The Marcus - Q4 2025

Transcript

Operator (participant)

Good morning, everyone, and welcome to Marcus Corporation's Fourth Quarter Earnings Conference call. My name is Drew, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of the conference. If at any time during the call you require assistance, please press star zero, and an operator will be happy to assist you. 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 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, Drew. Good morning, and welcome to our fiscal 2025 fourth quarter conference call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today, which may be identified by our use of words such as believe, anticipate, expect, or other similar words. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected or projected in our forward-looking statements. These statements are only made as of the date of this conference call. We disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

The risks and uncertainties which could impact our ability to achieve our expectations identified in our forward-looking statements are included under the headings "Forward-Looking Statements" in the press release we issued this morning announcing our fourth quarter results, and in the Risk Factors section of our annual report on Form 10-K, which you can access on the SEC's website. Additionally, we refer you to the disclosures and reconciliations we provided in today's earnings press release regarding the use of Adjusted EBITDA, a non-GAAP financial measure, in evaluating our performance and its limitations, the copy of which is available on the investor relations page of our website at investors.marcuscorp.com. All right, with that behind us, this morning I'll start by spending a few minutes sharing the results from our fourth quarter and the full year and discuss our balance sheet, liquidity, and capital allocation.

I'll turn the call over to Greg, who will focus his prepared remarks on where our businesses are today and what we see ahead for 2026. We'll then open up the call for questions. This morning, we reported a quarter of solid execution and results, with both divisions delivering year-over-year revenue and earnings growth and outperforming their industries. In Theatres, a film slate that featured a favorable film mix coupled with strong per cap growth drove meaningfully improved market share. In hotels, our renovated properties were winning in their markets, attracting increased leisure demand at higher rates that drove our RevPAR outperformance, capping a record revenue and EBITDA year for the division. Turning to the numbers and starting with a few highlights from our consolidated results for the fourth quarter of fiscal 2025.

We generated consolidated revenues of $193.5 million, a 2.8% increase compared to the fourth quarter last year, with revenue growth in both divisions. Our fourth quarter operating income of $1.7 million was negatively impacted by $5.2 million of non-cash impairment charges in the theater division, which are excluded from Adjusted EBITDA. Excluding the charges, our fourth quarter operating income was $6.9 million, growing 5.2% compared to operating income of $6.6 million in the fourth quarter of fiscal 2024, excluding impairment charges and non-recurring expenses in the prior year. We delivered $26.8 million of consolidated Adjusted EBITDA, a 3.6% increase over the prior year fourth quarter.

There is one unusual item in the fourth quarter below operating income that impacted our net earnings and earnings per share that I'd like to highlight. Our fourth quarter and full-year income tax benefit includes an approximately $7.6 million or $0.24 per share benefit from federal and state historic tax credits earned related to the completion of the Hilton Milwaukee renovation. The impact of the credits is excluded from our Adjusted EBITDA operating results. For the full year fiscal 2025, consolidated revenues increased just over 3% from the prior year, with revenue growth in both divisions. Consolidated operating income for the year was $17.1 million. Excluding the fourth quarter theaters impairment charges, full-year operating income was $22.2 million, compared to operating income of $25.9 million in fiscal 2024, excluding impairments and non-recurring expenses in the prior year.

Adjusted EBITDA for the full year decreased 3.1% to $99.3 million. Turning to our segment results, I'll start with theaters. Our fourth quarter fiscal 2025 total revenue of $123.8 million increased 2.2% compared to the prior year fourth quarter. It is important to note the shift in our fiscal calendar favorably impacted our revenue and attendance comparisons over the prior year periods. Our fiscal year ended on December 31st this year, compared to December 26th in fiscal 2024, resulting in five additional days in our fiscal fourth quarter during the busy week between the holidays compared to the prior year, while removing four days in late September when business is slower and resulting in one net additional operating day for the quarter.

The shift in our fiscal calendar and additional days between the holidays had a 6.8 percentage point favorable impact on admissions revenue growth and a 6.1, or excuse me, 6.4 percentage point favorable impact on attendance growth compared with the prior year fourth quarter. Comparable theater admission revenue increased 6.1% over the fourth quarter of 2024, with a more favorable mix of family films that played well in our markets. On a calendar quarter basis in both periods, comparable theater admission revenues decreased 0.7%. Comparable theater attendance decreased 5.7% in the fourth quarter of fiscal 2025 compared with the prior year fiscal fourth quarter, while on a calendar quarter basis in both periods, comparable theater attendance decreased 12.1%.

Average admission price increased 12.7% during the fourth quarter of fiscal 2025 compared to last year, and was positively impacted by strategic ticket price optimization actions implemented during peak demand periods, changes to promotions during the holiday periods, and a higher mix of 3D tickets. According to data received from Comscore and compiled by us to evaluate our fiscal 2025 fourth quarter results using our comparable fiscal weeks, U.S. box office receipts decreased 1.5% during our fiscal 2025 fourth quarter compared to U.S. box office receipts in the fourth quarter of 2024, indicating our theaters lead the industry, outperforming by approximately 7.6 percentage points.

We believe our outperformance is primarily attributed to our strategic pricing actions, as well as a favorable film slate that featured multiple titles appealing to family audiences, a genre where our circuit typically performs well. Per capita concession food and beverage revenues increased by 7.2% during the fourth quarter of fiscal 2025 compared to last year's fourth quarter, which was driven by increases in incidence rate, higher merchandise sales, and concessions pricing changes. Our top 10 films in the quarter represented approximately 70% of the box office in the fourth quarter of fiscal 2025, compared to approximately 75% for the top 10 films in the fourth quarter last year, with the slightly less concentrated film slate resulting in less than one percentage point decrease in overall film cost as a percentage of admission revenues for the fourth quarter.

For the full year, film cost as a percentage of admission revenues was flat compared to fiscal 2024. On the higher revenues, Theater Division Adjusted EBITDA was $24.1 million, just under two percentage point increase compared to the prior year quarter. Turning to our Hotels and Resorts division, the fourth quarter capped another record year for division revenue and Adjusted EBITDA. Revenues before cost reimbursements were $60.4 million for the fourth quarter of fiscal 2025, a 5% increase compared to the prior year. The shift in our fiscal calendar and net one additional operating day in the quarter had an insignificant impact on the Hotel division revenues and results. RevPAR for our owned hotels grew 3.5% during the fourth quarter compared to the prior year, growing at three of our seven owned hotels.

The RevPAR increase was driven by a 1.2 percentage point decrease in our occupancy rate compared to the fourth quarter of fiscal 2024, with our average occupancy rate for our owned hotels at 60.2% during the fourth quarter of fiscal 2025. Average daily rates grew 5.6% during the fourth quarter compared to the prior year quarter, as our newly renovated hotels continue to attract demand and drive higher rates. Our properties continue to perform well against the industry as a whole. Based on data from STR, when comparing our RevPAR results to comparable upper upscale hotels throughout the U.S., the upper upscale segment experienced an increase in RevPAR of 0.8% during the fourth quarter compared to the fourth quarter of fiscal 2024, indicating that our hotels outperformed the industry by 2.7 percentage points.

Comparable competitive hotels in our markets experienced a RevPAR decrease of 2% for the fourth quarter of fiscal 2025 compared to the fourth quarter of fiscal 2024, indicating that our hotels outperformed their competitive set by 5.5 percentage points. We believe our outperformance versus the competitive set is primarily due to strong demand for our renovated hotels, as well as a heavier mix of transient leisure demand at higher rates. Group demand remained generally steady during the fourth quarter of 2025, with group rooms representing 35% of our total room mix in the fourth quarter of fiscal 2025, compared to 36% of our room mix in the fourth quarter last year.

Our group mix in the fourth quarter of 2024 benefited from group business related to the election, with our group mix in the fourth quarter of 2025 reverting to more typical levels. Hotels' fourth quarter Adjusted EBITDA was $7.3 million, an increase of 3.4% compared to the prior year quarter, driven primarily by higher revenues. Shifting to cash flow and the balance sheet, our cash flow from operations was $48.8 million in the fourth quarter of fiscal 2025, compared to $52.6 million in the prior year quarter, with the decrease in cash flow from operations due to unfavorable working capital changes related to the timing of payments relative to our fiscal year end.

For the full year, cash flow from operations was $84.2 million, compared to just under $104 million in fiscal 2024. which was also impacted by unfavorable timing of working capital payments at the end of fiscal 2025, compared to favorable timing of working capital payments at the end of fiscal 2024. Total capital expenditures during the fourth quarter of fiscal 2025 were $22.4 million, compared to $25.4 million in the fourth quarter of fiscal 2024, which was primarily comprised of Hilton Milwaukee renovation project payments and maintenance projects in both businesses. Total capital expenditures for fiscal 2025 were $83.2 million, compared to $79.2 million in fiscal 2024. During the fourth quarter, we repurchased approximately 118,000 shares of our common stock for $1.8 million in cash.

This brings our share repurchases for 2025 to just over 1.1 million shares, or approximately $18 million in cash, or approximately 3.6% of our outstanding shares at the beginning of the year. Our cumulative buybacks since resuming share repurchases in the third quarter of 2024, are now over 1.8 million shares, or approximately 5.7% of our outstanding share count when we began, returning nearly $28 million in capital to shareholders. In total, over the last two years, we have returned over $45 million in capital to shareholders through share repurchases and dividends paid during fiscal 2024 and 2025. Our balance sheet remains well-positioned as we head into 2026.

We ended the fourth quarter with over $23 million in cash and over $230 million in total liquidity, with a debt-to-capitalization ratio of 26% and 1.5x net leverage. As we look forward, I'd like to provide an overview of our current capital allocation priorities for 2026. While we will continue to invest in maintaining our portfolio of high-quality assets in both of our businesses, we expect a meaningful step down in capital expenditures in 2026 as we move past the heavy reinvestment cycle of the last few years in our hotel division. In fiscal 2026, we expect to continue to make maintenance and ROI investments in hotels, as well as investments in maintaining and enhancing the customer experience in theaters.

For fiscal 2026, we expect total capital expenditures of $50 million-$55 million based on our current portfolio of assets, with approximately $25 million-$30 million in hotels and $20 million-$25 million in theaters. The timing of our planned capital projects may impact our actual capital expenditures during fiscal 2026. We will continue to provide updates as the year progresses. We expect this decrease in capital expenditures to result in a significant increase in free cash flow in 2026, which will be allocated to opportunistic growth investments and returning capital to shareholders. While we often don't control the timing or availability of deals, we continue to actively search for opportunities to deploy capital to grow our businesses. We are disciplined in our approach. We remain committed to returning capital to shareholders.

In fiscal 2025, we returned $27 million, or approximately 32% of our cash from operations, to shareholders through our quarterly dividend and share repurchases. We plan to grow the dividend over time and opportunistically repurchase shares when we generate cash in excess of our near-term ability to reinvest or deploy for strategic growth. With that, I will now turn the call over to Greg.

Greg Marcus (Chairman, President, and CEO)

Thanks, Chad. Good morning, everyone. With Chad covering many of the details of the quarter, I'd like to start today by reflecting a bit on the year. As is often the case with our two divisions, the story of the year was a bit mixed. We delivered another record year in our hotel division, while successfully executing on some very big projects that we expect to have long-term returns. In Theatres, while the box office came up short of expectations for the year, audiences continued to come out and have strong demand for the theatrical experience when we have periods of steady product supply. Because of the hits-driven nature of the business, the difference between a decent year and what would have been considered a great success was essentially one or two films that didn't hit as expected.

For our company specifically, our fourth quarter results were quite strong, with both businesses outperforming their industries. In Theatres, a diverse film slate with family content that played well in our markets helped us achieve strong market share. In hotels, strong leisure demand, particularly at our recently renovated assets, helped us end the year on a high note. More importantly, we exit the year with good momentum. As we look ahead to 2026, we are encouraged by the growth opportunities that we see ahead. I'll start today with our Theatres division. Chad went over the numbers for the quarter with you, including our strong per cap growth for both concessions, food and beverage, as well as average ticket price that drove our outperformance for the quarter.

Overall, the fourth quarter film slate featured a diverse mix of films across genres that appealed to wide ranges of audiences, that was particularly appealing to families, which played well in our Midwestern markets. We achieved above average market share for seven of the top 10 films in the quarter, with particularly strong share from Wicked: For Good, Zootopia 2, Avatar: Fire and Ash, Black Phone 2, and The Housemaid. Second-tier films beyond the top 10 also made important contributions to the overall box office, with mid-size films like Regretting You, One Battle After Another, Marty Supreme, and Song Sung Blue, delivering compelling stories that audiences wanted to experience on the big screen, not sitting at home on their couch. The well-rounded holiday slate offered something for everyone, and it is a great example of when our industry is at its best.

While we had great blockbuster films like Avatar and Wicked that drew big crowds, the box office was so much more than the tent poles, with multiple films working at once that appealed to different types of audiences. Our market share was also strong, with several movies in the second tier of films, including double our normal market share for the Milwaukee-based hometown favorite story, Song Sung Blue. While the overall industry box office was softer than anticipated, we continue to believe this is largely a function of product supply and individual film performance. October was impacted by softer carryover from September releases than we saw last year, as well as a few titles that didn't hit as we hoped. The November slate had one less tentpole film over the Thanksgiving holiday compared to 2024, when the box office included Wicked, Moana 2, and Gladiator II.

When we had a more robust film slate in December, we again saw audiences come out as we would expect. This dynamic continues to illustrate the importance of maintaining consistent and steady product supply that is balanced throughout the year to support the momentum of moviegoing. As Chad discussed, we saw strong per capita growth during the quarter, with average ticket prices benefiting from our ongoing price optimization efforts. As we've discussed throughout 2025, this has been an evolving effort to strike the right balance between capturing price during peak demand periods, as we did during the busy holiday periods in the fourth quarter, and maximizing attendance by having various price points for different types of customers.

In addition to optimizing price, we are focused on other opportunities to grow per capita sales. During the quarter, we made progress testing several initiatives that we believe will be drivers of per cap growth in 2026. First, during the fourth quarter, we began rolling out a new queuing line system that consolidates multiple concession lines into a single line that then is served by multiple concession attendants. The single line moves faster, improving customer perception. The queue is lined with merchandise displays that enhance product visibilities and are proving effective at increasing per capita candy and merchandise sales. We deployed the new queuing process and displays at 14 test locations in the fourth quarter. We anticipate continuing to roll these out to additional locations in the first half of this year.

Second, we continue to focus on improving the customer experience by looking at every step in the customer journey. For a significant majority of our customers, their first interaction with us is the digital ticket purchase. While we've offered web and mobile app-based ticketing for many years, we saw an opportunity to improve this purchase experience. We've completely redesigned our digital ticketing experience to make the purchasing experience as easy, fast, and frictionless as possible. In November, we launched a new digital ticketing experience for mobile web browsers and our mobile app, followed by the launch of an entirely newly designed marcustheatres.com website in early February. The new site simplifies finding the movie, theater, and showtimes that work for customers while speeding up the process of seat selection and payments.

We're very encouraged by the early feedback from customers. We are well positioned for the ramp-up in business as we head into spring and summer movie season. Third, we are working on improving the digital ordering experience for our best-in-class menu of expanded food and beverage options. Again, the goal here is simple: We're going to make the ordering process as easy and frictionless as possible. We know from experience that when customers order concessions, food, and beverage on our mobile app, they buy more as they are consistently presented with upsell and cross-sell offers. We're working to significantly improve our mobile web ordering experience for those customers who want a fast digital ordering experience but haven't yet downloaded our app.

In December, we began testing NFC QR code food and beverage ordering for delivery to seats at two of our dine-in Movie Tavern locations and expanded this test to three more locations in January. The QR code ordering is simple and fast, with integrated digital wallet payment options that significantly speed up the transaction process. The early results have shown encouraging growth in F&B per caps at these locations, and we are in the process of rolling out QR code ordering to all our 20 Movie Tavern and dine-in theaters. This will be followed by a redesigned food and beverage digital purchase experience in our mobile web and app for all locations later this year.

For those customers who prefer the more traditional purchase experience at the box office, concession stand, and our bars and restaurants, we began rolling out new tap-to-pay terminals in the fourth quarter. We expect to have the rollout complete at all points of sale by the end of the first quarter. We expect these investments in technology will not only make the purchasing process easier for our customers enhance per caps, but we expect to gain additional data and insight into our customers and their preferences through the new payment technology we are integrating across our various sales channels. We expect to leverage these insights to better tailor our communications and marketing with more customized offers that highlight coming events of interest.

We believe it's very important to have programs that promote and incentivize repeat moviegoing, and we've created several with this goal in mind, including Marcus Passports, Marcus Mystery Movie, and Marcus Movie Club. These programs can also have the added benefit of bringing customers out to see a broader range of small and mid-sized films, in addition to the blockbuster films, which we believe supports a healthier overall exhibition ecosystem. While these programs offer a lower ticket price in the short term, we believe they are important drivers of long-term future attendance. In November, we reached the one-year anniversary of Marcus Movie Club, our subscription program that offers monthly or annual memberships with several great benefits for customers, including a 20% food and beverage discount, access to additional companion tickets for $9.99, and waived digital ticketing convenience fees.

After our first year of Movie Club, we added free Marcus Mystery Movies as a new benefit for members, and we continue to look for ways to drive membership and usage of the program. Approximately 38% of members have selected the annual membership, which we believe supports our long-term goal of driving repeat moviegoing. Marcus Movie Club is one of several programs that promote and incentivize repeat moviegoing, including Marcus Passports, Marcus Mystery Movie, and our loyalty program, Marcus Magical Movie Rewards, which now has 6.9 million members.

As we look ahead, we are very excited by our 2026 movie slate that includes several potentially very strong titles, including Spider-Man: Brand New Day, The Super Mario Galaxy Movie, Moana, Jumanji 3, Toy Story 5, Minions & Monsters, The Odyssey, The Mandalorian & Grogu, Dune: Messiah, I'll get that right, and Avengers: Doomsday, just to name a few. There are many more great films coming, noted in today's earnings release. The current slate has a stronger mix of tent-pole films, and the grossing potential of 2026 franchises is greater based on their historical predecessor box office performances.

Looking even further ahead, the early look at the 2027 film slate also looks strong, with major franchises including Shrek 5, Star Wars: Starfighter, Minecraft 2, Frozen III, The Batman: Part Two, Sonic the Hedgehog 4, Spider-Man: Beyond the Spider-Verse, The Legend of Zelda, Avengers: Secret Wars, and many more. We are excited about the momentum that is building in theaters and the film slate ahead in the coming years, We remain very positive and optimistic about the long-term future for the industry and our theater business. Moving to our hotel and resorts division. You've seen the segment numbers, Chad shared the highlights of our performance metrics for the quarter, including our outperformance to the comp sets and upper upscale hotels nationally. I will focus my comments on the year overall and looking ahead.

We're pleased to report that after another strong quarter to end the year, our hotels team delivered another record-breaking revenue and Adjusted EBITDA year in fiscal 2025. This is quite the achievement, given that we are comparing against a record fiscal 2024 that benefited from the Republican National Convention and election-related business that did not recur in 2025. It's even more impressive, considering that we also completed the largest hotel renovation project in our history at the Hilton Milwaukee, which disrupted operations and negatively impacted results with a significant number of rooms at the hotel out of service during the first half of the year.

Even with the negative impact of the renovation, our RevPAR growth outperformed our competitive set for the year by 1.2 percentage points. We really saw an inflection point once we completed the renovation, as we outperformed the competitive sets by over five percentage points in the second half of the year. The demand environment was mixed in 2025, with group demand generally remaining strong, particularly at our properties that play well to group business. Leisure demand was mixed across our portfolio in 2025 compared to last year, with some markets seeing softness while others were positive. Demand remained strongest at the upper end of the market. Thus, our upper upscale properties are performing well in an environment where consumers continue to gravitate toward premium experiences.

The Hilton Milwaukee renovation wrapped up in the fourth quarter with the lobby and lounge, marking the end of a renovation that updated 554 guest rooms, ballrooms, meeting space, and public common spaces. It looks fantastic. It is a convention center hotel that Milwaukee can be proud of. While we have made significant capital investments in our hotels over the last few years, we have also been disciplined with the returns required for these projects. Hilton Milwaukee is a good example of our approach, as we chose not to renovate the 175-room west wing of the hotel and removed the rooms from the Hilton system at the end of December. In mid-January, we reopened the west wing as the Mark Hotel, an independent select service hotel connected to the Baird Center via Skywalk.

The rebranding and repositioning to create a new hotel with a different type of product allows us to continue to operate with minimal capital investment. As Chad discussed, the heavy part of the capital investment cycle that we've been going through the last few years is now behind us. We are winning in our key markets with our newly renovated room product and meeting space, and we've been able to capitalize on that opportunity. As we look ahead to 2026, we're very excited to open our new 11-hole short golf course at the Grand Geneva, known as Wee Nip. We completed the construction and the growing phase of the course in the late season last year, and play will begin this spring.

We believe the course will allow us to capitalize on a growing segment of golf with a great complimentary option to our two existing 18-hole courses on the resort, The Brute and The Highlands. With customers looking for distinctive experiential destinations, this added amenity aligns with industry trends. We expect the short course to enhance the overall appeal of the resort to both leisure customers and group customers looking to mix in another social activity, with conferences, training events, and outings. As we look ahead, our outlook for 2026 remains positive, with our expectations for low single-digit RevPAR growth, led by modest growth in group business and steady leisure and business travel.

Group bookings remain healthy, with our group room revenue bookings for fiscal 2026, our group pace in the year for the year, running approximately 3% ahead of where we were at this time last year. Looking a bit further out to 2027, group room pace is slightly behind where we were at this time last year for the next year out. This far out, the timing of bookings can vary significantly. Banquet and catering pace for 2026 and 2027 is ahead of where we were at this time last year. Based on the current demand environment and our future bookings, our outlook for 2026 remains positive. We are excited about the opportunities for future growth in the hotels business, and I would like to congratulate Michael Evans and our hotels and resorts team for delivering a great and record year.

Chad Paris (CFO and Treasurer)

I'd 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 on today's call, please press star followed by one on your telephone keypad, and to withdraw your question, it's star followed by two. We'll go to Eric Wald from Texas Capital Securities. Your line's open. Please proceed.

Eric Wald (Equity Research Analyst)

Thank you. Good morning, guys. I guess the first question on the, on the theater segment, there was a lot of kind of, you know, shifts in the kind of the pricing strategy last, you know, May. You started lapping some of the, the headwinds. It sounds like you kind of implemented a few more things in the, in the holiday period. Maybe give us a sense of what we should expect throughout 2026, maybe in terms of, you know, cadence based on the programs currently in place, kind of what you'll come up against, you know, this May, and kind of how that should play out throughout the year.

Chad Paris (CFO and Treasurer)

Thanks, Eric. Yeah, in terms of the cadence through the year, really our key. It's gonna be the anniversary-ing of our price changes that we made midyear in 2025. I don't see big changes to our programs prospectively. Again, we're trying to be very thoughtful about customer sensitivity to price changes, and we do want to continue to drive attendance. It's really, I'd say, through the first two quarters, the year-over-year benefit that we're gonna see of the actions that really didn't start to show up until late June in 2025. As we look forward, it's really gonna be more about driving per caps in that business on the F&B side, and that's where our focus is gonna be.

Eric Wald (Equity Research Analyst)

Got it. On the hotel side, there was a comment in the quarter about seeing increased leisure demand and higher ADR as the renovations have come to fruition last year. Maybe give us a sense of kind of what you're seeing in terms of bookings on leisure versus your business travel group kind of in this year, and if you'd expect to see more of a shift back to leisure with that, especially given the comments you made around group pace in 2027. I know it's early, should we see more of a shift back to leisure in your mind? If that is the case, what do you see as the implications of that?

Chad Paris (CFO and Treasurer)

Let me start with the very last part of your question on group pace. You may recall at the beginning of 25, we were seeing very significant increases in group pace early in the year, and then that bowed a bit, and we ended the year with, you know, growth that was kind of mid-single digits, but we started the year much higher than that. We had a huge step-up early in the year last year, which is, I think, in part why our pace for 2026 is, right at the moment, low single digit, because, you know, we had a big step-up last year. When you're looking as far out as 2027, timing of when those events get booked really can vary from year to year.

So I wouldn't read too much into what we're seeing right now for 2027. It's still pretty early. Group overall remains healthy, and as we've said a few times over the last few months or few quarters, our renovated properties are winning really well with groups. What we have seen, at least in the fourth quarter, is, we're also doing a really nice job, even in the slow season, capturing strong leisure demand. We did that here in the fourth quarter around the weekends. You know, upper upscale continues to perform really well with the premium products performing better than the lower end of the market, and our properties, you know, play well to that type of customer.

I think it's gonna be one where even in a flat overall demand environment in leisure, we can capture share nicely.

Greg Marcus (Chairman, President, and CEO)

You know, the good thing about our properties that we've talked about before is that, you know, they play in both group and leisure. That is the nature of our properties. These, I've called them special assets before, and if you look at them, I mean, where they're located and they're designed, they. If, you know, we see softening in one area, we can start to be more aggressive in another if we see a pool of demand there, and you see it play out, you know, year after year.

Eric Wald (Equity Research Analyst)

Got it. Helpful. Thank you both.

Operator (participant)

Our next question comes from Mike Hickey from The Benchmark Company. Your line's now open. Please go ahead.

Mike Hickey (Senior Equity Research Analyst)

Yeah. Thank you. Hey, Greg, Chad. Congrats, guys, on a great 4Q with outperform. Greg, your 2026 setup here sounds very encouraging, both on the hotel side, just given the level of investment and pacing here on group. The theater side slate looks exceptional, and it seems like it'll meet your demo really well. Do you see sort of a Step-up's a big word, but, you know, at least, you know, relative to 2025 growth on the top line, do you think you can exceed that? Should we expect on sort of a mid-single-digit type growth and free cash flow conversion? I've got a follow-up. Thanks, guys.

Greg Marcus (Chairman, President, and CEO)

Well, you know, hope springs eternal. Hope springs eternal in the theater business, you know. I mean, it certainly, as you said, on paper, it looks good, you know, and it looks like it plays to our markets. You know, and we talked about, I think, look, but this, in 25, we didn't have one blockbuster over $500 million. That, you know, is a challenge, and it looks like the potential for these is better. It's an art form. We don't know how it's going to turn out, but we're prepared to capitalize and maximize, you know, on whatever comes our way, and it's the top line and the bottom line.

You know, we're very focused on, as you know, our pricing strategies and making sure that our prices are market appropriate, and that we're offering the right product to the right customer. You know, we have a very significant PLF footprint. It's probably the, on a relative basis, we have the highest penetration of PLFs in the industry. When those customers are there, we're going to be able to capture them. The, we've got, you know, lots of programs for the customers that don't wanna spend as much. We've got our, you know, our Tuesday program remains very robust. A big push for us this year is gonna be our movie club, as we continue to really...

If you aren't in our theaters now, you will, if you don't join the club, you aren't paying attention. I mean, we're really working hard to build that base of business. You know, it reminds me a lot of the hotel business, where you sometimes fill a hotel with a base of customers to sort of shrink the size of your hotel. I think others in the industry who've seen a significant buildup in membership on the theater side enjoy that benefit of a continued, you know, income stream. We're very focused on that as well. On the hotel side, you know, I think that we'll continue to see the benefits of all the investment we've made in these properties. They look so good, that's gonna...

That line in Milwaukee, as our convention center continues to perform better, that we opened a few years ago, that will dovetail nicely with the hotel. We should see good performance. As long as the economy stays solid, we'll be in good shape. As you know, hotels are very GDP dependent.

Chad Paris (CFO and Treasurer)

Yeah, Mike, I think the last part.

Mike Hickey (Senior Equity Research Analyst)

All right.

Chad Paris (CFO and Treasurer)

The only thing I'd-.

Mike Hickey (Senior Equity Research Analyst)

Yep.

Chad Paris (CFO and Treasurer)

The only thing I'd add on the film mix is, I do think that the family slate that we see ahead for 2026 should benefit a circuit like ours in the markets that we're in. You know, in the summer of 2025, we didn't really have a family animated film that hit, and we saw the power of that over the holidays with Zootopia, and as we look at the slate for the summer of 2026, I do think that's a net positive for Marcus Theatres.

In terms of contribution and leverage on the incremental revenue, you know, historically, the theater business contributes at, you know, around 50% on the contribution margin line historically to EBITDA, and with our step down in CapEx this year, I think our free cash flow conversion on that is gonna be very strong.

Mike Hickey (Senior Equity Research Analyst)

Nice. Very helpful. The, I guess on M&A, you said actively searching. I don't know if I've heard that from you before. Are you sort of a little bit more aggressive, I guess, now, looking at M&A? I guess specifically, maybe some, regardless of that, maybe some color there, because I wonder, with the Warner Bros. deal hanging here, Greg, if that sort of ices theater deals or not. On the hotel side, I'm not sure how active the market is, but I don't think it's been great. Just curious where you're focusing your attention, and you see the biggest opportunity, whether it's theaters, hotels, or maybe another area that could be complementary to your overall business today?

Greg Marcus (Chairman, President, and CEO)

That's a very good point. Yeah, you're right. Look, I mean, The hotels, I think everybody knows the hotel transaction market's been pretty slow, just across the entire industry. You know, we have to, just because I think it goes back to this, you know, cap rates got elevated, as interest rates went up. It, you know, people were doing well enough that, no, there weren't forced sales. The economy is strong enough, so it basically gave people the ability to continue to, I wouldn't even say pretend and extend, because there's no pretending. I mean, they just...

The businesses are okay. If you wrote a pro forma, you know, so much of these pro formas, when you have these investors, not necessarily us, we're not looking at it like this, but a lot of private equity investors with a five-year hold, and they write a cap rate. If cap rates are 100 or 200 basis points higher, it messes up the returns pretty significantly. If they can wait, or at least, you know, they're gonna try and wait, so it's a waiting game. That's really slowed up that market a fair amount. We have to look for other ways to grow that business and other ways to drive some revenue there, which we do in adjacencies. On the theater side, yeah, I don't...

Again, there's not a lot of transaction activity, and there's very little transaction activity to seeing. We'll look at anything that would come our way if we think it makes sense. You know, a big challenge a lot of these guys have are very expensive leases, you know, a lot of that needs to be figured out. You bring up a very interesting point, which we talk about, which is, well, okay, well, what other adjacencies can we have?

You know, we've worked through these huge capital investments that we've had to go through. Now when we have free cash flow, you know, we're looking and someone will, you know, you'll ask them: "What are we gonna do?" Well, if we can find good investments, we'd like to make them. It's very tax efficient to not pay the capital out if we can keep it invested within the company. For our investors, that can be a great return. If we can't, then we will distribute cash as we've talked about, the levers we can pull, whether it's buying back stock or dividends.

Mike Hickey (Senior Equity Research Analyst)

Nice. Thanks, guys. Good luck.

Chad Paris (CFO and Treasurer)

Thanks, Mike.

Operator (participant)

Our next question comes from Drew Crum from B. Riley Securities. Your line's now open. Please proceed.

Drew Crum (MD and Equity Research)

Okay, thanks. Hey, guys. Good morning. Wanted to ask about the occupancy rate. You know, it was down year-on-year in quarter two. Was that election related in the year ago period? Was it the closing of the west wing of the Hilton Milwaukee, or was it something else, and would you anticipate that rebounding in 2026?

Chad Paris (CFO and Treasurer)

Hey, Drew. Yeah, I'd start with occupancy in the fourth quarter last year did get a benefit from a bunch of group business related to the election, and a number of visits that we had in Milwaukee in our key market. That definitely provided a tailwind last year. I do think in some of our markets, this year, there's clearly some softness. It's, you know, it is very much a mixed story, and it is market specific and at times even property specific. But, you know, it's not an obvious softening trend in our markets where we're at, and we're outperforming the softness generally because of the quality of the assets and the investments that we've made.

I think the way to think about it is we should look to outperform what our markets do, even if we see some of the softness.

Drew Crum (MD and Equity Research)

Got it. Okay. Thanks, Chad. You know, Mike's last question focused on M&A. You know, given the opportunity to review the portfolio, you know, in the past, you guys have made selective divestitures. You know, any updates there, any comments you can give us in terms of how you're thinking about that? Thanks.

Greg Marcus (Chairman, President, and CEO)

Look, we're always looking at our, at our assets and, you know, we come at it from a very, you know, a strong real estate mentality. You know, these assets, one of the things that's important, as you know, as you saw in the last few years, is that as sort of the bubble came across the of investment, you know, we have to look and decide, "Okay, is the investment going to be a good investment for us?" If we don't think the investment is the right investment for us, we can then divest ourselves of the asset, and that will happen occasionally.

We don't have any major divestitures planned right this minute, but if something makes sense or the markets get very hot, you know, we're always looking at that and saying, "Okay, what is the right long-term choice for these assets, for our company?

Chad Paris (CFO and Treasurer)

Drew, we tend to immediately think about hotels in that, in that context, but you know, we own a lot of theater real estate, and portfolio management is an ongoing process that we're continuously looking at the performance of individual theater locations and highest and best use for the real estate. So I would just suggest that store management will continue to be part of a potential source of, you know, making changes, and we could add some locations too. In the past, we have, you know, monetized non-core real estate in our theater business.

Greg Marcus (Chairman, President, and CEO)

We might take investment and change some of the uses on some of our theater sites. We can make investments to do that too. Again, we view ourselves, one of our hidden assets is our real estate. We view it. We've come at this for decades from a real estate perspective. We may make investments on our properties that would maximize the highest and best use of that real estate.

Drew Crum (MD and Equity Research)

Got it. Thanks, guys.

Operator (participant)

As a reminder, if you would like to ask a question on today's call, please press Star followed by one on your telephone keypad. To withdraw your question, it's Star followed by two. Our next question from Patrick Sholl from Barrington Research. Your line is now open. Please proceed.

Patrick Sholl (VP, Research Analyst)

Hi, thanks for taking the question. Just maybe another question around, like, capital allocation and M&A. Could you maybe sort of discuss some of the, I guess, differences in underwriting, you know, or opportunities in, like, expansion, whether organic or M&A, and, like, maybe the differences in underwriting, just additional new builds versus the... I know you talked about the difficulty with some of the leases and potential M&A, but any, just any sort of update on those competing priorities?

Chad Paris (CFO and Treasurer)

Yeah, Pat. I mean, in the theater business, you know, the challenge on an M&A, and we, I, we have looked at a number of things in the last year plus, and done a fair amount of work on different opportunities. The challenge consistently has been the leases at some of these locations and the number of locations in a theater circuit that work and don't work when you look at a circuit overall, that mix of locations that don't work has made it very hard to get deals done if you're gonna have to assume the lease. It really requires more of a ground game in looking and doing, you know, onesie, twosie type deals where you're picking up individual theaters in that, in that space.

That's really how we look at the underwriting, is at a more granular level than in the past. New builds, you know, we think about it, we think about attractive markets, but right now, I think with the, you know, the, you know, product supply challenges, it's just tough to get the math to work on new construction. So we're gonna keep looking at it, but at the moment, it's not something I think you're gonna see us do a lot of in the near term.

Patrick Sholl (VP, Research Analyst)

Okay. On concessions, you had mentioned, the QR ordering as helping to increase incidents. I was wondering, what other, what else contributed to the per cap trends in the quarter? Or if that, yeah, like between pricing or, mix and things like that.

Chad Paris (CFO and Treasurer)

Yeah. In the fourth quarter, the QR code ordering actually had a really small impact. I think that's more of a 2026 benefit. We were doing a handful of test locations late in the quarter. At those test locations, we are really encouraged by what we're seeing, and I think that's going to be a meaningful piece of our per cap uplift for our dine-in theaters in the coming year. In the fourth quarter, specifically, it was, you know, mostly incidence rate in capturing more customers. It was some of the queuing line benefit that Greg talked about, and getting the basket size to grow with customers that are going to the concession stand. We've seen some traction with that, which is really encouraging.

There was a little bit of price, but price wasn't really the primary component of what we saw in the fourth quarter. I think there was some, you know, some benefit, certainly in a holiday quarter of people making events of going out to the movies and just generally spending more. I think that's encouraging to see the health of the consumer that we saw, or continued to see in the fourth quarter.

Patrick Sholl (VP, Research Analyst)

Okay, thank you.

Operator (participant)

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 comments.

Chad Paris (CFO and Treasurer)

Thanks, Drew. We would like to thank everybody for joining us today, and we look forward to talking to you once again in May when we release our first quarter 2026 results. Until then, thank you and have a great day.

Operator (participant)

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