Marcus Corp (MCS) 2018 Q4 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation fourth quarter earnings conference call. My name is Lauren, and I'll 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, Executive Vice President, Chief Financial Officer and Treasurer 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.

Thank you, and welcome to our fiscal 2018 fourth quarter and year-end conference call.

As usual, you know I need to begin by stating that we plan on making a number of forward-looking statements on our call today. And these forward-looking statements could include, but not be limited to, statements about our future revenue and earnings 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 products expected 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; expectations and plans regarding growth in the number and type of 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. And facts -- 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 2018 fourth quarter and our completed fiscal year. As our press release noted, we are reporting record revenues for the fourth quarter, and record revenues in operating income for the fiscal year thanks to, here's the word again, record performance from our theatre division in both periods. And that is despite significant acquisition and preopening expenses during the quarter related to the Movie Tavern acquisition.

Our Hotels and Resorts division also reported record revenues during both periods. And if not for onetime costs related to the conversion of the InterContinental Milwaukee hotel into what will be Saint Kate - The Arts Hotel, operating income from our Hotels and Resorts divisions would've been also been up for both the quarter and full year.

Following the usual format of these calls, I'm going to make -- take you through some of the detail behind the numbers, both on a consolidated basis and for each division first. I'm also going to share some thoughts on the financial implications of our recently completed Movie Tavern acquisition. Then I'll turn the call over to Greg for his comments.

Now before I dig into each division, let's spend just a few minutes on a couple of the line items below operating income, as we had some variations this quarter.

Our investment income declined during the quarter because of decreases in the value of marketable securities, as we all know the fourth quarter was a pretty rough in the market. The increase in our interest expense during the fourth quarter is slightly deceiving, as last year during the quarter we made some adjustments to interest expense related to capital leases, as we finalized the purchase price allocation for the 2016 Wehrenberg acquisition.

For the full fiscal 2018-year, our interest expense was higher than the prior year, primarily because of higher revenue interest rates, due to increased short-term interest rates. Looking again, despite an expected increase in our capital expenditures during fiscal 2019, you'll note that on our balance sheet that we're starting the year with lower overall total borrowings.

Thus, we currently don't expect our interest expense to change materially during fiscal 2019. And in fact, it's even possible that it could decline slightly during the year. Conversely, any increases in short-term interest rates may offset some of the impact reduced borrowings may have on our interest expense.

And of course, changes in our borrowing levels due to variations in our operating results, capital expenditures, share repurchases, and assets of sales proceeds as well as the possibility of additional acquisitions among other items, may impact either favorably or unfavorably our actual reported interest expense in future periods, as may changes in the short-term interest rates or the mix of long-term and short-term debt in our portfolio.

Another line item I'd highlight is our gains and disposition of property, equipment and other assets. Our fourth quarter results last year were favorably impacted by 2 significant gains, the largest of which was a gain of approximately $4.9 million last year from the sale of our Western Atlanta Hotel on which we had an 11% minority ownership interest.

Partially offsetting these gains in both the quarter and the fiscal year was the continued write-off of disposed theatre personal property, as we continued our extensive renovation program at multiple theatres. And the losses that we reported during the fiscal 2018 fourth quarter and fiscal year were, once again, primarily related to those same write-offs.

Finally, as you would expect, the largest variation of a line items below operating income may be found on the income tax line. Of course, last year's results are distorted by the $21 million reduction in deferred income taxes that we reported in conjunction with the new tax law that went into effect in late December 2017.

And our fiscal 2018 income tax expense was certainly favorably impacted by the new lower tax rate as well as excess tax benefits on share-based compensation, and an additional reduction in deferred tax liabilities of approximately $1.9 million related to tax accounting method changes that we made subsequent to the signing of the new tax act.

Excluding the favorable adjustment to income tax expense in each year, for the reduction in deferred tax liabilities, our effective income tax rate was 22.7% during fiscal 2018 compared to 36.2% during fiscal 2017. As we sit here right now, we currently anticipate that our fiscal 2019 effective income tax rate will return to that 24% to 26% range. Of course, depending upon the amount of excess tax benefits and share-based compensation that we might recognize, and that can vary by quarter, and excluding any potential further changes in federal or income -- state income tax rates.

This might be a good time to point out that given the large number of unusual onetime items in both this year's and last year's fourth quarter and year-end results, the largest of which was the income tax items, we felt the need to include non-GAAP measures in our press release today in order to make it easier for you to compare this year's reported results to last year. We hope that was helpful.

Now before I dig into each division. I will briefly shift gears away from the earnings statement for a minute and tell you that the total capital expenditures during fiscal 2018 came in right in the middle of the range we shared with you last quarter, totaling approximately $59 million, compared to approximately $115 million last year. Approximately $44 million of that total spend during fiscal '18 was incurred in our theatre division, and on all the usual suspects -- continuing DreamLounger seating projects, premium large-format conversions and new food and beverage outlets.

We spent approximately $15 million in our Hotels and Resorts division this year, including costs associated with the renovations of the Madison Hilton Monona Terrace, and the conversion of the former Intercontinental Milwaukee Hotel into Saint Kate - The Arts Hotel. As well as other typical maintenance capital projects at our company-owned Hotels and Resorts.

As we look towards capital expenditures for fiscal 2019, we're currently estimating that our total expenditures may be in the $75 million to $95 million range, and that's not including the approximately $30 million cash component of the Movie Tavern acquisition.

Again, excluding that acquisition, we're currently estimating approximately $50 million to $60 million of our total fiscal 2019 capital spend will be in our theatre division, and it will include expenditures related to one new theatre that's currently under construction in Brookfield, Wisconsin, and expenditures for various amenities that we plan to add to our recently acquired Movie Tavern locations.

Another $25 million to $35 million in CapEx is currently estimated for our Hotels and Resorts division, with the largest components being exactly where you'd expect it to be, the completion of the renovation of the Hilton Madison hotel, and the completion of our conversion of the Intercontinental Hotel into Saint Kate, as well as some additional maintenance capital dollars that's set aside for possible growth or ROI opportunities that could be evaluated during the year.

As is always the case at this point of the year, the range of potential capital spending is fairly large 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, our actual fiscal 2019 capital expenditure certainly could vary from this preliminary estimate. And of course, if another acquisition opportunity would arise that would certainly impact our actual capital expenditures as well.

So let me give you a couple comments now about the fourth quarter and fiscal year, we'll start with the theatre division. Our reported admission revenues increased 0.8% and our concession revenues increased 8.2% during the fourth quarter, and increased 8.5% and 11.8%, respectively, for fiscal 2018.

Now the fiscal 2018 full year numbers did include the 2 new theatres that we opened during the second and third quarters last year as well as the revenue accounting change and how we handled our loyalty program, we've been talking about all the year, that generally negatively impacted admission revenues and favorably impacted concession revenues.

Of course, where the accounting change becomes important is that when we attempt to compare our theatre results to the rest of the industry, we've got to deal with that. The data that we receive from Rentrak, the National Box Office Reporting Service for the theatre industry, represents gross box office receipts reported to it, and by definition would be before any such deferral of revenues for accounting purposes that we or any other exhibitor might record.

Thus, we need to add back the impacts of that revenue recognition and accounting change to our reported admission revenues in order to get numbers that we can compare to the rest of the industry. And according to the data received from Rentrak and compiled by us to evaluate fiscal 2018's fourth quarter and year-end, U.S. box office receipts adjusted for new theatres for the top 10 circuits increased 0.6% during the fiscal 2018 fourth quarter and 6.8% during the 52 weeks that were included in our fiscal year.

So after you adjust for the deferred revenue from our loyalty program, our comparable theatre fourth quarter and fiscal 2018 admission revenues increased 0.5% and 8.6% compared to last year, meaning that our results -- our box office results for the fourth quarter were right in line with the industry, and our full year results outperformed the nation by 1.8 percentage points.

Greg will dissect our fourth quarter and fiscal 2018 performance in even greater detail during his prepared remarks, but suffice to say, we're very happy to be reporting what's essentially our fifth straight year of industry outperformance.

Now the fourth quarter increase in our admission revenues was attributable to an approximately 1.5% increase in attendance, partially offset by a decrease in our average admission price of 0.8%. For the full year, theatre attendance at comparable theatres increased 4.7%, and our average ticket price increased 3.2% compared to last year.

Now the increased number of premium large format, or as we call them PLF screens, with a corresponding price premium contributed to our increased average admission price during fiscal 2018.

Conversely, we do believe that a change in the film product mix had an unfavorable impact in our average admission price during the fourth quarter of fiscal 2018 compared to last year. As our top film during the fourth quarter this year was the family-friendly, the Grinch, while our top film during the fourth quarter of fiscal 2017 was Star Wars: The Last Jedi, which by the way had a particularly higher percentage of its admission revenues occur in our PLF auditoriums.

Now we're pleased to report an increase in our average concession and food and beverage revenues per person of 6.7% for the fourth quarter and 6.4% for fiscal 2018. Once again, the investments in our nontraditional food and beverage outlets continue to contribute to this higher per capita spending.

And I'll also point out that our theatre other revenues increased significantly during both the quarter and the year compared to the prior years. Now a large portion of the increase relates to the fact that we now account for Internet ticketing fees on a gross basis, which has no impact on our bottom line. But a portion of these increases are also due to increased preshow ancillary revenues, and increased Internet ticketing fees, even after that change in accounting.

Shifting now to operating income for a minute. Our theatre division operating income reached record levels during both the fourth quarter and fiscal year, despite the fact that we incurred an expense nearly $1.7 million in acquisition and preopening expenses related to the Movie Tavern acquisition.

It's also important to note that with the transaction closing on February 1, we do expect to report additional acquisition and preopening expenses during the first quarter of fiscal 2019 in an amount that actually may approach $1 million or so.

(Inaudible) -- talk about Movie Tavern for a minute here. As long as I'm making a couple of forward-looking statements, let me share a couple of thoughts about Movie Tavern and its potential impact on our future financial results.

We're still looking at then reviewing some information that we received from the seller, but we do still believe that the Movie Tavern annualized 2018 revenues were in the $145 million to $150 million range. I can also tell you that their admission revenues per screen are reasonably close to our existing theatre circuit.

Not surprisingly, where they differ from our current theatres is the relationship between admission revenues and concession revenues. If you do the math, you'll see that the average split between admission revenues and concession revenues in our legacy circuit is approximately 60-40, 60% admission, 40% concession. The Movie Tavern theatres are more likely to flip that relationship for those specific theatres, and end up closer to 40% admission revenues, 60% concession and food and beverage revenues.

Now one of the results of that change in the revenue mix for those theatres will be a lower operating margin for the theatres. As you would likely presume, both food and labor cost for a theatre model that focuses on nontraditional theatre food and beverage will be higher as a percentage of revenue, than it is for traditional concessions, reducing our overall margin. Correspondingly though, of course, we'll also expect an increase in our average concessions per person, and after all, we take dollars in the bank not percentages.

Another difference you will notice, as we begin to report our results with Movie Tavern, will be a substantial increase in our rent expense, as all 22 of these newly acquired theatres are leased. On an annualized basis, and of course, we didn't acquire these theatres until February 1, but on an annualized basis, we're currently estimating that increase -- we're estimating rent expense of $15 million to $16 million as a result of the new theatres.

Keep in mind that we own the underlying real state of nearly 80% of our legacy circuit, and that has historically contributed to our higher operating margins, as depreciation expense is typically lower than rent expense. The fact that we historically haven't had a lot of rent expense has also contributed to our very high EBITDA margins. So adding Movie Tavern to our overall results will reduce both of those margins.

Until we finalize the purchase price allocation, I will tell you it is difficult to project what our annualized depreciation and amortization expense will be from the new theatres. It certainly could be in the $10 million or more range on an annualized basis.

As a result, maybe the best thing to do is to focus on EBITDA market impact. Our legacy circuit has been producing EBITDA margins in the 28% to 29% range. Given the high food and beverage component of Movie Tavern's business model, and then layering on the fact that all the theatres are leased, it's more likely that the incremental EBITDA margin from Movie Tavern business will be in the 10% to 15% range with -- at least in that first year. We obviously have plans to implement a number of our successful strategies and amenities as the year goes on, that we hope will favorably impact our margins from these theatres in the future.

Shifting to our Hotels and Resorts division, excluding cost reimbursements, our overall hotel revenues were up 2.9% for the fourth quarter and 2.7% for the year thanks to increases in all 3 categories: room revenues, food and beverage revenues and other revenues.

Room revenues increased due primarily to increased group business during fiscal 2018 compared to fiscal '17, and food and beverage revenues increased during fiscal '18 compared to '17, partially due to the SafeHouse restaurant and bar in Chicago, which opened in March of '17, and also due to increased catering and banquet revenues that also contributed to the -- to that overall increase.

Other revenues increased during fiscal 2018 compared to 2017, due primarily to increased management fees and rental income. Our total RevPAR for 8 comparable properties increased 1.9% and 1.4%, respectively, during fiscal '18's fourth quarter and year-end compared to the comparable period last year. And as we've noted in the past, our RevPAR performance did vary by market and type of property.

Breaking out our numbers a little more specifically, our fiscal 2018 fourth quarter overall RevPAR increase was due to a 1.6% increase in our average daily rate, and a 0.2% -- percentage point increase in our overall occupancy rate. For fiscal 2018 full year, our occupancy rate increased 0.1 percentage points, and our average daily rate increased 1.3%.

Now the division's operating income and operating margin decreased during the fiscal 2018 periods compared to 2017, entirely because of the 2 related onetime items that negatively impacted our fiscal 2018 fourth quarter. The first and largest item was the $3.7 million of accelerated depreciation related to the InterContinental Milwaukee assets that were to be disposed of in conjunction with the conversion of the hotel into Saint Kate -- The Arts Hotel. Secondly, we also incurred over $500,000 in preopening expenses related to this project in the fourth quarter.

Excluding the preopening expenses and accelerated depreciation expense from our fiscal 2018 operating income, and to be fair, the SafeHouse Chicago operating results from our fiscal 2017 numbers, as we also incurred preopening expenses at that property last year. Operating income for our comparable Hotels and Resorts division during fiscal '18, actually exceeded operating income during fiscal '17, by my math, about $3.4 million or 23.2%. Excluding these same items, our operating margin during fiscal 2018 was 8%, 8.0% compared to 6.6% in fiscal 2017.

Now look, I'd be remiss if I didn't point out that since the Saint Kate is scheduled to be closed during the first 5 months of fiscal 2019, our reported results during both the first and second quarters of fiscal 2019 will once again be negatively impacted by these non-reoccurring significant preopening expenses and carrying costs.

The actual amounts are subject to change, but right now we're estimating that we may incur preopening expenses of $1.2 million to $1.4 million in each of the first 2 quarters as we prepare this hotel for what we hope to be a very exciting future. We'll be sure to highlight the negative impact that we report the next 2 quarters in order to help with the comparability to prior periods.

At this point, you've probably heard more numbers than you thought possible, so I'm going to be happy to now turn the call over to Greg for his comments.

Thanks, Doug. I'll begin my remarks today with our theatre division. And as you've now seen, it was yet another record quarter and year for this division. So let me begin by once again congratulating Rolando Rodriguez, his outstanding leadership team, and our tremendous associates in all of our theatres for their outstanding efforts and results.

It was not a typical fourth quarter. Everyone knew we didn't have a Star Wars or Jumanji this year to bolster our December results. So the general consensus going into the quarter was that it would be a down quarter. But then October and November came along with several very strong films, and we were able to build enough of a cushion to withstand the expected more difficult comparisons in December.

In the end, despite the lower average admission price that Doug shared with you, attendance increases drove us to another box office increase, capping off what turned out to be a record year for the movie theatre industry.

As reported, we once again outperformed the industry during fiscal 2018, this time by nearly 2 percentage points. We performed in line with the industry during the fourth quarter, but our performance was more nuanced than that. As well as we performed in October, we believe it may have been even better, if not for the fact that our hometown Milwaukee Brewers went deep into the playoffs, likely taking some of the attention away from movie going during their exciting run.

Even with that, I will also tell you that we are outperforming the industry into the final 2 weeks of the year. Historically, these final 2 weeks are 2 of the busiest weeks of the film year, which means that the percentage of films that sell out show times increases significantly.

During these particular weeks, where seat capacity matters more than normal, the fact that 75% of our auditoriums have recliner seating, have the impact of reducing our ability to perform at the same level as the rest of the industry, where the average recliner seating penetration is significantly lower.

As you know, recliner seating auditoriums generally have approximately 50% less seats than an auditorium with traditional seating. The fact that Christmas Day, historically, a very strong day for movie going, happened to be a Tuesday during fiscal 2018, also likely negatively impacted our relative fourth quarter box office performance, compared to the industry as we elected to honor our $5 Tuesday program for our customers as we've done in the past.

Doug shared with you that we incurred approximately $44 million in capital expenditures in our theatre division during fiscal 2018. And our press release highlighted the additional amenities we added to existing theatres this past year.

I think you might find it interesting where all of these investments put us at the end of 2018. As of December 27, 2018, we offered all DreamLounger recliner seating in 45 theatres, representing approximately 70% of our company-owned first run theatres, including our premium large format or PLF auditoriums with recliner seating as of December 27, 2018.

We offered our DreamLounger recliner seating in approximately 75% of our company-owned first run screens. That's a percentage we believe to be the highest among the largest theatre chains in the nation. Meanwhile, we currently offer at least 1 PLF screen in approximately 72% of our first run company-owned theatres. Once again, a percentage we believe to be the highest among the largest theatre chains in the nation.

And one more number for you, as if we haven't given you enough, after the advancements we made this year, we now offer one or more in-lobby dining concepts in 40 theatres, representing approximately 63% of our company-owned first run theatres.

Of course, one of the key reasons we had such a great 2018 was because of the improvements we made in 2017 and 2018 at our Marcus-Wehrenberg theatres. That was always our hypothesis, that we could acquire a theatre chain, such as Wehrenberg, and generate improvements at those assets by implementing many of the successful amenities and innovative marketing, pricing and loyalty programs. We couldn't be happier with how that acquisition has turned out.

So now we move on to fiscal 2019. On paper, the overall film slate looks very good, with a large number of titles from well-known series leading the way. Disney, in particular, appears to have a very strong group of family-focused films, which may play well in our Midwestern markets. Conversely, those films may have a lower average admission price, and may not always drive business to our ancillary food and beverage outlets, so we'll have to see how this plays out.

What will clearly be different in 2019 will be the way the year falls within the four quarters. On paper, it appears the 2019 film slate will be strongest in the second half of the year, with the fourth quarter looking particularly strong with films such as Frozen 2, a Jumanji sequel, and the much anticipated Star Wars Episode 9. Conversely, all you have to do is read the papers to know that the first quarter comparison of this year will be very difficult.

Last year, our #1 picture for the entire year was Black Panther, which came out in February. We also had some very strong carryovers from the prior year, including the last Star Wars film, Jumanji and The Greatest Showman. Given the weaker December 2018 film lineup, we just didn't have the same carryover strength into January this year. Add to that some very difficult winter weather in the Midwest, and we're likely looking at a challenging first quarter.

Now the buzz on Captain Marvel coming out in March is very good and might help soften the blow. But it seems inevitable that we are looking at a down first quarter to start the year. Our job as always is to manage our cost as best we can during slower box office periods, as we wait for the next wave of films. Admittedly, that task is harder today than it used to be.

As we've made significant investments in our theatres over the past years, our overall fixed occupancy costs are higher than ever before. The same applies to labor costs. With more food and beverage outlets comes a larger fixed component of our labor, as we need to staff these new outlets. The result is what we internally refer to as negative leverage. Higher fixed cost mean that it's harder to reduce cost during slower periods. That will be our challenge and a key focus for our theatre team now and in the future.

Meanwhile, this same dynamic also means that we have positive leverage when the movies are strong. We saw that last year during the second quarter in particular where double-digit increases in admission revenues translated to very strong operating performance. It is equally our challenge to fully take advantage of this positive leverage when it presents itself. As you know, we play the long game here at Marcus, we try not to get caught up too much on the roller coaster that can be the weekly box office, and we make our decisions with the long term in mind.

Of course, the other key focus of 2019 will be integrating the newly acquired Movie Tavern circuit into our business. We're 3 weeks into the process and, by all accounts, we're off to a good start, recognizing that we have a lot of work ahead of us. And once again, I need to acknowledge the extraordinary effort our dedicated team members are putting into this very big project.

We've entered 9 new states, and significantly expanded our in-theatre food and beverage offerings. In fact, with the addition of Movie Tavern, we now offer in-theatre dining in 31 theatres and 240 auditoriums, representing 36% of our company-owned first run theatres. The feedback we have received from our new Movie Tavern associates has been very positive. And I once again want to publicly welcome them to The Marcus Corporation.

Our plan is pretty simple, and we divide it into 2 phases. Our initial focus in this first quarter has been on the people side of the business. We are a people business, and the success of our associates who are in the theatres on a daily basis will be our success.

It also won't surprise you to hear that we immediately implemented our successful $5 Tuesday program, and our Friday Young at Heart program for seniors. We'll follow that up in March with our Student Thursday program. Another immediate focus is on technology and cost synergies.

In our second quarter, we hope to have our loyalty program rolled out in May, and we also hope to have our first wave of capital improvements completed in time for summer, with an initial focus on converting a number of auditoriums to one of our proprietary premium large-format concepts.

In the second phase, we'll also spend a lot of time on optimizing operations, which will include a hard look at the menu as well. We'll also look to develop a stronger alternative content program at these theatres in the second phase.

Of course, we won't be done after the first 2 quarters. Getting Wehrenberg to where we have it today was a 2-year process. When we acquired Movie Tavern, 12 of the 22 theatres had recliner seating, with 3 additional theatres under construction and scheduled to be completed by the end of the first quarter of fiscal 2019.

We've identified at least 3 additional Movie Tavern locations that we will consider converting to DreamLounger recliner seating during the second half of fiscal 2019 or beyond. Like our approach to everything we do, our focus will be on the long term. We know there will be bumps on the -- in the road along the way.

In-theatre dining is a much more complicated business model. But we're confident that we have the team in place to make the most of this opportunity, and we're looking forward to the challenge. Doug shared with you that we may spend as much as $50 million to $60 million in this division during fiscal 2019. And we would do that in a number of ways.

We're under construction with a new food and beverage focused theatre in Brookfield, Wisconsin, that is expected to open during our fourth quarter. We also are looking for sites for other new theatres, and we may spend some dollars towards that end in 2019.

Besides potential opportunities to add amenities at select Movie Tavern locations, we are evaluating opportunities to add DreamLounger recliner seats to 2 legacy theatres during the second half of fiscal 2019, including one more Marcus Wehrenberg theatre. As a result, by the end of fiscal 2019, including Movie Tavern, our percentage of company-owned first run screens of DreamLounger recliner seats may be approximately 80%.

We also recently opened a new UltraScreen at a Marcus Wehrenberg theatre. And we'll continue to review plans to continue expanding our proprietary large-format concepts. Our capital budget also includes selected opportunities to further expand our signature food and beverage concepts as well.

And I would be remiss if I didn't note that we still have an extremely strong balance sheet, so we remain positioned to further expand our circuit with selective acquisitions when the right opportunities arise.

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. When you peel away the unusual items that Doug shared with you, fiscal 2018 was a very good year for this division.

As an interim leader of this division, I want to publicly thank our outstanding executive management team and hotel operations and sales teams for their tremendous effort and the results that came out of that hard work. Their focus on both the top and the bottom line produced outstanding results.

As we've discussed in the past, our portfolio of hotels does particularly well with group business, especially some of our largest properties. So our quarterly results and annual results are often determined by the strength of group business during the period.

Group business will also tend to have an impact on our food and beverage revenues as well, since groups are more likely to use our banquet and catering services during their stay. While we had patches during the year where comparable group business at certain hotel challenge us, our fourth quarter was a good quarter for groups, and overall, an uptick in group business benefited us in fiscal 2018.

Doug shared some of the profitability numbers with you after adjusting for the nonrecurring items. I was particularly proud of our team's dedication to cost controls during fiscal 2018. Our ability to flow through a large percentage of our revenue increases to operating income was remarkable this year.

And sometimes, when you hear cost controls, the natural assumption is that the guest would somehow suffer as a result. In fact, we proved that assumption to be false again in 2019. Another highlight of the year was our team's unwavering commitment to exceptional guest service. And our press release pointed out some of the recent awards our properties have received for us. For us, it has been about working smarter and harder.

Looking ahead nationally, the pace of RevPAR growth has been declining over the past several years. And many published reports by those who closely follow the hotel industry suggest that the United States lodging industry will experience very limited overall growth in RevPAR in calendar 2019, with some markets possibly experiencing small declines.

Whether the relatively positive trends in the lodging industry over the past several years will continue, depends in large part on the economic environment as hotel revenues have historically tracked very closely with traditional macroeconomic statistics, such as the gross domestic product.

We also continue to monitor hotel supply in our markets, as increased supply without a corresponding increase in demand may have a negative impact on our results. We generally expect our future revenue trends to track the overall industry trends, particularly in our respective markets.

We are encouraged by the fact that as of today, our group room revenue bookings for future periods in fiscal 2019, something commonly referred to in the Hotels and Resorts industry as group pace, are ahead of our group room revenue bookings for future periods as of this date last year. Banquet and catering revenue pace for fiscal 2019 is also currently ahead of where we are last year at the same time. We added 3 new management contracts during fiscal 2018, and hope to find additional opportunities for growth during fiscal 2019.

Of course, the biggest challenge and opportunity ahead of us during fiscal 2019 is the conversion of the InterContinental Milwaukee Hotel into the Saint Kate -- The Arts Hotel. Doug has already shared with you the fact that this conversion will negatively impact our reported results during the first half of the year. But at the risk of sounding like a broken record, our focus is on the long term, and we view the short-term losses from closing this hotel as an investment in the future.

We're very excited about how the plans for this new hotel are coming along, and the initial response from the local community and from our prospective guests has been very positive. Advance bookings for this unique, immersive arts hotel have been very encouraging, and we look forward to introducing this new hotel later in our fiscal 2019 second quarter.

We've shared a lot of information with you, and we want to get to your questions. So let me end by saying that we are thrilled to be reporting another record year. While I'm sure, like any year, 2019 will bring its share of challenges, we look forward to what the future holds for The Marcus Corporation.

And I'm pleased to note that our board expressed confidence in our future yesterday, by raising our quarterly dividend rate by another 6.7%, our fifth dividend increase in the last 4 years. Combined with an increase in the number of outstanding shares, our total dividends paid during fiscal 2019 are expected to increase by over 17%. We believe we are well positioned for the future and look forward to continuing our momentum in the years ahead.

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

(Operator Instructions) And we'll go first to Jim Goss with Barrington Research.

I have a few. First with regard to the Movie Tavern integration. You discussed the DreamLoungers initiative in some of those locations. But to the extent that this is a somewhat different strategy, as you said, the 40-60 versus 60-40, are there ways that there'll be cross-fertilization of ideas from Movie Tavern that might be applied to the rest of the Marcus and Wehrenberg theatres? And maybe perhaps other ideas that might go into Movie Tavern from the traditionals platform?

Absolutely, Jim. It's going to go both ways. This is clearly a two-way street. We actually -- we had a meeting the other day, we were both talking about some of the investments that we were going to be making. And we were discussing some of the things that we're learning from Movie Tavern. Some of how their menu design contributes to their per cap. And we were very intrigued by that.

And yet, it's going to be -- so we're going to learn from them. We don't have the market cornered on good ideas, and I think -- I've always said the first thing, the most important thing is to know what you don't know about anything. And so we're trying to figure out what we don't know, and we're learning it, we're learning from them. And they'll learn from us as well, whether it's our marketing programs, and some of our food and beverage.

I mean, while we don't -- while this is different, this is not like we're -- we were a simply orchestra and we just become a rock 'n' roll band. We are musicians. And this is -- we have food and beverage throughout our circuit now. And so it will work. Some of the things that we're doing will be things that we bring to them, and some of our menu design will go to them. And our Zaffiro's pizza is -- I know is fantastic. And I think it's the best pizza in the industry. And so things like that are going to go the other way. So it's -- but it's going to be a two-way street.

Do multiple specialty dining options in the same auditorium help or hurt? Or do you reach some limit where maybe it becomes a bit of a food court, and that might be good or it might be bad, have you figured that out to this point?

I'm not sure if I understand the question, Jim. I mean, we don't have them set up food [court-ish] right now. I mean, at the in-theatre dining locations, I mean, if you go to our Majestic in Brookfield, we've got a Reel Sizzle, we've got the Zaffiro's, all being generally served in the front counter. So I'm not quite sure if I understand the question.

Okay, well it seems like a Reel Sizzle, for example, might be separate. There are -- one of the bar concepts might be separate, some of the other things might be more of a takeout type of location. But I wondered how the whole thing evolves, if there is a pattern where people have different dining options, maybe with common seating or something like that? Or if that's redundant? And it might be -- detract from the overall effort?

Well, I think that you have to draw a distinction between 2 different kinds of theatres, right. So if you have a theatre like our Palace in Sun Prairie, that theatre has sort of what you're talking about along the lines of it's got a Zaffiro's, it's got our Take Five Lounge, it also has in-screen BSB. So there is in-theatre dining, similar to a Movie Tavern.

But that sort of -- that which we view -- we view that as a great model. That's really more of a traditional model with the added feature of the in-theatre dining. Now take that compared to a Movie Tavern. A Movie Tavern or a BistroPlex, for that matter, is all in-theatre dining. In which case, there isn't a large central component where you come into and you can find different outlets. There's a bar, but then you go in and it's designed to eat in the theatre and consume the product in the theatre.

Okay. Different area, could you provide an update on use of data, how proactive are you? And what are the key uses? Are they primarily to suggest to your customer base what movies are coming out that might interest them? Or are there some other things you are doing at this moment?

That's -- you hit on a very important point. And that is, this idea -- the value of our data, the value of our loyalty club, and all the data will come from it. The obvious one is, of course, if you like this movie you will like that one. But we see it as an opportunity -- but, then -- but there's other data there, so we can look.

When we're trying to make a decision about something, we're able to look and see what kind of -- what's going on. So for example, we recently had a thing -- we had a series of films that were playing in our theatres, and the question was, what was the per cap from that specific seat, from that specific series of films. Because knowing that, you can then make good decisions.

In the old days, we wouldn't know, but it's very easy now to look, half our transactions are loyalty transactions. So we now can say, okay, for the customers that went to this movie, what was their per cap, what were they spending. And so we're able to then -- to really see that data on a much more granular level.

So whether it's making better business decisions from the data that we're getting or also developing a tighter relationship with our customer. We have a very passionate -- we're fortunate. Movies are a business where the customer is very passionate. And it's one of those businesses where the customer might actually tattoo your product onto their body. That's pretty good. I can only think of a few of those.

And so the ability to lever that and to know what they like and to know what their desires are in the movies gives us a window into them and then allows us to use that data to develop a deeper relationship with that customer. And I'll tell you that we're just on the front end of that. But that is something that's really important to us as a company.

Has is it also, and I'll leave it go at this -- but has it also allowed you to sort of optimize your screen usage, in terms of which auditoria are used for which movies based on what you're anticipating the take rate would be on given movies?

Not yet, but you're exactly -- that's when I talk about business intelligence, that's another one of the things, where I think ultimately, we will be able to deploy that. We're really at the front end of really sort of -- we've got this giant stack of data, and we're just starting to figure out how we can lever it.

Our next question comes from Eric Wold with B. Riley.

Two questions. I guess one on the theatre side. You noted potential tentatively to present EBITDA margin for Movie Tavern in year 1. I guess first off, is that an apples-to-apples EBITDA kind of margin kind of with the legacy Marcus Wehrenberg or does that include any kind of upfront cost?

And then two, what would you think to be reasonable EBITDA margin for the Movie Tavern circuit over the next, maybe, 2 to 3 years, you incorporate some changes? I'm assuming it will be always below Marcus levels, but can you push it up meaningfully without kind of upsetting the apple cart?

So the answer to your first question is that the numbers -- when I gave that kind of 10% to 15% range, I was not trying to incorporate any -- the onetime cost that we're going have this year. So I mean, that's going to be additive; that will make it worse.

I was -- when I refer to the first year, I'm just talking about the fact that it takes some time, right, just like it took us 2 years to get Wehrenberg to where it is. It takes some time to be able to get it to where we really think we can potentially take this chain. So I certainly would encourage you to layer on the additional cost, the onetime cost on top of that.

As it relates to where we're going to end up, it's -- I don't know, I'm not ready to give you any sort of numbers in that regard yet, Eric. I would say this, when you've got $15 million or more of rent, right, that single-handedly will take the -- our 28, 29 down to a much lower number. And then the fact that it's mostly the higher-end food and beverage and not popcorn and soda, certainly it does it too.

So I don't know how much more we'll be able to move that, maybe it's going to be more a case of moving it from the low end of that range to the high end of that range. It could be something as simple as that. I'm not ready to say that we'll take it beyond that 15% yet, because I don't know.

I apologize if you discussed this on the original Movie Tavern call. But is there an option? And if there is, would you consider acquiring the real estate [need] those theatres down the line to avoid these statements? Or is that not an option?

To all the landlords, my phone number is 414 -- yes -- yes, we would if the opportunity presents itself.

Okay. And then last question on the hotels, and on the Saint Kate renovation or kind of rebrand. Maybe give us a sense of kind of what was the main driver to that shift away from Intercontinental, kind of is -- and kind of what are your thoughts around how that all changed the demographic of you targeting average daily rate [all of those items]? Appreciate it.

Sure. It started with just the natural -- we did -- our license agreement had come up with Intercon, and it was a question of, okay, what do we do in a very competitive hotel market? And the market, the Milwaukee hotel market is very competitive. How do we -- and sort of, again, we are trying to -- just like we do in our theatre business, we're always looking forward and saying what's next, what's coming, what's on, what's the future of our business.

And one of the things that we were seeing was this move towards experiential travel. That's a huge, huge, a huge thing. The second piece was that we -- and sort of sub-set of experiential travel in the category of the only originals were Adam and Eve, we aren't the first guys ever doing an Arts Hotel. We are doing it in a way that I think is unique and nobody has done it before. But there are -- the country is seeing art-focused hotels pop up. So we went and saw all of them, and then said, okay, here's how we would do it.

So this idea of experiential travel. And then this idea of how do we create something that for us, the hotel business, there's -- a lot of times, and I've said this many times, is that we generally don't generate demand, we are supply, and we tap into the demand and hope to get our share as we model these things out.

In the case of a hotel like Saint Kate, we expect and we hope that this is going to be something that's going to increase demand in our market, that somebody in Chicago or Madison or Seattle, I hope, but more likely Chicago, says, "Hey, you know what? We have a weekend ahead of us, what should we do? Oh, I heard this -- there's this really interesting and cool new hotel in Milwaukee, we should go check that out and stay there." It's an experience and a reason to go in and of itself. And if we do that, we then may have expanded the demand pie.

And then we also looked and said, okay, if we were going to try something like this, and do something new, better to do it somewhere where we can see it, also where we know the market very well. We have an independent hotel here already in the Pfister. And so you added all those together, and we said that this is something that we should do, this is the way to make that -- to get the best use out of this asset.

It's got a great location, it sits in the middle of our arts community, in terms of our performing arts community. It's in the same complex as Milwaukee's Repertory Theater, it's across from our big performing arts center, where we have -- where Broadway is done, the symphony has played until they're about to move. But until recently, but it's the performing arts hall. So we really have -- we think it makes all the sense in the world for this property.

Our next question comes from Mike Hickey with The Benchmark Company.

Congrats, guys, on a strong quarter and year. And congrats I guess also on closing the Movie Tavern deal, awesome. Just a few questions from me. You talked a bit about Q1, obviously the market here is not showing well. Just curious sort of your relative performance when you think about Q1 slate versus the geo you serve. And I think you mentioned the cold weather, which was extreme, I think, in some of your markets.

So how we should sort of expect your performance in Q1 versus the market? And I guess within that too, now that you've closed Movie Tavern, just sort of wondering how attendance is tracking there, maybe even before you closed? How well it tracks just the general slate versus the overall experience that you're serving the consumers I guess at Movie Tavern?

So the first part of the question. Look, I mean -- you know where the market is in terms of the film slate, and we -- and Greg's gone over the reasons. I mean, the carryover just wasn't there in January, and now, of course, going up against Black Panther is pretty rough.

Weather has hurt us, there's no question about it. You can -- we've had weeks where we have done fine against the market, and we've had weeks where we haven't done so well against the market. And you can pretty much line those up against -- and you can directly see the impact of not just cold. And you're right, it got so cold.

Usually cold is not a problem, but when it gets 26 below without wind chill, yes, people stay -- they hunker in. So we saw direct impact of the cold. And we had -- this last month, we've had an incredible amount of snow. And so we've -- it's hurts us. There's no question.

Snow hurts more than cold actually.

Yes, it does. And this last month, we've had a lot of snow. And so it has hurt us. And you can directly line up to any given week where if we don't do as well against the market you can pretty much point to the weather and say, yes, look at that.

So I'm not -- I mean, we still have multiple weeks ahead of us here in the quarter. So I don't know where we're going to end up overall in the performance. But we've had some weeks where it's been a challenge versus the industry because of the Midwestern snow.

On our Movie Tavern. First -- the first thing I will tell you, we've had it now for a whopping 3 weeks. So it's really hard to tell you that -- I would -- I would be -- I think it would be not a good idea to say, "Oh, here's how it's going."

We are -- look, we're seeing good things. We're pleased. Our $5 Tuesday program we started immediately 4 days after we took it over. And we're seeing some good signs. But it's just too early to really say anything at this point.

Okay, fair enough. I guess back on the integration of Movie Tavern. Compared to Wehrenberg, it looks like you've got sort of the wind at your back here, at least from my perspective, maybe that's not true, let me know if it's not. But it seems like it's probably, at least on the surface, looks to be a bit smoother here. How does that -- if that's true, I guess first, how does that sort of play into your thinking on follow-up deals?

Obviously, you had a fairly large pause between Wehrenberg and Movie Tavern. I'm guessing part of that was just getting the integration set and starting to extract value like you have. But how do you think about timing, I guess, then moving forward? And maybe just broadly your view on -- which I think I ask you a lot, a lot of people do -- but just the M&A landscape here in general?

I'll preface, I'm about [to say the same]. We are alert to any deals that will come our way. And we will analyze any deal that will come our way, if it makes sense to do it. But really, we are heads-down focused on this acquisition. This is the biggest acquisition we've ever done. And it doesn't have -- it's important to distinguish us from Wehrenberg, and we talked about this before.

On the one hand, it doesn't have the complexity of Wehrenberg in that it doesn't have all the significant and deep capital investment that we needed to make. But other hand, this is a business that -- going back to knowing what you don't know, that we don't totally know yet. And so we are heads-down focused on making this a success.

But on the other hand, it's not -- if we see something really good that comes along, we're going to take advantage of it too. You know us, we're balanced, that's how we look at things. But we also know that you can -- you have to be careful as to how you approach things, and that's how we will always do it.

Our next question comes from Brian Rafn with Morgan Dempsey Capital Management.

Great, great year again, as always. What -- if you look at Movie Tavern, what is -- from a technology standpoint, where are they today with UltraScreens? You talked a little bit about the DreamLoungers, but like Dolby Atmos? And then is there a physical big renovation in kiosks and counters and carpet and lighting? Where are they right now versus maybe what you saw when you walked into Wehrenberg?

It's -- as I just said, it's -- let me start with PLFs. They have 3 PLFs in their circuit, so they really don't have much. And they certainly -- and they have no Dolby Atmos. So our approach to PLFs is much different than theirs has been.

So their seating isn't necessarily consistent even among those 3. So we have a consistent plan for what seating should look like, our recliners with heaters, with Dolby Atmos sound. Because we don't just view PLF as just large screen, it's the whole experience. So that's why our approach is different. That's probably the biggest gap.

Their DreamLoungers, because they have DreamLoungers now. Once you join the family, you all have DreamLoungers. There's are in good shape, they have a -- there's -- they now -- a good chunk of the circuits already covered, and there's more -- they just added 3 more are just wrapping up now. So there's not that --.

And the theatres themselves generally are in good physical condition, again, different from Wehrenberg. Carpeting is in good shape. The places look good. I've seen every single one of them. And I can tell you that -- well, of course, there are some that are -- will need a little more care than the others, but on balance, and the vast majority, the assets are in very good shape.

Okay. What -- Movie Tavern, from the standpoint, you touched a little bit about it, adding in your $5 Tuesdays. But like alternative content, independents, the indies, the retro series, those type of things, the One Sweetheart Friday or whatever, how much do they have an alternative programming?

They do have an alternative programming that they are doing, but not as robust as what we've done. But part of the -- the thing that it goes back to what Jim was talking about, the advantage of knowing our customers and the data that we believe from our loyalty program.

One, they go hand in glove in that -- being able to -- because the challenge, historically, of independent product has been the ability to tell the customer about it. And if you can't tell the customer that something is playing, you can't get them to your theatre. And if you -- but the problem is, you need to be able to get to the customer.

So until you have a robust loyalty program, which they don't have, then you can't get to that customer. So as soon as we get the technology in the place we need it, we're going to roll out the loyalty program. And then we know that we -- then when we're able to talk to the customers we'll be able to delever that and take advantage of more of the independent product.

Okay. What -- when you finish off the Brookfield BistroPlex, how would you differentiate the Movie Tavern experience or the layout, the physical assets versus BistroPlex, what might be some of the differences?

We're evaluating that right now, Brian, is about the best I can tell you. I mean, we're looking at -- we had -- we just closed on Movie Tavern, and based on some of the early conversation, we're learning from them as well.

So we're evaluating kind of the components of Brookfield, for example, and so I don't know if it's fair to distinguish yet, because we had one BistroPlex, and now we have 22 Movie Taverns. And we're going to kind of look at them and figure out -- like for this next one, we'll figure out the best of the best, and figure out how we want to provide the food and beverage experience.

And so it's -- there are some similarities, a bar right when you come in, the in-theatre dining, but there are also some differences and we're working through those right now.

And Movie Tavern has a few different approaches to it as well. So we're looking to see from what they have, what works the best.

Right.

Okay. What -- how do you -- are you branding it Marcus Movie Tavern? Or are you just leaving the stand-alone brand?

Movie Tavern by Marcus is now the brand.

Movie Tavern by Marcus, okay. What is -- this is again, very, very early. What is the potential to build out theatres in those 9 states that you're not in? And/or the ability to maybe add in maybe a branded legacy Marcus theatre, now that you're in those areas, as you start to get -- understanding those geographies?

Brian, are you getting paid by my theater guys? Come on. Absolutely, that certainly that is a possibility. Once you're in a market, it makes an expansion there easier. And also it makes sense for us as well to do that. But there's nothing planned right now.

No, no, it's getting way ahead, no. Doug, the kind of the depth of the top, I don't know [15] or [20] the movie slate for 2018, what -- how did that play out and as far as a percentage of revenues?

Yes, I'm very quickly, Brian, going to my schedule here, and I will tell you that answer. For the full year, the top -- I'll put it this way, the top 5 films they're really focusing on the blockbusters, it's skewed a little more towards the blockbusters this year. So I'm looking at a number of about 23% versus about 20%. Black -- top pictures that you saw on the list Black Panther, Avengers, Incredibles 2, Jurassic World, Deadpool, those were our top 5. So it skewed at a percentage basis, slightly towards the blockbusters. When you get down to about the top 15 that -- there's not much of a difference. It's not significantly different.

Okay. And then from the standpoint of the Movie Tavern, what relative to ticket sales and automated kiosks and things that you have like at Marcus, the Internet sale, is that about the same? I mean, are they about where you guys are?

We're making some technology improvements there as well right now. And so they have a lot of the same elements, but we are -- certainly the technology is one of the things I mentioned in my prepared comments is one of the key focuses we have right now. We're at the top of the hour, we have one more call here, Brian. So I think, if you have any additionals, you can let me know, but I think we're going to move on now, okay?

(Operator Instructions) Our next comes from Andrew Shapiro with Lawndale Capital Management.

Just a few questions. With this sizable acquisition involving new share issuance, how many of the 2.45 million shares issued, how many ended up being registered and distributed to the secondary? And what shares remain on lockup terms, if any? Or is that already available subject to 144 sale opportunities?

So of the 2.45 million shares, they were all registered immediately on that Friday morning we filed that occurred. And then you should have seen, there was some press releases that announced the closing of the offering. All said and done, 1,725,000 shares were sold by the selling shareholder that closed on February 6. So that means they have 725,000 shares still that are subject to allot.

Now if that was registered, could they sell those shares all at once? Or is subject to 144? Or it's back under some form of a lockup?

So we have a shareholder agreement that also was filed at the same time on that February 1, Andrew, that you certainly you can take a look at. It does provide some limitations in terms of their ability. And it provides for certain windows that are available for them. So there are a variety of provisions within the shareholder agreement that limit their ability to just sell them.

Right. And then you've talked about your integration update and from Wehrenberg and then what you expect here, is that generally in sight as to your time to absorb this before undertaking, let's say, an acquisition of 20-plus theaters again, which would -- you said this is your largest to date that you've done. And if you did another one like this, it would seem to be one that would be involving potentially a combination of debt and/or equity. Is it a year, 2 years? Or do you think even longer before we would see this kind of opportunity again?

Andrew, I'll take this. We set no time limits or anything. As I'll just reiterate the point I made before. We are open to any opportunities that will come our way. We will evaluate what comes our way when the opportunities present themselves. As you know and I know, these are not regularly scheduled transactions. But our focus right now is on this transaction and making this a success for our shareholders. That is where our focus is, and so -- but I do thank you for asking this question. I do want to take 1 minute, because I do want to -- there's something that wasn't in my prepared remarks. But I do want to thank and congratulate and acknowledge Doug and his team, and Tom Kissinger and our legal team on a really successful issuance of these shares, I think, that everybody would agree it really went very well, and we're very pleased, and it was a lot of hard work and it's a key component of this transaction. And so I want to just thank them right now. So thank you for asking this question.

The last question from me. The National CineMedia announcement that you guys made with respect to Movie Tavern, I guess it was either this morning or yesterday. I was just wanting a little more clarification. Was this a switch, a renewal? And if it was a renewal, what is incremental versus the relationship that those screens had before with National CineMedia?

So our legacy circuit has been a Screenvision customer, Movie Tavern was prior to us taking over was an MCM customer. And what you saw yesterday announced with MCM was the fact that we did in fact sign on, call it a renewal, call it -- but it was basically a new agreement we signed with MCM for the Movie Tavern theater. So they retained the Movie Tavern business. So we now are utilizing both of the major firms.

Excellent. And I guess it's pretty too soon to tell, I guess, your relative experience with each, since you guys run both of them now through your system?

Yes, I mean, it's again, it will be a safe to say certainly some of the value of this is that will -- we -- just I'll repeat what Greg said earlier, we have 3 weeks. So it will be certainly a learning experience for us, and that will certainly be valuable.

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.

Well listen, thank you, everybody, once again for joining us today. We look forward to talking to you once again in late April, when we release our fiscal 2019 first quarter results. And until then, let's hope spring comes soon. And thank you, and have a good day.

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