Marcus Corp (MCS) 2022 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Marcus Corporation Third Quarter Earnings Conference Call. My name is Nadia, and I'll be your operator for today. At this time, all participants are in a listen-only mode. (Operator Instructions)

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, and good morning, and welcome to our fiscal 2022 third 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 third quarter results, and in the risk factor section of our fiscal 2021 annual report on form 10K, which you can access on the SEC'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-GAAP 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.

Now with that behind us, let's begin. This morning I will start by spending a few minutes sharing the results from our third quarter with you, and discuss our balance sheet and liquidity. I will then turn the call over to Greg, who will focus his prepared 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 another quarter of progress on our recovery path with both businesses generating improved results year-over-year, and both of our businesses outperforming their competition. In hotels, leisure travel remains strong while our group business continued its comeback, a trend we started to see during the second quarter.

On the theater side, we continue to see strong enthusiasm from our customers who turned out for the movies that we had, but as we expected, we were challenged by a limited number of film releases during the quarter.

Consolidated revenues increased nearly 26% over the prior year, growing from $146 million last year to nearly $184 million in the third quarter this year. Consolidated adjusted EBITDA increased from $24 million last year to nearly $28 million this year.

We provided a breakdown of our third quarter numbers by segment in our press release, where you can see that in the third quarter, our hotel division provided a majority of the $31 million of adjusted EBITDA from the divisions prior to unallocated corporate expenses.

As we will discuss today, our hotels business had a phenomenal quarter that exceeded all of our expectations. Below operating income, our third quarter interest expense decreased by approximately $900,000, 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 a decrease in gains on sales of assets this quarter compared to last year.

Turning to our segment results. Our Hotels and Resorts division revenues were $82 million for the third quarter of fiscal 2022 as we continue to see strong seasonal demand for leisure travel and improving conditions for group events and business travel. The division delivered $19.1 million of adjusted EBITDA, which is a record third quarter for any fiscal year.

Total revenue before cost reimbursements increased over $12 million or 20.4% over the third quarter of 2021. RevPAR for our 8 owned hotels grew 19.8% during the third quarter compared to the prior year. We continue to believe comparing our results to pre-pandemic levels in fiscal 2019 helps provide perspective on the recovery of the business. And after 2 years on this journey, we are pleased to now be reporting growth over pre-pandemic levels.

Third quarter total revenue before cost reimbursements for the division grew 8.9% above 2019 levels, a post-pandemic high. Similarly, RevPAR for our owned hotels increased 5.3% during the third quarter compared to the same quarter during fiscal 2019, marking the first quarter of RevPAR growth compared to pre-pandemic periods.

Breaking out the third quarter numbers for the 8 comparable hotels more specifically, our overall RevPAR increased during the fiscal 2022 third quarter compared to fiscal 2019 was due to a 16.6% increase in our average daily rate or ADR, partially offset by an overall occupancy rate decrease of approximately 8 percentage points.

Our average fiscal 2022 third quarter occupancy rate for our owned hotels was 75%. 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 an increase in RevPAR of 3.9% during our fiscal third quarter compared to the third quarter of fiscal '19, indicating that our hotels once again outperformed by approximately 1.4 percentage points during the third quarter.

Further, when comparing our RevPAR results to comparable upper upscale hotels throughout the United States, the industry experienced an increase in RevPAR of 3.5% during our fiscal third quarter compared to the third quarter of fiscal 2019, indicating that our hotels also outperformed the segment by approximately 1.8 percentage points during the third quarter.

Finally, as group business returns, our banquet and catering operations continued to drive growth in food and beverage revenues, which were up 28.2% in the third quarter of fiscal 2022 compared to the prior year and were up 6.3% compared to the third quarter of fiscal 2019.

Shifting to theaters. Our third quarter fiscal 2022 admission revenues increased 29% compared to the third quarter of 2021, a period that was still impacted by customer comfort concerns with returning to theaters and day and date releases of films.

All of the top 5 movies in the third quarter of 2022 debuted with an exclusive theatrical window compared with 3 of the top 5 movies releasing day in day to streaming services in the prior year quarter.

When compared to 2019, our third quarter fiscal 2022 admission revenues were down 29.1%. According to data received from Comscore and compiled by us to evaluate our fiscal 2022 third quarter results, United States box office receipts decreased 32.1% during our fiscal 2022 third 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 3 percentage points during the third quarter of fiscal 2022.

Our average admission price increased by 0.8% during the third quarter of fiscal 2022 compared to last year. This increase was primarily the result of targeted emission price increases implemented during the third quarter -- or the second quarter in response to cost inflation and was negatively impacted by an unfavorable mix of lower priced Matinee tickets due to a mix of films that played more to family audiences.

In addition, on September 3, our circuit participated in the first National Cinema Day in the U.S., an industry celebration of movie going that included $3 promotional ticket pricing. While the day was a success in driving attendance with over 8 million customers participating nationally, the promotional pricing from the event resulted in a 3.2 percentage point headwind to our year-over-year average admission price increase for the third quarter. Average admission price during the third quarter grew by 9.3% compared to the third quarter of 2019.

Our average concession food and beverage revenues per person at our comparable theaters decreased by 2.6% during the third quarter of fiscal 2022 compared to last year and was also negatively impacted by a higher mix of family films at daytime showings, which resulted in purchases of less expensive food items and smaller average tickets compared to the third quarter of 2021.

Promotional concessions pricing on National Cinema Day also unfavorably impacted food and beverage per caps compared to the prior year quarter. When compared to fiscal 2019, our per capita average concession food and beverage revenues increased by 21.2%, which we believe is the result of several factors, including our industry-leading mix of nontraditional food and beverage options, generally shorter lines at the concession stand and the emphasis we are placing on ordering through our mobile app as well as pricing changes.

Due to the impact of 3 strong blockbusters during the third quarter of fiscal 2022, which were Minions: The Rise of Gru, Thor: Love and Thunder, and Top Gun: Maverick, the third quarter box office was more weighted towards our top movies as compared with the third quarter of fiscal 2021 and fiscal 2019. These films resulted in higher overall film costs as a percentage of admission revenues.

Film costs as a percentage of admission revenues increased significantly year-over-year due to a limited number of blockbusters last year, resulting in abnormally low film cost percentages in the prior year and were generally only slightly higher than our costs in the third quarter of fiscal 2019 prior to the pandemic.

Shifting to cash flow and the balance sheet. Our cash flow from operations was $5.1 million in the third quarter of fiscal 2022 and $60.4 million year-to-date. Total cash capital expenditures during the third quarter of fiscal 2022 were $11.1 million. And for the first 3 quarters of fiscal 2022 total capital expenditures were $27.5 million.

For both the third quarter and the year-to-date, the majority of our capital expenditures have gone to renovation projects in the hotels business, with the balance going to maintenance projects in both businesses.

We ended the third quarter with over $213 million in total liquidity. As previously announced, in 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. Following the term loan retirement, at the end of the third quarter, our debt to capitalization ratio was 33%, and our net leverage was 2.2x net debt to adjusted EBITDA.

Finally, in September, we paid our first quarterly dividend to shareholders and suspending the dividend at the onset of the pandemic. This morning, we announced that our Board of Directors has approved our next quarterly dividend, declaring a $0.05 dividend to common shareholders of record on November 25 to be paid on December 15. We remain committed to returning capital to shareholders while maintaining the strength of our balance sheet and liquidity.

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

Thanks, Chad. Good morning. In our last update, we reported a quarter where both of our businesses had significant momentum, and we took a big step forward in our recovery. As we entered the third quarter, we saw the opportunity for continued year-over-year improvement. I'm pleased to report that we delivered a quarter that met our overall expectations and, in some cases, exceeded them.

In hotels, we continue to see group business return and demand from leisure customers remain strong. In theaters, our customers continue to come out to see the movies that we're playing, but our teams had to work hard to navigate a light film slate, particularly during the second half of the quarter.

It is quarters like these that highlight the benefits of our diversified business strategy, which allows us to successfully manage around the bumps in the road in any one particular business. Since the pandemic began, I've said several times on these calls that our recovery journey will not be a straight line, but we will continue to make progress over time. While not as fast as last quarter, we continue to make progress this quarter, and I'm pleased to share these results with you.

I'll start with 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 outperformed both our industry and our competitive sets this quarter. Our hotels team delivered another record quarter with $19.1 million of adjusted EBITDA for the fiscal third quarter, a record for any third quarter either pre or post pandemic. This follows a second -- a record second fiscal quarter, making for a record summer season in which our hotels division delivered nearly $31 million of adjusted EBITDA in the combined second and third fiscal quarters.

This level of success speaks to both the high level of execution by our team and the quality of our hotel assets. Our owned hotel portfolio includes special assets like the Grand Geneva Resort & Spa, which has performed so well throughout the pandemic by appealing to leisure customers and is now hosting a growing number of returning group events.

While I hesitate to declare victory and a full recovery following the pandemic because there are parts of the business where there is still more recovery in front of us, particularly in the business travel segment, it's incredibly encouraging to be focused on growth with both total revenue and RevPAR growing above 2019 levels this quarter.

As we have for the last year, we continue to see strength in leisure travel this quarter, but we're seeing a trend with the lines between leisure and business travel blurring to create a bleisure customer who's filling up weekend shoulder night demand.

In addition, our group business, which includes associates -- which includes, sorry, association, corporate and social events continues to grow. So far, during the first 3 quarters in 2022, group customers have represented approximately 35% of our total rooms revenue compared with 29% during the same period last year and 39% in 2019 prior to the pandemic.

Our group room revenue bookings for the remainder of fiscal 2022 or group pace in the year for the year is now running within 5% of where we would historically be at the same time in pre-pandemic years. Looking further ahead, our group pace for fiscal 2023 compared to where we would historically be at the same time, pre-pandemic is running behind our pace compared to this time last year, which we believe is likely due to the trend of shorter booking lead times for events, which we have seen over the last year, because our pipeline for next year looks healthy.

We're 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 group and business travel activity recovers. The growth in group business continues to drive strong banquet and catering revenue pace. We continue to experience very strong wedding and social event bookings, and some of the bigger events in the past are once again booking for the remainder of this year, 2023 and beyond.

The customer segment continues to lag in its return is the transient business traveler. This customer segment continues to slowly improve month by month. And according to industry data, U.S. business travel in May through July this year was approximately 75% of 2019 levels with an industry outlook of a recovery to 80% in 2023.

In general, the overall demand environment remains supportive of strong average daily rates, and we continue to see occupancy pace build while holding on to higher rates. We were pleased with our average daily rate during the third quarter, which grew approximately 4% over last year. Despite the year-over-year headwind resulting from our 3 Milwaukee market hotels benefiting from 3 large event demand drivers at high rates in the third quarter last year that did not recur in 2022.

Average daily rate for the third quarter increased approximately 17% compared to 2019 rates for the quarter. As we stand here today, we are not yet seeing indications of consumer demand slowing or macroeconomic softness. According to our recent travel industry survey, 91% of survey travelers have trips planned in the next 6 months. And in the same survey, 82% indicated they plan to spend more or about the same on travel this holiday season.

Throughout this year, we have made investments in renovation projects at the Grand Geneva Resort & Spa with preparations now beginning for the final phase of our room renovations coming this winter. We will also begin making significant investments in several of our other hotels to enhance the guest experience, and we expect these investments to continue to drive our outperformance in the years to come. My congratulations to Michael Evans and our Hotels and Resorts team for delivering a great quarter.

Shifting to our theaters division. I'd like to begin by congratulating Mark Graham on his promotion to President of Marcus Theatres. Mark brings many years of industry experience and knowledge, a passion for the movies of theatrical exhibition and understanding of the market's culture to his new role. I know Mark is proud to lead a great team of dedicated theater associates. I'd also like to congratulate Rolando Rodriguez on his retirement and thank him for his many contributions to our company, the movie theater industry and the communities we serve.

Moving to the quarter. Chad man over the numbers with you, including our continued increases in per person revenues and our outperformance of the industry. As I shared on our last call, we expected the third quarter to file the inverse pattern of the second quarter, starting with a strong film slate in July with several films releasing and others carrying over from the prior quarter and continuing to show well, followed by a softening film slate in the late summer heading into the fall.

This lull in the movie release calendar resulted from several films shipping back due to production delays and a postproduction backlog. The box office followed the pattern we expected. And while the movies that we had played -- the movies we had played to healthy audiences, the limited quantity of films caused a side step in our recovery path.

With that said, there are several bright spots that I would like to highlight. First, our audience continues to broaden with family audiences out in force this quarter. Our #1 movie for the quarter was Minions: The Rise of Gru with DC League of Super-Pets coming in at #7. For pundits [21:01] who don't think families want to go out to the movies, they were our #1 customer in theaters this quarter.

In addition, customers showed that when we have movies and genres other than superhero films, they came to theaters to see them to. Films like Elvis, Where the Crawdads Sing and Nope, all resonated with audiences and performed well in the theaters. Top Gun: Maverick sword for the entire summer playing exclusively in theaters for 88 days before its PVOD, premium video-on-demand release and continuing to play in theaters through Labor Day to become the final -- to become the only film in cinema history to secure the #1 box office spot domestically on both Memorial Day and Labor Day.

The experience of immersive sound and the big screen cannot be duplicated on the couch in your living room. So customers just kept coming, some to see the second and third time in the theater, driving Maverick to generate the fifth highest domestic box office growth of all time. I've talked in the past about our belief that exclusive theatrical runs elevated Studios brands, generating a buzz for a film that sets up subsequent windows and maximizes the value content.

Top Gun: Maverick is perhaps the best example of this yet, becoming Paramount's #1 best-selling digital sell-through title ever in the U.S. in its first week of PVOD and digital release in late August. This was followed by a DVD and Blu-ray release earlier this week, while Maverick remains the #1 movie on iTunes. All of these windows added to Maverick's huge box office success before its eventual streaming release on Paramount+.

Earlier this month, our Magical Movie Rewards program added its 5 millionth member. This program has increased customer loyalty and grown sales while providing a range of benefits for our members. These perks, combined with the overall movie going experience drive attendance and repeat business. In fact, loyalty members make up nearly half, 46% of our overall attendance and on average, visit the theater 4 times per year.

Our loyalty program also provides us with valuable insight into customer preferences. For example, we know that our loyalty members are more than twice as likely to purchase advanced tickets to a movie. And we know that the loyalty program encourages e-commerce as 62% of our online ticket sales are purchased by loyalty members. This program has been a great asset to us, and we will continue to develop and leverage our growing member base in the future.

As we look forward, the film slates picked up with several films that have already played well in the fourth quarter, including Black Adam, Smile, Halloween Ends and Ticket to Paradise. And like so many of our customers were excited for the release of Black Panther: Wakanda Forever, 1 week from today and Avatar, the way of water on December 16.

As Chad discussed in his remarks, today, we announced our second quarterly dividend since reinstating the dividend last quarter. The Marcus Corporation has a long history of returning capital to shareholders, and we remain committed to paying a dividend.

As you know, we view the world through a long-term lens. Our rate of improvement will vary from quarter-to-quarter as it did this 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, look at the overall performance of our investments with the goal of long-term sustained growth and industry outperformance.

Finally, I want to once again express my appreciation for our dedicated associates of the Marcus Corporation. Their outstanding work and commitment to serving our customers is responsible for our success. They are our most important asset. 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 up the call for any questions you may have.

(Operator Instructions) And our third question today comes from Jim Goss of Barrington Research.

I'd like to start with a couple of questions about the hotel sector. You've talked about the beginning of our surgeons in business travel. I'd like to get a few more comments on that. In terms of the -- what trends you're seeing and the price sensitivity for both the business and leisure travel and whether that makes a difference in how you're setting your rates. And then I was also wondering about a couple of the more specialty type hotels, St. Kate and so the Kimpton Monaco. If you might talk about their experience relative to your group in general?

Yes. So maybe I'll start with a question on the business traveler. And Greg talked a little bit about it in his remarks, meaning over the early part of the summer, we saw the business traveler back at, call it, 70% of 2019 levels, and we've got an outlook that, that -- the industry has an outlook that that's going to go to 80% hopefully, for next year.

On the rate setting front, I don't know that there's as much sensitivity to rate as there are just a different behavior about business travelers and the trips that they're taking. So the salespeople are back out on the road. But the group that hasn't come back yet are the consultants and some of the professionals who in the past would go out on the road with a team of 4 or 5 people and go out on Sunday night and stay until Friday, now that anecdotally seems like it's maybe fewer folks and they're going out for a smaller number of days.

So that's the piece that's lagging. But what we're seeing instead is that demand is being picked up by first leisure travel, and that's been strong, continues to be strong, and we're not seeing the pushback on any indication of pushback on rate at this point. And now we've seen this ongoing trend for 2 quarters with a healthy return of group business, which is, of course, filling up nights during the week.

So it's been really encouraging. And I'll let Greg take the second part of the question around the St. Kate assets.

Yes. And just -- and actually, I'll build a little bit on it. And I have no specific data at the point, too, Jim. Again, I just do not tip my hands. I can tell you, anecdotally, I do know that I heard some recently about some corporate rate setting that went on. And look, we're having to pass along the cost of the customers and they understand that. And so we're not seeing -- at least we're not seeing pushback at people negotiate, but we're comfortable with where that's going.

As for performance, as I've talked about before, these hotels perform -- have been very beneficial, having these special experiential hotels where we have the overlay of our experience with group business perform well no matter who the traveler is, whether it's -- whether that's the Kimpton or the St. Kate, we attract that leisure customer, but we also are attracting that business customer as well who has central city business and groups and who want to just have something different to have an experience to not just be a typical hotel room. And so we're pleased with the strength we're seeing in those hotels.

Okay. And then on the theater side, on the theater side, going into this year, it seemed like there was an expectation for almost to double up in terms of the slate that we could expect. And then sort of fell apart a little bit in, say, August, September and has been a little softer towards the end of the year with the exception of some really big potential movies like Avatar, Black Panther. And I'm just wondering how you're looking at how you'd evaluate how the year developed relative to your own expectations? And what's your thinking as you move into the New Year, maybe including a good start with rollover from Avatar.

Jim, this is a business -- but I don't really set expectations, to be honest. I mean I just -- we deal with what's coming in. We can't -- given all that's happened with the pandemic and with what we talked about with post-production backups, I think they're dealing with the same labor issues we're dealing with. And so look, in -- we're pleased by continued progress. And -- but I'm not going to say, well, this was my -- I just don't set expectations.

And we -- as I said, we manage to what comes in the door to maximize what's coming in the top line and then to maximize the bottom line after that in 2 stages, what's play on both sides of the ball, but offense and defense. And so -- and with that, and again, I -- given all that's going on. And then on top of that, it is a business. There's an old saying in this business that every film is R&D, except a sequel.

So you never know what's going to come in. Well, how something is going to do in any given just until it shows up. I mean, I'll tell you right now, if I would have said the Top Gun is going to be the fifth biggest movie of all time is going to play all summer. If I would have made that bet, I would have made a lot of money with people if I would have known that. Who would know. We just don't know.

The only thing I'd add on, Jim, on the number of films in the slate is there's no doubt, it's taking a little bit longer than many have expected to ramp back up the number of films after some of that inventory went to other channels during the pandemic. But I do think we are encouraged by what some of the studios are saying about what the pipeline looks like going further out in 2024, but it's going to take a while to get there. And so it's just going to take some time.

Okay. Maybe just one last addendum to those comments. Has any of this affected your concession strategy? Or are those just parallel situations in your -- the nature of the back office hasn't really had an impact on what your offerings would be or any of those sort of aspects.

What are you thinking about? If you have a good idea. Some years, but...

No, I'm just thinking, would you have been more aggressive in bringing out additional products or something like that, if the consistency of the back office was a little greater? Or is that really not something that worked into the strategic elements?

No. I mean, I think, look, our teams are always looking at what we can sell, we can sell more of and gearing offers to who's coming in the door. So no, I don't think that there's anything. But I don't think there's anything that's shifting one way or the other because of what's coming in the door, other than just how we -- things that we're trying to do, which is to -- like one of the really interesting things we're seeing is, as we move to online ordering, the ability to upsell.

And so we were really ahead of the curve on developing the online ordering. And we think that benefits us in 2 ways. And then to now recently, we've added actually upselling to the technology. So now you automatically get -- do you want an add-on? Or do you want to make that medium so to all large. We've got things to technology like that now. You can't -- we had sort of 2 issues just sort of dealing with humans that are sitting behind the concession stand. One is when there's a really long line, they're not thinking about upselling. They're thinking about getting the people through the line.

Also, when you have new people and high turnover, which is just natural in this business anyway, training them is harder, making sure that they all again, upsell to do to drive more revenue. You've got -- so having that built on its technology is really helpful. So now as we have that and focus on operationalizing that and building up our percentage of people who order on the app, that's the kind of thing that we're looking at from how to -- what are we doing going forward with our food and beverage operations.

We think also it should save money at the concession stand in terms of labor as well, which is really important in this market. And we're not -- I'm not here to give you a prediction on what that number might be. But we see the hotel industry is a great example. And I guess operating in multiple industries is a great way to see something like this.

We learned many, many years ago that once you -- people actually move from calling a reservation system and having to have a human being at the other end, put in all the information on their reservation -- that -- when they move that work to the customer. And now the customer when they're making hotel reservation does it themselves. They don't get the benefit of calling up a hotel system in doing it. They do all the work.

And to the extent that we can also move that work to the customer on the concession side, that should be labor-saving on it because that just takes a certain percentage of time out of the transaction from the -- because now no one has to take your order. No one has to process your credit card, you do that all yourself when you do it on the app.

And the next question goes to Mike Hickey of The Benchmark Company.

And congratulations on your recovery here, very impressive. So great job to all of you. The -- I guess, you gave some great data, Greg, on the hotel side. And I guess, thinking about 23 here, everyone's telling us that we're going to be in a recession. But looking at some of the momentum in your business, clearly that there's indications that, that will extend into '23 and where the supposed recession is. I guess, just as you sort of look back, maybe it's sort of in a unique position here given that you so much of the reopening tailwind that could push you through more difficult economic scenarios.

And I know you're cautious on setting expectations and I respect that. But on the leisure side, I guess, specifically, I mean, is this -- could we be looking at 23% where normally you expect to pull back and leisure travel. But just given what we've all gone through, I guess, that being out of home is so critical to our health and escapism that leisure could actually sustain levels or grow despite a more challenging economy.

And then I guess the same question on the business travel, we're only 70% of where we were pre-pandemic, I think necessity to connect the people still there. Just curious, probably speaking to your thoughts there, tailwinds that reopening into a recession. And curious, Greg, what you're hearing just anecdotally from when you talk to other business leaders, the necessity appetite to continue to travel.

Thanks for that question, Mike. That's -- it's funny. I hope you're right. And I have to admit -- okay, I'll start. I don't know. We just don't know. But -- but the same thoughts have crossed my mind. Things -- because you're right, typically, when you get into a recession, our hotel business isn't really -- again, this is about having multiple diversity. -- hotels tend to see more GDP impact where theaters tend to actually go the other way because all of a sudden, what it becomes cheap entertainment instead of going to a concert or going to a game, all of a sudden, well, let's just go out and go see a movie. And so that can work to our benefit.

But on the hotel side, yeah, because the mix is so different than we've ever seen we've sort of wondered, well, what will happen. I wish I could tell you I know. I hope you're absolutely right, because the consumer is in better shape than they've been in a long time going into something like this. And they do want to get out and they do want to travel. They do want experiences. And that is -- we're seeing -- if you see -- I know anybody who's watching the economy is seeing stuff, where there was a big pull forward in demand.

Goods and services -- I mean, good Max [38:56] services goods. You're buying things for your home. There was big pull forward there, and that group is now seeing that sort of reversion of the mean. But then experiences are now. People are saying, "I am okay, I have been stuck in my house. I can't actually buy another bed for my house or I can't buy another gutter or put on my house. I've done everything I can do to my house. I'm going to get out and do stuff. And that's why I think that travel has been robust. Frankly, while the movies we've played have been -- people have responded to because they want to get out -- so that was a long winded answer saying, I really don't know. I hope you're right.

Second question from me, I guess, recently from the investor community, I think there's been sort of, I guess, of 3Q being weak in the theater side, there's been an inject sort of skepticism that maybe '23 won't grow like we think. And I think broadly speaking, a lot of numbers have come in and taken a more conservative approach on '23 growth. Curious, is that sort of pessimism is also held by theater operators, the industry. I mean what is sort of the outlook from your peers on the theater side. I mean is there the feeling that it's going to be a grind here for a few more years?

Maybe there's too many screens, and it's going to take a while to get product back. And if that's the case, so maybe it's healthy optimism and everything is great. But if it's not, you feel like we're reaching an inflection point here. And obviously, we know Legal's got some screens for sales, all of them probably. I mean are we reaching a point where maybe there is some incremental motivation here to maybe do something else, the operator to do something else in their lives and maybe try to sell an asset or 2? And does that -- given where you are in your recovery and your success historically you're building value through M&A, do you think you're also approaching a point here where you could be more inquisitive on the acquisition front?

Again, we wanted to -- there's nothing -- there's nothing happening yet. The -- obviously, the legal thing going on, which I don't know what's going to happen with them. And look, they've rejected a few leases, but they haven't really even done much that I can even respond to at this point. The those theaters are going to need a lot of work, though. I mean I'm sure that they've had a lot of deferred maintenance, and that's going to be -- that's a project. But the -- but to your point, I don't know that anybody is actually started and saying, "You know what? Okay. I have to do it. I made the other side. And now, okay, it is -- and I'm ready go-first I don't think anybody actually really necessarily -- I think they think -- my guess is -- well, again, to guess.

They're not -- no one's made a decision on what that might mean or have we reached an inflection point. I don't think so. But again, as again it goes back to sort of like the consumer who is in pretty good shape. There was a lot of money to the guys and anyone who wasn't public got these shuttered venue operator grants -- that was significant money that the government put out, how people get through the pandemic. And so it relieved a lot of pressure to actually do anything and got them to the other side. And so we're not getting -- so I don't get -- we're just not seeing it yet where people say, okay, I'm ready to hang it up. Let's -- let's see what's going on out there.

Yes. And then on the forecast for the 2023 part portion of your question and the outlook, we don't provide guidance. But I would say, we share some of the conservatism that you've heard in the last couple of months on those -- from those who follow the space. And I think that really comes from just looking at the film release calendar and the amount of content that we expect to see come through. And the push outs that we saw during the course of this year have had domino effects on what 2023 looks like.

And so there's been a shift in a number of different areas. It just wasn't like all of a sudden, we're going to have this surge when they get caught up. I think it extends out the entire release calendar. So we're going to be cautious knowing that there's still a lot of movement in the schedule, and that will continue to be something that we'll be dealing with until the studios get through their content pipelines. But as I said earlier, we'll see when you get further out.

(Operator Instructions) And our next question goes to Andrew Shapiro of Lawndale Capital Management.

I got a few follow-up questions along the same theme as Mike's questioning here at the end. And it's a takeaway from your discussions with those in the industry, in particular, the studios, on whether the Halloween out of the quantity of middle-tier movies is something that's secular or if it is something that's a bit more temporary. Are you getting the takeaway that there's a lot of -- there's postproduction capacity issues? Or was it a reduced amount of production -- these are multiyear projects.

Was it a reduced amount of production activity that obviously could not take place during the pandemic and that things will ramp up? Or are we seeing a secular shift where economically, it makes more sense for the studios to put the middle tier direct into streaming, which I'm not sure it does any more since the value per subscriber has been greatly readjusted with the decline of Netflix and the rise of interest rates.

Yes. I mean you answered -- I think you're exactly -- I'm not even sure if the value per subscriber. You have to make the assumption that you're not going to have subscribers because somebody saw a movie somewhere. Otherwise, all you have -- all you're talking about is incremental. And the one thing that's very different now that's happening, the only -- if you make a movie, somebody makes a movie, the only incremental cost they have now after the negative cost, which is the cost of making the movie, the only incremental cost they have is marketing. There's no more the -- P&A is gone or going virtually gone. And so now your only question, is at least get my marketing spend back and you probably will get that in more.

And then can I can I get some benefit. Let's assume all you got was your marketing spend back at least you're marketing for what ultimately is your exclusive IP on your streaming service. And so the only way someone can see it and see it as to see it on the streaming services to go to be a subscriber. And we know that there's -- I mean the research has shown over and over again. The people who are going to the movies tend to be high users of all media. And if you think about the cost of going to a movie, which cheaper -- is the cheapest out-of-form entertainment. I have to admit, when I start comparing movies to streaming, I feel like I am comparing apples to oranges.

If you want to talk about streaming versus something on linear, okay, that's a McIntosh compared to a Gala Apple, I get it. But the cost of going to a movie. There's like -- I was thinking of a streaming service to the night. And again, for what they charge on a monthly basis, if a family went to the movies. That's like a year of their streaming service. And then whenever they saw at the theater, the kids will watch 1,000 times over at home. And so to me, that just seems like incremental revenue that you get in the theatrical plus being able to distinguish your product in the theatrical window as opposed to being a tile on a screen that disappears in 14 seconds.

Here you become because we have a limited shelf space, you become part of the Zeitgeist, part of the discussion and part of the water cooler talk. And it can't be for every film. It can only be for a certain limited subset. And I think that for whether it's a rom-com or drama, I do believe that there is a place for putting them. I actually saw a Ticket to Paradise last night. What a fun movie, fun to see it wasn't in the theater, laughing, even it was a Wednesday not, not our busiest night of the week, but they're people in the theater with me.

And we all laugh together at the jokes. Was it the greatest movie of all time? No. Was it a great hour of 45 minutes, yes, it was great two hour vacation, it was fun. And so I don't get -- to your point, Andrew, I'll get the math. I don't get why you want to take a -- especially the stuff in a way, the streamer going to take a few big things to try and sort of get some attention, sure, I get that. But in the stuff that's sort of in the middle, why you wouldn't just try and get your marketing budget back and plus, plus, plus -- and I keep thinking about the streamer who -- the streaming services, one of the biggest advertisers now in theater is streaming.

They know that their customer is sitting in the theater. They know it and they're advertising to them. Well, and the most effective ad in the -- in a theater is the one that plays right before the movie. And if you're a streaming service, the last thing the customer is going to see, it's going to have some -- probably the highest recall is going to see this movie brought to you by X. It's like a giant ad for a streaming service in 70 feet of glory for people who are basically captive in their seats, not going to the bathroom, not getting a sandwich, not taking the dog out, it seems to me there's a lot of value in that.

You're pricing the quarter, we both agree, I think, on the economics and the model it makes sense. There's a few other reasons. Frankly, you want to milk the money out of the exclusive theater where piracy is a shaky iPhone versus pristine pirated versions that come the moment something hits streaming, et cetera. But the economics are clear to exhibitors, they are clear to exhibitor investors. Is your takeaway from your contacts with the studios or they're greenlighting films and they're deciding their plans on distribution. Is your takeaway that the middle tier will be coming back and that there's just been a kind of production shortage that's existed?

I don't have so much of a takeaway so much as I just have -- because it's not what do you say, what do you do? And I just look at -- if you just look at what's going on, you're seeing windows come back and you look year-over-year and you see more windows for stuff is everything window no. But like when you have a great partner, who's given a ton of product a theater and then you do something they can date, well, okay, that's what you do for a great partner. You say, okay, I'm going to help your -- because again, I think -- by the way, I do think that streaming and theatrical should be a virtuous circle in that -- again, more money in the kitty for everybody then makes for more movies and then actually, the more movies you make and the more content you make, the more you avail -- more stuff you can play on your streaming service. So again, the bigger the pie, the more robust the whole ecosystem is.

It goes back to the thing about windows, and I think I talked about this on the last call. The definition of windows, we used to joke about that is sort of joking. The definition of windows is selling the same thing to the same person over and over again, little subversive, a little humorous. But the truth of the matter is, I came to this conclusion recently that I thought more and more about it. The reason that we're able to sell the same thing to the same person over and over again is because they want to buy it. And this idea of just taking one kick at the cat, I'm having trouble seeing the math. I think that if you want to maximize the value of your IP, you want as many kicks at the cat as you can get, sell it to as many people as you can sell it to multiple times, because they will buy it from you and whether it's a round comm or a tentpole.

And by the way, for the ecosystem to work, we need both. We can't just be tentpoles. It has to be -- it has to apply to -- we need a full slate of films for it to be optimized. And again, that's good for them too, because when you're sitting in that -- in maybe that medium-sized film, you're watching a trailer for what the next giant tentpole is. Again, we know the most effective form of advertising. Studios know this too. They fight for the trailers is sitting in that seat as seeing that ad being captive to it. And so it's good for everybody to have a robust slate.

Right. And lastly, I noted even the streamers. Well, Amazon has been doing it for a while where they will show the movies exclusive in the theaters, and then they brought it out. Apple perhaps a little bit. But even now, Netflix who had a poured doing that is doing the knives out with a modest window of exclusivity into the theaters. Are you participating in that, I guess, Thanksgiving period showing of Knives Out sequel?

Yes, we are.

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

We would like to thank you once again for joining us today, and we look forward to talking to you again in early March when we release our fourth quarter fiscal 2022 results. Until then, thank you, and have a good day.

Thank you. That concludes today's call. Thank you all for joining. You may now disconnect your lines.