Marcus Corp (MCS) 2015 Q3 法說會逐字稿

Good morning everyone, and welcome to the Marcus Corporation third-quarter earnings conference call. My name is Whitley and I will be the operator for today. At this time all participants are in a listen-only mode. We will open up the question-and-answer session toward the end of this conference. (Operator Instructions). As a reminder this conference is being recorded.

Joining us today are Greg Marcus, President and Chief Executive Officer, and Doug Neis, Chief Financial Officer of the Marcus Corporation. At this time I would like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, sir.

Thank you very much, appreciate it. Welcome everybody to our fiscal 2015 third-quarter conference call. Bear with me as usual as I need to begin by stating we plan on making a number of forward-looking statements on our call today.

Our forward-looking statements could include, but not be limited to statements about our future revenues and earnings expectations, future RevPAR occupancy rates and room rate expectations for our Hotels and Resorts division, expectations about the quality, quantity and audience appeal of film product expected to be made available to us in the future, expectations about the future trends of the business group and leisure travel industry and in our markets, our expectations and plans regarding growth and the number and type of our properties and facilities, expectations regarding various nonoperating line items on our earnings statement, and our expectations regarding future capital expenditures.

Of course our actual results could differ materially from those projected or suggested by our forward-looking statements. Factors, risks and uncertainties which could impact our ability to achieve our expectations are included in the risk factor section of our 10-K and 10-Q filings which can be obtained from the SEC or the company. We'll also post all Regulation G disclosures when applicable on our website, at www.MarcusCorp.com.

So with that behind us let's talk about our fiscal 2015 third quarter and first three quarter results. As you can see, it was another very good quarter for us led by our second straight quarter of record operating results from our theater division. And nearly identical to our second quarter, what makes this a special quarter for us is that we produced these results during the 13 -week period when the national box office numbers were essentially flat. So it wasn't if we had an unusual -- unusually great film slate to work with.

For the fifth straight quarter, our theater division significantly outperformed the industry and continued RevPAR improvement from our Hotels and Resorts division contributed to record revenues for the company overall this quarter. I'm going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division and then turn the call over to Greg for his comments.

Now before I dig into each division, a brief look at the line items below operating income which show that our investment income was approximately $400,000 less than last year, due to the fact that a long-term interest-bearing loan that we had made to a municipality for our parking garage adjacent to one of our hotels was recently paid off, and thus no longer earns interest, which was typically recorded once a year when realized. Partially offsetting that was the fact that interest expense continues to run slightly below last year, due to a lower average interest rate.

Our effective income tax rate for the first three quarters adjusted for losses from noncontrolling interest was 38.7% compared to 40.1% last year, lower than last year but generally still right in our historical range in that 39% to 40% range. And speaking of noncontrolling interest, as you can see, the only reason our consolidated net earnings attributable to the Marcus Corporation were lower than last year was because of a one-time legal settlement last year that resulted in the recording of a $3.8 million pretax loss attributable to noncontrolling interest.

Now that accounting terminology is pretty confusing actually, and so I'll just remind you in the most simplistic terms, two years ago, we had extinguishment from debt income. We reported on a consolidated basis but then attributed all of that income to our partner at the Skirvin Hilton. Last year there was a legal matter related to that and, ultimately, a legal settlement returned about 60% of that debt extinguishment income back to us, and so that's what you're looking at is below the line there as you're looking at debt extinguishment income last year, that really related to the year before that, because of the legal settlement, came back to us.

Obviously this is a one-time event and the simple math would be that if you exclude the approximately $0.08 per share that this item added to earnings last year, our current year net earnings per share for the third quarter would've been about $0.04 or 57% higher than last year. There you go.

Shifting gears away from the earnings statement for a moment, our total capital expenditures during the first three quarters of fiscal 2015 totaled approximately $47 million, compared to approximately $33 million last year. Now approximately $30 million of this amount was incurred in our Theater division, related to the numerous investments we have been making in our existing theaters as well as the new theater currently being built in Sun Prairie, Wisconsin.

We've spent approximately $16 million in our hotel division so far with the majority related to prior renovations at the Pfister and the Cornhusker, and then the ongoing construction at our Chicago hotel. And now with one quarter to go in the fiscal year we remain on track to have total estimated cash capital expenditures for fiscal 2015 in the $70 million range, with up to $50 million of that amount expected to be spent in our Theater division. The actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditure number as will any currently unidentified projects that could develop during the remainder of our fiscal year.

Now I'd like to provide some additional financial comments on our operations for the third quarter and first three quarters, beginning with theaters. As you can see in our reported numbers, our box office revenues increased 8.3% during the third quarter, now putting us 6.7% ahead of last year through the first three quarters of the year. Our concession and food and beverage revenues increased a substantial 19.6% during the third quarter and are now up 16.6% year to date.

Once again, we significantly outperformed the national numbers. According to Rentrak, the national box office reporting service in the theater industry, the US box office only increased 0.5% during the comparable 13 weeks of our fiscal 2015 third quarter, so we outperformed the nation by nearly 8 percentage points. Year to date, our 6.7% box office gains over index a US box office decline of 5.1% over the comparable period, so we've overindexed by 12 percentage points year to date.

In fact, according to the data obtained from Rentrak, we are the only theater circuit of the top 10 chains in the United States to even to even report an increase in box office revenues during the same nine-month period.

Once again, the third quarter increases are attributable to an increase in attendance of 7.5%, despite what the national numbers would suggest was a really no better no worse film slate. Year to date our attendance is now up 12.8% despite a well-documented weaker summer film slate.

Once again we believe the majority of this attendance increase and overall industry outperformance can be attributed to the new investments we are making in our theaters, and the innovative marketing strategies that we've initiated. Our average admission price for our comparable theaters increased by 0.7% for the quarter, but it remains down 5.4% for the first three quarters of fiscal 2015 due entirely to our $5.00 Tuesday program that didn't lap the previous year until November.

Of course, as you know, that also contributed to our attendance gains. Our average concessions/food and beverage revenues per person increased by a significant 11.2% for the third quarter and are now up 3.4% for the first three quarters of the fiscal year. Now that we have lapped the introduction last year of our free popcorn promotion related to the $5.00 Tuesday program, we are now seeing more directly the impact of our new food and beverage outlets on our concession revenues per person.

And of course, with higher attendance, these changes in our per capita numbers only add to the positive story as evidenced by our significant increase in total concession and food and beverage revenues from this division.

Shifting over to our Hotels and Resorts division, our overall reported hotel revenues were up 5.9% for the third quarter and 7% for the first three quarters. But if you eliminate the new policy of grossing up service fees into food and beverage revenues that I described during last quarter's conference call, our revenues were up 2.7% and 3.6%, respectively, during the two reported periods.

As our press release notes, our reported revenues and operating income were noticeably impacted by the fact that we are operating a hotel in Chicago that is under major construction and is currently operating without the support of a brand. In order to get a better sense of how the majority of our hotel portfolio is performing, we believe it's more meaningful to look at some key metrics excluding the Chicago hotel.

So with that in mind, I'll tell you that our total RevPAR for the eight comparable properties excluding Chicago was up 5.3% for the quarter and 6.1% year to date compared to the same periods last year. As we've noted in the past our RevPAR performance did vary by market and type of property, and all but two of our eight comparable company-owned properties reported increased RevPAR again this quarter.

Now according to the data received from Smith Travel Research and compiled by us in order to compare our fiscal year results, comparable upper upscale hotels throughout the United States experienced increase in RevPAR of 6.1% during our fiscal 2015 third quarter and 7.8% during our fiscal 2015 first three quarters. I share that with you in order to be consistent with prior quarter disclosures, but there does continue to be an interesting dynamic playing out right now whereby the national numbers don't necessarily reflect what's happening in our more Midwestern-centric markets.

When you further dissect the Smith Travel numbers and just look at hotels in our specific market and competitive sets, you'll find that we are generally outperforming our competition in most markets during these reported periods. Specifically, RevPAR for our competitive sets during the third quarter and first three quarters of our fiscal 2015 year were up 7.2% and 2.1%, respectively.

So that means the current quarter was slightly higher than our results for our competitive set due really to the two specific markets, and our year-to-date number however is much better than the reported numbers for the competitive sets.

Breaking out our numbers more specifically, again excluding Chicago, our fiscal 2015 third-quarter overall RevPAR increase was due entirely to an overall occupancy rate increase of 3.7 percentage points as our average daily rate actually decreased by 0.9% during the quarter. Year to date, our occupancy rate has increased by 4.2 percentage points and our ADR has increased by 0.2%.

With that I'll now turn the call over to Greg.

Thanks, Doug. I'll begin my remarks today with our Theater division.

We are obviously thrilled to be reporting another record quarter for this division, once again significantly outperforming the industry. Clearly the investments we are making in our theaters are making a difference. And when you combine those investments with our innovative marketing and pricing initiatives, the result is record-breaking attendance in our theaters during a time when the industry as a whole reflects an overall decrease in attendance.

Doug shared the numbers with you. Not only are we overindexing the nation as a whole, the numbers we're getting from Rentrak suggest that we were once again the top-performing theater circuit among the top 10 chains in the United States. Keep in mind that the numbers we reported today were despite the fact that we had numerous auditoriums out of service during the quarter at three more theaters where we were adding our DreamLounger seating.

I think one of the questions we answered during this recently completed quarter was whether we would continue to outperform the industry after we have lapped the one-year anniversary of our $5.00 Tuesday rollout, as well as the one-year anniversary of our initial four DreamLounger locations. Clearly the answer to that question was yes.

The next four theaters we added DreamLoungers last May were among our top-performing theaters this quarter. But I will tell you that our first four locations combined also continued to grow and contributed to our outperformance. In addition our $5.00 Tuesday program continued to be a contributor to our stellar results, with Tuesdays this year outperforming comparable Tuesdays last year during the same quarter. And while there's no question that our DreamLounger recliner seat locations have been key contributors to these great results, I will tell you that during the third quarter over two thirds of our company-owned first run theaters outperformed the national box office increase of 0.5%.

As Doug indicated earlier, the national numbers would suggest that this film slate was not significantly different in terms of quantity and quality than last year's comparable slate. Yes, American Sniper was a pleasant surprise, but you have to remember that the quarter started off pretty rocky for us. On a comparable week basis we actually started this quarter in the hole with four straight weeks of reduced box office.

That all changed the week between Christmas and New Year's and we proceeded to report box office increases in seven of the next nine weeks, and break multiple daily, weekly and monthly internal records along the way. The raw numbers would suggest that the film slate may have been a little deeper this year with the top five films listed in our press release this quarter accounting for approximately 41% of our total box office, versus the 47% share of the top films during the same quarter last year represented.

But I believe it is more than that. I would suggest that our $5.00 Tuesday program may be converting to a change in that particular dynamic as our numbers would suggest that we've clearly increase moviegoing frequency among our customers.

An increase in frequency might tend to benefit the next year of movies after the blockbuster films that a customer may have passed on in prior years. But while it all starts with attendance and box office revenues, it is still up to our operating team to convert these revenue increases to increased operating income.

So I am particularly pleased with our 17.1% increase in operating income this quarter. Despite increased fixed cost because of our recent investments, increased operating costs as we serviced significantly more customers than in the past, and new costs related to our loyalty program, our team was able to increase our operating margin by a full percentage point this quarter and year to date our operating margin of 20.4% is 70 basis points higher than last year.

Our entire operating team from our theater general managers, our district directors, to our home office staff, deserves a great deal of credit for producing these outstanding operating results.

Speaking of our loyalty program, I'd be remiss if I didn't highlight this week's news that we just reached 1 million registered members in our Magical Movie Rewards program, doing so in less than one year. This is a tremendous accomplishment, and far exceeds our initial expectations for the program. And the fact that over one third of all transactions in our theaters have come from registered loyalty members since the program was introduced on March 31st last year means that these are not just members in name only.

We clearly are making connection with our customers, and they are seeing value in the program. And we believe the program is already paying dividends for us as showing up in our results.

As an example, one of the historical challenges for alternative programming in our theaters, whether it is a one-time event, a series like the Metropolitan Opera, or perhaps even a revival of films that have previously been shown in theaters but now are available in other mediums, has been the inability to effectively market the programming.

We now have the ability to talk directly to our customers in a cost-effective way and promote nontraditional programming, particularly during nonpeak time periods. We've already had some great success stories and I believe we've only scraped the surface of what this program can do for us in the future.

Looking ahead, we are excited to continue to reinvest in our existing theaters as we further expand the successful concepts and amenities that have contributed to our industry outperformance. Our recent press release highlighted some of our newest investments underway, so I won't repeat everything you can read. But let me share some additional statistics for you.

By the end of next week we will have 11 theaters that have been completely converted to all DreamLounger recliner seating. After our new palace at Sun Prairie Cinema opens up on April 30, we will have approximately 23% of our company-owned theaters and 28% of our total screens converted to DreamLounger seating.

As far as we can tell by the information publicly available, those percentages are easily the highest in the industry among the top circuits in America, and our team is already looking at plans for additional conversions in our upcoming fiscal 2016 which, if approved, would take our penetration over 30% in the coming year.

We also continue to expand our proprietary large-format concept. By the end of May we will have 16 UltraScreen DLX auditoriums that include DreamLoungers and Dolby Atmos immersive sound. Plus another seven traditional UltraScreens, meaning that over 40% of our first-run theaters will have at least one large-format screen. Once again, the highest percentage I am aware of among the top circuits.

And as the concession numbers Doug shared with you indicate, we continue to have success with our new food and beverage concepts with more to come. By early in our fiscal 2016 first quarter, we will have 14 Take Five and Take Five Express lounges open, including three new locations with several more on the drawing board. We will also have three full-service Zaffiro's restaurants and 15 Zaffiro's Express outlets by early in the first quarter as well, including four new Express locations not included in our results to date.

Over the years you've heard me talk about the importance of our strong balance sheet and our preference for owning our real estate and our theater division. I believe those factors have once again contributed to our success, allowing us to be nimble and react quickly to emerging trends in the business, giving us a clear competitive advantage.

Looking ahead, the first three weeks of our fiscal 2015 fourth quarter have started off fairly even with last year, but we are currently feeling cautiously optimistic about the film lineup for the remainder of the quarter with several potential blockbusters on the horizon, including the much-anticipated sequel to the Avengers series.

Last year's May films were not particularly strong overall. So we have the potential to end our fiscal year on a strong note in this division. And since our next earnings announcement won't be until late July when we announce our year-end results, our press release also listed some of the upcoming summer films as well.

As has been pretty well-documented, last summer's product film product was not particularly strong, particularly in July, so if the summer film slate performs as strong as it looks on paper, calendar 2015 could be shaping up to be a very good year for the industry.

Of course our goal, regardless of how the film slate turns out, will be to continue to outperform the industry. With that, let's move on to our other division, Hotels and Resorts.

You've seen the segment numbers and Doug gave you some additional detail. Excluding Chicago we reported solid increases in RevPAR and record additional revenues. From an operating income perspective we were not able to match last year's results, but as Doug shared with you that was entirely because of operating losses at our Chicago hotel which we continue to operate while under construction.

We knew we would experience some short-term negative impact at this hotel to the extent of the major renovation but operating without any brand recognition and the support of a reservation system has proven to be a significant challenge. One of the realities we deal with is that with only nine company-owned or majority-owned properties, variations in even one or two individual hotels can be noticeable in our reported results and is accentuated during this historically weak quarter of the year for our Midwestern hotels.

Not necessarily surprising, essentially all of our RevPAR growth, the majority of our other hotels was driven by occupancy gains as it is difficult to be aggressive with ADR during the winter months in most of our markets. Overall, we were pretty pleased with our overall RevPAR gains at the majority of our hotels, and as Doug shared with you, year to date, we continue to collectively outperform comparable hotels in our competitive markets.

After a slower start to the year, we continue to experience improvement in the pace of our group bookings which is a very encouraging sign. The upcoming summer in particular looks promising from a group perspective, as we already have more group business on the books compared to last year with several large events making final decision soon that could enhance our position further.

In the short term however, I believe we will likely have one more quarter where we may fall a little short of last year's operating income. We will continue to experience operating shortfalls at our Chicago hotel until sometime in May when we are scheduled to introduce the newly renovated AC by Marriott, and we will incur some preopening costs along the way. We also had one particular hotel that had a very strong fourth quarter last year that will likely have difficulty replacing some of the business that drove last year's results. I will tell you that once we get this construction period behind us in Chicago we are very excited about the prospects of the new hotel. We have recently begun selling into this hotel for the summer and the ADR on the books looks strong, and we are getting great feedback.

Bigger picture. Most industry experts seem to be pretty bullish on what the future holds for this industry. Goldman Sachs recently issued a report indicating that they expect the US leisure traveler to travel more and spend more in 2015 as the impact of a better macroeconomic environment takes hold. Including lower unemployment, lower oil prices and pent-up travel demand. [Adjust ren], where PKF hospitality research predicts the US lodging industry will continue to achieve strong growth in RevPAR in both 2015 and 2016, and that shift is on with record-setting occupancy yielding ground to growing ADR, with ADR gains being the primary driver of RevPAR growth through 2019.

I think the reality is that no one really knows what the future holds. But I am confident that our hotels are positioned to do well in our markets and I know our operating team is focused on driving revenues and improving margins.

And finally we continue to pursue a number of additional potential growth opportunities with a particular focus on management contracts, possibly with some sliver equity at times. Our pipeline has grown in recent months and I am hopeful that we will continue to add to our rooms under management during 2015. And as previously discussed by us, we will also consider monetizing all or a portion of one or more hotels, owned hotels, with a goal of retaining management if we determine that such action is in the best interest of our shareholders.

Many factors have to be evaluated as we are currently actively reviewing opportunities to execute against the strategy, including income tax considerations, the ability to retain management, pricing, individual market considerations, etc. We evaluate strategies for our hotel on an asset by asset basis and we have not set a specific goal for the number of hotels that might be considered for the strategy. Nor have we set a specific timetable at this time.

Before we open the call for questions, I also wanted to comment on our recent announcement regarding the Corners of Brookfield, the mixed-use retail development we've been working on for several years now. In February, we were pleased to announce that we had entered into a joint venture agreement with IM Properties and Bradford Real Estate, two proven retail development and investment experts to serve as the new project management team leading the Corners to completion. IM Properties and Bradford will serve as managing member of the joint venture, and the Marcus Corporation will remain as a 10% partner in the joint venture.

Under this agreement, we will contribute our land to the joint venture and expect to be reimbursed for the majority of our previously incurred predevelopment cost at commencement of construction. We would expect to recognize some development profit at that time with the possibility for additional development profit by the opening date of the project if certain conditions are met. Demolition has begun on existing buildings at the project site and site work is scheduled to begin soon.

As we previously disclosed it was always our intent to bring in a majority equity partner for this project. We knew that transitioning The Corners to a team with deep retail expertise would speed the project timeline and ensure the best possible finished product. We are extremely proud of the efforts of our group and the investments we have made to make our vision for The Corners a reality. I'm confident that The Corners is on track to becoming a true destination in southeastern Wisconsin that will spark new economic development opportunities in Brookfield and the surrounding areas. We are pleased to remain an investor in the joint venture.

With that, at this time, Doug and I would be happy to open the call up for any questions you may have.

(Operator Instructions). Eric Wold, B. Riley.

Thank you and good morning. A couple of questions. I guess one, on the theater side, obviously you have great outperformance in terms of attendance and box office relative to the industry, as well as strength on concession gains.

On the concessions, I know it's difficult to gauge this at least accurately, but any sense of -- if those concession gains are being driven by a greater percentage of your attendees buying something at all or is it more the same number of people buying some --, just buying more of it?

Look. I think you have to -- I don't think we have the exact breakout of how many people -- seriously though, you have to understand there's a certain rule of the industry you don't know because one person may be buying for more than one person.

But that being said, I think our team is executing and they continue -- always been very good at executing and they continue to just get better and better at driving sales and using techniques to drive sales. So they are able to do that. Also with the ancillary food and beverage, the new food and beverage options that we're putting in, we know that that's -- that gives us greater bandwidth and attracts more people.

But can I tell you specifically that we are selling more to more people? That I can't tell you exactly.

We do know that anecdotally you see customers now that we have -- for example, the Take Five lounges, you'll see someone who maybe had popcorn and soda or something like that during the movie, and stop off afterwards and go to the Take Five. So there you're getting a greater share of wallet in those situations. So there's no question those ancillary outlets that we have are contributing in that way.

Thank you. And then secondly on the hotel resort side, you mentioned you're evaluating a number of proposals or options to monetize some of those assets. How would you characterize that? Is that more of a kind of a proactive effort on your parts or more reactive? Are you actively kind of going out there looking to possibly shop some of those assets and see what the demand is, is it more kind of reacting to potential incoming bids that come your way?

I would say that nobody is rolling around throwing bids in over the transom. So, I would tell you it is active.

Perfect. Thank you, guys.

David Loeb, Baird.

Good morning, gentlemen. I've (multiple speakers) doing well, thank you. I had a few kind of following up on some of those. Let's just start with hotels since that's where the last question ended. Can you give us the RevPAR number for the quarter, including Chicago, just to help us with modeling?

Sure, I'd be happy to do that. Let me just grab that here for you. For the quarter we were up 1.8%. Year to date we're up 4.6%. So you can see it's more pronounced -- the difference between the numbers I provided and those, it's more pronounced in the quarter, clearly. Winter months in Chicago without a brand under construction --

That would've been both occupancy and rate impact from Chicago, but more occupancy?

It would be both.

Okay. On Milwaukee, you are still getting occupancy gains. And Greg, I heard you about the fourth-quarter expectation that one hotel will -- you didn't say Milwaukee but one hotel will have a tough comp just because of something that doesn't recur.

But it doesn't look like supply is particularly hurting your ability to fill those rooms in the Milwaukee market. Any thoughts on that or on the outlook over the next several quarters with the supply growth slowing but still more coming on in the future?

A few things. I start with a reminder about a lyric, money can't buy you love. But in Milwaukee, it can.

If you look at the Milwaukee market, what you would see is that we have been very aggressive to keep rooms filled, and we do that with rate. So we are buying a little love there.

But it's been a successful strategy for us too. When you look -- and I talked about this on prior calls. When you look at the Milwaukee market and you see what's going on with supply, the market -- this market is not keeping up with the national markets at all, as a whole. The new properties seemed to be doing well, our properties are doing well because we have invested in it as we always have.

The other properties in the market, I call them the legacy properties. They are not doing as well. And that's the dynamics. So it's a competitive market.

So you are holding market share at some -- that's hurting your ability to raise rates, but you are still holding market share and maybe even gaining a little bit. Is that a good summary?

(multiple speakers) I'd say we are holding market share.

That's great. On the theater side, and I know you talked a little bit about this, but I guess as you're looking ahead, the summer lineup looks really strong. The fourth quarter maybe a little tougher comparisons from last year, but I guess I'm wondering if you can give us an idea about how the trade-off sort of teases out with the loyalty program really kicking in better food and beverage versus film lineup.

Do you think you're getting essentially same-store growth, all things equal, like film lineup not being a factor from all of this, and can that continue as you continue to lap -- now that you have 1 million members for example as you continue to lap the rollout of that program and some of the other discounting programs?

We have a really smart team of people (multiple speakers) thinking about that exact question every single day. They seem to be pretty good at it. It -- look, obviously it becomes more challenging, I'm not going to tell you it's not. But I have a lot of confidence in their abilities.

These have been -- we continue to look for new ways to innovate and be innovative in the industry and to take advantage of some of these things will build on themselves. If you think about it, to the extent, David, loyalty -- the loyalty program, that's something that just as we said it's sort of in its infancy. And where does that go and what does that drive? That's just starting, really, how we can monetize that.

And I think -- I hope and I think what you will see as we move forward is that it's not just one thing, it's not just $5.00 Tuesdays, it's not just DreamLoungers, it's not just loyalty. We just keep executing on putting a number of strategies in place and continuing to drive our performance. But you know, it will get more challenging, you are accurate.

Do those smart people have a way to quantify the impact of, let's just say, this last 200,000 new loyalty members on attendance?

Yes, they do have some ways, and I will tell you that competitively I'm not necessarily going to share everything in terms of how some of these things have -- I'm not going to give you numbers for example. (multiple speakers) but look. Don't -- I agree with Greg in terms of scraping the surface on some of these things, because if you ask your cohorts in crime here that live here in this market, they'll tell you that they are seeing advertisers -- they are seeing things for a ladies night series on Monday nights where we are bringing back different films. How could we ever promote that in the past? Now all of a sudden we've got a list of people that we can contact and talk to, and so I think we are really kind of scraping the surface of ways to take the nonpeak times and promote into it.

Or if we see a certain time period where we think a particular genre might be missing in the film lineup that is being produced by Hollywood, we can in turn say, all right, we are missing that genre. We are missing that family film. Let's come up with something that we can show, and now we've got a way to promote it. It's very interesting.

And I think what Doug is alluding to, David, and we can't model it, we can't tell you exactly what it means yet. But I know that it is going to be an advantage for us. That is, it's this ability -- the thing that we've never had in our business before. We had this anonymous customer base wandering into our theaters. And for the most part, we couldn't tell you who they were. We couldn't talk to them.

And so whether it's marketing for off times and marketing a specialty series, or how about -- we are just starting to see ideas. Hey, we haven't seen you in a while. Where you been? A little email to somebody, we know things you like. We know you like action movies. So you might want to check out Fast & Furious 7. Maybe we send something like that out in its third week to try and drive a little business to people we haven't seen before.

In the past, I would've just -- been about as effective me just walking up the street and knocking on random people's doors, because we wouldn't know who to talk to. But now we can be much more tactical about it. Now what does that mean? I don't know, but (multiple speakers) positive impact on us.

It is a little spooky, though, Greg. (multiple speakers) telling people what movie they like.

I still get a little freaked out every time I drive by Walgreens and my smart phone buzzes and tells me I'm near Walgreens. And so yes, so I'm with you.

But my team actually does get those emails, and we have talked about that. But Greg, one implication of that then, if you've got -- you found these ways to drive more value, that must make theater acquisitions more interesting. Because now you have these methods of driving cash flow with loyalty, with improved food and beverage, etc. Does that change your view on the way you look at the value you can create in acquisitions, or in your appetite for those acquisitions?

Yes. I mean, yes. Obviously (multiple speakers) we agree with you in thesis. Again, if you think about all the things that we are doing and where might those have applications other places, that concept is not lost on us.

Got it. Let's just move on then. On The Corners, can you just give us a little more on the terms of that? So you've retained a 10% interest, that part I caught. It sounds like you have not received any capital back yet for this. But it sounds like there are some hurdles that as you hit you will receive them. But do you have any kind of promote or preferred return, and what's your share of the cash flow? Is that 10% of the cash flow once it's open?

Yes. I'm not going to -- I'm not going to go through gnat's eyelash, but in simple terms, you're right. Not a lot has happened so far. We actually just now have contributed the land, and so that just happened. And there is basically in simple terms as construction commencement, which is defined as not just moving dirt, but now when the construction and the footings and foundations, things along those lines, actually start happening, and that will -- I don't have -- that's likely to probably happen this summer or early this summer, but we are not driving that timetable. Our partner is.

So I don't want to speak for them. And I don't know exactly, but with the Spring groundbreaking it seems to make some sense. At that point in time we will get reimbursed for the vast majority of the cost that we've already previously incurred. That -- and I will tell you that includes costs that are on our balance sheet and costs that we conservatively had expensed previously. And we have reported over the last several years, the fact that we've had some P&L negative impact, as we've been pretty conservative about expansing certain types of cost.

So that will be a P&L event when that occurs, then we also have an opportunity for us in development -- what I call development profit along the way again, different conditions have to be met in terms of -- as the project unfolds and the cost of the project and things along those lines. I'm not going to get into the details, the confidential details, but there is an opportunity for some additional development profit along the way.

And then we will have a 10% interest. And it's a pari passu interest, and there are ultimately -- like any typical agreement there are provisions that could allow for an exit, and we will see how that plays out.

So any thoughts on timing for that exit? I guess value realizations going to come in stages as you first recover expenses and then get a profit. But ultimate exit, is that years down the road or could it be sooner if you wanted?

It could -- it depends. Again, a variety of factors. It could be within a reasonable timeframe after opening, but it doesn't have to be. It can go -- there's potential for it to be as early as a year after it opens, but it also could, under a variety of conditions, continue for a while. So it really is -- it really is not determined at this point in time.

When that happens, obviously we carry it over basis in our land, so we are going to have a pretty low basis in this investment. And so there's certainly some upside on a backend, I just can't give you a date. I can't tell you when it's going to be.

I think overall (inaudible) it's -- and it goes back to -- at the end of the day it's really a pretty small thing. In fact it's gotten -- as it relates to our other business a little too much attention probably in terms of (multiple speakers). I feel like it's a little bit more magnified than it really is.

I don't think you're going to hear like a big huge number when all is said and done. And so it's (multiple speakers).

Yes, but you created value from excess land, so there is value that has been created and will continue to be as you continue to build this. So that may be hard for us to quantify, but it sounds like it's still meaningful.

I'm not sure I even -- I'd say, look. You got to go back and look at it in terms of when we started doing this thing, and it was when there was nothing else to do in the world. We were -- because the world was upside down when we started the project. And so our attention has gotten really much more focused -- because we have so many more opportunities in our core businesses.

And so you know, it's -- it was nice to create some value, but for us we looked and said, well, look it, it was almost a little bit of R&D too.

Yes, okay. Very helpful, thank you for your candor in all this.

Jim Goss, Barrington Research.

Thanks. In terms of capital allocation, okay. You're going down the path of seeking out management contracts and having less investment in land in the hotel area. Are you -- are there certain types of properties that you probably would want to maintain ownership of? And in the theatrical space, you've tended to own versus lease more so relative to the industry. Is there going to be any shift in that side of the business as well?

You know, look. There are hotels that we have very long-term views on and consider very good investments and we will make the right decision at the appropriate time. But I can't make any statement on that.

The theaters, you ask a very interesting question and that is what would -- I don't see us going out right this minute and put a sale-leaseback on our portfolio or anything like that. But if we are going to grow, that idea is in our minds, we are going to -- our preference is going to be to own real estate. But we are going to have to -- if we are going to lease we will have to look at -- we are going to have to look at those opportunities, and we've taken leases out in the past. It wouldn't be the first time.

Okay. And you talked earlier, I think it's time you made a transition in management in the theatrical sector. Talked about perhaps having acquisitions outside of your current geographic area. Are you going any further along those lines, or is that just examine the properties and see how it takes you?

I think that we have the ability to go outside of our geographical area. As we look at opportunities, we won't limit ourselves to something that has to be -- it won't be a requirement that has to be contiguous to our existing geographic base.

I think the most fundamental change -- if you think about the movie theater business, the most fundamental change that would allow, that makes it so much easier has been interestingly enough, the Internet. Because in -- back when I started in the business, that sounds sort of old, but back then, we had to advertise in the newspaper to get our movie times out. And if you could have a significant presence in a market, you could own the page of the newspaper. And that was very powerful.

But that doesn't exist anymore. And so with the Internet and our ability to advertise, the ability to be in a market and not necessarily have to have market dominance, is much more feasible. So it allows us to do things differently than you might have done in the past.

Just a couple of other quicker things. Do you have an ultimate mix of receipts -- you're not necessarily targeting 100% of your space, are you? And what would determine how far you go down that path?

Are you talking between hotels and theaters?

No, just the receipts within the theaters. That trend you're over 30% you said in the coming year, and you have that trend going on, but some of the other ones who are doing it, notably AMC, says there are certain ones they wouldn't re-seat. Do you have that sort of notion too, and how far do you go with that program?

I'm a little open-minded as to where it might go. I don't know.

I know this. There's no better way to see a movie. It's a great way to see a movie, it really is. So to the extent that we can give more people the opportunity -- so for example, if we take in UltraScreen and do the UltraScreen DLX, which stands for DreamLounger experience, where you have that opportunity, we're going to be looking for opportunities to give people that kind of experience.

And who knows? Maybe we'll -- you know, one thing that you see and we know that the other people in the theater space have done the same thing, is that they're starting to collect a bit of a premium for theaters like that. It's not stream, but it's -- but it's a premium for that kind of seating.

Now will that pay for it? I don't know. One thing about us is we are able to look at lots of different markets and we've tried some different experiments to see where different things, how it works and where it's not just share shift. And the results are interesting but we don't know where it's all going.

Okay. And with the -- for the last thing, with the rewards program, to some extent I think that's a good point that you have better communications or promotion capability. If, to the extent that you also wind up concentrating on that group that tends to go to your theaters the most, and you provide discounts and that sort of thing, you may also be discounting items you would've sold at full price anyway.

I'm just wondering how that balances out, what the economic implications are of the reward program, and what are the highlights that you are offering with that program?

You hit -- that is the nail on the head question. Is that are you discounting to people who would normally pay full price. And if you look at this just as a discount program, then absolutely that is probably not a great trade.

But we firmly believe that having that insight into our customers is going to be able -- is going to be able to drive frequency, and on top of that who knows what other marketing opportunities there are for when we know -- we have a very valuable database. Now we can't abuse it, but we have a valuable database. We know a lot about people. I could tell -- I know who's got kids. Because I know who's going to the kid movies.

So that might be very important to somebody else. So I think that there are opportunities for this program. If it is just a discount program, you're absolutely right. Economics wouldn't pan out. But that's why we are very focused on looking at all the ways we can to monetize the million members that we have so far and further.

All right, thanks very much.

Brian Rafn, Morgan Dempsey Capital Management.

Good morning, guys. The value Tuesday, Greg, you talked about year over year the anniversary was still up positive. Was that just admission tickets or does that include concessions also?

It includes both. The fact is that we've had more people on Tuesday nights than we had Tuesday nights for the same three-month period last year, so that's a clear comparison. I'll remind you on the concessions side that when we first rolled this out in November last year, that the free popcorn was available to everybody. And then when we rolled out the Magical Movie Rewards program on March 31, (technical difficulty) adapted the program, and at that point it was only available, the free popcorn was only available to rewards members. So there is a little bit of a disconnect on a year-over-year basis there, because this time last year we were still giving it to everybody.

Okay. That $5.00 value Tuesday guy or gal, are you getting any sense that you are creating greater concession penetration with them, or is that still cheap guy?

Yes and yes. Do you go on Tuesday nights, Brian? Just curious.

I have yet to go, but I'm just curious.

That's -- you're right. We are -- we are seeing better penetration. We also see opportunity to get even better penetration as we -- the one thing that frankly [didn't] surprise everybody was -- we all knew, we were all confident this would be a successful program. But the amount of people we are driving to the theaters is really impressive. But servicing those people is not easy.

And so as we start to adapt and modify our ways of doing business, we think there's more opportunity. So it's gone up, as Doug said, we took away the free popcorn for everybody, that obviously drove some increases right in and of itself. We continue to continuously improve so we've gotten better at selling the things. And then, on top of that, we've got opportunity to get even better because we think we're leaving all the money on the table.

Okay. If we go to the other side of the spectrum and you look at the guy or the family that goes with the up charge for the Dolby Atmos, the UltraScreen, the DreamLounger, does that at all impair concession sales for that guy or that family? With the higher ticket price.

I don't -- we haven't seen any data that would suggest that. That's a tough statistic to try to get at, because that same customer is mixed in with everyone else, so it's difficult to get at that statistic. But I wouldn't say we've seen anything that screams that to us. (multiple speakers)

That goes for our whole strategy of really the adoption of the hotel side, which is the yield management strategy. The right customer at the right time, the right price. So you are right, it's a different customer on Tuesday. There's some overlap. Tuesday's going to drive some weekend business, our frequency program shows us that. But we get customers (multiple speakers) (technical difficulty) and so they can also afford the concessions too.

Okay, good answer. If you looked at there were questions on the reseating as you roll out and you talk a little bit about your mix going forward, the DreamLounger reseating. I think I caught that you still have seven UltraScreens that are traditional don't have that. Would it be a decent assumption to say that at some point those would be filled up with DreamLoungers?

Not necessarily. Because that goes to actually Jim's question earlier, which is how far can you take it. Because seat count does matter in some circumstances. So, it becomes truly a math exercise. Because as you know we lose about half of the seats when you put the DreamLoungers in. And so there are -- let's say that today there are locations of those seven and I'm thinking of that would be difficult to lose half your seats.

All right, good. Thanks. Let me ask you, Wall Street Journal talk to you guys now with the magical rewards over 1 million guys, congratulations on that. Wall Street Journal had an article talking about some waning demand in moviegoing between 18- and 39-year-olds. Obviously with your numbers being so strong, are you seeing any demographic changes as you guys start mining data on the rewards card program that shows shift amongst age groups?

I think it's very hard for us to (technical difficulty) that.

I also think it's very dangerous to the industry -- not the industry, pundits have a tendency to look at the last year's segment of data and make a decision that what was sometimes just a cyclical change is secular. Now, we can't ignore it, we have to watch it, and we can't say that data doesn't exist.

But, you know, so much depends on what kind of product was out at the time compared to the year before. You may wake up with all these -- with the huge amount of built-in fanboy kind of movies that we have coming out over the next few months and say, gee, oh, they're all back. Or not. I don't know.

Demographically, the world shifting to. The world is getting a little bit older. So, and the studios are cognizant of that and we ought to be cognizant of that. So I won't ignore the data but I will be very careful not to let one year's data or two years' data drive me.

Yeah, to Greg's point, think about what a couple of what are expected to be maybe the two top movies in calendar 2015, The Avengers and Star Wars. Probably go right -- probably aimed pretty directly at that demographic. So we'll have to see what happens.

Okay. You guys talked a little bit about the top five box office movies for the third quarter. Any comment on the depth, say, movies six through 20 for 2015 versus 2014?

For this quarter that is completed?

Yes, the quarter completed. I'm just talking about kind of the whole lineup just first top [five].

I would just go back to Greg's prepared remarks. Look, they performed -- that group performed better than they did last year. And again, I think it goes to this dynamic that we are seeing where because I think we are driving frequency, that second tier of movies is benefiting as a result of that. And so, this is several quarters in a row now where the blockbusters, as a percentage of our total, has been less than it was the prior year.

And I think that that's more than just a product issue. It's the fact that we're just driving frequency.

There's other interesting dynamic, another thing that can drive that (technical difficulty) for us is when we do DreamLoungers and we take half the seats out, we drive a lot more sellouts. And so now someone goes on, we are able to, I think there is some shifting where someone goes and looks for their first choice movie and it's sold out, and they say I am sort of in that mindset of going out, and then slide into a second choice movie, because (technical difficulty) taken some capacity out. (technical difficulty) In the margins it helps.

We have another caller yet waiting, do you have any other questions?

Yes. Just let me ask from a standpoint -- I think you guys had $975,000 spend in the winter, polar vortex winter 2014. Much reduced this quarter? In either [eating] or plowing?

Certainly reduced, and that spend you're talking about was over both the third and fourth quarters. If you remember last year, March was unbelievable. And so the heating costs went through the roof in March and early April. So we will still get some of that year-over-year benefit in the fourth quarter as well. But certainly snowplowing was an advantage for us year over year this year.

Okay. And one more. Seasonally, averse of polar vortex, if you have a hot, blistering summer, is there a drive to go in an air-conditioned movie, does that at all have any seasonal impact for the summer, or is it all about film slate?

It's all about film slate. And weather helps. (multiple speakers) rain and heat is good for us in the summer, no question about it. Thank you, Brian.

(Operator Instructions). Mike Hickey, The Benchmark Company.

Hey, Greg and Doug, awesome quarter guys. Congrats to you and your team. Your stock is hitting a five-year high here, very impressive. Thanks for taking my questions, I promise to have hopefully a few less than 10 (multiple speakers) (laughter). I'll try to be quick.

We love to save you for last. You've had the cleanup.

Operating on the fringe here, I love it. So guys, we have a fairly transparent view, I think, of what the top five networks are doing as it relates to client initiatives. I guess we are more curious if you could provide some insight to what you're seeing from the smaller private networks, particularly networks within your geographic reach as it relates to recliner, initiatives and perhaps enhanced food and beverage concessions at wholesale, that sort of thing.

You know, we are not seeing too much yet. But they'll start to do it, we sort of wonder if that's where the opportunity is going to be in terms of when we think about growth, will people want to put the capital in that it takes to do that kind of thing. They're always talking about the growth opportunities with digital, but digital studios really ended up paying for it. I don't know. Partially because, remember, you think about it for the most part, we've got regional operators and most of our markets where we are the regional operator. So we are not really exposed to too many of the smaller guys. We've got the bigger guys in our markets but not the smaller guys.

Okay, fair enough. The graph is well on the million plus moviegoers on your loyalty program. Curious how you guys are thinking about maybe leveraging that -- your loyalty patrons to online ticket sales?

Say that again, Mike.

We're sort of curious how you guys are thinking about leveraging your loyalty patrons for online ticket sales.

If you are a loyalty patron, you don't have a service charge for online ticket sales. So yes. So actually it is driving that, I don't have the statistics to spout out for you know, but I think it is driving more people to online ticket sales. Because there's no longer a service charge if you are a rewards member. And that -- we view that as a positive development.

Forgive me if I'm wrong on this, but do you guys currently have an internalized online ticket sale program or are you using all third-party still?

We don't run the online ticket ourselves, it's external.

Okay, fair enough. And on the M&A landscape, sort of wondering if you would consider potentially buying a theatrical network, maybe a portion of that network that is larger in scale than yours currently?

Why? I don't know what you're talking about. You know what, the DOJ has been looking at this industry closely, and in previous situations has been pretty strict about this. So I suppose you're right, that if there was a transaction there could be some opportunities.

We think -- on a broader scale, not trying to be as specific as I think you are implying, we think it's an advantage for us that we don't have the conflicts that others might have. And so that is, I think, the more important point. The earlier question about looking and going outside our geographics and looking at other areas, well, we got an advantage in that regard is that if we do take a look at anything, we won't have a conflict. And so, we won't be -- I'm going to turn your question around the other direction, but we won't necessarily have those types of issues ourselves.

But I will tell you that all that being said, one thing that's going to be true about whatever we do is we've always been disciplined about it, and we are going to be looking for quality and opportunity for improvement. We are not just going to grow for growth's sake. We want to grow and we want to create opportunity, but we want to be able to deploy capital and utilize the skills that we've got. And frankly the years and years of investments we've made in the programs that we are rolling out now didn't just happen overnight. And then -- but we want to do it with quality stuff.

Fair enough guys, thank you. As always, best of luck to you guys.

Thank you, Mike.

At this time it appears there are no questions, I'd like to turn the call back to Mr. Neis for any closing remarks.

Thanks, everybody, for joining us again for this call. We look forward to talking to you once again. This time, it will be a couple extra months it will be in July when we release our fourth-quarter and year-end fiscal 2015 results. Until then, thank you, have a great day.

That concludes today's call, you may disconnect your lines at any time.