Marcus Corp (MCS) 2016 Q1 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation first-quarter earnings conference call. My name is LaToya, and I will be your operator for today. (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. Welcome, everybody, to our fiscal 2016 first-quarter conference call. As usual, 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; our future RevPAR, occupancy rates, and room rate expectations for our hotels and resorts division; our expectations about the quality, quantity, and audience appeal of film product expected to be made available to us 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; our 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 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 2016 first quarter. It clearly was an excellent quarter for us and a great way to start off our new fiscal year. As you know, we have now made the transition to a last-Thursday-in-December fiscal year-end. So throughout the coming year, we'll be comparing our reported quarterly results to unaudited comparable numbers from last year, assuming we had reported them with the new fiscal calendar.

As a reminder, in February we updated an investor presentation on our website -- again, www.marcuscorp.com -- that provides the unaudited, restated historical financial information for each quarter of 2015 in order to provide some assistance to investors, analysts now that we've made the transition to a more traditional calendar-like reporting cycle.

We'll keep that presentation up all year long, so you'll know what numbers we'll be comparing our results to each quarter. And while we've never officially reported in this cycle before, I'll tell you, we didn't hesitate using the word record several times in our press release, as we were able to determine that, looking at our historical numbers on a pro forma basis, it was very clear that many of our reported results today were records for the comparable period in prior years.

Our theatre division had another great quarter, once again significantly outperforming the industry. And significant improvement from our hotels and resorts division contributed to our great results this quarter as well. 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.

And before I dig into each division, I usually spend a few minutes on each line item before operating income. But as you can see, other than a very small improvement in our losses from disposition of assets, we had virtually no change in any of the four applicable line items during the first quarter. So I'll save some time and skip that step this time.

Our first-quarter effective income tax rate, adjusted for losses from noncontrolling interests, was 39.3%, generally right around our past historical range. And shifting gears away from our earnings statement for a moment, our total capital expenditures during the first quarter of fiscal 2016 totaled approximately $16.5 million compared to approximately $21 million last year during this same time period.

Over $14 million of our total spend during the fiscal 2016 first quarter was incurred in our theatre division, the majority of which related to the completion of multiple DreamLounger seating projects, UltraScreen DLX screens, and new food and beverage outlets discussed in our press release.

At this early stage of our fiscal year, I have no reason to make any major adjustments to our previous estimate for capital expenditures for fiscal 2016 of an amount in the $75 million to $95 million -- recognizing that, as we pointed out in our recent 10-K filing, the timing of several of our planned expenditures are still just estimates at this time. We are still finalizing the scope and timing of many of the various requested projects by our two divisions, and we anticipate proceeding with many of these projects as the year unfolds. 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 or acquisitions that could develop during our fiscal year.

So now I'd like to provide some financial comments in our operations for the first quarter, beginning with theatres. Our box office revenues increased 10.8%, and our concession revenues increased 11.4% during the first quarter. But those numbers need some further explaining. I want to be clear that the periods that we are comparing this quarter are both 13 weeks, but because 2015 was essentially a 53-week year for us, the weeks that we are comparing do not match up on the calendar.

More specifically, this year's numbers include the 13-week period from January 1 through March 31, 2016. Using our last-Thursday-in-December fiscal year-end, the numbers we are comparing to cover the period from December 26, 2014, through March 26, 2015. Now, this is significant because, as you all know, the week between Christmas and New Year's Eve is historically one of the busiest, if not the busiest, weeks of the year for moviegoing.

So we came into this quarter knowing we might potentially have a difficult comparison to the prior-year in our theatre business, which only makes our reported results all the more special. As a result, there are really two ways to compare our results to the industry.

The first would be by comparing our unequal weeks to the same unequal weeks for the national box office. So based upon US box office numbers compiled by us using data from Rentrak, a national box office reporting service for the theatre industry -- when we do that, we find that the national box office increased by 5.4% during this same time period, meaning we outperformed the industry by 5.4 percentage points.

But what probably interests you is: how do we compare to the more comparable 13 weeks last year, as that more closely matches what you're going to see reported from others in the industry? And there the story only gets better.

Again using Rentrak, we calculated that the US box office increased 13.3% during the first three months of calendar 2016. Meanwhile, adjusting our reported last year's numbers by removing the last week of December and adding the last week of March, we find that our box office revenues increased a fantastic 19.1% over the same weeks last year -- nearly 6 percentage points better than the US average. This means we've now outperformed the industry during nine of our last 10 reported interim periods, which is essentially the last 2.5 years -- something we are very proud of.

Now, going back to our reported comparisons, the first quarter increase of 10.8% in our box office revenues -- again, now comparing the way that we're comparing our quarters -- is attributable to an increase in attendance at our comparable theatres of 2.3% and an increase in our average admission price of 8% for the first quarter. The fact that we've increased our number of premium large-format screens with a corresponding price premium, certainly contributed to our increased average price this quarter, as did a higher percentage of box office receipts attributable to 3D films and a modest price increase taken in January.

We're also very pleased to report an increase in our average concessions and food and beverage revenues per person of 8.3% for the first quarter. Our investments in nontraditional food and beverage outlets continue to contribute to this outstanding performance.

Shifting to our hotels and resorts division, if you do the math, you'll see that our overall hotel revenues were down 2.5% for the first quarter. But if you eliminate the hotel that we sold in October, the Hotel Phillips, our revenues were actually up 2.2% compared to last year. And as we noted in our press release, the fact that the comparable weeks don't line up in the first quarter also impacted our hotel division, due primarily to the fact that last year's results included New Year's Eve, which is a busy time for many of our hotels.

This bad comparison is particularly evident in our food and beverage revenues, as you might expect. And while we don't usually single out any individual hotel, I will also tell you that the lack of snow definitely impacted our ski business at our Grand Geneva Resort this winter, also impacting our total revenue comparisons. Lastly, another headwind for our hotel business was the shift of Easter into this quarter. There is generally less business travel the weeks surrounding Easter.

So as noted in our release, our total RevPAR for 8 comparable properties increased 4.4% during the fiscal 2016 first quarter compared to the comparable period last year. As we've noted in the past, our RevPAR performance did vary by market and type of property.

Breaking out our numbers more specifically, our fiscal 2016 first-quarter overall RevPAR increase was due to an overall occupancy rate increase of 2.2 percentage points and a 1% increase in our average daily rate.

Now according to data received from Smith Travel Research and compiled by us in order to compare our fiscal quarter results, comparable upper-upscale hotels throughout the United States experienced an increase in RevPAR of 2% during our fiscal 2016 first quarter, and competitive hotels in our collective markets experienced an increase in RevPAR of 1.7% during our fiscal 2016 first quarter. Thus you can see that we outperformed in this division as well this quarter.

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

Thanks, Doug. I'll begin my remarks today with our theatre division. We are obviously thrilled to be reporting another record quarter for this division, once again significantly outperforming the industry.

You've heard me say it many times before. Clearly, the investments we are making in our theatres are making a difference. And when you combine those investments with our innovative marketing and pricing initiatives, along with our loyalty program that is now up to almost 1.5 million members and counting, the result is record-breaking performance for our theatres.

I'll admit that heading into this quarter, I was a little concerned about our comparisons to last year. We knew it might be tough when last year's results included the week between Christmas and New Year's Eve. But I have to give a ton of credit to our entire theatre team, from our executive management, led by Rolando Rodriguez, all the way down to our associates at each of our theatres. They accepted the challenge to overcome that difficult comparison, and the results speak for themselves. It was a great quarter.

Certainly, while an earlier-than-normal Easter on the calendar was a headwind for our hotel business, it was a tailwind for our theatre business that helped make that last week in March a great way to end the quarter. A stronger-than-expected overall film slate also helped, led by the surprising Deadpool and the other films mentioned in our press release.

But you probably have all heard the saying that success is when opportunity meets preparation, and I think that clearly applies to what has happening in our theatre division right now. While I'm extremely proud of our performance this quarter, what I'm most proud of is the long-term performance of this operation. As Doug mentioned in his comments, we've been outperforming the industry for over two years now. We cannot forget that we are in the movie business, and our achievement is very much tied to the product coming out of Hollywood.

Over the long-term, Hollywood produces a relatively consistent output of quality films, but in the short term that quality can vary greatly. This means that we will have good quarters and not-so-good quarters. What matters to us is how we execute over the long haul. And by that measure, we are all pleased.

Since we began this current journey that we've been on for over the last nearly 3 years now, we've invested approximately $130 million in our theatre circuit. We are an industry leader that now boasts the highest percentage of recliner seating auditoriums, premium large-format screens, and innovative food and beverage outlets of any of the top chains in the country. Add to that our groundbreaking $5.00 Tuesday program and what we believe is one of the best loyalty programs around, and it is not surprising that we once again met our goal of outperforming the industry.

And we demonstrated once again that we can convert all of these investments and programs into real bottom-line improvement. This particular quarter, our operating margin was 22.1% in this division, an increase of 1.3 percentage points over the 20.8% margin we produced during the comparable period last year.

And I will tell you that our team will continue to be extremely vigilant regarding cost controls in the future. They have an active initiative in place to identify opportunities to maintain and improve our already strong margins. I also want to note that this improvement in our operating margin was despite the fact that film costs as a percentage of box office revenues increased this quarter, due to the fact that the film lineup was more heavily dependent upon so-called blockbuster films compared to the comparable period last year.

As evidence of this, I will note that the top five films listed in our press release accounted for approximately 49% of our total box office revenues this quarter. Last year our top five first-quarter films only accounted for 38% of total box office revenues.

As you probably know, generally the better a particular film does, the higher our film rental costs tend to be as a percentage of revenue. So a film slate heavily weighted towards blockbusters can put pressure on operating margins.

As we look ahead, we are excited to continue to invest in both new and existing theatres during fiscal 2016 as we further expand the successful concepts and amenities that have contributed to our industry outperformance.

On our conference call late February and in our Form 10-K, we shared with you detail on how we may spend as much as $55 million to $65 million in this division during fiscal 2016. So I won't reiterate those plans again today. Suffice it to say that we continue to see opportunities to grow revenues, and we are actively executing on the various strategies we have previously laid out for you.

And I would be remiss if I didn't note that we continue to be very interested in expanding our circuit with selective acquisitions if the right opportunities arise. Our press release highlights a recent acquisition of the single theatre on the south side of Chicago, building on a strong hold we have established in that geographic area of the marketplace and giving us an opportunity to add our proprietary amenities to create essentially a brand-new theatre there. And I will point out that we did this acquisition as part of a 1031 like-kind exchange that helped defer taxes on our sale of the Hotel Phillips last October, creating a win-win from our perspective.

From a film perspective, our stated goal is to continue to outperform the national box office, regardless of how the films do compared to the prior year. Easter fell on our second quarter last year. So not surprisingly, the first couple of weeks of April started out little slow compared to last year.

The summer season really begins in that first weekend in May, when Captain America: Civil War comes out. The early buzz on this film is very positive, so we hope it does well. We know we're going up against very strong movies during the second quarter last year including Avengers: Age of Ultron, The Fast and the Furious 7, Pitch Perfect 2, Jurassic World, and Inside Out. But in this business, you are always hopeful, and you never know what pictures might exceed expectations.

We listed some of the most highly anticipated films in our press release for your reading pleasure. I know our team is ready for whatever comes their way.

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. Given that most of our Company-owned hotels are located in the Midwest, we typically lose money in this division during the winter months, and the first quarter of fiscal 2016 was no exception. But once again, our hotel team -- from our executive management, led by Joe Khairallah, to the hard-working teams at each of our owned and managed hotels -- did a great job of managing costs and increasing profitability while continuing to maintain our high levels of customer service.

As we noted in our press release, our team was able to improve our operating margin by 2 full percentage points this quarter compared to the comparable period last year. In fact, after adjusting for the Hotel Phillips, over 100% of our revenue increase this quarter flowed through to our operating income line -- an outstanding achievement during a historically slow time of year for us.

Certainly, a portion of our improvement can be directly attributed to our AC Hotel in Chicago, which at this same time last year was in the midst of a major renovation and was operating without a flag. But it is important to note that the story was not about just one of our hotels. The vast majority of our hotels reported improvement over the prior year. That is despite some of the headwinds we faced this quarter that Doug identified earlier, including the lack of a New Year's Eve, the lack of snow at one of our key properties.

As we noted in the press release, additional group and transient business contributed to or higher-than-market RevPAR during the quarter. Our owned hotels also had a strong group booking period during the first quarter. Our group booking pace for revenues and future periods is currently running ahead of where we were last year at this time, so that is another positive sign.

Looking ahead, it is certainly our goal to keep reporting RevPAR increases in line or above what is happening nationally and in our markets. Comparisons of the AC Hotel Chicago should continue to be favorable in the second quarter as well. We officially introduce this rebranded hotel in June last year.

We continue to closely watch hotel supply in our markets and the macroeconomic factors that impact our industry. But in the near term, we are looking for continued improvement from this division.

In the meantime, we also continue to make selected investments in our assets as evidenced by the recent renovation of the SafeHouse bar and restaurant in Milwaukee and the renovation currently underway at the Skirvin Hilton in Oklahoma City.

And from a growth perspective, we have talked about how we are stepping up our efforts to increase our visibility as a national hotel management company, and we hope to add to our portfolio of managed hotels in the coming year. Conversely, we continue to actively review opportunities to sell one or more of our owned hotels, hopefully while retaining management when so desired.

Before we open the call for questions, I want to conclude my remarks by highlighting the final balance sheet section of today's press release. During the first quarter, we showed once again the willingness and ability to return capital to shareholders while still pursuing an active growth strategy.

Not only did we increase our quarterly dividend by 7.1% -- the third straight year of annual increases -- but we also opportunistically repurchased over 0.25 million shares of our common stock at a price of just over $18. And despite both of those actions and a continued active CapEx plan, our debt to capitalization ratio remains at 40%, giving us a great deal of flexibility to pursue future opportunities wherever they may arise.

Lastly, I want to say thank you to all the hard-working associates in The Marcus Corporation. The results we are sharing with you today are the direct result of a lot of hard work in both of our divisions, and for that I'm grateful. 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.

Very impressive results considering the headwinds that you described, Doug. On the hotel side, margins were a lot better. How much of that is the result of excluding the Phillips? Was that a lower margin hotel than the others?

In general, the answer is yes. But I've got to tell you, it was our smallest hotel, as you know, David. And so it really -- at the bottom-line level, it didn't have a lot of impact on a year-over-year basis.

And David, really what you are seeing is the result of a concerted effort to work on our margins. I think if you really take a historical perspective, and you look back and you'd say, going back to the -- I would call it the not-so-great-recession. There was -- everybody really had to cut, cut, cut. Then we came out of that, and the pendulum tends to swing to the extreme in anything. And I wouldn't say we went to the extreme.

But frankly, I thought our margins could be better. And we've refocused over the last year and a half. And what you're seeing is really the fruits of a lot of hard work to get our margins in the places they should be.

Yes, okay. And I bet that will show up more during the higher-revenue quarters ahead. Is that a fair assumption?

That's what we'll be looking for, certainly.

Okay. And on the theatre side, I haven't asked you in at least two months: what's the theatre acquisition environment looking like today? We've seen consolidation, clearly, or we are in the midst of seeing it. What's your thought on your ability to compete for acquisitions of other circuits as opposed to individual assets?

As always, I'll preface my remarks, David, with these -- you know, there is -- that market is a very interesting market. It's not like the hotel market, where there is constantly assets moving around. That is a much more different -- you know, it's a non-predictable market. And the kind of assets for the most part that we'd be looking at are going to be typically owned by people, you know, long-term owners, families, things like that. And you just don't know what might motivate them to sell.

With that in mind, I'm confident that we can be competitive for a number of reasons. First of all, we don't face the same antitrust issues that the bigger guys face. So that helps us from a starting point in a certainty-to-close situation.

Secondly, we offer some different abilities to -- you know, in terms of whether people want to retain their names, things like that. We can be more flexible than others can be. So we have a flexibility benefit that we have.

And lastly, we think that we bring a set of operating skills that will help us be competitive for any of these assets. All that being said, we're not going to do anything that we don't think -- we're going to remain disciplined is the best thing I can tell you.

So, Greg, just to continue on that that line -- you clearly have the balance sheet capacity, so you've got the ability to pay for these. But what about valuation? Do you feel like there are -- that the trades that are happening or could happen would happen at a valuation that you could be competitive in negotiating?

Yes, David, I do think so. Look, the trades that are happening right now, like -- so the trade that we just saw, the AMC/Carmike deal, that's a different kind of deal than we'd be even -- you know, we aren't in that. We aren't in that -- we weren't planning to do that deal. That's the best way I can say it. (laughter) So I don't think that's the comparable deal to look at.

You know the wildcard, David, becomes -- as we've talked about how much real estate is involved, and so that can change the multiples in the per-screen averages quite a bit, depending on if there's real estate or not.

And then the key becomes what the opportunity might be to be able to apply some of the -- kind of the secret sauce that we've been doing for the last 2.5 years now and to those -- to whatever might become available. And so we are hopeful that there's going to be some opportunities.

You know, I do think, too, on also the margins, as evidenced by the Phillips transaction, if we can match -- if we can get real estate, to Doug's point, match it up as a 1031, that also allows us a certain amount of flexibility too. Again, at its core, I don't want to -- I want to remain disciplined. I don't want to just do an acquisition to do an acquisition. But you add up all those things together, and to your question, can we be competitive? The answer is yes.

And finally, on the AMC/Carmike, what do you think the impact of that is on your film costs? Presumably they're going to be able to negotiate better film pricing. Does that mean that the distributors are going to then look to raise your film costs and other smaller-circuit film costs?

I don't have my -- I did not bring my crystal ball to the office today on that one, David.

Is it a worry? Are you concerned about the trends in film costs?

You know, I'm not -- well, look: I'm always vigilant about worrying about what's happening with film costs. And if you take a long look at it over time, yes, they've gone up. They've held relatively stable over the last few years. And we are comfortable with where they are and operating in this environment, but we are very vigilant about that.

Now, the one nice thing that we have that I will tell you that we bring to the table now is a circuit that really is highly respected. And it's a place where the studios want their films to play. And that may counteract what you're talking about.

Yes. That's great. Thank you.

Thanks, David.

Jim Goss, Barrington Research.

I was wondering first now that you're at 1.5 million in the loyalty program, have you been able to start to reach enough critical mass that you can start to glean more information, which seemed to be one of the key targets of the whole project. And have you been able to do anything with that information to this point?

We are -- the answer to that question is yes. We are -- we have been able -- this was not even for us a math issue. Really starting to get that information has been very helpful.

For us, the most immediate benefit has been to talk to our existing customer base and to target messages to people in the base, so we're not just blanketing everybody with the same message. We can A/B test different opportunities, to know what's working, what's not working; to know what messages resonate, which messages don't resonate.

We know that by sending out certain emails, we are able to drive business in the doors. And it is math -- we can see it in the results, and it can be analyzed. But primarily it's been working with our existing customer base. The next step is going to be moving beyond that and really trying to help further monetize what we have going on.

But again, I think, again, it will be using the base to sell more of our own product, but then potentially move other products as well. I just saw today, or this week; I'm sorry -- I was looking at one of my -- I happen to get all my competitors' loyalty program emails, and I noticed an ad in one of them for the first time.

What they're doing is they're monetizing that base. And it was not an ad for a movie theatre; it related to what they were doing, but it was tangential. But I promise you, it was a monetization. And that's where we're going next with this.

All right. And maybe this will tie into it -- sort of a different question that I was going to ask later. But when -- as 3D became prominent and IMAX was expanding, there was a consideration of animation not playing well on some of those screens, because of the higher costs of bringing more than one or two people there.

And lately, IMAX has started to relent a little bit with some of the largest Disney animated features, like Zootopia. And I'm wondering if -- what you've seen with your UltraScreen DLX theatres in regard to those sort of movies playing there? And you are not -- and the pricing not getting in the way. And can you find out more about the receptivity to that sort of screening from the information from the loyalty program?

Yes. So, Jim, I don't think that we are seeing -- typically, as you know, we'll offer -- this question sounds like it's a little multi-part, because you are talking large screen, but you're also talking 3D. And so certainly, as we've established on 3D side, the customer does make a decision. We pretty much always will offer it in both a 3D and non-3D format.

But same thing often can hold true at times in our large formats as well. Because we now have increasingly more theatres that have more than one large-format screen. So we have a lot more flexibility in our operating policies now. So I don't -- I haven't seen that as being a significant issue for us with our UltraScreen --.

I was thinking more of the higher price, not the -- maybe I shouldn't have thrown 3D in.

No, I mean, look -- I think our UltraScreens and our increased number of the UltraScreens and SuperScreens that we have now -- and, of course, we're maybe the only one or one of the only -- certainly one of the large chains that has combined the DreamLounger recliner seating with the large format in our DLX format. And so we have found that to be a win-win. So we've not seen any issues with that.

The results speak to it with Zootopia, you know, high family business. Our numbers really show the forms.

I think part of the thing of it is, Jim, is that for us, even though we have a premium price, it's still not as expensive as going to an IMAX. And we think it presents a tremendous value, even for families, still at this price.

And we are market sensitive. We don't always have a 3D print on UltraScreen where we have a family film. But we do where we think it's appropriate. We just manage that as best we can.

Okay. And then one on the hotel side of the business. I was wondering about the process you're undertaking in terms of seeking out management contracts, and what sort of degree of receptivity you've been getting to that effort?

Jim, I think that -- and we've talked about the fact that we have brought Andrea Foster in from -- who used to work at PKF and is very well known in the industry. She saw it as one of her first challenges and first opportunities, I'll put it that way, would be to get the Marcus national presence out there more.

For years and years and years, we were an owner/operator who was maybe viewed, at least by the outside world, as being a little more focused on their own assets. And it wasn't necessarily viewed as a national management company.

I think Andrea's real focus right now is on increasing that presence and expanding that -- the knowledge of Marcus as a national management company who produces outstanding results, and this quarter was no exception to that. And I think we have some real established advantages over others in terms of -- when we start looking at the infrastructure that we can bring to bear, when you start looking at the food and beverage expertise and success that we've had that other management companies may not be able to bring to bear. So I think step one of the process is an awareness step. And I think she's been focused on that a great deal.

And frankly, that was part of really a -- what we tasked Andrea with -- we said let's try -- let's treat our management services as a product. Like you're selling toothpaste. Not as a byproduct of putting a deal together. So I guess when you go to the dentist, you get some free toothpaste and a toothbrush. But for us to say, this is our product. And so we built a set of collateral materials, and Andrea really led that effort, and -- along with our marketing people.

And as Doug said, starting to get the PR -- we're using PR. And I think if you've been paying attention to the hotel trades, we're starting to pick up our profile. So it's too early to tell about how successful this will be, but that is the approach we're taking.

And just lastly, are you pitching, then, a premium niche, sort of a Pfister-type -- or Skirvin-type property approach as opposed to some of the other brands you have?

No, I think what we are pitching is the breadth of our operational experience, from branded hotels to unbranded hotels to convention center to resort. We have a pretty unique breadth of properties that we run. And that's more along the lines we are pitching. But what we are pitching is complex -- the ability to handle complex products. That is a commonality among all of those, frankly.

All right. Thanks much.

Thanks, Jim.

Spencer Markby, Gabelli.

Can you comment a little bit on capital allocation regarding the share buyback? I know you don't want to buy back too many shares, given the limited (technical difficulty) you have in the markets. So what do you see there going forward? And then I have a follow-up.

Yes, so Spencer, I don't think we have changed our approaches. You saw this quarter we did buy back over 0.25 million shares. We also increased the dividend, and we still have a fairly -- we still have an aggressive capital expenditure program. So we kind of view it, and we talk about this constantly, as a variety of different levers that we can pull. And so we are constantly evaluating the CapEx environment, the opportunities. We're taking a look at -- you know, we are keeping an eye on what the acquisition environment might look like.

So we take a look at all of those options. We don't -- the two words we've used a lot in this Company are disciplined and opportunistic. And so we don't kind of put our head down and say, by God, we're going to only focus on one of these things, and only buy back shares, or only look at dividend, or only focus on the capital expenditure side of things. We try to take a very balanced approach to this. And I think, given where balance sheet is -- and as mentioned by one of our earlier questioners, I think we have a great deal of flexibility in that regard.

Great. And then kind of following up on the CapEx side, when do you expect to see CapEx come down a little bit? It really picked up in the 2014 year from about 5% to 7% of revenue to closer to 15% over the last couple of years. Do you see 15% as like normal rate going forward? Or could we see it come down a bit in the future?

So certainly for fiscal 2016, for this year, we still have a fairly high number. A great deal of back capital, Spencer, though, is what we would consider to be ROI capital. And so we've had -- we've seen an opportunity over this last 2.5 years to really make some significant ROI investments. And I think the numbers have shown that these investments have borne fruit.

I think the reality is in the theatre business -- we have talked about this -- is that while we still see some opportunities ahead of us, we've now touched -- we've now done something to a large portion of our existing circuit. So if it was steady-state, if nothing else changed, certainly 2017/2018 we would expect that that number would start to come down. I just don't know if it's going to be -- if that initial assumption is a fair assumption or not. And that's where the wildcard is.

Because if we find some opportunities to -- some acquisition opportunities, for example, that could start the cycle over again with some of those assets. We certainly have -- we're building two new theatres this year. And so we are certainly looking for some opportunities and some organic growth in that perspective too. So I do think that this major push that we've had in terms of adding the amenities to our existing circuit -- that doesn't go on forever. But the wildcard is what might come up in the future.

Great. Thank you.

Mike Hickey, Benchmark Company.

Great quarter, guys. Congratulations.

Thank you.

I think you said you completed five installations for recliners, I think, ending in April. That puts you to 19 now, Doug? And then I think that --.

That's correct. So that's 19 locations that are all recliner seats. And then we have additional locations where we have our DLX UltraScreens and SuperScreens. And they may be the only auditoriums in those premium complexes. So that's -- so the -- our new percentage from a screen perspective now is 44%.

Okay. Thank you. And then you have three in the pipeline; is that right?

Yes, there's -- well, certainly the theatre that we just purchased, the Country Club Hills. We have announced Orland Park in Illinois. Greg and I are looking at each other. I think there's at least --.

You have the dine-in, right?

Yes, it's the dine-in, exactly.

Okay. And at that point, do you sort of feel you're at scale, then, within your existing network?

It will depend on -- one of the things that is unknown in the world of what we call DreamLoungers is what is going to happen -- what's the organic growth? One of the dynamics, as I know you know, Mike, is that we go -- when someone does this, there is a share shift that goes on. That's -- but also, we know that there's organic growth, because it is -- it's a great way to see a movie. There is no -- it is a fantastic way to see a movie. And we know that that is driving organic growth.

The question that we're asking ourselves is: what happens in markets where there is no share to shift? And those markets do exist, and we have that. We are starting to test some of that. And we'll have a better -- we'll have better visibility to that pretty soon. And then when we do, we'll start making decisions about what happens in the rest of the circuit.

Okay. Fair enough, thank you.

Curious, on the Country Club, if you could share any of the deal metrics. I'm also curious if real state was involved. I think it was a pretty big lot.

And then I'm also sort of curious -- obviously there was a tax consideration here that you're very thoughtful with. How many other sort of one-theatre buys were in the market when you did this?

Yes, so there was real estate involved, Mike. And it was interesting. So we sold the Hotel Phillips in October. And if you are familiar with the IRS 1031 rules, you have 45 days to identify potential real estate that you might buy as a replacement, and you have 180 days to close.

And in this little deal that we did, it was -- again, it's our smallest hotel, and this was a single theatre. But this little deal overall actually was a little microcosm of what Greg alluded to earlier, which we would love to be able to try to duplicate on a little larger scale in the future.

As you know, we sold the hotel for about $13.5 million. And the largest portion of that was real estate, but not all of it was real estate. But the real estate component -- we were successful in that 180 days in purchasing a theatre, Country Club Hills, with real estate and two pieces of land, including one piece of land that's going to be the land for a replacement theatre that we expect to be in construction on shortly. And another piece of land which is banked for some future use.

And so we were able to completely place the real estate value and defer all the taxes on the sale of that particular (technical difficulty) hotel.

So it was. For us, that checked all the boxes. And it was small-scale, but it was -- it checked all the boxes that we were looking to accomplish and certainly helped our economics. We didn't share the purchase price of the hotel. We certainly believe that buying a hotel -- sorry, purchase price of the theatre. But we certainly believe that the purchase price of the theatre, plus the cost to improve it -- we'll end up with essentially a new theatre and, we think, at a good all-in price, with the tax deferral being kind of the gravy on top of the whole transaction.

That's the point that Doug just made that I would reiterate, which is: the theatre stood by itself. Whether or not we had a 1031 to do with it, we would have done that theatre deal. It was relatively complicated. There were some things that we had to go through to put that deal together. But the fact that we could match it with a 1031, you know, that was -- that made it even better.

Yes, yes. Okay. Thanks, guys. That was smart. I think there's a competitive theatre seven miles away. Has that competitive theatre been installed with recliners? Or is that traditional seating?

It's a pretty robust -- I'm not sure which one you're talking about.

Because there's mix in the area.

There's a bunch, yes. But I hear you -- look, the bottom line is there has been a fair amount of recliner seating put into the south side of Chicago. We've done it. We are doing it at our Orland Park theatre. We will have it here. We have it at Chicago Heights. So it's competitive, but it's also been -- it's been paying off.

Okay, cool. Last two little questions for me. It looks like -- I'm not sure if you talked about this already, but the Reel Sizzle -- it seems like you're making a few installations there. I guess that's instead of this Zaffiro's Express. I'm just curious if that sort of new concept has been replaced in the old Zaffiro's, or maybe why your leading with that as opposed to Zaffiro's.

And then my last question is on SafeHouse. It looks like -- or at least it's rumored that maybe you have a second location coming up in Chicago. I was just sort of curious if you have any sort of scale objective internally, or how you want to build that asset the future. Thanks, guys.

Let me start with the Reel Sizzle question. Look, the Reel Sizzle -- there are no plans to replace any Zaffiro's. What -- Reel Sizzle is an example of our continually innovating. The two most popular food categories are burgers and pizza. We've had success with the first Reel Sizzle that we did, and we want to test some more of them and see how they do in other operations, just like we would test anything. It's a great concept; the food is fantastic. We have made a big investment in our Zaffiro's -- in Zaffiro's. So we do lean on that brand a fair amount. But part of it is: what does the market dictate? And what we wanted to have was the ability to have multiple options when we go into a market.

When you -- one of the reasons we did one of them -- in Lincoln at our South Pointe theatre, there's a pizza place on an adjoining wall. So on a contiguous wall. So we thought, well, probably better to go with our burger concept. (laughter) So having that concept in the portfolio was helpful. And it allows us to then also do ice cream.

So it's not a signal that we are making any real changes in our operating plans. But it does give us other options.

Oh, yes, and SafeHouse. Control has allowed me to say the following -- (laughter) that Chicago is a big city, and maybe we're going there, and maybe we are not. But we haven't released any plans yet for it, and we don't -- if your question was: what is our target? We don't have a target.

Look, we do want to grow it. We think it is growable. But again, there's only one so far. And -- but because we like to innovate and we are always looking for new things, we have -- we think there's great potential here. As I always say, we as a company may have made a lot of money off of the spy story, which is what this restaurant is. It's the spy story. And if you think about it, whether it's the Bourne Identity, Mission Impossible, James Bond, whatever it is, those spy stories resonate and re-resonate and re-resonate. And we've done very well.

So that's the thesis behind this. And we're going to do more of them and see how they work, and we'll go from there. Then we'll start to set a target.

All right, thanks, guys. Best of luck.

(Operator Instructions) Eric Wold, B. Riley.

Most of my questions have been answered, but just a couple. I guess, one, as you think about the competitive environments for your hotels, I see a lot of inventory coming in and planned near term. I guess, one, what are your thoughts on the inventory coming in, what impact (technical difficulty) and occupancy increase in the quarter.

Any thoughts on -- you are not seeing ADRs decline because of the competition, but is there any thoughts on whether or not the competition is holding back gains you think otherwise may have been possible? And then I have a follow-up.

Yes, well, the first question is a great question, which is are we worried about supply increases? And yes, we do remain concerned about supply increases -- from a macro perspective is about the best way I would say it. Because we're seeing supply; we're seeing it in our markets. And that can be a challenge, frankly. But again, we are in this for the long haul. So we continually reinvest in our products. And now I'm taking it to a more micro level -- what about us? What does that mean to us?

We believe we remain competitive in really any environment, because we are invested. We continually keep our product up to date. And, you know, because we don't lever our balance sheet to the gills, we are able to -- if there is a period of absorption, which is all it will be is a period of absorption, well, probably some old, old product goes off-line; and the new product is absorbed. We'll be fine. And then we'll play the cycle as always. That's what we always do.

Perfect. And then -- no, that's helpful. And then on the theatre side, maybe talk about your ability to potentially pick up some of the likely divested theatres from AMC/Carmike and your capacity. I mean, knowing that Carmike doesn't really own any real estate, I'm assuming those wouldn't be helpful on the 1031 strategy. Would that hold back your thoughts on going after something that didn't have real estate?

And then kind of on a subsequent question, kind of with that, around 1031 and your strategy with that, what do you view -- I know you're being disciplined in terms of matching or trying to match hotel sales with acquisition opportunities. What do you view as the bigger driver for taking action? The price you could get for a hotel, or the opportunity to roll that capital into a higher margin, higher growth theatre asset?

I'll take the first part of the question, which is -- what was the first part. Let's do the first part of the question. Eric, I'm sorry. Tell me the first part of the question again?

Sorry, I threw a couple. So the AMC/Carmike transaction --

Oh, the AMC/Carmike, that's right.

-- whether or not them not owning real estate would --.

On the AMC Carmike side, to sort of take that in reverse of what you asked, the answer is: real estate is not -- does not cause something to not get to the screen. We don't have to have real estate to buy something. So would we be interested in whatever might be there? Would we take a look at anything that is going to get divested? Absolutely be interested and absolutely would take a look at it. So we're there, we would be interested in it.

We don't know what it is yet. So we don't even know what we are interested -- because they aren't far along in their process. But we will take a look and see what makes sense for us.

And I'll take the second half of the question, Eric. In terms of what the drive -- the nuanced answer to that is it depends on the asset. There are -- when we take a look at our individual hotel assets, there are several hotel assets that we're much more tax sensitive to than others.

And so to the ones that we are extremely tax sensitive to, the ones that we have arguably very low basis, that we are -- it becomes a math exercise. The tax disruption, the tax leakage would prevent any sort of deal from being accretive, then the answer to that question is -- well, then, finding the 1031, finding something to buy becomes the more important piece and is certainly the first part of the puzzle.

Not every one of my hotel assets fits into that category. I've got other assets that we're less tax sensitive on. And so then there it becomes a matter of price. It becomes a matter of -- do we think that we would get value for that particular asset.

Okay, perfect. Thanks, guys.

Brian Rafn, Morgan Dempsey Capital Management.

Great -- certainly another great quarter.

Thank you, Brian.

Give me a sense -- you talked, I think, top five -- the top five film slate. Any color on the depth of the film slate, say, movies 5 to 10 or 5 to 20 between 2016 and 2015?

Well, and actually, we did talk to that briefly, Brian, by talking about how this particular film slate was more top-heavy than last year in that same time period. The top five films represented 49% of our overall box office compared to top five films being only 38%.

So it was -- so under that measure, last year's slate was deeper under that definition. It had more films that contributed and certainly, as I just look at the list, I had more films that for us contributed at least $1 million of box office or more than I did this time around.

So under that definition, this slate wasn't as deep. But as you can see, we can make money under both scenarios. And even so, our film costs were higher this time around. We still ended up improving our margins.

Yes, no, certainly. Let me ask you, relative to the film slate depth: when you see these big blockbuster, epic-type movies, the Star Wars, the Indiana Jones, do they tend to crowd out some of the depth? Or do they draw more people that may actually ancillary cause people to maybe see more movies and see some of that? Or are they just more of a crowd-out?

The answer to your question is yes. What happens is when they are playing, they crowd out. But when they -- now, I will say the dynamic may be changing, because -- let me tell you the answer I would say is globally, and then I'm going to go back and say one other piece of that.

Yes, they tend to crowd out. And people stay -- other studios will tend to stay away from them a little bit, too. So you get both of those things working in that factor. They're going to give Star Wars a wide berth, because it's going to do a ton of business.

That being said, when there are people there -- people who haven't been to the theatres in a long time -- they are being exposed to the preshow advertising, to the trailers, to what's -- you know, the coming attractions. And they're being exposed to the new experience we are giving them.

So I think that you then see people coming to the movies with some more frequency. And you get that effect, but it's delayed. Now, I will tell you that with the switch to recliner seating, as we start to restrict inventory of available seats, people who say I'm going to go to the movies tonight and maybe don't find the movie they want to see available -- they may then go see something else. I think we see a little bit of that as well. But I don't think it's going to move the needle a ton.

And then I would maybe -- Brian, I would maybe add to that. The unique advantage we have, which is the -- our tremendously successful $5 Tuesday program, which in turn -- I think as we've seen -- certainly we know that we've brought a different customer, a new customer who's more value conscious to come on Tuesday; but we've also increased frequency as a result.

So maybe they saw Star Wars on the weekend, but there was another film that in the past maybe would have gotten crowded out, and they would say, well, we're only seeing one movie, and that's it; but now they'll come back and see on Tuesday. And our numbers support that.

When we look at our Tuesday audience, we see a meaningful percentage of that audience has seen another movie in the last six days, meaning it wasn't on the previous Tuesday, that they've --. So we think we've -- that program has helped actually that second tier of movies.

Okay, good. That's a great answer. I appreciate the color. Speaking of that $5 Tuesday, are you getting any more concession penetration with Mr. Value?

A little more. Not -- but I know it is a focus of everyone listening to this call right now. So they're trying to figure out how to do better. We are doing better, but okay. There's more --.

Yes, when you look at some of your specials, like the retro series, and the ladies' night, and some of these fill-in, what has been your success of that versus your expectation or whatever?

We are in the early innings of this kind of thing. That being said, I do believe that that is where it's going. And it's going to be the advantage of -- that's where the advantage of our loyalty program comes into place: the ability to market series is alternate programming. You get the effect of multiple -- of marketing multiple movies with one message, and you are able to do it efficiently by leveraging our loyalty program. And I think -- I know that that is an initiative that they are focused on upstairs.

Yes. As you guys look at your new flagship -- I think it's Sun Prairie -- how has that tracked versus plan? Or maybe how has that tracked versus the launch of Majestic? Was there anything that you have -- I've not visited. Is there anything that you have out there that's innovative, that may be a concept that you might roll out across the theatre chain?

What that is is that is the result of a lot of R&D over the years, starting with The Majestic 10 years ago. That -- so that really is the culmination of a lot of efforts. That theatre is really the prototype for what we'd like to roll out in other locations, and -- which you're going to see as we do more stuff. We'll start to look more like that.

Okay. Brian, we are on the hour, and we have one more caller waiting. So do you have a last question?

Last question I'll ask you -- okay. When you're looking at M&A, Greg, you talked a little bit about it. You didn't say real estate was a deal killer on the theatre side. But would it be your option and preference to have the flexibility of owning the real estate and maybe even having to approach a separate landlord to buy that real estate under the cinema?

Yes, certainly that's our preference, Brian. It's good question. It's our preference. We just have to -- I think Greg's answer earlier was just to state that it's not a deal killer for us. I mean, we are open to taking on leases. And so -- it's not a screen where he says, well, if it doesn't have real estate, we won't look at it. But certainly we have an inclination of -- a preference to be able to control the real estate.

All right. Thanks, guys.

Herb Buchbinder, Wells Fargo Advisors.

Thanks a lot. I stayed at your AC Hotel in Chicago, and I was very impressed. I was wondering, do you have the opportunity to find more of these? Usually you don't have two of one kind. But now that you have one, does it become a kind of a task to try to find some more of these? And I was wondering how the bookings for that are going for the balance of the year at least.

I would do more of those, yes, absolutely; and we have a few that we are looking at. It's a really good model. And I think, as you said, it's a very -- it's an impressive -- it's a great hotel.

We really like how it turned out. We're pleased with the bookings. We're pleased with how we're doing compared to the market. We don't talk about it specifically. We don't talk about any hotel specifically. But we are pleased with the trajectory it's on.

Okay, all right. Thanks a lot.

Thanks, Herb.

I would now like to turn the call back over to Mr. Neis for closing comments.

Listen, thank you, everybody, for joining us today. Maybe we'll see some of you at our upcoming annual meeting on Wednesday, May 4 at our Hilton Milwaukee hotel. For those of you who can't attend, we'll be webcasting the meeting, as usual.

We also look forward to talking to you once again in July, when we release our fiscal 2016 second-quarter results. Until then, thank you, and have a great day.

That concludes today's call. You may now disconnect your line.