Marcus Corp (MCS) 2015 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Marcus Corporation fourth-quarter earnings conference call. My name is Sheila and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (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'd like to turn the program over to Mr. Neis for his opening remarks. Please go ahead, Sir.

Well, thank you very much. Welcome, everybody, to our fiscal 2015 fourth-quarter conference call. As usual, I do need to begin by stating we plan on making a number of forward-looking statements in our call today.

The forward-looking statements could include, but not be limited to statements about our future (technical difficulty) expectations, our 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 expect to be made available to us in the future; expectations about the future trends in the Business Group and Leisure Travel industry; and in our markets, our expectations and plans regarding growth in 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 Factors section of our 10-K and 10-Q filings, which may be obtained from the SEC or the Company. We'll also post our Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So, with that behind us, let's talk about our fiscal 2015 fourth-quarter and year-end results. An impairment charge that I'll talk about more about in a minute may have had -- and maybe I should change my script to say not may have had, but did have -- on the surface, may have masked the fact that it was another very good quarter for us, led by our Theater division that reported record operating results for our 13-week fourth quarter and record fiscal year results.

And nearly identical to our last two quarters, what makes this a special quarter for us is that we produced these results during a 13-week period when the national box office numbers were essentially flat. So it wasn't as if we had an unusually great film slate to work with.

For the sixth straight quarter, our Theater division significantly outperformed the industry. And while continued RevPAR improvement from our Hotels and Resorts division contributed to record revenues for the Hotel division, and in fact, the entire Company as a whole, as we projected when we last talked, we had one more quarter where the significant renovation and brand conversion at our Chicago Hotel negatively impacted our hotel results.

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. So let's start with the impairment charge. It's pretty simple, actually, really.

As you know, we are spending a great deal of time actively reviewing our portfolio of hotel assets from a strategic perspective. We also, at least annually, review all of our long-lived assets for impairment in a process that estimates future cash flows in order to determine the fair value of the respective assets.

As you might imagine, given our portfolio and the average holding time of most of our assets, in almost every case, the estimated fair market value of our hotel assets exceeds the book value, sometimes by a significant amount. In fact, if anything, you've probably heard us talk about the fact that as we pursue hotel -- potential hotel monetization opportunities, we may have some situations where we may encounter substantial gains on certain assets that would likely require an effective income tax solution.

Having said that, during our review of the hotel assets, we did identify a pretax impairment of approximately $2.6 million related to a specific asset that we reported -- we went ahead and reported -- during our fiscal 2015 fourth-quarter. After adjusting for income taxes, this one-time impairment charge, coupled with an earlier smaller $300,000 impairment charge in our Theater division that was reported in an earlier quarter, negatively impacted our reported net earnings-per-share attributable to the Marcus Corporation for both the fourth quarter and the entire fiscal year by approximately $0.06 per share.

Moving on, I usually spend a few minutes on each line item below operating income. But as you can see, the only noticeable change in any of the four applicable line items during the fourth quarter was in our losses on disposition of property and equipment. Those losses increased this quarter due to the write-off of selected assets at the Chicago Hotel -- due to the renovation -- and the write-off of selected assets, many of which were old seats, related to the theaters that have undergone major renovations.

The same answer applies when you look at the variations on our losses on disposition line for our year-end results. I'm not going to rehash in great detail prior-quarter variations that we have previously explained, but since this is also year-end, I'll just remind you that our year-end investment income was approximately $400,000 less than last year, due to the fact that a long-term interest-bearing loan that we made to a municipality for a parking garage adjacent to one of our hotels, was paid off during the year. And offsetting that was the fact that interest expense continued to be below last year, due to a lower average interest rate.

Our fiscal 2015 effective income tax rate adjusted for losses from noncontrolling interest was 39.5% compared to 40.2% last year, slightly lower than last year but generally right in our historical range of 39% to 40%. And speaking of noncontrolling interests, as you can see, another reason that our fiscal 2015 consolidated net earnings attributable to the Marcus Corporation was lower than last year was because of a one-time legal settlement last year that resulted in the recording of $3.8 million pretax loss attributable to noncontrolling interest.

This didn't impact our fourth quarter, but for the full fiscal year, the simple math would be that if you exclude the approximately $0.08 per share this item added to earnings last year, our fiscal 2015 net earnings-per-share, after adjusting for the impairment charge I just talked about, would've actually been over 10% or nearly 10% higher than last year.

You know, look, we are not one of those earnings before bad stuff companies. But in this case, both the impairment charge this year and the $0.08 noncontrolling interest from last year were one-time non-cash items. So I do think it's important to point this out.

In fact, the way we look at it, and the way we would manage our business, the way we would look at this year, is you could easily just take a look at our operating income line. And we saw that last year we had $48 million of operating income. This year, excluding the impairment charge, we were -- we had $53 million of operating income. A solid 10% increase.

Now, you throw another $5 million of added depreciation into it and now you're looking at basically an EBITDA going from $82 million to $92 million. That's how we look at the business. That's how we look at how the year ended up, and we are very, very pleased with that result.

Shifting gears away from the earnings statement for a moment, our total capital expenditures during fiscal 2015 totaled approximately $75 million compared to approximately $57 million last year. Approximately $50 million of this amount was incurred in our Theater division related to the numerous investments that we've made in our existing theaters, as well as the new theater opened in Sun Prairie, Wisconsin. W

e spent approximately $24 million in our Hotel division, with the majority related to the renovation and conversion of our Chicago Hotel into an AC Hotel by Marriott, as well as prior renovations at the Pfister and Cornhusker. As we look towards capital expenditures for fiscal 2016, we are once again currently estimating that our fiscal 2016 capital expenditures may be in the $70 million to $90 million range, with approximately $50 million to $65 million estimated for our Theater division, including about $9 million in carryover from this past year.

That would leave about $20 million to $25 million currently estimated for our Hotels and Resorts division, with about a half of that amount related to carryover costs in several projects underway or recently completed, including the Chicago renovation, and the other half related to additional -- related to some additional maintenance capital, as well as, frankly, just some dollars that we've set aside in the budget for possible growth or ROI opportunities that could be evaluated -- that would be evaluated during the year.

As is always the case at this point in the year, the range of potential capital spending is fairly large at this time, because either the timing on several of our planned projects is not finalized yet, or because some of the dollars are for several growth opportunities that may or may not come to fruition. As a result, even though this year's actual expenditures did actually come in right in our originally projected range, our actual fiscal 2016 capital expenditures certainly could vary from this preliminary estimate.

In addition, if an acquisition opportunity could arise, particularly in our Theater business, that would obviously impact our actual capital expenditures as well. Greg will expand on some of the capital expenditure plans during his prepared remarks.

And now I would like to provide some financial comments on our operations for the fourth quarter and fiscal 2015, beginning with theaters. As you can see in our reported numbers, our box office revenues increased 10.7% during the fourth quarter, ending the year 7.7% ahead of last year. Our concession and food and beverage combined revenues increased a substantial 20.2% during the fourth quarter, and ended the year up 17.5%.

Once again, we significantly outperformed the national numbers by more than 9 and 11 percentage points, respectively, during the fourth quarter and full-year fiscal 2015. We shared the specific numbers that we obtained from Rentrak in our press release with you. In fact, according to the data that we obtain from Rentrak, we are the only theater circuit of the top 10 chains in the United States to even report an increase at all in box office revenues during the same 12-month period.

Now once again, the fourth-quarter increases are primarily attributable to an increase in attendance of 9.8%. Despite what the national numbers would suggest, it was essentially no better or no worse film slate. We ended fiscal 2015 with a 12.1% increase in attendance. Once again, we believe the majority of this attendance increase and the overall industry outperformance can be attributed to the new investments we're making in our theaters and the innovative marketing strategies that we've initiated.

Our average admission price for our comparable theaters increased by 0.8% for the quarter but finished the year down 3.9%, due entirely to our $5 Tuesday program that didn't lap the previous year until November. Of course, as you know, that's also contributed to our attendance gains. And our average concession revenues per person -- including the various food and beverage outlets -- increased by a significant 9.5% for the fourth quarter. And we ended up 4.8% higher for the entire fiscal year.

Now that we've 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.

Shifting over to the Hotels and Resorts division, our overall reported hotel revenues were up 6.9% for the fourth quarter and 7% for fiscal 2015. But if you eliminate the new policy of grossing up service fees into food and beverage revenues, that I described during an earlier quarter's conference call, our revenues were up 3.7% 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 were still operating a hotel in Chicago that was under major construction, and was operating without the support of a brand. In order to get a better sense for 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 eight comparable properties, excluding Chicago, was up 5.3% during the quarter and 5.9% for the year 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, but I will tell you that seven of our eight comparable company-owned properties reported increased RevPAR during fiscal 2015.

Now according to 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 an increase in RevPAR of 5.6% during the fiscal 2015 fourth-quarter, and 6.9% during our fiscal 2015 full-year. 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 that we referred to previously -- whereby the national numbers don't necessarily reflect what's happening in our more Midwestern-centric market.

When you further dissect the Smith Travel numbers, and just look at hotels in our specific markets and competitive sets, you'll find that we actually had another year of outperforming our competition in most markets. In fact, specifically, if you take a -- overall, if you look at our RevPAR for our competitive set during this fiscal year, it was only up 5.3% compared to our 5.9% overall increase that I just talked about.

Breaking out our numbers a little more specifically -- again excluding Chicago -- our fiscal 2015 fourth-quarter overall RevPAR increase was due primarily to an overall occupancy rate increase of 4.3 percentage points. Our average daily rate increased 0.5% during the quarter. So for the full fiscal 2015 year, our occupancy rate increased -- also increased by the same 4.3 percentage points, and our ADR was essentially flat.

So, with that, I'll now turn the call over to Greg.

Thanks, Doug. I'll begin my remarks today with our Theater division. We're obviously thrilled to be reporting another great quarter and a record year for this division once again, significantly outperforming the industry. Stop me if you've heard this before.

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 initiative, the result is a 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 are getting from Rentrak suggests that we were once again the top performing theater circuit among the top 10 chains in the United States.

I think we once again answered the question that I know has been on many of your minds. Can we continue to outperform the industry after we had lapped the one-year anniversary of our $5.00 Tuesday rollout, as well as the one-year anniversary of our initial DreamLounger location? Clearly, the answer to that question, at least for another quarter, was yes.

The next four theaters where we added DreamLoungers last May, and the three recently-added DreamLounger theaters, were among our top performing theaters this 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 fiscal 2015, over 75% of our company-owned first-run theaters outperformed the national box office.

Part of that is because our $5.00 Tuesday program continue to be a contributor to our stellar results, with Tuesday's this year outperforming comparable Tuesday's last year during the same quarter. As Doug indicated earlier, the national numbers would suggest that this quarter's film slate was not significantly different in terms of quantity and quality than last year's comparable slate.

The quarter actually started off a little slow but picked up around Easter, and then again in May when the Avengers came out. And of course, when you look at the full fiscal year, the national numbers would tell you that this was a down year at the box office. But you wouldn't know that looking at our numbers.

Once again, the raw numbers would suggest that the film slate for the year may have been a little deeper this year, with the top five films for the year listed in our press release accounting for approximately 18% of our total box office versus the 19% share of the top films during last year it represented.

But I believe it is more than that. We've been seeing this dynamic since we introduced our $5.00 Tuesday program, and I believe our numbers would suggest that we've increased moviegoing frequency among our customers. An increase in frequency might tend to benefit the next year of movies after the blockbusters -- 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 revenues increases to increased operating income. So, I'm particularly pleased with our 21.5% increase in operating income this quarter and a 15.1% increase for the full fiscal year.

Despite increased fixed costs because of our recent investment, increased operating costs, as we service 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 over a full percentage point this quarter. And for fiscal 2015, our operating margin of 19.9% is 80 basis points higher than last year.

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

So now we move on to fiscal 2016. And while the film slate looks very good, you've heard us say that our goal is to continue to outperform regardless of what the movies in any particular quarter look like. Our path to meeting that goal starts with many of the same strategies you've been hearing about.

As Doug shared with you, we invested another $50 million into this business in fiscal 2015, with a large portion of those dollars being spent in the second half of the year. The early response to those investments has been very good, and you are seeing some of that show up in our fourth-quarter number. But we'll be particular -- we'll certainly be looking for a continued return on those investments in fiscal 2016. In particular, I want to single out our new Palace at Sun Prairie Cinema that we opened up on April 30.

If you get a chance to see this unique entertainment destination, I encourage you to do so. This was our first newbuild theater in several years, and it gave us a chance to incorporate all of our successful amenities under one roof, with great results so far. Our customer response to this theater has been fantastic, and I can tell you the Studios are pretty happy with us as well.

We are excited to continue to invest in both new and existing theaters during fiscal 2016, as we further expand the successful concepts and amenities that have contributed to our industry outperformance. Doug shared with you that we may spend as much as $50 million to $65 million in this division during fiscal 2016. And we would do that in a number of ways.

We expect to begin construction on another replacement theater in a different market soon, and we are looking for additional sites for new locations. I've mentioned that we are considering building our first standalone big screen bistro location, and construction on a particular opportunity we are working on may also begin in fiscal 2016.

Of course, our DreamLounger recliner seats have been a huge hit with our customers. So we are currently evaluating opportunities to add this premium seating amenity to another three or four existing theaters during fiscal 2016, in addition to the two new theaters I just mentioned. We also plan to continue expanding our proprietary large-format -- large-screen format concept.

We are currently evaluating opportunities to convert or add up to four additional UltraScreen DLX auditoriums, and seven of our new SuperScreen DLX auditoriums for fiscal 2016. 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.

We opened another Take Five Express early in fiscal 2016, have another Take Five Lounge under construction, and at least one more on the drawing board. Two more Zaffiro's Express outlets opened early in fiscal 2016. Another one is under construction, and up to three more are being considered during the second half of fiscal 2015.

Needless to say, our team will be busy, but it is not just about making capital investments. As you know, part of our success has been because of our innovative marketing and pricing strategy. And we'll be looking to build on that in fiscal 2016. With well over 1 million members in our loyalty program, our team will be focused on communicating to our loyal customers, whether it is with special value offerings or promoting alternate programming and special film series or attractions.

And I would be remiss if I didn't mention that we continue to believe that acquisitions of existing theaters or theater circuits may also be a viable growth strategy for us. We do not believe we are geographically-constrained. And with a strong balance sheet, available capital, and a proven record of implementing proprietary amenities and operating strategies, we believe we may be able to add value to the right theater or theaters if opportunities arise.

We are not the type of company that just wants to grow for growth's sake. And the fragmented and family-controlled nature of this business makes it difficult to predict when such opportunities may come to pass. But I will tell you that we are proactively pursuing this strategy.

Finally, as I alluded to earlier, the film slate looks very good. And the summer and our corresponding fiscal first-quarter are off to a great start. Our press release highlights some of the movies that have done well so far, and we also list some of the remaining films to be released during our first quarter.

The supply of films during the rest of the calendar year also looks good, highlighted by franchise films from the James Bond, Hunger Games, and Star Wars series. Of course, at the risk of being repetitive, our goal, regardless of how the film slate turns out, will be to continue to outperform the industry. I know our team is excited to take on that challenge in fiscal 2016.

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 divisional revenues, once again beating our competitive set. Obviously, from an operating income perspective, the results were disappointing. But as Doug shared with you, the one-time impairment charge and the operating losses at our Chicago Hotel -- which we continue to operate without the benefit of a flag while under construction -- dramatically impacted our reported results.

In my remarks last quarter, I also told you that we had one particular hotel that had a very strong fourth-quarter last year that would likely have difficulty replacing some of the business that drove last year's results. And unfortunately, in this case, I was correct. 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 it was obviously accentuated during this quarter.

For competitive purposes, we don't talk too much about individual properties, but suffice it to say that, as evidenced by our solid RevPAR numbers this quarter, we had several hotels with very good results this quarter and this year. I will say with the majority of our RevPAR growth driven by occupancy gains, it is more difficult to improve operating margin and maximize the operating income flow-through from the revenue increase.

There is no question that one of our key objectives during fiscal 2016 will be to make ADR growth a large component of our overall revenue growth. One of the ways that can occur is if group business continues to increase. We continue to experience improvement in the pace of our group bookings, which is a very encouraging sign. We actually knew that this summer would get off to a slower start, particularly in our home market in Milwaukee, due to reduction in convention business.

But, as the year goes on, things get more promising from a group perspective, as we already have more group business on the books compared to last year. Of course, when we look ahead for fiscal 2016, we are also thrilled to have our new AC Hotel by Marriott now open.

This property obviously had a pretty significant negative impact on our fiscal 2015 results, so we are happy to have that behind us. And we are very excited about what lies ahead with the new brand. We've only been open and officially on the Marriott system for a handful of weeks so far, but the hotel looks great, and we have received very favorable comments from our guests.

Bigger picture, most industry experts seem to be pretty bullish on what the future holds for this industry. They all seem to be predicting that the US lodging industry will continue to achieve strong growth and RevPAR in both 2015 and 2016, and that the shift is on with record-setting occupancy yield and roundish growing ADR, with ADR gains beating the primary driver of -- being the primary driver of RevPAR growth through 2019.

Look, 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 margin. It is also no secret that we would really like to grow our management company, and we are actively pursuing a number of potential growth opportunities, with a particular focus on management contracts, possibly with some sliver equity accounting.

This past year, we added the Hotel Zamora, using that model. And we recently announced our involvement in the new Capitol District Marriott Hotel in Omaha, Nebraska -- again, using the model of management contract plus the Grill. And speaking of what is and what isn't the secret, our press release also noted that we've gotten into the secret business -- pardon the pun -- with our recent purchase of the Safe House, an iconic spy-themed restaurant and bar located in downtown Milwaukee, that has been popular with tourists and locals for nearly 50 years.

One of our growth strategies in this division is to leverage our food and beverage expertise. And we have sought out opportunities to expand our successful in-house restaurant brand, which is Miller Time Pub and Grill, in addition to adding the existing Milwaukee Safe House Restaurant to our operating results. We look forward to exploring opportunities to expand this concept as well.

And finally, as previously discussed by us and mentioned again by Doug earlier, we are also actively reviewing opportunities to sell one or more owned hotels. Many factors have to be evaluated as we do this, including income tax considerations, the ability to retain management, pricing, individual market considerations, et cetera, et cetera. We evaluate strategies for our hotels 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. Having said that, it is very possible that we may sell one or more owned hotels during fiscal 2016 and beyond if we determine that such action is in the best interest of our shareholders.

So, that ends another fiscal year. In fact, the 2015 -- the year 2015 marks the 80th year of the Marcus Corporation. As we noted in our press release, while much has changed during that time, our core philosophies of providing our guests with quality, service and value, maintaining a strong balance sheet, and managing for the long-term, remain the same and were evident once again in our fiscal 2015.

Our Board expressed confidence in our future by raising our quarterly dividend by 10.5% during our fourth quarter. We believe we are well-positioned for growth, and look forward to continuing our momentum in the year ahead.

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

(Operator Instructions) David Loeb, Baird.

Doug, can I start with the impairment? And this relates back to what Greg just said. Obviously one of the factors when you look at impairment is how long you intend to hold the asset. So is this impairment related to one of the one or more assets that Greg mentioned you would be considering selling?

You know, David, I'm going to kind of take the fifth on that. I do appreciate the question. And for a variety of reasons, competitively and strategically, I don't want to identify the property that was involved. But it is part of that entire process that we go through. You are exactly right in terms of how we go through this process.

We do it at least once a year. And then if there are indicators of impairment, we will do it more often than that. And so, it was in conjunction with this larger process and this larger strategic process that we are going through, but I'm going to respectfully refrain from telling you anything more about the specific asset. So --.

I will respect your respectful refrain. Thank you for that. On the corner, sorry if I missed this; there is obviously a lot going on, and the hotel stocks are kind of melting down today. What's the latest on the timing? We saw Von Maur's announcement. When do you think you actually break ground on that project?

So, again, keep in mind, first of all, that we are not the managing member of the joint venture any more. So we are a minority holder in the JV. We contribute our land, but Bradford and IM are now running the project. And they are moving along really well. I mean, they -- my understanding is that they are about to break -- they are about to start putting the foundations, which would be kind of the technical definition of structure and commencement any day in the next week or two now.

So it's moving along pretty well, as I understand it. And again, you would have to ask -- they would have to comment specifically on their overall timetable. But if you've been out there, there's been a lot of dirt that's been moved around. It's looking great. They're getting the pad ready for Von Maur and so it's good.

And then I'm glad you asked the question, because so in conjunction with all of that, we've talked about the fact that part of this whole process is -- and part of our whole agreement is that we, in turn, get reimbursed for the majority of our predevelopment costs. And I do want to add, if you look at the numbers, and you saw the Corporate segment, you'll notice that the Corporate segment looked pretty -- a little better this particular quarter.

That's because we did, in fact, go ahead and reverse -- I'd say a net, I'd tell you over $1 million -- about $1.4 million of items that we had previously expensed were reversed in this process, because we're going to get reimbursed for them. And over the years -- and we've been working on this for four or five years -- we had been pretty conservative along the way, and expensed some of these costs. And part of our overall deal was to get reimbursed for this. So that is reflected overall in our results, which we are very happy about.

So thank you for anticipating my next question. So, it sounds like you took the accounting step of reversing that, and it sounds like you will be reimbursed within a very short period of any day now when the construction technically begins. Is that the right way to think about it?

You hit it exactly.

Okay. Perfect. Well, then, let's move on to the Theater business. Greg, I really appreciate your comments about continuing to outperform the industry. The industry has done very well in your first quarter to date. And we are tracking kind of mid-20s percent year-over-year gains. Is it safe to assume that you are continuing to outperform in the first quarter as well to date?

Question, David? (laughter) Yes, I think my General Counsel just ran in here. I can't comment on that at this point because we haven't released anything publicly.

Well, this is your chance --

I mean, I did -- in our prepared remarks, David, the only thing I'll tell you is that -- and again, so we're not going to talk about -- we didn't talk about the overall. We did say that we -- that locally here in Milwaukee, the group business, convention business, was --

No, he's talking about theaters.

Oh, did you mention theaters? Are you talking about theaters or hotels?

No, theaters. We'll come to hotels --

Oh, I'm so sorry.

That's okay. You are anticipating my questions again, Doug.

Yes, I know.

No, this is --

So, no, you are right. We can't -- and I've got to be honest. We haven't tracked -- we haven't compiled for the first quarter that Rentrak information the way we normally do. But as you did indicate, the results have been very strong, and we didn't pull back in our comments in terms of saying how good the quarter has certainly started, thanks to Jurassic World, Inside Out, and Minions. So it's been off to a good start.

Okay. Now let's talk about hotels. And I appreciate your comments about the AC. I've heard really good things. What's your outlook? Is that pretty positive for fiscal 2016 with that brand in that location?

Yes. I'm very excited. I mean, look, we only have one out in the first inning. I mean, we really are so early to say, but it looks fantastic. It really is -- it's a great-looking asset. It's a great piece of real estate. We just got in the Marriott system.

Our initial -- our rates are very strong as we come out-of-the-box strong. Our challenge to our group is to start getting -- building our base of group business. And we'll be -- but we anticipate doing very well there. It should be a great property.

Okay. That's very good to hear. On Milwaukee, Doug, it sounds like you guys are really holding your own in a market that's had a lot of new supply. Is that a fair conclusion?

That's a fair assessment. I mean, again -- but having -- still having said that, that also then kind of reflects the fact that when you look at -- when I go to compare the US numbers to the Midwestern numbers, they don't completely compare. Because the fact is, is that with some of that supply that's occurred in our markets, it has been more of a holding-your-own.

We've done fine. I think Greg has talked about in previous calls, we've seen some of the others maybe struggle and take it on the chin a little bit more, but we've kept our properties up. And so we've hung in there pretty well.

It does make it more challenging to try to push rates, however, right? I mean, if with the added supply, the pie getting cut smaller, it becomes a little -- if some of the guys who are struggling start trying to get aggressive with rate, that becomes a challenge.

And it's no secret that in Milwaukee -- and we talked about in our remarks -- Milwaukee's convention business started off pretty slow. And so we are dividing that pie amongst -- now we are dividing a smaller pie with more players. So it is -- it's got its challenges. But again, we -- I've always said we're the ones not -- we don't worry too much about ourselves because we keep our assets up and we are very competitive. But it's a challenging environment around here.

And, Doug, can you just give us the fourth-quarter RevPAR stats including Chicago? I caught the excluding.

Oh, sure. No, I'd be happy to do that. And then that is information that we do disclose and will be in our MD&A, so I'll be happy to share it with you. So, I mean let's pull it up here. So, including -- well, no, this is the year. For the fourth quarter -- yes, so look. For the fourth quarter, RevPAR was up 3.2%, if you include Chicago.

And that's basically all occupancy?

No, actually that was kind of -- that was a mix of both occupancy and rate. There was -- because Chicago near the end, we started getting more aggressive with rate. Because -- I mean, we hadn't officially become an AC, but the building was done. So we started pushing rate a little bit more at that property in May, later in May.

And Chicago I think toward that -- the end of that, I think it was May -- had a very strong run, a bunch of citywides. It was -- the town was packed.

So, while we weren't officially an AC yet, we were able to drive rate a little bit more in Chicago at that point in time. So, interestingly enough, when you include Chicago, our average rate was up -- as a percentage of increase was slightly higher than our other rate. But what was just because of what was happening right then and there.

Okay. And do you have the full-year number as well?

Yes. In full-year number, we were up 4.3% RevPAR. And mostly occupancy.

So, basically, with Chicago, it was unchanged from what it was without Chicago?

Say that again?

I think you said earlier that the full-year was up 4.3% in RevPAR.

No, no, no. The full-year was up -- without Chicago, was up 5.9%.

Okay, I must have written something down wrong. Okay.

Occupancy was up 4.3 percentage points.

Got it. Okay. But for the year, RevPAR was up 4.3%.

RevPAR was up 5.9% and with Chicago it was only up 4.3%.

Got it, okay. Yes, not so bad. And last question I promise. Safe House. What are -- that's going into the hotel division. It's not like you are restarting a restaurant division. In the past, you've licensed concepts, like Zaffiro's. So what brought you to acquiring this? And what's the plan for how you might integrate or grow it in the Hotel division?

I'll let agent BB answer that question. He's got his own agent nickname and everything else. So I'll let Doug answer that.

Wish I could tell you, David, but that's a secret -- no. (laughter) Look, it's funny, I have to admit I was struck by how -- we knew -- we've been talking -- it's part of the prior owners, Dave and Shauna Baldwin, have been part of our community for a long time here in Milwaukee. And we've always talked to them on and off.

We've always been intrigued by what they had going on there. Right? I mean, if you think about our company, our company has made a fortune off The Spy Story. What's the first series I talked about in my prepared remarks, what's coming? James Bond. We are about to have Mission Impossible open up.

All -- we are so -- The Spy Story is this theme. So when we -- I guess we were naturally intrigued by this, as what would that mean for us? It -- and so we've had the discussion with Dave all along, you know, know could we do it? For us here in Milwaukee, we're having a lot of -- it's basically a tourist place.

But we have probably control over a great number of tourists, maybe more than anybody else in town. So just logically, it was like, well, it's a nice thing to have in Milwaukee as part of our -- given that we have these hotels here. If you add that to that, and you say, well, we always want to be doing a little bit of R&D. So, it's a little -- in our minds, it's sort of a low-cost R&D.

Where I'm getting at with it, it's actually -- there's two pieces. It's not a very huge business. Just it's relatively small compared to our Company, and probably normally wouldn't warrant even this discussion. But it's iconic.

When we originally did -- when we did the deal, I figured we'd get a news story or two. We were on every TV station. We were in every newspaper, as you saw, for people who were around here. It was amazing. It really struck a chord with people because it really is a special place.

And so we want to know. Is there something to this? Is this something that we can grow? We have it in the Hotel division because it is a small little operation. And it needs the -- it will benefit from all the firepower we have in this big operating division. So, it's interesting. It's R&D. It's fun. It's -- it outpunched its weight because it's -- because of sort of what it is and how iconic it is. And so everyone is having a lot of fun with it and we'll see where it goes.

Okay, great. Thank you.

Thanks, David.

Eric Wold, B. Riley.

Most of my 37 questions have already been answered. (laughter) But just a few. I guess one, obviously great performance in the theaters relative to the industry. Any sense from digging into the data of how much of that was kind of competitive gains from others in your regions?

You know, it's interesting, Eric, because while there can be some of that, there's no question that we've -- we draw from -- as we put some of these amenities in and particularly the DreamLoungers, there's no question that we draw from a wider range than maybe a typical theater might.

Having said that, look, as we've talked about, some of our more recent investments have not been -- don't have as many opportunities to steal from other competitive theaters. The first wave that we did was the low-hanging fruit were the ones where we thought we could do that pretty easily. But as we've talked about it, as we've now gone in, then did the next four and we've done another three, and it's -- and we did the Palace and there aren't as many competitive theaters.

And yet, they're still doing well. We are clearly -- I think we are increasing frequency. We are drawing from a farther range. We are -- we've reenergized the moviegoing experience. And so, it more -- there might be a little of that, but there's also more to it than that.

And I think to add to that, again with our loyalty program and our pricing strategies, you know we are both I think increasing frequency of our Houston customer base, because we are able to more efficiently market to them. And you walk in our theaters on Tuesday, there is a different customer. I mean in addition to the regulars, there are people who we know who are coming to the theaters who weren't coming as often.

And so I don't think we are taking them from somewhere else. I think that they are looking at this as an opportunity to come back to the theatergoing experience.

Okay. And then on the -- of the $50 million in CapEx geared towards theaters this year, how much of that is allocated towards new theater builds? Or is that -- would that be incremental if those come along?

So, you're talking about this coming year that we are talking about?

Correct.

Of that $50 million to $65 million, you know so much depends on when -- how much -- when we get in the ground and how quickly -- how much of it I end up spending this year, which is also part of why you see that range. But you know, I mean, it could be -- by the end of the year, it could end up being $15 million to $20 million of it could be -- it depends on the timing. I mean that's probably in that range.

Okay. And then just two quick questions on acquisitions. So one on the acquisition environment out there for the theater side, maybe just talk in terms of the general mindset you are seeing with potential sellers. Did that change at all once the AMC-Starplex announcement was -- came out there in terms of you guys getting more excited about selling without putting kind of maybe a price out there?

And then two, kind of going back to one of the previous questions on the restaurant side on the Safe House, I mean, if you do look at doing more things, I guess is it one-off ones that are opportunistic where you can get some synergies? Or would you ever consider kind of buying a chain of restaurants similar to how you are looking to buy maybe a chain of theaters?

You know, let me take the first question about the market -- the acquisition market. I would say as it relates to the Starplex thing, I think it's too early to tell. That's such fresh news. I don't think that -- and with the kind of opportunities that we are looking at, it probably won't have a lot of bearing.

Again, we are looking for things where we can add value, where we can come in and do the things that we have been doing. Because we just -- for us, it's not like, well, just adding on something and just plopping it onto our deal. We need to be able to add value.

And so, we haven't seen a big change yet. It's too early to even see that, I think. There's stuff -- there are opportunities to look at, and we're looking at them. But we are going to be disciplined about what we do. We always have.

As it relates to the Safe House, to buying a chain of restaurants, I mean, I can't tell you that we are looking at any chains of restaurants, but I would always tell you that our job -- we view it as to be stewards of capital. And if we have capital to place, we could look at other places to put it. But right now we have enough opportunities in our own businesses that we don't have -- see a significant acquisition on something completely different.

Fair enough. Thank you, guys.

Thanks, Eric.

Mike Hickey, The Benchmark Company.

Hey, Greg and Doug, great quarter, guys. Thanks for taking my questions. I guess on the hotel side, I'm curious what the friction hurdle is, so to speak, on selling one or two of these assets where you sort of expressed an open desire for the last couple of quarters, I think, to do that. And at this point, are you more or less confident on your ability to execute on a potential sale?

So, Mike, you've gotten to know us and we always are going to kind of hedge our bets a little bit here in terms of -- I mean, because a lot of things can happen when you're talking about things like this. And we've listed some of the things that are going to be important to us in pulling the trigger on a transaction.

But having said that, I mean, I'll reiterate what we said in the prepared remarks, is that it's not -- it certainly wouldn't surprise us at all in fiscal 2016. It's very possible that in 2016 you could see us execute on that strategy.

All right. Thanks, Doug. The -- and then on your balance sheet, obviously you got a very nice balance sheet. And of course I think that's a lot by design. But curious in front of what appears to be a favorable landscape to grow your business through M&A, your willingness, I guess, internally to lever up a bit, I guess, to realize maybe the performance growth and consolidation, especially when you think about the organic elements you can create with your next-gen beer design that you have for organic growth. And maybe what specifically you are doing today maybe you haven't done in the past internally to find potential M&A deals.

I'll actually -- I'll answer the second half of that question, and I'll let Greg answer the first half in terms of the willingness on the balance sheet. But look, we are -- it's one thing to say we are going to be open to any acquisition opportunities that may arise. It's another thing to be more intentional about it, and we are being intentional about it, Mike. We are.

In fact, we have engaged some third-party assistance in order to help mine the field that's out there. Because it's a very broad field, as you know. It's very fragmented. Very -- and lots of families and very much so. So we've actually -- so we are being intentional about it, is about the best way I can answer that question is, it's not just waiting for the phone to ring.

And as it relates to our willingness in the balance sheet, Greg, do you want to tackle that?

Oh, yes. I mean, look, we have good cash flow and we've got a -- if you look at -- our balance sheet has clearly got room for more leverage. And given that we are a real estate company, we -- one could argue that we could take on some more leverage. So, we feel very comfortable with the ability to execute on transactions with our balance sheet with that right now.

Okay, thanks. And when you look at deals, obviously you said your real estate is a big factor. But at this point, does it matter whether the theoretical network that you would look to acquire, owns the land or leases it?

You know, it's kind of a nuance -- I'm going to give you kind of a nuanced answer to that, Mike. Because in some cases, it may matter to us. And where it does -- and we've talked about this publicly -- it comes back to the other strategy related to hotels, right? -- which is where, in some cases, we have some pretty significant -- I mean, I don't know. Maybe everyone is making a big deal of this small little impairment charge today.

But the reality is that we've got some pretty significant gains. Accounting doesn't work that way, but we have some pretty significant gains embedded in some of these assets. And that has income tax considerations. And so, an effective -- not the only effective, but an effective strategy can be to do 1031 transactions where you might sell some real estate over here and buy some real estate over there.

And so that certainly is one of the tools in our toolbox that we are certainly going to consider as we look at this. It's not the only thing, and it doesn't preclude us from looking at opportunities that don't have real estate or don't have as much real estate, but it certainly is one of the things we look at.

Okay, thanks. Two last little questions from me just to keep at the Q&A theme here. Greg, I think you said you may add three to four theaters for recliner installations in 2016. Forgive me if I heard that wrong. But I'm wondering what the return profile looked like on these sort of late-stage recliner installations compared to your initial installations, where it would seem that you are converting lower performing theaters versus the rest of your network?

Look. Our hurdles are our hurdles. And so we set a hurdle rate that we expect to meet before we release capital to our [renters]. And that's -- and really, if it beats it by a lot, well that's great. Now, you're not wrong. I mean, we picked the low-hanging fruit first. I mean, but that being said, we still expect to meet our hurdle rate when we make these investments. And we are. And we are.

Okay. And the last one on windowing. Curious your thoughts or possible plans to participate partnership with Paramount and accelerating the deployment of movies, theatrical movies to digital?

Oh, I guess what I'm going to say is that I've had a very -- for many years, I've had a very public position on the window issue. And I said it -- I mean, I think it goes back five years ago -- I said be careful. We don't want to be the frog in the frying pan where they slowly reduce the windows over time and we end up cooked because we never felt the heat.

So we have -- in this industry we must remain vigilant about these windows. You know, our -- okay, our chain is a proxy for the laws of supply and demand, and windows and product in the markets, right? Why does $5.00 Tuesday work so well? Why are people going back to the movies? Well, we lowered the price. Why did we lower the price? Because I don't know.

Every -- because of the exclusivity period has shrunk and the availability of product downstream is enormous. It's a firehose. And you know, when you can drink from the firehose for -- I don't know, pennies to watch something, a movie or anything, well, why do you -- it impacts the value upstream.

And so when they change the exclusivity periods, be prepared for the pricing and the value upstream to come down. So they must be very, very careful with what they do. You know? And I've said this for years and I will continue to say it.

All right. Thanks, guys. I really appreciate your color. Best of luck to you.

Thanks, Mike.

Brian Rafn, Morgan Dempsey Capital Management.

You've talked -- I think, Greg, you talked a little bit about freestanding big screen bistro. How would that be different other than the fact of the dinner thing? Way out auditoriums. Kind of describe that a little, if you could.

We are still working on the exact details of how we want the auditoriums. Look, we've done different versions of Big Screen Bistros where we have more of a counter with seats that move around it, and where we've gone more with our DreamLoungers with tables that swing over in front of your seat.

So -- but it basically is a future that is devoted to the dine-in concept. So where we now have in Madison what I think four screens of dining concept and three at Brookfield Majestic. That's part of a larger complex. And another complex is we've done Big Screen Bistro Expresses. The -- this would be all-screen dine-in. And it just makes a statement about what that concept is to the customer, and this is totally that concept. And we think it's obviously people are having success with those, and we believe it's something we need to experiment with.

Yes, Greg, with auditorium size 12.5 screens per theater, is that about the same? Or does that logistics change with an all-dine-in Big Screen Bistro?

Fewer screens. I don't think we've ever actually built a half-screen Brian. But that being said -- I couldn't resist. The -- these are smaller footprint, smaller screen count theaters.

Now that you guys have kind of lapped and you are coming on the $5.00 Tuesday's, your sense of penetration with food and concessions with the value you get?

We think there is opportunity to increase that, actually. It -- obviously it is a -- it's a value customer. And so we -- when we have that program running, it's lowered our per caps but we also -- we know we have opportunity to increase that as we get better. I mean, the crowds are enormous. Tough to service them actually. And so the better we get at servicing those crowds, we think there is opportunity.

Okay, okay. As you guys open the Palace at Sun Prairie, your kind of consensus expectations versus kind of reality what happened, give me a sense of what you've experienced.

It's been very positive. You know when you say expectations, you have to -- it depends on who you ask. Because certain people in our Company had very high expectations, and people -- everyone had high expectations. Some were a little higher than others. But we are very pleased with its performance.

Okay. I have not seen it. What would you say difference than, say, the Majestic concept you opened several years ago?

It's more refined. And its scale is a little bit smaller.

We learned -- when we did the Majestic in Brookfield, that really was talking about R&D; everything that was in there was brand-new. We had never done Big Screen Bistro before. We had never had a Take Five Lounge. We had never had Zaffiro's Pizza before.

And so the way we laid the building out, we learned things from. And so when we had a chance to build another building from scratch like this, we applied a lot of that learning to how we laid this building out. When you walk into the lobby, it's spectacular. The Take Five Lounge is just dramatic and you can't miss it.

And it's there, and we had an outdoor fire pit area. And it's -- so we learned a lot from our various -- things that we've done here and tried to incorporate that into the design of this particular theater.

But I think it's interesting to note that it's a testament to our approach to this business and our long-term thought process and our vision, because it's a refinement. And we opened, I think -- Doug, do you know how long we opened the Majestic in Brookfield?

I think we are looking at maybe nine, 10 years now, right?

Now, so we are doing the same thing but just in a more refined way with more experience and smarter. But we knew food and beverage was going to be important. We sat in strategic planning meetings 10 years ago, nine years ago, and said food and beverage is coming and it's important to our business. How do we plan for that? And it's -- I would be honest and tell you I didn't know how important it would be. It's become even more important.

Okay. All right, fair enough. When you talked about the film slate, you -- Greg, I think you had some numbers on comparisons 2015 or 2014 for the top five. Give me the sense maybe movies 6 through 20. How was the depth year-over-year?

Well, again, so we referenced this in our prepared remarks, Brian, and in that it's -- we are seeing what appears to be pretty consistently every quarter what the numbers will tell us is a deeper slate. Okay? But what -- the hard part to now evaluate is, well, okay, is it? Because it's apples and oranges a little bit.

We truly believe that, given the increased frequency that we are driving, that the things that we are doing are driving better performance for those next tier of movies. And so, the numbers will now reflect that it's a deeper slate. I don't know if, when all is said and done, everyone else would agree with that, or the national numbers would agree with that or not. Because maybe Hollywood is producing the same kind of mix in movies they always have.

I'm just telling you that our numbers would reflect that it's steeper. And we think it's just as much having to do with what we've done as what Hollywood has done.

Okay, I'll ask just one more. Ex the $5.00 Tuesday, and correct me if I'm wrong -- you've got something like a college or student $5.00 Thursday, and then you have some specials that you run like Women's Night Out Mondays, or you've got some of these little nichey specialties. How are some of the other ones doing, ex the $5.00 Tuesday?

They are good. You know, we are pleased with their performance. Obviously, the -- they are not as strong because you just don't have the heft of the marketing push, okay? And it does help with our concentration of complexes that the word even gets out even better than if we were spread all over the -- spread more thinly.

But you know, again, it goes back to our theory of the right customer at the right price at the right time. It's great learning from the hotel business, because that's what yield management is in the hotel business. And that's what we've applied to the theater business.

Okay, guys. Thanks.

Jim Goss, Barrington Research.

I'll just ask a couple. One is regarding DreamLoungers. When AMC started its process, it seems to be focusing on its typically urban area and some underperforming properties, and trying to find a way to expand the audience and create some loyalty.

You have a different mix of geographies and markets. I was wondering if there's any commonality to the approach that you are taking with the DreamLoungers to this point, and if there are certain markets where it might not be good to do that sort of thing because the returns might not be available?

The -- well, I'd say probably first we looked a lot -- our pattern was very similar to what AMC was doing. I would say now that -- but we are -- I mean look, we are now -- we've done some experimenting with doing them in other markets and their returns meet our hurdles. Because you know what? It is a great way to see a movie.

And we believe that it can drive incremental customers, and it allows us to price appropriately and get a return on the investment. And we think -- and we don't just generally go in and just put in the DreamLoungers. Remember, we are doing a whole package of things. We are putting in DreamLoungers. We are putting in a Zaffiro's Express. We are putting in a Take Five Lounge.

We are really upgrading the entire experience. So you can't -- at some point, you can't just describe it with one thing either. It is -- we talk to the whole experience.

Okay. So you are saying it might have broader applicability than you might have thought initially, basically?

Yes, do I think that we are -- do I think that -- look. And our competitors have talked to this too. There is an organic piece of growth, and there is a share shift piece of growth. So if you don't have the share shifts, will the returns be the exact same? No. They will be. But they are still good and they still meet our hurdle rate.

And, Jim, actually you alluded in your question to then the other part of the math, which is math. We do it because we have the -- you still are losing roughly 50% of your seats. And so it still is an exercise that we have to go through to determine what's the impact of having less seats.

And so, we have got data -- more data than you ever could use to be able to look at that and analyze it, and try to determine whether we can. And so, inherent to your question was, are there locations where you maybe can't do it and don't get the returns? And the answer is yes. There probably are some locations like that. There are. So --.

And maybe this other question then would sort of tie into it a little bit. As you talked about your M&A strategy, and interest in adding value, it sounded like you are being more amenable to fixer-upper sort of properties than some chains who are looking for ones that don't need so much. And why don't you appropriate it into their infrastructure? And I'm wondering if there would be more of those types of properties available at more reasonable rates, given the added investment that could be required, or you might even want to put in because of the strategy you are describing?

You know, Jim, I guess time will tell, but that has been one of our theories. One of our hypotheses, if you will, has been that, yes, everyone talked about how maybe there would be this big M&A surge when digital cinema came along. And, of course, that really didn't happen, because it was the Studios effectively paid for the conversion, and it wasn't the theater operators' capital.

Well, now when you start talking recliner seats, food and beverage, things along those lines, that's a theater operators' nickel. And so, if there are folks that might be a little more capital-constrained, maybe that is an opportunity. So certainly that's one of the things that we'll look at. Not the only, but it's one of the things that we'll look at.

And I would tell you that we are very early in the M&A process, really, if you think about it. And that's because we really spent the first couple of years -- the last couple of years very focused on our own circuit, taking advantage of that opportunity to say, well, let's -- if I'm going to take capital and put it to work, let's put it in markets we understand and know really well.

You know, just -- and I'd say we can learn other markets, and we understand the business. And we think it's applicable, but let's start with those. And so that was -- that's why we went in that direction.

All right. Thanks much. I'll try to catch you off-line with some other questions then. Thank you.

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

All right. Well, listen. Thank you, everybody, for joining us today. We really appreciate it. We look forward to talking to you again -- actually just a couple of months, actually in September, when we release our fiscal 2016 first-quarter results. Until then, thank you and have a great day.

That concludes today's call. You may now disconnect your line at any time. Have a great day.