Marcus Corp (MCS) 2022 Q2 法說會逐字稿

Good morning, everyone, and welcome to The Marcus Corporation Second Quarter Earnings Conference Call. My name is Seth, 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 Chad Paris, Chief Financial Officer and Treasurer of the Marcus Corporation. At this time, I'd like to turn the program over to Mr. Paris for his opening remarks. Please go ahead, sir.

Thank you. Good morning, and welcome to our fiscal 2022 second quarter conference call. I need to begin by stating that we plan to make a number of forward-looking statements on our call today, all of which we intend to qualify for the safe harbors from liability established by The Private Securities Litigation Reform Act. Our forward-looking statements may generally be identified by our use of the words such as, "We believe, anticipate, expect," or words of similar import. Our forward-looking statements are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those expected. Listeners are cautioned not to place undue reliance on our forward-looking statements.

The risks and uncertainties which could impact our ability to achieve our expectations identified in our forward-looking statements, are included under the heading, "Forward-looking statements," in the press release we issued this morning, announcing our fiscal 2022 second quarter results, and in the risk factor section of our fiscal 2021 annual report on form 10K, which you can access on the SCC's website.

We will also post all Regulation G disclosures when applicable on our website at www.marcuscorp.com. The forward-looking statements made during this conference call are only made as of the date of this conference call, and we disclaim any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

In addition, we routinely post news releases and other information regarding developments at our company that impact our investors, customers, vendors, and other stakeholders. You should look our website www.marcuscorp.com as an important source of information regarding our company. We also refer you to the disclosures we provided in today's earnings press release regarding the use of adjusted EBITDA, a non-AP measure used in evaluating our performance and its limitations. A reconciliation of adjusted EBITDA to the nearest gap measure is provided in today's release.

All right. With that behind us, let's begin. This morning I will start by spending a few minutes sharing the results from our second quarter with you, and discuss our balance sheet and liquidity. I will then turn the call over to Greg, who will focus his repaired remarks on where our businesses are today and what we are seeing ahead. We'll then open the call up for questions.

This morning, we reported our strongest quarter in years with both of our businesses outperforming their markets and delivering significantly improved results. For the first time since the onset of the pandemic, we had strong momentum in both businesses. On the theater side, it is clear people of all ages want to go back to the movies. A significantly improved film slate provided an increased quantity of films that appealed to a wide variety of audiences, bringing customers to the movies in huge numbers.

On the hotel side, the leisure traveler remains strong and we're now seeing the recovery of our group business accelerate. The improvement in our results compared to where we were a year ago is dramatic. Consolidated revenues more than doubled over the prior year, growing from $92 million last year to over $198 million in the second quarter this year. As a result, consolidated adjusted EBITDA increased by nearly $38 million, improving from a negative $1 million last year to a positive $37 million this year.

This quarter also marks the first quarter since the onset of the pandemic in which substantially all of our operations in both businesses were open and operating for the trailing 12 months. As of the end of the second quarter of fiscal 2022 on a trailing 12 month basis, consolidated revenues were nearly $646 million and consolidated adjusted EBITDA was $94 million. We provided a breakdown of our second quarter numbers by segment in our press release, where you can see that in the second quarter our theater division contributed approximately 71% of the combined $40 million of adjusted EBITDA prior to unallocated corporate expenses.

We continued to trend towards our historical portfolio mix of EBITDA generation as the theater business recovers. Our second quarter interest expense decreased by approximately $850,000, primarily benefiting from lower short-term debt and reduced borrowings resulting from our improved operating results. The reduction in interest expense was partially offset by investment losses on marketable securities this quarter compared to last year.

Turning to our segment results, theaters continues to experience increased per capita spending by our customers. Our average admission price increased by 3.3% during the second quarter of fiscal 2022 compared to last year, and increased by 9.3% compared to fiscal 2019. This increase was primarily the results of targeted admission price increases implemented during the second quarter in response to cost inflation, as well as continued strong customer demand for our premium large format screens. Meanwhile, our average concession food and beverage revenues per person at our comparable theaters increased by 2.9% during the second quarter of fiscal 2022 compared to last year, which was primarily due to pricing changes implemented in response to food cost inflation.

These pricing changes were implemented in early June and provided approximately 1 month of impact to the quarter. When compared to fiscal 2019, our per capita average concession food and beverage revenues increased by 23%, which we believe is the result of several factors, including our industry leading mix of non-traditional food and beverage options, shorter lines at the concession stand, the emphasis we're placing on online ordering through our mobile app, as well as pricing changes.

As a significant number of theaters in both our circuit and the industry as a whole were closed during large portions of the second quarter of last year, we continue to believe a comparison of our box office results to pre-pandemic results in fiscal 2019 may be the best way to compare our performance to the industry. Our second quarter of fiscal 2022 admission revenues were down 24% during the quarter when compared to 2019. According to data received from Comscore and compiled by us to evaluate our fiscal 2022 second quarter results, United States Box Office receipts decreased 26.6% during our fiscal 2022 second quarter, compared to U.S Box Office receipts during fiscal 2019.

As a result, we believe our admission revenue decline, once again, outperformed the industry average by 2.6 percentage points during the second quarter of fiscal 2022. Due to the impact of 3 strong blockbusters released during the second quarter of fiscal 2022, which were Top Gun Maverick, Dr. Strange in the Multiverse of Madness, and Jurassic World Dominion, the second quarter box office was more weighted towards our top movies as compared with the second quarter of fiscal 2021 and fiscal 2019. These films drove significant PLF sales, but at the same time resulted in higher film costs as a percentage of admission revenues.

While film costs as a percentage of admission revenues increased significantly year over year, due to a limited number of new films and fewer blockbusters last year, resulting in abnormally low film cost percentages in the prior year, they were generally in line with our costs in the second quarter of fiscal 2019 prior to the pandemic.

With that said, we are thrilled with the success of these blockbuster films that drove new audiences to return to the movies for the first time since the pandemic began. Shifting to our hotels and resorts division. Revenues were $69 million for the second quarter of fiscal 2022, as we continue to see strong seasonal demand for leisure travel in the early summer and improving conditions for business travel. The division delivered $11.8 million of adjusted EBIDA, which is a record second quarter for any fiscal year.

We continue to believe comparing our results to pre-pandemic levels in fiscal 2019 helps provide perspective on the pace of the current recovery. Second quarter total revenue for the division was nearly 99% of 2019 levels, a post-pandemic high. As I've mentioned last quarter, the St. Kate was closed for the majority of the first half of 2019 during its conversion from a branded property. But if you take the St. Kate out of both years numbers, our fiscal 2022 adjusted second quarter revenues were still 92% of adjusted 2019 levels.

Our RevPAR for our 7 comparable owned hotels decreased 6.3% during the second quarter, compared to the same quarter during fiscal 2019. According to data received from Smith Travel Research for the fiscal 2022 and fiscal 2019 periods and compiled by us in order to evaluate our results, comparable competitive hotels in our markets experienced a decrease in a RevPAR of 9% during our fiscal second quarter, compared to the second quarter of fiscal 2019. Indicating that our hotels, once again, outperformed by approximately 2.7 percentage points during the second quarter.

When comparing our RevPAR results to comparable upper upscale hotels throughout the United States, the industry experienced an increase in RevPAR of 0.8% during our fiscal second quarter, compared to the second quarter of fiscal 2019. We believe our results, compared to the national numbers, reflect an customer mix of group business at our properties during midweek days at lower daily rates, as more corporate and industry events return.

While the increase in group business during the week has resulted in a lower mix of leisure customers, which are typically at higher average daily rates, the increase in group business resulted in higher food and beverage revenues from our banquet and catering operations, which are not reflected in RevPAR, but are accretive to the division results as a whole.

Food and beverage revenues were up 98.2% in the second quarter of fiscal 2022 compared to the prior year, and were up 2.1% compared to the second quarter of fiscal 2019. Breaking out the second quarter numbers for the 7 comparable hotels more specifically, our overall RevPAR decreased during the fiscal 2022 second quarter compared to fiscal 2019, was due to an overall occupancy rate decrease of approximately 11.2 percentage points offset by a 9.3% increase in our average daily rate or ADR. Our average fiscal 2022 second quarter occupancy rate for our owned hotels was 66.3%.

Shifting to cash flow and the balance sheet. Our cash flow from operations was $48.8 million in the second quarter of fiscal 2022, an increase of over $45 million compared to the prior year. Total cash capital expenditures during the second quarter of fiscal 2022 were $9.8 million. A large portion of these dollars were spent on the completion of the first phase of a guest room renovation project at our Grand Geneva Resort & Spa, with the rest going toward normal maintenance projects in both of our businesses.

We ended the second quarter with $57.7 million of cash and nearly $280 million in total cash and revolving credit available liquidity, with no borrowings on our $225 million revolving credit facility. Our debt to capitalization ratio was 37%, and our net leverage was 2.4 times net debt to adjusted EBITDA at the end of the second quarter. Following this strong cash generating quarter and with our bolstered liquidity, today we are pleased to announce that subsequent to the end of the quarter, we completed 2 key steps on our recovery path following the pandemic.

First, in late July, we repaid $46.6 million of short-term borrowings, repaying in full and retiring early the term loan facility we took on to help manage through the pandemic that was set to mature in September of this year. Our priority in managing our balance sheet has been to first reduce the incremental debt we took on during the pandemic, and we have now executed this significant step. Which then brought us to our second step.

This morning, we announced our board of directors has reinstated our quarterly dividend, declaring $0.05 dividend to common shareholders of record on August 25th to be paid on September 15. Greg will comment further on how we think about capital allocation, but from a purely financial perspective, the strength of our balance sheet and liquidity coupled with the steady progress in the recovery of our businesses and strong free cashflow generation, gave us the confidence to once again return capital to our shareholders.

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

Thanks, Chad. We entered the quarter with the momentum of improving conditions in both of our businesses, that gave us the optimism that the second quarter was setting up to be a big step in our recovery. The film slate looks stronger, customers were indicating they were increasingly comfortable coming back, and business travel was starting to show early signs of returning. The stage was set and our team was ready to execute.

I'm pleased to report the trend we saw early in the quarter continued, and our team delivered our best quarter since the onset of the pandemic. Our customers came back to the movies in huge numbers, because finally there was a lot to see. Our hotels saw groups return that hadn't held an event in 3 years. Overall, groups return that hadn't held an event in 3 years. Overall, it was incredibly encouraging to see the real progress in both businesses.

All's not back to normal yet. And at times, we may take 2 steps forward and one step back as we go from one quarter to the next. But this quarter, we took a big step forward in our recovery, and we're pleased to be sharing these results with you.

So let me start my remarks the theater division. Chad went over the numbers with you, including our continued increases in per person revenues, our outperformance in the industry and strong cash generation with nearly 29 million of adjusted EBITDA in the quarter.

Our customers showed up in huge numbers, proving once again that consumer demand for the immersive theatrical movie going experience remains strong. There were several key themes this quarter that stood out. First, this was the first quarter since the pandemic began where we had a consistent string of theatrically released films. Second, the content this quarter included something for everyone, and it brought back audiences that hadn't yet come back until now.

Of course, there were the blockbusters that everyone's heard about by now, led by Top Gun: Maverick. Not only is Top Gun already a top 10 grossing film of all time, but perhaps more importantly, its opening weekend was more than 50% comprised of people over 35. For anyone who follows our industry, this is not the norm for a movie with a box office of this size, and it's an indication of audience interest for a broad variety of movie types and genres. And of course, there was no better way to see Top Gun than on the big screen.

Other blockbusters delivering strong performances included Doctor Strange in the Multiverse of Madness, and Jurassic World Dominion. Additionally, there were several family films that did well during the quarter, including The Bad Guys, Sonic the Hedgehog 2, and Lightyear. The performance of these films demonstrated that families were ready to come back to the movies this summer, and this trend continued into the early third quarter with Minions: The Rise of Gru, Paws of Fury and DC League of Super-Pets. It was only a quarter ago when industry skeptics pointed out, families haven't gone back to the movies. It didn't surprise us that when we finally had family movies to show, this audience came back to the movies in force.

Finally, we had a series of mid-size films that appealed to diverse audiences and performed really well. Downton Abbey: A New Era premiered to a box office audience that was estimated at 48% over 55 years of age and 73% women. Elvis attracted not only the audience that grew up with his music, but also drove box office because younger audiences embraced the film (inaudible), and Everything Everywhere All at Once played strong through most of the quarter, exceeding everyone's expectation and actually it just crossed $100 million in total box office. What a great milestone that is.

The performance of these films continues to demonstrate the important role that theatrical exhibition plays in the overall economic success of film content over its lifetime and customers continue to show, they want to see films on the big screen. We were thrilled to see the success of these films and the overall improvement in the quantity of films we brought to audiences this quarter.

All of the top 5 films in the quarter debuted with an exclusive theatrical run prior to release on streaming services, compared to where we were a year ago, when 3 of the top 5 films in the second quarter were released day and date. We continue to work with our studio partners to increase the number of films released theatrically and work with additional content providers to take advantage of the unique theatrical experience to showcase some of their best content. We believe exclusive theatrical runs can deliver an important incremental revenue source for content providers.

Not only do we believe this, the data increasingly backs this up. One need only look at the recent debut of films like Dr. Strange and Sing 2, respectively #1 and #2 ranked streaming films a few weeks ago. Not only did these films deliver important theatrical revenue to their studios, they also delivered top notch streaming performance. And even more impressive was that Sing 2's theatrical debut was about 6 months ago. It's clear from data like this, films of all sizes benefit their studios from a multi-layered approach to distribution that includes theatrical.

As I have shared before in my updates, our recovery is not going to be a straight line. While the second quarter steadily ramped up with increasing quantities of films and box office during the quarter, we expect the third quarter will follow the opposite pattern with a stronger film slate in the first half of the quarter that softens heading into the early fall, before increasing once again in the fourth quarter.

Several films have already played well in the third quarter, including Minions: The Rise of Gru, Thor: Love and Thunder, Nope, and DC: League of Super-Pets, and we are excited for the release of Bullet Train this weekend. As Chad mentioned in his remarks, we implemented several pricing changes to mitigate the impact of cost increases we've seen in both labor and the cost of food. These changes were rolled out in June and benefited a portion of the quarter.

Our approach with these price changes has been very targeted and focused in areas where our customers have shown us their own preference and willingness to pay a premium for certain days of the week or show times, or for a premium entertainment experience on our premium large format screens. This is an ongoing effort and we will continue to test different dynamic pricing models in different markets as we further optimize pricing.

In addition, we continue to offer attractive discount opportunities for our value oriented customers as we work to bring customers back to the movies. Last quarter, I mentioned our new subscription programs we launched earlier this year in select markets known as MovieFlex and MovieFlex+. We believe these subscription programs are a way to drive recurring traffic through our theaters, and we're testing a unique approach designed to promote attendance for some of the smaller films that play an important supporting role around tent-pole features, as well as extend the length of runs of more popular films.

While the program remains very much a work in process that we will continue watching and tweaking, we are seeing positive signs. For example, MovieFlex+ members are 150% more likely to see a small or mid-size film than our control group. We believe the program is a potential opportunity for distributors to extend theatrical runs for larger films and promotes smaller and mid-size films by offering them the MovieFlex+ library. We have more work to do to further develop the program, including campaign tickets and family offerings, but we are making progress and we are working hard to create a program that is a win-win for everyone while enhancing the depth and breadth of content.

Now I'll turn to our hotel division. Chad shared some of the numbers with you, including comparisons to our pre pandemic fiscal 2019 numbers, and the fact that the data indicates that we once again outperform our competitive sets this quarter. I want to start by recognizing our hotels team for delivering a record $11.8 million of adjusted EBIDA for the second fiscal quarter, a record for any second quarter, either pre or post pandemic.

Revenues were at 92% of 2019 levels on the same hotel basis, and the breadth of the recovery we are now seeing is broadening beyond the leisure traveler, whom as you know, have really led the way for the last year. As we shared in our last few calls, we saw the improvement in group booking trends earlier in the year, and we're now seeing that business comes through as group and corporate events return.

To provide some perspective on the change in the mix of our business during the second quarter of 2022, our non-group business, which includes leisure travel, represented approximately 63% of our total rooms revenue. This compares to 75% for non-group rooms revenue a year ago in the second quarter of 2021, and 57% for non-group rooms revenue prior to the pandemic in the second quarter of 2019. Overall, our business is starting to shift back closer to a more normal mix, which was in line with our expectations.

As I said in the past, we believe we have special assets that make our portfolio unique. These assets allowed us to successfully pivot to serve an increasing number of leisure customers during the pandemic, and our team is now successfully executing our plan to optimize revenue management and deliver outstanding service to returning business travelers and group events.

Our group room revenue bookings for fiscal 2022, commonly referred to in the hotels and resorts industry as group pace, is now running within 8% of where we would historically be at this time in pre pandemic years, and is up significantly from where we were at this time last year and from the prior quarter. We are encouraged by the increased amount of activity and leads we are experiencing, and our sales teams remain focused on continuing to close the gap as business travel activity recovers.

Banquet and catering revenue pace for fiscal 2022 is also trending similar to the improvement in group pace. While still running behind where we would typically be at this same time in prior years, we are closing the gap and pace has sequentially improved from the first quarter of this year. We continue to experience very strong wedding bookings and some of the bigger events of the past are once again booking for the remainder of this year, 2023 and beyond.

In general, the overall demand environment remains supportive of strong average daily rates, and we continue to see occupancy pace build, even with higher rates. We are pleased with the continued strength of our average daily rate during the second quarter, growing more than 24% over last year and over 9% compared to 2019 rates of the quarter.

As we stand here today, we are not yet seeing indications of consumer demand slowing or macroeconomic softness. As we look forward, we expect continued progress in the overall recovery of the industry, particularly for group and business travel. With that said, we know that our properties will face a difficult comparison to our third quarter results last year, which included non-recurring business for the Ryder Cup, the Milwaukee Bucks playoff championship run, and Summer Fest, which shifted from the third quarter last year to mostly the second quarter this year.

Overall, we generally expect our revenue trends to track or hopefully continue to exceed the overall industry trends for our respective markets. As in the past, our results from this division will vary quarter by quarter due to the seasonality our property's historically experienced, but on a relative year over year basis, we look forward to continued improvement during this ongoing recovery.

Finally, I want to briefly remark on financial milestones that Chad discussed in his remarks. We've always believed in maintaining a strong balance sheet with a manageable amount of debt, including owning the majority of our assets. We believe that core philosophy played a large part in our ability to successfully navigate the pandemic and contributed to the speed in which we were able to restore the balance sheet to the point we are today.

We will continue to pursue growth and investment opportunities in our businesses that generate strong returns for our shareholders, whether those opportunities are through investments in our existing assets or through acquisitions. To the extent that we generate cash flow and access of our investment and liquidity requirements, we will also return capital to our shareholders.

The Marcus Corporation has a long history of returning capital to shareholders, either through dividend or share repurchases, and our board has been committed to reinstating a dividend when we reach the point where we had sufficient liquidity, retired the incremental term loan we took on during the pandemic, and when we had the confidence in the recovery of our businesses. We are excited to announce today that we have reached that point and we are thrilled to begin returning capital to our shareholders again.

As you know, we view the world through a long term lens. We're excited to report these great results to you today, but we also recognize that our recovery path is not a straight line. Our rate of improvement will vary from quarter to quarter, as we expect it to next quarter, but I'm confident that we will continue to make consistent long term progress. We manage the business day to day, but at the same time, we look at the overall performance of our investments with a much longer lens.

Finally, I'd like to once again, express my appreciation for our dedicated associates at the Marcus Corporation. Their outstanding work and commitment to serving our customers is responsible for our success, and we appreciate all that they do every day. So on behalf of our board of directors and our entire executive team, thank you to all of our associates.

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

(Operator Instructions) Our first question today comes from Jim Goss at Barrington Research.

Nice results. That was great. I'd like to explore a little more on the admissions and concessions trends. Obviously both have been out of norm, with admissions coming back with inflationary pricing plus a mixed element. And then on the concession side, you made a comment, Greg, that there were shorter lines in the concession stands and that might have actually helped some of the sales. And I'm just wondering how you look at those 2 things normalizing, and are there trends we should be thinking about as they come back over the next couple of quarters?

Yes. Thanks Jim. We saw a lot of traffic in the theaters and ultimately, customers showed a preference for seeing some of these movies on PLF, and PLF was a huge piece of the mix in the quarter. And as we mentioned, we put through some pricing changes, both on box office admission and on food and beverage, that provided uplift to the per caps on both fronts. And customers did not show resistance or extreme price sensitivity to those changes, in part because the product was great.

And so I think that overcame some of the mix that you might be referring to, with some of the family films that may have had more matinee at lower daytime prices. But overall, I think it really comes down to the strength of the product and the fact that people wanted to go back to the movies. And building on that, to your point about length of lines and (inaudible) the longer the lines, we lose people.

For us, the future is really getting people on the app and getting people to -- because that shrinks the lines and I'm already seeing the benefit of the app. We just actually introduced on the app an upsell piece, and so if you go on the app and you order something, you're going to get an upsell. And we also have a, well, a last chance offer, which doesn't come every time. So we don't train everyone to just wait for that last chance offer. So we're going to leverage technology. We aren't there yet. It's not going AS fast as I'd like to see it happen, but that's the way we're going, and that's the way we're going to continue to have improvements in our performance at the concession stands.

Might you have any displays at the front end, like McDonald's does sometimes? Where if they're tired of waiting in the line, they order and then it gets delivered. Are you doing anything of that nature from a technology standpoint?

I think we'll see that as well. Yes, absolutely.

Also, I was wondering, is there any continuing push anywhere for a day-end date, given evidence that it's a bad idea? Or is that sort of a -- we've taken care of that issue?

Yes. Look, I think that all the numbers point to the fact that a theatrical window is a positive for the entire ecosystem of film distribution, as we talked about. It is the way to distinguish your product in a way that can't happen in today's modern world of streaming. And the benefit is because we just can't play -- we don't have an unlimited number of titles. And so sometimes no restrictions is its own challenge because it's hard to distinguish things. And so we are able to distinguish product, and we provide that base. And look, the shorter the window gets, it devalues the theatrical experience and it devalues what people will pay for it.

Or you'll just lose some of those marginal customers because they think it comes out so soon on streaming. And I think if you look to Sing 2 and say, "Wow, what a great success." And frankly, Dr. Strange as well, but Sing 2 came out 6 months ago and I didn't even mention this, but they had like $10 million in DVD sales. Remember the concept of Windows? Selling the same thing to the same person over and over again. And I do understand why everyone said, "Well, let's bag that model and stop selling things over and over and go for just one sale." With a subscription model, it seemed like the siren song of the stock market was alluring. And yet, at the end of the day.

I agree with that totally.

Pardon me?

I agree with what you're saying totally. I'm just wondering if anybody's pushing, or is that a done deal? And in fact, are some of the streaming services starting to look for theatrical releases as seemed to be the case for a while?

I think that they're -- look, they're testing the waters. We don't discuss any specific ones just yet, but we're seeing some things that we've done in experiments we've done. But I think it shows. Look, for the streaming, for it to work, they have to remember they have to have a marketing campaign. You can't just put it in the movie theaters and expect it to work. But also I'd point to the streamers to suggest that they leverage their subscriber base as an additional incentive somehow to work, to say, "Well, maybe there's a theatrical incentive to being a streaming subscriber and then see something in the theatrical experience as well." And they can tap a very big marketing base to help make that happen. So I think there's a lot of interesting opportunities that can happen where we can be, again, mutually beneficial to one another, where the pie gets larger. It's not a zero-sum game.

Okay. The last thing, on the hotel side you've noted a shifting back to a more normalized mix of business versus leisure travel. What timeframe do you have in mind in terms of when that normalization fulfills itself, comes to fruition? Do you think it's another couple of quarters or are we getting there faster than that?

Yes, I'll start and then I'll let Greg follow. Greg outlined the percentage of our mix, where we were a year ago, where we are now, and what it was pre-pandemic. And we're midway through that shift back to where we were pre-pandemic. As to how long it takes us to get all the way back there I think will also be influenced by potential macroeconomic changes and whether or not there's some sort of recession on the horizon in future quarters. But it feels like maybe at some point in 2023 you start to get back to a mix that's even a little bit closer to where we were.

Yes. I don't think that we know exactly. And I think things are changing a little bit. There's this new term, bleisure, where business and leisure get combined. And our hotels, so many of our hotels fit that perfectly. I sort of described, I jokingly sent an email to our guys and said, "It's like a mullet. Business in the front and party in the back." I don't think the people at the Pfister want to know that I just called them a mullet, but you can come to our hotels for a business experience at a very high-end, and a very sophisticated business experience, and then stay for some fun too. And I think that is a trend that we totally don't know the impacts of all of that yet and how we're going to categorize. But at the end of the day, the good news is that everybody's money is the same color and we'll take it however they want to bring it to us.

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

So maybe a quick follow up on Jim's questions around concessions, maybe just digging in a little bit of a different way, I guess. Is the increased demand for concessions the rising tide lifts all boats? You're seeing it across all demos, all parts of the week. Maybe not to say it in the best way, but are there the discount Tuesdays, cheaper demos getting cheaper in terms of what they spend? Are they most pressured in terms of the higher price and inflation expenses, or is everyone pushing through it in an equal way?

Yes. Eric, I don't know that we've got the great visibility to track through specifically to certain demographics, what that concession trend is in specific customer groups. The Tuesday concession numbers have done well, and we've actually implemented some pricing changes to concessions specific to Tuesday that we hadn't done before, where we had some highly discounted product and now we've started to charge for it. So there's a little bit of a change there. And we're trying to be sensitive to the needs of the value customer and continue to stimulate demand and give them reasons to come back to the theaters. But I'd say, as best as we know generally, across the board concession demand has been healthy.

Got it. And I'm not sure if you mentioned this before, but is it frequency and basket size moving in tandem, or is one dominating over the other?

Well, Greg mentioned the upsell opportunity. We are seeing that upsell play through driving some increases in basket size. And to the extent that we can keep the line short and keep people ordering through the mobile app, we also see the benefits in frequency. So I think it's a combination of both.

Got it. And then last question, given the labor cost, wage inflation that you and everyone's seeing, would you say that you're holding back at all on staffing levels somewhat, either in theaters or hotels or both because of that? Or would you still prefer to staff up further from these levels with the belief that those extra costs will either be covered by greater services providing greater revenues generated, or price hikes, or both? Where are you on staffing compared to where you want to be with it?

Yes. Great question. The trend is similar in both of the businesses. We are certainly not back to 2019 staffing levels in either of the businesses and we are, however, better than we were a quarter ago or certainly 2 quarters ago. But we're not throttling back that staffing intentionally or normally. We're still having some challenges in hiring to the levels that we'd like to get to. Having said that, ultimately the new normal is probably not staffing at the levels that we were at in 2019. It's going to look different. It's going to look different in part because of technology. It's going to look different because we've worked hard to take labor hours out of the system and drive efficiency and productivity in how we deliver service to the customers.

So we're not going to get all the way back there, but we're trying to do things to improve the efficiency and offset the impact that we're seeing in rate. I think sequentially compared to a quarter go the labor market looks like it's improving. We're loosening a little bit. We're still seeing turnover higher than we would like, but not quite as much pressure on wage rates.

Helpful.

To build on your question, just a hair on, I just talked about that on a Tuesday, concession per cap. And while we don't give the number specifically, actually Tuesday we are making a little bit of headway. We're actually a little ahead than we were, which Chad alluded to. I think we're probably just doing some better pricing on our Tuesdays, which typically, as you know, it's a more value-oriented customer. But on a percentage basis we're doing a little bit better than the whole overall circuit. The whole overall circuit's ahead, but Tuesday's doing even a little bit better because our pricing, we're doing better strategically. So I hope that answers your question.

(Operator Instructions) Our next question comes from Mike Hickey at Benchmark.

Greg, Chad, congrats, guys, on awesome quarter. Wonderful to see the growth come back. So great job. And I guess congrats too, for sure, on the dividend reinstatement. I think you're definitely the first theater operator to come out of COVID here and restate that. Really shows so many things in your business, but definitely your relative strength of your balance sheet and your cash flow. But just curious, would love to double click here on the dividend. The confidence of your business. And certainly given that we're in a recession now, to go ahead and reinstate it. Sort of curious if you'd anything incremental there, and how you think about the path of the dividend back to where it was over time.

And then the other piece of the puzzle would be share repurchase. You've done that I think to some level historically way back in the day, Greg, before Chad was here. But how do you think about repurchases given where your stock is and your relative multiple being such a discount versus the group?

Sure. Let me start on that one, Mike. And again, thanks for your support. On the dividend, look, it's an exciting first step coming out of what we've been through. And we discussed the things that gave us the confidence to be able to do this. And really it comes down to the recovery in the business and sustainable free cash flow generation, and being able to make the investments back in the business that we need to make. And we had significant CapEx this quarter, and certainly still had the confidence to restart the dividend. Relative to where it was historically, it's fairly small but it's a first step. And at the moment we are limited in the magnitude of the dividend. In our credit agreement we'll look to see that open up at some point, hopefully next year, a bit.

And then, based on the progress that we make, will recalibrate on the dividend quarter to quarter, and that's going to be an ongoing evaluation. In terms of the mix between share repurchase and dividend, I don't think they have to be mutually exclusive. It's a function of where the stock price is and the multiple that we're trading at and the amount of capital that we have to allocate to returning to shareholders in both forms. And potentially in the future it could be some mix of both of those, but today the first step really was getting the dividend back online.

I don't know how to build on that though. Step one, get the dividend.

All right. Do you have an authorization live now to buy back stock if you want to?

We do. We do. It hasn't been used in some time, obviously, but there is a pretty substantial authorization that's still outstanding.

Okay, great. The other piece, I guess, which was part of normal pre-COVID was theaters being fairly mature, definitely a mature business domestically, building growth through a consolidation. And you have a strong track record there of building EBITDA effectively through M&A. Just curious if you're seeing any increase in deal activity, your motivation to now start leaning forward and maybe being more proactive and looking for opportunities here in expanding your network.

Look, we are always open to opportunities. There's rumblings, but I have nothing to report to today, and (inaudible) there's lots of big stuff happening. I think there's been enough stability that there's -- look, I think there's some people who might be under pressure with different financial situations, but for the most part, I think people are just sort of in a let's get it stabilized, and then we'll go from there. I think we're still in that period. Wouldn't surprise me then if somewhere down the line, I couldn't tell you when, some people start to say, "Okay, I've had enough. I've wrote it out, and now I'm done that." Wouldn't surprise me, and we could be people to be positioned to take advantage of that. I don't want to say take advantage, but at least to capitalize on it, and to offer people a way to do that, we'll be open to it. And, we think our balance sheet provides us a position of strength, should those opportunities arise.

Our next question is from Paul Fanelli with Gabelli Funds.

Can you hear me?

Yes, Paul.

Great quarter. Just 2 from me. You talked about the box office ratings toward the top movies in the quarter. Obviously you have Avatar coming out this fall, Mission Impossible next year, that should kind of continue the trend. How long do you expect that sort of waiting towards the top movies to persist, and what are the puts and takes as that reverts over time? And, I guess, sort of in that vein -- obviously a lot of those big films are optimized for large format screens, so how does that mix evolve as maybe that trend normalizes.

Yes, I think what made this quarter a little bit different is we had 3 blockbusters. You normally have at least one in a quarter, perhaps 2 sometimes, but the 3 together really drove a higher percentage of the total box office. And, as we look forward over the next few quarters, I don't see things aligning to kind of recreate that dynamic. Even with the 3, ultimately the film cost as a percentage of box office revenues was slightly higher than where it would've been in 2019, pre pandemic, but not hugely higher. So, it is just notable, because it was a lot higher than where we were at last year, when we just didn't have the same number of films. We had some legacy contents, we had a number of different things that drove it to be abnormally low. So, I think we're on a run rate basis, probably in a pretty normal place.

I just need to look at the ultimate the message that we really want, as an industry that we want Hollywood to hear, is that we need a broad breadth of films, both small and large. As I said recently, we aren't going to survive on just dinner alone. We need to eat 3 square meals a day, and frankly Hollywood needs that too, because there's the overall ecosystem of media, and then there's sub ecosystems, and the theatricals of sub ecosystem. And, I think the benefits that we talked about earlier, to their streaming services, are bearing out in the data, and if they want that to continue, and they want the place to really maximize the revenue, especially on their big tent poles, they need also to feed us other films, as well. And, not every product in the grocery store has the same margin. And, I think in order to maintain our ecosystem, they all need to be aware of, and they are aware, of the fact that we need a wide breadth of films and -- well, it benefits everybody. And so, that's the message that we have to keep delivering.

Thanks. And then, I guess, just the last one for me, early learnings from the movie Plex subscription products, any other color you can put around that?

No, I mean, for us, the big question is depth of the market. Is that going to be how the whole -- we're not betting the future of the company on a subscription service, you know? But, we think again, it's an important piece of what we're doing, and it's an important piece of building. We talk about, in the hotel business sometimes, of shrinking the size of the hotel by taking a certain number of rooms, and we devote them to a group of a certain nature, and then, by doing that, we're able to then sell the other rooms at a better price. In a way, by building in a base of people, that's a recurring revenue stream, that's really helpful.

And then also, get getting people to start seeing those smaller and those mid-size movies, and even to, as we've seen, the surprise, I think the thing we hadn't thought as much about was at the beginning of it, was extending the runs of movies. We're seeing that's really been even some of the bigger films we're seeing, some of the studios say, "Let's try this." Remember, we are totally in test mode, but it's seeing that the bigger films,, later in their runs, going into the program is good for them, as well. And, at the end of the day, this has to be something that really is going to be an industry wide idea. It can't be something that's just for us. If it was just for us, it's not going to be enough. These have to be beneficial again to the entire theatrical ecosystem. But, the question is, how deep is that market? And, is it enough to warrant all the things that we're going through to do it? But, the initial signs are promising, but we'll be back in more calls in the future, and let you know how it's going.

Our next question is from Andrew Shapiro, from Lawndale Capital Management.

With your bank agreements somewhat needing to be overcome for the stock buyback. Let's talk about different avenue of shareholder value creation, and that is the enormous economies of scale that are available through consolidation, and acquiring synergistic chains. Lot of private equity owned chains, which are heavily leveraged, are not as well positioned as Marcus is in terms of the fact that you have deleveraged very nicely. You've seen opportunities out there, is the board and management focused on trying to pick up perhaps another accretive acquisition at this time, before the recovery deleverages those potential acquisition targets?

Look, as I said earlier in the call, we aren't seeing a ton of activity just yet, but our phone line is open for anybody that's interested. But, as I said, I think people are in a -- because between the government subsidies that were put in place, a lot of these guys were able to really weather the storm okay, and they're able to get by, and they're waiting for a period of stability before they do anything. I don't think there's a huge amount of pressure in some of the circuits that you referenced. I also just would address the point of scale, economies of scale, there are -- I don't know that I'd call them enormous, but there's certainly benefits to acquiring circuits, and we've seen them, but in a way, remember these are local almost franchise like businesses, the economies of scale come at the national level. Making a movie needs big national economies of scale, where you can advertise across the national marketing atmospheres.

Well, you don't need the SGNA infrastructure, you don't need a second film buyer, you don't need a second CFO, etcetera, etcetera. So, those are the costs, I guess I'm referring to, in is the fixed costs, below the line of the theater margin.

You're absolutely right. I just didn't want to quantify this as enormous. As they say, better than a poke in (inaudible) with a sharp stick.

Because, you're relative size to Cinemark, there's a big gap between number 3 and number 4. There's opportunities, it seems, and I didn't know if strategic planning wise or focus wise, you guys had an eye to wanting to -- you had a wave pre pandemic that you were starting to pick up the pace of accretive growth acquisitions, and I didn't know if that was of interest to the family, and to management, to be looking out for taking advantage of that. If there are those circumstances that exist out there, coming out of this pandemic, where people have decided some family owned chain, they've had enough, and they don't want to continue.

I think the way to look at it, Andrew, is to say, if you look over the history of our company, we are opportunistic and we are conservative. And, those 2 things will go hand in glove, and we will continue to be that way no matter what the business opportunity is. So yes, we'll continue to be that way.

Yes. All right. Congrats on over indexing.

Thank you, Andrew.

At this time, we have no further questions in the queue, so I will hand the call back.

We'd like to thank you once again for joining us today. We look forward to talking you again in early November, when we release our fiscal third quarter results. Until then, thank you, and have a good day.

This concludes today's conference call. Thank you very much for joining. You may now disconnect your line.