower ticket prices on certain weekdays such as Student Thursdays, Young at Heart, Senior Friday Matinees, and of course, our hugely popular and newly rebranded Value Tuesday.

We led the industry in 2013 when we launched our first Tuesday discount program known as Five Dollar Tuesday. The concept was simple: sell a roughly 50% discounted ticket on a weekday with otherwise low attendance, with the goal of appealing to value-oriented customers who'd stopped coming to the movies at our regular prices. To make it an even better deal, we provided a free complimentary sized popcorn. What we quickly discovered was that there was a significant group of price-sensitive customers who stopped coming to the movies or never came at all, who had become regular moviegoers at this price point, and it became an important component of our customer base.

I'm proud to say that we've been committed to our value-oriented customers since the launch of our Tuesday discount program. We held the Tuesday ticket price at $5 for a long time, nearly 10 years. Last year, as inflation put pressure on our costs across the business, we started to explore how to adjust our Tuesday pricing while still providing a great value for our customers and making the program even better. We tested several different Tuesday changes in different markets beginning in October last year. We were pleased to roll out our new Value Tuesday program on March 28th.

Our new program features $6 admissions for members of our free-to-join Magical Movie Rewards loyalty program, $7 admissions for non-loyalty customers, 50% off surcharges for our UltraScreen and SuperScreen premium large format tickets, and perhaps most importantly, 20% off all concessions, food and non-alcoholic drinks for MMR loyalty members. Instead of a small free popcorn, which appeals to many but not all, our customers can now enjoy all of our great menu items from Zaffiro's Pizza to burgers, sandwiches, wraps, wings, and traditional concessions at a 20% discount on Tuesdays. Whether customers pick up their order at a concession stand or have it delivered to their recliner seat for in theater dining, they now can try all of our great food options at a great value.

We believe that the expansion of Tuesday discounts to our entire food menu provides a more affordable offering that will increase the number of customers who are buying concessions, food and beverage, and also increase how much they're buying, with the goal of increasing our overall F&B per caps. While our new Value Tuesday program launched on the last Tuesday during the Q1, in the weeks since its launch, the results have been positive. As we expected from our pilot tests, we have not seen a negative impact on attendance or market share as a result of the admission price changes, and we're seeing positive impacts on our per caps. Anecdotally, customers have been pleasantly surprised when they learn of our new expanded discounts on food and beverage.

As we look ahead, the Q2 in our theater division is off to a great start. Of course, I have to start with the Super Mario Bros. Movie. Emphasis on the word super. It's a great film that has blown away all expectations. It has played exceptionally well in our circuit with family audiences. Beyond just the smashing success of Mario, April has continued the recent trend of a more balanced, steady diet of wide release films across several genres with Dungeons & Dragons: Honor Among Thieves, Air, and Evil Dead Rise all exceeding expectations. Last week, Chad and I were with our theater team at CinemaCon. There were a couple of key observations that we came away with. First, there was a significant increase in the excitement and energy around theatrical exhibition overall.

The momentum in our industry feels much more positive than it did a year ago or even just a couple of quarters ago. Our studio partners delivered a message that reaffirmed the importance of theatrical exhibition to the overall filmed entertainment ecosystem and our role in elevating their content. We are encouraged by the additional releases that have been added to the film slate for 2023 in the recent months, and we're now projecting 100-110 wide release films for the year.

Second, we got a closer look at the film slate for the rest of 2023 into 2024, and based on what we saw, we are really excited with what's coming. There really is going to be something for everyone from action films like Fast X, Indiana Jones and the Dial of Destiny, and Mission: Impossible – Dead Reckoning, to family and animated films like The Little Mermaid, Elemental, and Haunted Mansion, to superheroes like The Flash, Spider-Man: Across the Spider-Verse, and Guardians of the Galaxy Volume 3, opening this weekend, plus so many more in genres like comedy, romance, drama, and horror. We believe it's going to be a great summer with films that will continue to bring audiences back to the theaters. Shifting to our hotel and resorts division.

You've seen the segment numbers, and Chad shared some additional detail, including the bridge from our reported results to our comparable hotel results following the sale of the Skirvin Hotel late last year. Given that most of our company-owned hotels are located in the Midwest, we typically lose money in the division during the winter months, and the Q1 of fiscal 2023 was no exception. Add in a winter without snow in our neck of the woods, and you get a very disappointing ski season. We certainly had some challenges in hotels for the quarter that the team worked hard to navigate through. There are a few highlights in the quarter that I would like to point out. Overall revenue before cost reimbursements at our comparable properties grew over 11% compared to the prior year.

We continue to see strong average daily rates and improving occupancy. RevPAR grew at all seven of our comparable owned hotels, with average daily rate growth at all seven hotels and occupancy growth at five out of seven hotels, resulting in overall RevPAR growth of 17.5%. As Chad mentioned, while we underperformed the RevPAR growth of our competitive sets, when you dig into why, it was ultimately because occupancy at our hotels recovered faster in 2022 than the competitive hotels in our markets. In other words, competitive hotels in our markets were able to grow occupancy more than us this year compared to last year because of how behind they were our occupancy rates last year.

We still feel very good about the performance of our assets in their markets and their ability to take more than their share of the market. Group business in the quarter continued to grow over the prior year, particularly midweek, and the bookings continue to look good. Our group room revenue bookings for the remainder of fiscal 2023, our group pace in the year for the year are running ahead of where we were at the same time last year. Banquet and catering space pace for the remainder of fiscal 2023 is similarly ahead of where we were at this time last year. As we prepare to renovate the meeting and banquet space at Grand Geneva and The Pfister this year, we feel good about the outlook for group business.

According to a recent Expedia survey, 71% of meeting planners surveyed indicated group travel is more important now than pre-pandemic. We believe our properties will be well positioned to capitalize on this trend. Leisure travel, which has been so strong for our owned hotels since the beginning of the pandemic, did show some potential signs of softening. This is not particularly surprising given the cold winter and wet spring we experienced in the region, but we will continue to watch closely for further indicators of broader changes in leisure demand. Chad mentioned our investments in the quarter in renovations in our owned hotels. Yesterday, we announced the renovation and redesign of Grand Geneva Resort & Spa's 358 guest rooms will complete in time for Memorial Day weekend at the end of this month.

This is the third investment in a series of recent extensive renovations for the resort, which included a lobby and lobby lounge renovation, plus the launch of its 60-seat outdoor dining venue in 2021, completely new guest room bathrooms, and heating and cooling for guest comfort in 2022. Now, newly transformed guest rooms and suites featuring a warm contemporary design. Starting this week, all guests checking in will enjoy the newly redesigned rooms. In the coming months, we will finish this phase of the resort renovation with redesigned meeting and event spaces. I've talked in the past about our special hotel assets that perform so well with leisure, group, and business travel customers, and Grand Geneva is a truly special asset that has appealed directly to the bleisure traveler that attends a midweek conference and stays for the weekend.

We are thrilled to complete this project and open the refreshed rooms in time to deliver an exceptional experience to our guests this summer. Finally, I would like to once again express my appreciation for our dedicated associates at The Marcus Corporation. Their outstanding work and commitment to serving our customers is responsible for our success, and we appreciate all that they do every day. They are our most important asset. On behalf of our board of directors and our entire executive team, thank you to all of our associates. With that, at this time, Chad and I would be happy to open the call up for any questions you may have.

Operator (participant)

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you do change your mind, please press star followed by two. When preparing to ask your question, please ensure that your line is unmuted. Our first question today comes from Eric Wold from B. Riley Securities. Please go ahead, Eric. Your line is now open.

Eric Wold (Managing Director and Senior Equity Analyst)

Thank you. Good morning, guys. 2 questions on the hotel segment. I guess when you talked about the competitive hotels, in your market kind of catching up on the gains that you've made over the prior, you know, 2 to 3 years, I guess maybe what are you seeing as a result of that within your market? Are the markets, you know, and overall demand ramping enough to accommodate, kind of everything? Have you needed to make changes in your markets on pricing or marketing to adjust around kind of that competitive, changing competitive landscape? No. Not really. I don't think so, no. You know, because. No, it's not like. If what you're saying is like, are we having to like, lower our price to remain competitive?

Greg Marcus (President and CEO)

No. It's, you know, we've stayed consistent with our philosophy and how we're charging. I think it's just, you know, a little. It's, you know, one of the advantages of, you know, if you go back to how we operated during the pandemic, you know, you all remember, we were very deliberate about, you know, saying, "We wanna get open as early as we can. We, you know, we wanna be in business as early as we can." That allowed us to keep our teams in place in ways that others were certainly not in our markets. I mean, there were some hotels that were closed in our markets certainly much longer than we were. That gave us a leg up. You know, that is.

If you go back, you know, when you go back, and I'll be the historian, you can go back to different, you know, cycles and remember that we're able to make investments in down cycles. We're able to perform better in down cycles because of how we structure our balance sheets, and this was no different. What happens is, as things turn, we come out ahead. You know, we do end up having. There is some catch-up. Yet we still end up ahead at the end of the day in share, it's just catch-up.

Chad Paris (CFO and Treasurer)

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

Eric Wold (Managing Director and Senior Equity Analyst)

Got it. That's helpful. Then, you know, I know you're always hesitant to maybe give specific timelines, so I'm not necessarily looking for that. Kind of after the, you know, the sale of the Skirvin hotel in December, can you just give us a better sense of kind of when, however general of a timeframe you wanna give, you know, when the other, kind of, you know, pit deadlines may be around kind of the other hotels that may be in that spend or not spend decision process, just so we can get a better sense of kind of when, we may or may not see, you know, either rampant spending or not kind of flowing into the model?

Chad Paris (CFO and Treasurer)

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

Eric Wold (Managing Director and Senior Equity Analyst)

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

Chad Paris (CFO and Treasurer)

I'll start. I'll let Greg comment. We have a real good sense of what the investment required would be. It really is whether or not the ROI on the project is there and what we can do to help get, you know, local support in some cases to get these projects to make sense.

Greg Marcus (President and CEO)

I think at the end of the day, you know, we're committing dollars to our hotel business. What the calendar of that is going to be, or whether it's even in the assets we see, it could be, you know. We haven't really said what is the exact. We don't wanna give a calendar yet because we just can't. It'll just depend on, you know, things that are externally beyond our control in terms of specific assets, as Chad alluded to. What kind of support, you know? The significant assets like these do involve certain levels of external support that even go beyond our balance sheet. I'm not saying equity financing. I'm talking about, you know, public financing, things like that.

How those shake out will have bearing on what we do. If we don't do a certain project, we might move that capital somewhere else. That could take a while, so we just don't know what the calendar is.

Eric Wold (Managing Director and Senior Equity Analyst)

Got it. Thank you both. Appreciate it.

Operator (participant)

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

James Goss (Managing Director and Senior Equity Analyst)

All right, good morning. You mentioned that the Avatar represented about or accounted for about half of the increase in admission prices. I assume that's because it was tended to be viewed on PLF screens. I was wondering if you could talk about the PLF share of the mix in the Q1 and how you think that would work in the following quarters.

Chad Paris (CFO and Treasurer)

Yeah. That's right, James. The half of the increase in the per capita was due to the increased mix of 3D ticket sales.

Greg Marcus (President and CEO)

3D and PLF. That's the point.

Chad Paris (CFO and Treasurer)

Yeah. Right. The half represents 3D. The, you know, overall PLF mix this quarter was actually a couple of points lower than it was last year in the quarter. When you look back at the mix of films, with Spider-Man playing into Q1 last year, that's, you know, really why. Though it, you know, we're not talking about big changes. Our, I'm not gonna give our exact PLF percentage of total ticket sales, but that's generally been pretty stable because we've built out the number of PLFs and, you know, done that in most of the places where we can do it. We added one PLF screen in the Q1 this year.

We continue to look at are there other opportunities in the circuit to add PLFs, I don't expect big step function changes in our PLF composition like we were building pre-pandemic.

James Goss (Managing Director and Senior Equity Analyst)

Okay. Were you charging-

Chad Paris (CFO and Treasurer)

by the way, we...

James Goss (Managing Director and Senior Equity Analyst)

You were 3D on PLF separately? Both?

Chad Paris (CFO and Treasurer)

Sorry, James, I didn't catch that.

James Goss (Managing Director and Senior Equity Analyst)

I just meant was there an upcharge for both PLF plus 3D in the ticket pricing?

Chad Paris (CFO and Treasurer)

Uh, the-

James Goss (Managing Director and Senior Equity Analyst)

Should I ask?

Chad Paris (CFO and Treasurer)

The impact of the change in PLF percentage of PLF of our total ticket mix was not significant. It was really the 3D.

James Goss (Managing Director and Senior Equity Analyst)

There's an increase for 3D.

Chad Paris (CFO and Treasurer)

There is, yes. Half of the increase is due to 3D.

James Goss (Managing Director and Senior Equity Analyst)

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

Greg Marcus (President and CEO)

Oh, I was just gonna say, what it does reflect is, you know, we have probably one of the more significant installed bases of PLFs in the industry relative to size.

James Goss (Managing Director and Senior Equity Analyst)

Mm-hmm.

Greg Marcus (President and CEO)

As there's been a move to customers wanting to experience that way, studios liking it, 'cause obviously the ticket prices are higher, it's been to our benefit.

James Goss (Managing Director and Senior Equity Analyst)

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

Greg Marcus (President and CEO)

I think, look, it's. If I had a crystal ball, I don't know. I would say what I don't know for sure, we don't know for sure. There are some things that you can look to to say, you know, what are the things that we haven't? You know, I don't know if as we get more customers and the lines get a little bit longer, is that gonna impact those per caps? I don't know. You know, what happens in the economy, I don't know. Sometimes that can go either way. All of a sudden the families that are going out for dinner may just make dinner at a movie theater, so that can cut both ways.

Things that we know for sure, with our change to Tuesday, we know it's impacting our per caps. That's a positive. That's going forward. That's a positive to per caps, could offset anything so. We know as we get better with our app, and we're really still in the, in the early days of that, you know, the ability to upsell, the ability to do a last time offer, those features of the app. You know, when you got a long line and you're, you know, a young concession attendant standing at that concession line, you may not be trying to think, "How do I upsell that every customer?

I'm just trying to get through the flurry that's coming at me for the 7:30 show. When the app isn't worried about that, it just always upsells. We think there's gonna be op- we know that there's op- we're already starting to see signs of it. There's, so again, I can't, I can only tell you what I, what we're seeing and what can, what different things that can happen, but I think it's a positive story.

James Goss (Managing Director and Senior Equity Analyst)

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

Greg Marcus (President and CEO)

Yeah. It does, because we can see who's coming. You know what, I don't, I don't have that. I don't know, we don't have that data. Maybe if someone from theaters wants to text me listening to the call and can tell me the number if they have it off the top of their head, but I don't know that number anymore. We know there was a measurable percentage that did, and that's one of the things we liked about it is people get, you know, look it, as we get back to that more normal cadence of release, we have more opportunity for that as well. You know, when there's less releases, there's just less opportunities for people to double up. We know, we always knew that was one of the benefits for a certain segment.

Yes, our rewards program can track that. As now, again, with the change in the, to the Value Tuesday and the discount for being in the program, we're gonna obviously have more members in the program, and so we'll have more ability to track and have a better relationship with those customers.

James Goss (Managing Director and Senior Equity Analyst)

All right. Thanks very much. Appreciate it.

Greg Marcus (President and CEO)

Oh wait, the text came in. Maybe we can answer your question. Let's see what the answer was. The answer is.

James Goss (Managing Director and Senior Equity Analyst)

Let me ask this now.

Greg Marcus (President and CEO)

No. That was, that is not the, that's not... It was the specific on the, on the upcharge for 3D, which is, in an UltraScreen it's, 3D is a $3 upcharge, so it's a $1. I'm sorry. 3D is an extra $1 in an UltraScreen. That was to, I think, Eric's question.

James Goss (Managing Director and Senior Equity Analyst)

Yeah. Okay.

Greg Marcus (President and CEO)

So.

James Goss (Managing Director and Senior Equity Analyst)

All right.

Greg Marcus (President and CEO)

Sorry. maybe the answer on overlap will come in shortly.

James Goss (Managing Director and Senior Equity Analyst)

All right.

Chad Paris (CFO and Treasurer)

Thanks, James.

James Goss (Managing Director and Senior Equity Analyst)

Thank you much.

Operator (participant)

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

Mike Hickey (Equity Research Analyst)

Nice. Thank you. Hey, Greg, Chad. Good morning, guys. Nice quarter. Congratulations. Just a few questions from us. Greg, you mentioned CinemaCon. I agree with you, man.

The bars was big this year. You touched on, I think, some important narratives spinning out of the conference this year, but just curious if you could double-click on film product. That obviously seems like the crux here when we look to bridge current box office to pre-pandemic. Just curious, any incremental tidbit you might have on sort of the commitment, I guess, from traditional studios in terms of delivering wide release or otherwise film product. I know you raised your numbers for this year, but when you think about this year and next year and sort of bridging to where we were in terms of volume pre-pandemic, if you think there's enough here to get us there, and then how you're thinking about streamers. I know you've been, at least my view, Greg, you've been somewhat cautious there.

A lot of that may be windowing, but it looks like Amazon and Apple seem to stand out this year in terms of real commitment in terms of putting films to theaters and some bigger films at that. Just sort of curious your thoughts there, and I got a follow-up.

Greg Marcus (President and CEO)

Well, you know, I'll sort of talk generally now, and if Chad can add some specifics on sort of release numbers. You know, the I'm not ready to do a victory lap. I think we have to keep pressing the case and the case for theatrical being a part of that ecosystem and a valuable part. It's good to see the players recognize that it's important, and that's the good vibe that we're all feeling and hearing, and that is people saying, "Yeah, you know what? We would like some additional revenue." I'd sort of describe it as affinity, awareness, and revenue, right?

If you make film content, well, let's start with, I'd like some more money. Who doesn't, right? Put it in the theater. Remember, with, in the old world of prints and advertising, prints is gone. All you have to really do is recover your marketing cost, you now have, in addition to revenue, you have awareness, the second point I was making. That is, that film, when it now shows up in the ancillary markets, actually has some meaning to people. When they're looking at the you know, 150 tiles as they scroll through their streaming menu, they see that film, and they say, "Oh yeah, I remember that.

That meant something. That catches their eye and drives them to want to see it. Then, you know, then there's the affinity, that's something that I think is so important to anyone with a product, right? This idea that, you know, people come up to me, and they say, you know, 'cause, you know, they know who I am, and they'll say, "You know what? I went to the movies with my dad, you know, every month. We go every month, and it's really important to us to do this." I had someone come cry the other day, you know, last month, and how important it was during the pandemic to go to the movies.

No, no one is gonna say, or no kids are gonna say, "I remember watching Super Mario for the first time on the couch with my parents." They will. They'll enjoy it, they're not gonna say that. They're gonna say, "I remember going to the movies for my first time with my parents to Super Mario when I thought Super Mario was real, they held my hand, they bought me my popcorn." That affinity with the product is so important, I think those things combined are what we're seeing, you know, at an event like CinemaCon, that realization. The streamers, because again, they're studios. Call them streamers, that's the those studios are seeing. That's why they wanna participate, and that's a good thing.

We have to keep pressing that business case, 'cause that all is a business case for why. There's a lot of emotional reasons why people like theaters. Frankly, I just laid out the business case for it, and we have to keep pressing that, and we will. We're seeing the results of that with more film coming into the ecosystem. Chad, if you wanna speak to that any more specifically, go ahead.

Chad Paris (CFO and Treasurer)

Yeah, I mean, just on the numbers, as you probably noticed, we took up the guide on the number of wide releases a touch. We're now at 100 to 110. I'd just say we tend to be a conservative bunch, so there feels like there's probably some upside to the range as we progress through the year. You know, things seem to be dropping in this year more than they seem to be sliding out of the calendar year. That's a very different feeling than last year. From what our film buying folks are hearing is there may be a few more things that hopefully drop into the holiday period later in the year. You know, we'll see.

On the bridge back to pre-pandemic wide release numbers, at the top end of the range at 110, you're starting to, you know, get within throwing distance of the 115-120 that we had before. We're not there yet, but we're making progress, and when the streamers start to lay in incremental content, you know, we're very encouraged. What helps that I'd add to Greg's comments, is when the films from the streamers perform well and overperform, like Air did and continues to play really well in our circuit, I think that just hammers home the case as to why they ought to do this.

Some of the other titles coming later this year, whether it's Napoleon or Killers of the Flower Moon, you know, things like that, we're excited about how those films may perform to continue to persuade value, the streamers of the value proposition.

Mike Hickey (Equity Research Analyst)

Nice. Thanks, Greg. Chad, appreciate your thoughts there. I guess when you it looks like your theater count, Greg, is down two for the quarter. I'm not sure if that's just how you've owned versus managed or how you're thinking about that, but it looks like it's gone down a bit and sort of adds to.

Broader shutdown of screens, which I think, sort of post or since the pandemic, I think is about 5% of the screenings have gone dark. Just curious if you think, obviously Regal's got their thing, that's obviously fluid. When you think about dark screens here or screens being shut down, whether it's permanent or temporary, do you think we've sort of reached a bottom here? Do you think there's more screens that need to come out of the system? On the flip side, you've created a tremendous amount of value over the years by, you know, being able to acquire the theater networks and adding sort of the Marcus mix into them, whether it's recliners and food and beverage and sort of grown your overall EBITDA.

It seems like that's been sort of the main driver for you. Obviously your theaters are going down, not up, but are you actively thinking about deals, trying to find theaters, especially with the backdrop you gave with CinemaCon and all the buzz and the support from studios and streamers and the believability that the theatrical medium is gonna continue to grow over time and sustain itself? Are you now in a position to looking to be adding screens, not shrinking?

Chad Paris (CFO and Treasurer)

Let me take the first part of the question on the contraction. I'll let Greg take the M&A piece. We did close a couple of locations, one in the quarter, one since the end of the quarter. You know, on an ongoing basis, we're always looking at the performance of individual locations, in terms of financial performance and attendance and local market competitive dynamics, and what other locations we have in a market. In these cases, these were underperforming theaters that we just, you know, thought our customers, you know, frankly, in one case, would go to one of our nicer theaters also in that market. I'll call that pruning, where we're looking at the portfolio and doing what we think makes sense.

That's an ongoing process. You know, as to those specific theaters, you shouldn't anticipate those reopening. They're permanent closures.

Greg Marcus (President and CEO)

I think to your point, and that is. I've said for a long. There were never. As many theaters as people think might close, that won't happen because what happens is the landlords, you know, look and say, unless it's really an obsolete theater, which in some, like in, like one of our, like example for ours, tends to be an obsolete theater. Unless it's either, unless it's obsolete or there's a higher and better use like for the land, because generally the buildings themselves are not really that configurable, you know, reconfigurable into too many other things.

They can, and we've done it in the past, but, you know, it's not like, you know, a sporting goods tenant leaves and a soft goods, you know, a clothing tenant moves in. You know, that's not, doesn't have that kind of flexibility. You know, as things restructure, leases tend to just get restructured and theaters don't go away, as much. Even some of the obsolete ones probably could go away and won't affect the country on a national basis in terms of where the grosses will be because the bulk of the grosses don't come from, you know, a chunk from those low, you know, those smaller theaters that are essentially obsolete. They aren't going away.

But again, it doesn't matter to us too much because there's not a lot of, you know, we're not, there's not a lot of market share to be picked up in those markets where we operate as opposed to someone closing nearby. We're also, we're actually looking to shift market share when we close a theater. That's sort of the dynamic I see around what's going on in the industry with those. As it relates to M&A, you know, look, I, there hasn't been much going on. We're looking at things that are being, you know. I would tell you that the one circuit that's in bankruptcy keeps moving around what they're rejecting. It's hard to even know where they are right this second.

Mike Hickey (Equity Research Analyst)

Hmm

Greg Marcus (President and CEO)

What they're keeping. But we'll look at those where the opportunities where they've rejected and the landlords are looking for a new tenant. And we would, you know, if the price was right, we could make an acquisition. I do think that basically in a lot of the dynamics on the small end, because most of them, let's face it, nobody else, once you get past the big circuits, ever, they're private. Private circuits were really big beneficiaries of the Shuttered Venue Operators Grant, the SVOG money. They got a lot of money from the government, and that gave them a lot of breathing room. A bunch of them, I'm sure, are waiting to sort of see how things shake out, where things stabilize.

Some will just like being in the business. There's always we've always said this is a business that is, you know, it doesn't have, there's not a, there's no, people don't sell on a pattern. It's not like a lot of people buying and suddenly going to sell in five years or seven years, like in a private equity fund. If they're family-owned, they sell when it's on their time. If there's nobody to continue to run the business, somebody wants to get out. That being said, there may be some people who say, "Okay, yeah, this last one wasn't a lot of fun, and I'm ready once it stabilizes." The financial pressure is not there in ways you think it might be.

Mike Hickey (Equity Research Analyst)

Okay. Thanks, guys. The, I guess I'll sneak one more on the hotel side. The Hilton Milwaukee, I'm just curious, Greg, if you still think that's sort of a strategic asset for you, just given the competitive dynamics that have changed so much, I guess, in your local market. You can add color there if you want, and sort of where you are in terms of if this needs capital or not and how you think hold versus sell on that property. Thank you.

Greg Marcus (President and CEO)

You know, as it relates to that specific asset, look, it's a strategic asset. We evaluate, you know, every asset every day, and, you know, we're looking at that asset right now. You know, there's good things happening in the market, in terms of the convention center expansion. At this point, we're really not prepared to comment on what's going on with that asset right this second. It's important.

Mike Hickey (Equity Research Analyst)

All right. Thanks, gentlemen. Good luck.

Greg Marcus (President and CEO)

Thanks, Mike.

Operator (participant)

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

Ryan Hamilton (Portfolio Manager)

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

Greg Marcus (President and CEO)

I mean, we've had very healthy F&B per caps, you know, here in the last quarter that we just reported. I'd say that it's. I haven't frankly, I haven't seen our numbers for April yet. Today is the last day of our fiscal April. As I look at the regular reporting, it. You know, I think the trend continues. You know, one thing I'd just say with the family films is sometimes you get this phenomena of basket sharing, where, you know, families are ordering a menu item, and they're sharing it among multiple people, and so it can have the effect of lowering the per caps.

You know, look, we're selling more items and we don't take per caps to the bank. We take EBITDA and cash. Families coming is driving volume, driving F&B sales and EBITDA. Ultimately, it's a good thing.

Ryan Hamilton (Portfolio Manager)

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

Greg Marcus (President and CEO)

Thank you.

Operator (participant)

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

Chris Potter (Founder and CEO)

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

Greg Marcus (President and CEO)

Well, yes. All I wanna say is yes. You're absolutely right. I think that is a hugely important point. I don't know that we can specifically speak to our estimation of the value. It is. I believe that our company, when an investor is looking at our company, it deserves a sum of the parts analysis. It's. They're all very significant chunks. If you say, "Well, okay, look at the hotel cash flow is easily identifiable," and those have multiples that are easily identifiable in terms of comparable multiples.

The theater real estate is derived from a potential rental stream that you can derive by looking at our overall cash flow and saying, "Well, what does the rent coverage need to be?" Then applying the multiples that you think are appropriate to that cash flow stream. Then you have your theater tenant left, and you apply that multiple to that remaining cash flow. That. So you're right. The analysis is. That is the way to do it. That's how I look at it. We have to get better at telling that story, and we're going to. We're gonna keep talking about that story, 'cause you're absolutely right. Yeah.

The only thing I'd add on to that is that from time to time, we do sell the hotel assets, and we sold a hotel in the Q4, providing a data point on valuation for what our hotels are worth. There's a slide in our investor deck that talks about that. You know, agree with Greg certainly that the sum of the parts and using different multiples for our two businesses, is the right way to look at it. The other thing I'd add is, you know, because we own our a significant portion of our theater real estate, we have superior free cash flow generation.

As I think our business continues to improve and our free cash flow, gets to a more normal run rate on an LTM basis as we go through this year, evaluating the company on a free cash flow basis is something that investors ought to be looking at.

Chris Potter (Founder and CEO)

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

Chad Paris (CFO and Treasurer)

Yeah. you know, good question. With something we continuously reevaluate in returning capital to shareholders, as you know, we turned on the dividend back with the Q3 last year. We've paid three of those now. As we get through a year where we have significant CapEx that's going and being reinvested in the business and projects that we believe have, you know, very high ROI to benefit our shareholders for the long term, as that starts to ebb and as the business continues to recover and we generate more free cash flow, we will continue to look at the right mix of dividend and potentially share repurchase depending on where the stock is trading. It'll be an ongoing item that we'll continue to evaluate.

Chris Potter (Founder and CEO)

Okay. Thanks, guys.

Operator (participant)

Thank you. That does conclude our Q&A session for today. I'll hand the call back over to Mr. Paris for any additional or closing remarks.

Greg Marcus (President and CEO)

Before we get to that, to that question, it was actually James who was talking about the 3D stuff. I just wanna be clear, I sort of mumbled. In our PLFs, we pay a $3 upcharge for the ultras, the 3D is an added $1, so you got 4 total. In a regular screen, 3D is a $3 upcharge. You know, we were talking about the benefit of 3D on Avatar. At the end of the day, look, I'm not sure that's really material discussion because 3D, it's not. The business is, it's a special thing. It happens-

Chad Paris (CFO and Treasurer)

Right.

Greg Marcus (President and CEO)

Once in a while. I wouldn't be adjusting a model on the future of 3D is all I'm suggesting, but I wanna make sure you have the data clearly.

Chad Paris (CFO and Treasurer)

All right. Well, we would like to thank you once again for joining us today. If your schedule allows, please feel free to join us in person or via our webcast for our annual shareholder meeting next week, Thursday, May 11th, at The Pfister Hotel in Milwaukee. We look forward to talking to you once again in early August when we release our fiscal 2023 Q2 results. Until then, thank you and have a good day.

Operator (participant)

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