Marcus Corp (MCS) 2019 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Marcus Corporation Third Quarter Earnings Conference Call. My name is Josh, and I'll be your operator 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.

Thanks, Josh, and welcome everybody to our Fiscal 2019 Third Quarter Conference Call. As usual, you know I need to begin by stating the plan and making a number of forward-looking statements on our call today. 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 hotels and resorts division; our 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; our expectations and plans regarding growth and the number and type of our properties and facilities; our expectations regarding various non-operating 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 our Regulation G disclosures when applicable on our website at www.marcuscorp.com.

So with that behind us, let's talk about our fiscal 2019 third quarter and first 3 quarters. Overall, a very good quarter that's massed a little bit by an income benefit last year and by the comparisons related to our new hotel opening. Marcus Theaters reported record revenues and a healthy increase in operating income and on the hotel side without the nonrecurring preopening expenses and anticipated initial startup losses related to the Saint Kate, we would have reported a nice increase in our operating results in that division as well. As is our usual practice, before we get to Greg's comments on the quarter, I'm going to take you through some of the detail behind the numbers, both on a consolidated basis and for each division.

Now there's not much to say about the line items below operating income. Investment income was down compared to last year, but was offset by another decrease in interest expense due to reduced borrowing levels. The changes in the other line items were minimal. So as a result with operating income flat due to Saint Kate, and other income and expense slightly better than last year, we reported a small increase in pretax income this quarter.

No income taxes on the other hand had a big swing that definitely impacted our comparisons and net earnings. Now to begin with, last year during the third quarter we benefited from a nearly $0.75 million-$1 million onetime reduction in deferred tax liabilities related to a change in tax accounting method that was made last year. We also had a significant increase during last year's third quarter in tax benefits from excess share-based compensation. So when you put the two together, we had an extraordinarily low third-quarter effective income tax rate last year. Year-to-date our first 3 quarters effective income tax rate adjusted for losses from noncontrolling interests is currently at 23.4% compared to 21.5% last year. We continue to anticipate that our effective income tax rate for the remaining quarter fiscal of 2019 will be in that 24% to 26% range, just like the third quarter was, depending upon the amount of excess tax benefits, our share-based compensation and any other adjustments that we may recognize in the quarter.

Now shifting gears away from the earning statement just for a second, our total cash capital expenditures during the first 3 quarters of fiscal 2019 totaled approximately $50 million compared to approximately $45 million last year. Now that 2019 number does not include the approximately $30 million cash component of our Movie Tavern acquisition. Approximately $22 million of our total spend during the first 2019 -- during the fiscal 2019 first 3 quarters was incurred in our theater division and related primarily to our continuing DreamLounger seating projects and premium large-format conversions that we have referenced in our press release.

The approximately $28 million of capital expenditures on our hotels and resorts division during the first 3 quarters were primarily related to the 2 major renovation projects at the Saint Kate and the Hilton Madison, plus various normal maintenance projects. So at the 3 quarters point of our fiscal year, it appears that we're likely to end the year with total capital expenditures for fiscal 2019 in the $60 million to $70 million range, again excluding the Movie Tavern cash consideration and recognizing that the timing of several of our planned expenditures are still just estimates at this time. The actual timing of the various projects currently underway or proposed will certainly impact our final capital expenditure number as well any currently unidentified projects or acquisitions that could develop during our fiscal year.

So now I'd like to provide some financial comments on our operations for the third quarter and first 3 quarters and I'll start with the theater divisions. As you know we completed our acquisition of the Movie Tavern theaters on February 1st of this year and thus throughout the year we've in order to make our comparison to last year more meaningful, we've always been trying to distinguish how our comparable legacy theaters have performed versus the prior year in conjunction with these overall results. So with that in mind, while our reported admission revenues increased 33.1% and our concession revenues increased 60.8% during the third quarter compared to last year, when you exclude Movie Tavern from the numbers you'll find that our comparable admission and concession revenues increased 6.3% and 9.4% respectively.

Now year-to-date, once again excluding the Movie Tavern theaters, our comparable admission and concession revenues have decreased 5.7% and 1.7% respectively due of course to the industry's challenging first quarter. Now according to data received from Rentrak and compiled by us to evaluate our fiscal 2019 third quarter and first 3 quarters, United States box office received, excluding a handful of new builds for the top 10 circuits, increased 3% during the fiscal 2019 third quarter and decreased 6.2% for the first 3 quarters of our fiscal year. So as a result, we believe that our admission revenues for comparable theaters during the third quarter fiscal 2019 outperformed the industry averaged by 3.3 percentage points with our year-to-date now -- results also now running ahead of last year by about 0.5 percentage points.

Greg will address this outperformance as well as the outperformance of our Movie Tavern theaters during his prepared remarks. Now attendance at our comparable theaters was up slightly this quarter 0.2% compared to last year, but the vast majority of our increases in same-store admission and concession revenues were the result of increased per capita revenues. Our average admission price at our comparable theaters increased 6.2% during the third quarter and 2.8% now for the first 3 quarters of the year compared to the same period last year.

Average admission price was favorably impacted by modest price increases taken at the beginning of the second quarter as well as a conversion to a sales tax additive or tax on top pricing model that was -- is consistent with the majority of what our competitors do as well. We also continued to benefit from our increased number of PLF screens that include premium pricing. Conversely, our average admission price likely was negatively impacted from the fact that 2 of our top 3 films during the third quarter, The Lion King and Toy Story 4, were films that generally appealed to a younger audience resulting in a higher percentage of lower-priced children's tickets sold. Last year during the third quarter only one of our top 5 films Incredibles 2 was aimed at a younger audience.

We're also pleased to report increase in our average concession food and beverage revenues per person at our comparable theaters of 9.3% for the third quarter and 7.3% for the first 3 quarters of fiscal 2019. Our investments in nontraditional food and beverage outlets continue to contribute to higher per capita spending, and if you add Movie Tavern to the numbers, our average concession food and beverage revenues per person increased by nearly 32% this quarter.

Our theater division operating margin declined during the third quarter and first 3 quarters of fiscal 2019 compared to the same period as last year, due in large part to the inclusion of the Movie Tavern operating results. Our Movie Tavern theaters will have a lower operating margin than our legacy theaters due to the fact that all 22 acquired theaters are leased rather than owned and rent expense is generally significantly higher than depreciation expense. In addition, the fact that a larger portion of Movie Tavern revenues are derived from the sale of in-theater food and beverage will also contribute to lower operating margins as food and labor costs are generally higher for those items compared to traditional concession items. Of course, as you've heard us say before, we take dollars to the bank, not percentages.

Lastly, our press release and attached table reconciling net earnings to adjusted net earnings highlight for you the significant impact and nonrecurring acquisition and preopening expenses related to Movie Tavern had on our reported year-to-date results, approximately $2 million or $0.05 per share (inaudible). There was minimal impact during the third quarter.

Shifting to our hotels and resorts division. Our reported results for both the third quarter and first 3 quarters of fiscal 2019 were obviously impacted by the fact that we closed the Intercontinental Milwaukee hotel after the first week in January in order to begin a major renovation that transformed this hotel into Saint Kate - The Arts Hotel. We reopened the new hotel in early June, but even then a portion of the rooms and food and beverage outlets didn't really fully open until later in the month. And our preopening expenses, including a grand opening party and other nonrecurring expenses, continued into our third quarter. As expected, we also incurred initial startup losses at this hotel during the third quarter as we compared a newly opened independent hotel to the results of a stabilized brands hotel the year before. As previously reported, we also were undergoing a major renovation of our Hilton Madison hotel during the first half of the year, which negatively impacted our reported results for the first 3 quarters from this division.

Now on its face, we're reporting slightly decreased hotel revenues and decreased operating income in the third quarter and first 3 quarters of fiscal 2019 compared to last year's same period. But when you exclude the closed former Intercontinental now Saint Kate hotel and cost reimbursements which have nothing to do with our owned hotels, if you exclude those from our results, you'll find that our comparable hotel revenues actually increased 1.7% during the third quarter and 2.7% for the first 3 quarters of fiscal 2019. And our operating income -- our operating income increased by approximately $700,000 or 6.2% during the third quarter, and $1.75 million, or 11.4% during the first 3 quarters of fiscal 2019, all compared to the prior year periods. These numbers are despite some negative impact that are Hilton Madison as well, which was due to the aforementioned renovation.

As the table in our press release highlights nonrecurring preopening expenses and initial startup losses at the Saint Kate negatively impacted our reported results by approximately $1.6 million or $0.04 per share during our fiscal 2019 third quarter; and $5.5 million, or $0.13 per share during the first 3 quarters in the fiscal 2019 year. Now when I refer to preopening expenses, I'm primarily talking about direct expenditures incurred in conjunction with the 6 month closing and subsequent reopening of the hotel. When I refer to initial startup losses, I'm addressing the delta that has occurred as expected between the operating performance of this brand new independent hotel compared to a stabilized branded hotel last year. And Greg will expand on this a little bit more in his comments.

The biggest contributor to our same-store increase in revenues were increased food and beverage revenues during our fiscal 2019 third quarter. Our total revenue per available room or RevPAR for our 7 comparable own hotels, which excludes the Saint Kate, for the third quarter and the first 3 quarters increased 0.6% during the third quarter, and 0.9% during the first 3 quarters of the fiscal 2019, again compared to last year's same periods.

But even those numbers are a little deceptive because as I mentioned, we also had one hotel, the Hilton Madison significantly impacted during the first half of the fiscal year due to a major renovation. When you strip that hotel out, our true comparable hotels actually reported an increase in RevPAR year-to-date of 2.8%. As we've noted in the past, our RevPAR performance did vary by market and type of property.

According to data received from Smith Travel Research and compiled by us in order to compare our fiscal quarter results, comparable upscale hotels throughout the United States experienced an increase in RevPAR of 1.4% during the third quarter and 1% year-to-date. Meanwhile, competitive hotels in our collective markets experienced an increase in RevPAR of 3.2% in the third quarter and 3.6% in the first 3 quarters. So thus year-to-date, our numbers essentially match the national numbers and the numbers -- and our numbers without the Hilton Madison are just slightly less than our competition. Given the amount of new supply in some of our markets, that's not necessarily surprising in the short run, that we might lose a little bit of our generally over-indexed market share. In total, we still significantly over-indexed in our markets.

Breaking out the numbers of all 7 of our open hotels more specifically. Our fiscal 2019 third quarter overall RevPAR increase was due to a 1.2% increase in our average daily rate or ADR, partially offset by an overall occupancy rate decrease of 0.5 percentage points. Year-to-date, our fiscal 2019 first 3 quarters RevPAR increase was due entirely to a 1.6% increase in our ADR, partially offset by an overall occupancy rate decrease of 0.5 percentage points.

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

Thanks, Doug. I'll begin my remarks today with our Theater division. We're pleased to be reporting another solid quarter for this division. And I'll begin by congratulating Rolando Rodriguez and his outstanding team, both in our corporate offices and in each and every one of our 90 theaters for the hard work and implementation of strategies that effectively converted the same quarterly attendance as last year for our comparable theaters to a sizable increase in operating income this year. Certainly adding Movie Tavern had a large impact on some of our numbers, particularly our record revenues.

But the numbers Doug shared with you. 3.3 percentage points of outperformance and over 6% increase in average ticket price, and over 9% increase in average concession and food and beverage revenues per person were all just for comparable theaters. Those are great numbers and are a direct result of long-term strategies developed and executed by our Theater team.

The film slate during the quarter was particularly good in July and September, but weaker in August. In general, I think the slate played pretty well in our legacy Midwestern markets with 2 of the top 3 films, Lion King and Toy Story 4 particularly strong with the family audience. It was a more top-heavy slate this quarter, with our top 5 films listed in our press release accounting for approximately 57% of our total admission revenues, compared to last year's third quarter, when our top 5 films accounted for only 38% of our total admission revenues. That can happen in certain quarters, but over the course of the year, it tends to even out.

Our top 5 films over the first 3 quarters of the year have only contributed about 2 percentage points more than last year to our total admission revenues. Unfortunately, in quarters when the slate is more top-heavy, we typically will see an increase in our average film cost, and our fiscal 2019 third quarter was no exception. A higher film cost did negatively impact our operating margin this quarter, and as you well know, the labor market continues to be our other challenge, really for both of our businesses. We've been very focused on developing tools to help our managers manage their labor costs efficiently, while at the same time introducing technology like the order your food from our app or kiosk innovation that we described in our press release at our new Movie Tavern by Marcus Theater in Brookfield, Wisconsin.

Speaking of which, we only have 2 weeks under our belts now, but our first ground up Movie Tavern is off to a good start. As you may know, we built this theater on the side of a former Sears store at a major mall here in our home market. We're excited to have all 3 of our brands on our home turf, as it gives us a chance to easily work directly with the business model and oversee adjustments and new innovations including the new technology I just mentioned. We're also introducing a new service model at this location that provides 3 different ways of ordering your food with delivery directly to the guest's seat. And if you live in the area, please stop by and check out the featured bar area, or the Tavern as we call it. With its indoor and outdoor seating, island bar, fun games and large screen for watching your favorite sports team, we can already tell the Tavern will be a great gathering spot for both moviegoers and non-moviegoers alike.

As we noted in our release, the integration of the Movie Tavern theaters into our circuit continues on schedule. Our capital improvements, such as the addition of recliner seating to 3 theaters, and conversion of 20 auditoriums into our proprietary premium large format concepts, combined with our innovative pricing, marketing and loyalty programs are having a noticeable impact in attendance at these theaters. Based upon data available to us for prior year performance, our Movie Tavern by Marcus Theaters have outperformed the industry during each of the 3 quarters we've owned them, and I'm happy to tell you by increasing percentages each time. This is a marathon, not a sprint. So we still have a lot of work to do to get Movie Tavern attendance, margins and service levels where we want them to be. We're not there yet, but I'm confident that our team is up to the challenge.

So now we head into the final quarter fiscal 2019. We all know the first quarter put the movie industry (inaudible) start this year. And we've been following -- we've been, I'm sorry, been slowly climbing out of that hole now with two improved quarters. We don't know how the fourth quarter film slate will turn out. But on paper, the films look good, as evidenced by the list of films we included in our press release. I do know that our theater team will continue to focus on our long-term strategies that benefited us this past quarter and will benefit us in the quarters and years ahead.

With that, let's move on to other division, hotels and resorts. You've seen the segment numbers and Doug gave you some additional detail. Obviously, our reported results were impacted by the Saint Kate. Not only did we have additional preopening expenses that carried into the third quarter, but we also are comparing a brand new independent hotel to a stabilized branded hotel last year. That impact us in a number of ways. The Saint Kate started with a brand new staff and there is a learning curve that goes along with that.

We intentionally overstaffed in these early months as we trained and worked to establish the proper service levels both in the hotel and all of our food and beverage outlets. In addition, as an independent hotel, we don't have a brand to rely on to create name recognition. So we are spending an extra effort marketing the Saint Kate and an effort to increase awareness of this very cool new hotel in Milwaukee. And as a brand new hotel with over 200 rooms, group business will play an important role in the hotel's future success.

As you know, there is a lead time for booking group business and while our sales team is pleased with the traction they are gaining as they sell this hotel to future groups, we didn't have much group business in the books when we first opened because understandably the groups wanted to see the hotel before committing. Now they can do that and we're very pleased with the response. In fact we couldn't be happier with the reception the hotel has received from both travelers and the local community alike. We have a number of things we are focusing on as we work to get this hotel performing where it needs to be, and our entire team is focused on making that happen.

Marketing will be critical. We need to increase awareness and tell the Saint Kate story. And of course, improving operational efficiencies is also at the top of our list as well. That will come from both increasing revenues and decreasing expenses as the hotel and our team matures. Thus for all these reasons, we thought that was very important to provide investors with the information necessary to understand not only how this particular hotel impacted our results, but also a clean look at what our core operating performance was for the rest of our hotels and resorts business, both for the quarter and year-to-date. And as Doug shared with you, it was another good quarter for the rest of our hotels and resorts division, with both increased revenues and operating income.

Our 3 largest hotels, The Pfister, Hilton Milwaukee and Grand Geneva led the way this quarter, which was nice to see. It was a particularly good quarter for the food and beverage side of our business, thanks primarily to increased catering and banquet revenues. The increase in those revenues was directly related to another increase in group business at several of our hotels during the fiscal 2019 third quarter compared to the prior year period, contributing to our increased RevPAR performance for our comparable company-owned hotels.

Looking to future periods, although our company-owned hotels experienced a slight decrease in group bookings during the third quarter fiscal 2019 compared to the same period last year, our group room revenue bookings for future periods in fiscal 2019 and fiscal 2020 commonly referred to in the hotels and resorts industry as group pace is running ahead of our group room revenue bookings for future periods last year at this time. Banquet and catering revenue pace for fiscal 2019 and fiscal 2020 is also currently ahead of where we were last year at this same time.

Not surprisingly, the fact that Milwaukee will host the Democratic National Convention in 2020 is certainly contributing to our increased group pace for next year. It's likely that our fiscal 2019 fourth quarter comparison of Saint Kate's operating results to stabilize branded hotel during the prior year will once again be unfavorable, although we would expect it to be a lesser amount than this past quarter. Conversely, you may recall that last year during the fourth quarter, we reported approximately $3.7 million accelerated depreciation related to the upcoming closing of the Intercontinental Milwaukee, so that will certainly favorably impact comparisons next quarter.

Lastly, I would be remiss if I didn't conclude my remarks about our hotels and resorts division by highlighting the Conde Nast Traveler Awards several of our hotels recently received and noted in our press release. Our hotels continue to be widely recognized by [Triple A], TripAdvisor and a host of other outlets as well. These awards are a direct tribute to our people from our executive leadership team and home office personnel to the outstanding management teams and staff at each and everyone of our hotels we own and/or manage. I want to publicly thank our entire hotel team for another strong quarter and for all their efforts each and every day to take what might be an ordinary day for us and turn it into an extraordinary day for our guests.

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

(Operator Instructions) We'll go first to Mike Hickey with Benchmark Company.

Congrats guys on the quarter. I guess my number one question is on the Saint Kate. Obviously, Greg, you added a bunch of color there, so definitely appreciate that. Traditional staff and marketing group business, all that seems to make sense, I'm guessing with sort of in your original plan, it's only a beautiful hotel, but I guess also it was a bit of an experiment. Just curious maybe when you look at occupancy rate of the Saint Kate, so where you're at and where you're trending I guess in the Q4, that's sort of in line or better than you're thinking? I mean I think if I heard you right, it was sort of expect a positive contribution, not in Q4, but probably in '20? Your thought, I'd appreciate it.

Yes, I think that it's -- I would tell you that it's -- and I thank you and it is (inaudible) it really did turn out beautifully. Its occupancy rate I would tell you is strong. It is not as strong as -- it's not exactly what we were expecting just yet, but it's close. But we also expected it to -- it's going to take some time. I'm not going to lie, I think as my team would tell you, I'm pretty impatient about the whole thing, but it does take time. If we just Google best hotels in Milwaukee, I will tell you right now, it is one of the best hotels in Milwaukee, I would tell you that, and the Pfister, I think those are the two best hotels. There may be some people who might disagree with me, but those are our competitors.

Other than our competitors I think I would win that vote. But if you Google best hotels in Milwaukee right now, it's not on any lists, because it just -- the lists are made up before we opened. We've only been open for 16 weeks and so I have to be patient, knowing that it will take time for people to discover what we've created. And like the Pfister has a 125 years of brand equity built into it. So -- but the initial signs are very promising. One thing that we are -- and I'll tell you, we could make a shortsighted decision, we -- and that's why I sort of hedged a little bit when I talked about where we are right now. If we wanted to drive business, more business into that hotel right this minute, we could really drop rates, and we've been very diligent and deliberate about keeping our rate at a -- commensurate to what we're delivering and because it is an exceptional product.

And because what our studies tell us is that it will be hard to get laid back if you drop rate right now to grab business. And so we've been very careful. We probably sacrificed a little business in the short run to maintain the rate integrity so that people understand the rate communicates exactly what this product is.

Appreciate it.

Does it help?

Yes, appreciate the color. The -- I guess on the theater side(inaudible) outperformance and obviously it looks like Movie Tavern is (inaudible) very well, (inaudible) has some integration efforts there to extract some value, but definitely I guess (inaudible) seems like you're fully along the curve. And I guess the setback in, you did (inaudible), Movie Tavern, successful (inaudible) in a market where half the screens are still in private hand. So curious just sort of M&A activity, what were you seeing in the market, your appetite given how far along you are with Movie Tavern? And maybe also sort of how the '20 slate may be playing to potential opportunities for you now given that '20 slate looks like sort of (inaudible) winners I guess?

Well, let's talk about -- I'll take Movie Tavern first and as it relates to acquisition activity and what we see in the market and I guess I would tell you as it relates to Movie Tavern. I would tell you -- well, while we're not at the end of the meeting of life when it's looking for a way no more way for -- only for the men please, that's not us. But we are digesting the meal, and what's most important to us is that we deliver on this acquisition. That's our company. We stay focused on what we've done. And so that's where our main focus is right now. I would tell you that just as you compare it to Wehrenberg, I would say that that it's -- the curve is tighter.

Wehrenberg had more upside because it had a lot of work to be done, this is less so. We're adding the amenities that we think are important. We're bringing in our marketing programs. We do the PLFs, we're doing the -- we just introduced MMR, Marcus Magical Movie Rewards. And so that curve is probably a tighter curve, and so I just want to make sure that we talk about what that looks like. But we still have work to do there. And as you pointed out, we have integration to do. And -- but the good news is, is that we're able to drive volume into these theaters as we wanted to do. That was one of the things that we talked about, that was one of our thesis in acquiring these theaters and that was operate them more like theaters and think like we do which is about driving attendance and we did that and we are doing that and we will continue to do that. But then the next trick is now converting that attendance to the bottom line and that's what we're focused on and we're going to stay focused on that. That does not mean we're not doing anything else, but -- and we are looking at other things, but job number one is do a great job with what we've invested our investors' money in.

Okay. I guess last question from me is on maybe some perspective on 2020 CapEx. Obviously you're finishing a couple of big projects on the hotel side. Theater you're also sort of pretty far along I guess on your amenities push, so sort of how you're thinking about CapEx trending intertwined with what you know today? And maybe how you think about the incremental save income, CapEx whether you could think about giving in or buyback or how you would think about those additional monies?

Yes, those are good questions in there, Mike, and I tell you it's -- we'll provide some more definitive guidance at our next call because the divisions are working on their capital budgets as we speak and will be presenting them to us in November and December and we'll be taking them to the Board. But bigger picture, just based on looking kind of our broader strategic plan and what -- and kind of know what's coming, leaving any unknown stuff out of the equation right now, I think something that could materialize what that would all of a sudden rapidly increase our capital expenditures, I don't know that next year total expenditures will be significantly different from this past year in that $70 million-$80 million range I mean is my current ballpark, but it was still some fluctuation that can go either way.

It will -- there's certainly some dollars to be spent in the theater division still as we're doing some additional ROI projects and some more -- there's still a few DreamLounger projects that we can do, there's still some large format screens that we're looking at. There's a new theater that we've -- now we've mentioned that's coming out that in probably 2020 in Tacoma, Washington. There was a small release that went out regarding that that will be built and that will have some dollars associated with it and -- so -- and then what's going to happen, taking this a little farther ahead, Mike, is that the couple of years following that in particular, it will start in 2020, but then a couple of years following that we do have some big expenditures ahead of us in our hotel division particularly our 3 largest hotels, the Pfister, the Grand Geneva and the Milwaukee Hilton are all due for some enhancements in their regular cycle, so we do expect some of our capital spending in the hotel division to have an uptick.

But in total I don't -- I'm not projecting barring like an acquisition or something like that the total dollar being that dramatically different than what our current -- our past pace has been, which then leads us to the second half of your question, Mike, which is so as you've seen we've spent a lot of capital and yet our balance sheet is stronger than ever. And so we certainly have lot of capacity on our balance sheet, our debt ratios are lower than they've ever been. So it certainly does open the door for strategies that could include additional acquisitions, but returns of capital to shareholders as well. And obviously we've shown that we've been very opportunistic at all those in the past and very thoughtful and disciplined about that and I would expect that in the course of these next couple of years, as we get a -- take a look at the environment we'll be having all those discussions because availability of cash is not the issue, it's what do we do with it.

(Operator Instructions) Our next question comes from Jim Goss with Barrington Research.

I was first wondering along Mike's line of questioning about Saint Kate. This is a bold move and is there any impact of this move on your stated efforts to gain management contracts with your creativity and display?

I hope so.

Not yet.

But trust me, we'll be picking that. Look at in a world that is moving they're -- toward experiential travel which is what this is and more people sort of taking reliance trying going with independent hotels, we think the experience that we get here will be beneficial to us, but I will also tell you at this point right now we are really focused on getting that thing right. It's really important.

Okay. And just as a side note, does the 2020 Democratic Convention have any potential pop for the Pfister and the Saint Kate and even Hilton? Or is it just a couple of weeks and it doesn't really have that big an impact?

Well, here's what I would tell you. It is probably a more long-term impact. Okay, here is the deal; that -- those are going to be -- it's going to be a great week and we've got to work it on, the Ryder Cup coming to Kohler shortly thereafter. We're going to have -- that part, those are going to be really big weeks. But specifically around the convention, there's also a challenge and that is that our convention center is going to be closed for about 6 or 7 weeks around that convention during set up and take down.

And now we're told is that in cities like -- cities that have these conventions, that they do really pretty good business in the years of the convention just even anyway. So even though we face that, the week will be great, we'll do other business and it should be a net positive for us, but not as much as one might think. But the bigger thing and the bigger positive is the long-term impact on our market and that's -- I mean I know because I sit on the board of our convention visitors bureau and we already are seeing an increased volume in interest in Milwaukee as a convention destination, and so I think the bigger positive is not so much that one week, but -- that's 10 days, but really what it will mean for our community for the next number of years.

Okay. And maybe, Doug, you were just talking about some of the updates you'll need to do at the Pfister and Grand Geneva and Milwaukee Hilton. You just completed the Hilton Madison and I'm wondering is the objective there and in the other cases to freshen up the hotel and justify its current position or maintain current position? Or is it to reshape the image and try to get other pricing justification?

Yes.

All of the above?

All of the above. I mean, look, if you're going to be in a hotel business, you can own hotel assets, you've got to take care of them and we do that. We have -- and the Marcus Corporation has a history of doing that good times and bad. If you recall, as it turns out, the last time that we refreshed these 3 hotels, the environment wasn't very great out there and yet we still could do it. And because we've got a balance sheet that allows us to do that and we came out of that last recession in great shape because we were able to invest in our hotels when others couldn't. Having said that the reason I said yes, the reason why Greg was about to say yes to the same thing is because whenever we make investments like this we're always looking at ways of saying other ways to reposition these properties and for the next 10, 20 years.

Yes, (inaudible). We're looking and saying, as hard as it is for me to believe, we've owned it for 25 years, and talk about having brand equity. And I was trying to think back on how hard as we think about the Saint Kate, how hard it was to open the Grand Geneva, we really were starting from scratch in a hotel that was closed for chunks of a year when it was such a -- it was in such tough shape when we bought it as the Americana it was closed with the winter. And so -- I mean, every winter. And so -- but it's been 25 years, and it's time to think about what do the next 25 years look like? So some of the investment that we make will be just because it's time the carpet needs to be done, the soft goods need to be done, but we're going to also be looking at things saying, okay, how do we position this resort as one of the premier Midwestern destinations as it is now for the next 25 years? And that will mean that will have (inaudible) line that goes with it.

And maybe just shift over to the movie sector for a moment. With the opening of Brookfield and everything you're putting into their property, it's like every bell and whistle that's going out in the industry right now. I'm just wondering is that a unique location? And a lot of things are not likely to transfer. Or is it your test kitchen to figure out which of these ideas, especially some of the newer ones, whether it's online app ordering or that sort of thing, are likely to transfer more broadly to your platform? And when will we know what's going on there? How will you communicate that?

I think it's more the latter, it is a bit of a test kitchen in that we are -- but it's not like I would call complete R&D, like, so much R&D doesn't happen because it wouldn't be R&D if you were trying known tested things. But the idea of ordering off an app and ordering off kiosks, I mean, that is -- it's our way of -- it's sort of our design test more than I would call like a research and development operation. And how we sequence the ordering, how we do that, how we -- how the customer uses it, it's different than other Movie Taverns, but we may be taking some of what we learned here to other Movie Taverns.

So it is -- so yes, it's a bit of a test kitchen, but it's not like completely from scratch. So I think from scratch is the food. But I would say there's a fun irony in that theater that I would -- that I shared with the group we opened it that night and that is when my grandfather 84 years ago almost to the day, opened the first theater a the Wisconsin, it was a former department store. And the Movie Tavern that we built and opened just this last few weeks was a former department store. And I found that an interesting irony as we started on another chapter, the Marcus Corporation, the Marcus leaders.

Absolutely. Okay.

And our next question comes from Ryan Hamilton with Morgan Dempsey.

A quick refresher for me. On the Movie Tavern conversions along with the DreamLounger conversions, are you closing down the entire theater as you do these conversions? Are you just closing down certain screens?

Yes, just certain screens, Ryan. We phase it in and we -- and so we'll -- and obviously we're looking at film product. We're looking at a lot of different things, but we typically will do several auditoriums at a time. Get those done, reopen them, move on to the next ones.

Okay, sounds good. And then my only other question is with some of these production studios launching new streaming services, have you noticed any push from them to maybe shorten the streaming window or any other kind of shifts or changes during those negotiations? I know you can't probably get too detailed, but just curious if there's anything that's outstanding that we should know.

No, the only thing I would say is that we continue to talk about the importance with all of our studio partners about the importance of the window, not only to us, but to them. And I think -- and I'm not in the studio business, but I have been around our industry for a long time. And that is in a world where so much is there's so much product in these -- in the home video market that it behooves them to put that halo on some of their best product. The -- that is a -- and if you think about it, I mean, if you think about what's going on with them, why is it that some of the most expensive things are spending some of the most money on are these old TV series, Friends, Seinfeld, The Office. Why is that? Because of the time -- those came at a time when there were such -- so many -- such limited choices that they amassed these huge audiences, became part of the zeitgeist and the water cooler talk and it was a part of the national consciousness.

The way to become part of the national consciousness, I would say them for their movies that they want to play on their streaming services is to be in the theaters. And in that halo of exclusivity and in that -- where there's a much smaller amount of product just by the nature of its business, we can't play a gazillion things all at one time. And so it puts a spotlight so to speak on those movies. And I think then it then will then be very beneficial to their services and look at Apple has announced that they're going to play movies in the movie theaters with a window. And I think that's so important and I think that they are -- they're clearly -- they have -- I think they're obviously very smart and know that that's going to be a benefit to them. That just saying, well, we have it for just for our service and our subscribers, well, for some of that that's probably okay, but where they really want to put a spotlight, as I said a halo on what they're doing, I do believe that that -- that they should use the theaters and keep that window because that window of exclusivity is what keeps it special.

I share the same opinion. That's all I've got. Great quarter guys.

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

Well, thanks again, everybody, for joining us today. We look forward to talking to you once again in February when we release our fiscal 2019 fourth quarter and year-end results. Until then, thank you. Have a great day.

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