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 on a listen-only mode. We will conduct a Q&A session towards the end of the conference. If at any time during the call you require assistance, please press star zero, and an operator will be happy to assist you. 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, 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 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 Factors section of our fiscal 2021 annual report on Form 10-K, which you can access on the SEC's website.
We will also post all Regulation G disclosures, when applicable, on our website at 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 to our website, 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 GAAP measure is provided in today's release. Now, with that behind us, let's begin. This morning, I'll start by spending a few minutes sharing the results from our third quarter with you and discuss our balance sheet and liquidity. I'll 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 up the call 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 remained strong while our group business continued its comeback, a trend we started to see during the second quarter. On the theater side, we continued 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 continued 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 eight 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. After two 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 eight comparable hotels more specifically, our overall RevPAR increase 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 2019, 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 continue 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 five movies in the third quarter of 2022 debuted with an exclusive theatrical window compared with three of the top five movies releasing day-and-date 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 three 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 admission 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 3rd, our circuit participated in the first National Cinema Day in the U.S., an industry celebration of moviegoing 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 three 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 three 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 2.2 x net debt to adjusted EBITDA. Finally, in September, we paid our first quarterly dividend to shareholders since 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 25th to be paid on December 15th. 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 continued to see group business return and demand from leisure customers remain strong.
In theaters, our customers continued to come out to see the movies that were 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 a 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 have 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 continued 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 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 in 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. 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 association, corporate, and social events, continues to grow. So far during the first three 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 it 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 of the past are once again booking for the remainder of this year, 2023 and beyond. The customer segment that 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 onto 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 three Milwaukee Market hotels benefiting from three 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 a recent travel industry survey, 91% of surveyed travelers have trips planned in the next six 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 Gramz on his promotion to President of Marcus Theatres. Mark brings many years of industry experience and knowledge, a passion for the movies and theatrical exhibition, and an understanding of the Marcus 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 went 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 follow 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 shifting back due to production delays and a post-production backlog. The box office followed the pattern we expected, and while the movies that we had played to healthy audiences, the limited quantity of films caused a sidestep 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 number one movie for the quarter was Minions: The Rise of Gru, with DC League of Super-Pets coming in at number seven.
For pundits who don't think families wanna go out to the movies, they were our number one 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 too. Films like Elvis, Where the Crawdads Sing, and Nope all resonated with audiences and performed well in the theaters. Top Gun: Maverick soared 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 only film in cinema history to secure the number one 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. Customers just kept coming. Some to see it a second and third time in the theater, driving Maverick to generate the fifth-highest domestic box office gross of all time. I've talked in the past about our belief that exclusive theatrical runs elevate a studio's brands, generating a buzz for a film that sets up subsequent windows and maximizes the value of content. Top Gun: Maverick is perhaps the best example of this yet, becoming Paramount's number one 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 number one 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 moviegoing 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 four 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 slate's picked up with several films that have already played well in the fourth quarter, including Black Adam, Smile, Halloween Ends, and Ticket to Paradise. Like so many of our customers, we're excited for the release of Black Panther: Wakanda Forever one week from today and Avatar: The Way of Water on December 16th. 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 a goal of long-term, sustained growth and industry outperformance.
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. They are our most important asset, and we appreciate all that they do every day. 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.
Thank you. If you would like to ask a question today, please press star followed by one on your telephone keypads. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question today goes to Jim Goss of Barrington Research. Jim, please go ahead. Your line is open.
Thank you, and good morning. I'd like to start with a couple of questions about the hotel sector. You talked about the beginning of a resurgence 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. Then I was also wondering about a couple of the more specialty-type hotels, Saint Kate and say, the Kimpton Hotel Monaco, if you might talk about their experience relative to your group in general.
Yeah. Maybe I'll start with the question on the business traveler, and Greg talked a little bit about it in his remarks. I mean, 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 the industry has an outlook that that's gonna go to 80%, hopefully for next year. On the rate-setting front, you know, I don't know that there's as much sensitivity to rate as there are just a different behavior among business travelers and the trips that they're taking.
You know, the salespeople are back out on the road. 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 four or five people and go out on Sunday night and, you know, stay until Friday. Now that anecdotally seems like it's maybe fewer folks, and they're going out for a smaller number of days. You know, that's the piece that's lagging.
What we're seeing instead is, you know, that demand is being picked up by first leisure travel, and that's been strong, continues to be strong. We're not seeing the pushback on any indication of pushback on rate at this point. Now we've seen this ongoing trend for two quarters with a healthy return of group business, which is, of course, filling up nights during the week. It's been really encouraging. I'll let Greg take the second part of the question around the Saint Kate assets.
Yeah. Actually, I'll build a little bit on. I have no specific data to point to, Jim. Again, you know, I just do not have it at tip of my hands . I can tell you anecdotally, I do know that I heard some recently about some corporate rate setting that went on. You know, look, we're having to pass along the cost to the customers and they understand that, and we're not seeing, at least we're not seeing pushback. Look, people negotiate, but we're comfortable with where that's going. As for performance, you know, as I've talked about before, you know, these hotels perform, you know, have been very beneficial.
Having these, you know, special experiential hotels where they have the overlay of our experience with group business perform well no matter who the traveler is, you know. Whether that's the Kimpton or the Saint Kate, you know, 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 your typical hotel room. You know, we're pleased with the strength we're seeing in those hotels.
Okay. On the theater side- t hanks for that- but o n the theater side, going into this year, it seemed like there was an expectation for almost a double up in terms of the slate that we could expect, and it sort of fell apart a little bit in, say, August, September, and has been a little softer into the end of the year, with the exception of some really big potential movies like Avatar and Black Panther. I'm just wondering how you're looking at how you'd evaluate how the year developed relative to your own expectations and what you're thinking as you move into the new year, maybe including a good start with rollover from Avatar.
You know, Jim, this is a business that I- look, I don't really set expectations, to be honest. I mean, I just- y ou know, we deal with what's coming in. We can't- y ou know, given all that's happened with the pandemic and with what we talked about with post-production backups, you know, I think they're dealing with the same labor issues we're dealing with. You know, look, we're pleased by continued progress. I'm not gonna say, "Well, this was my ex-" I just don't set expectations.
We, as I said, we manage to what comes in the door to maximize what's coming in at the top line and then to maximize the bottom line after that at two stages. Let's play on both sides of the ball, but you know, offense and defense. With that, it's true, you know- given all that's gone on, and then on top of that, it is a business. There's an old saying in this business that every film is an R&D except a sequel.
So you never know what's gonna come in. Well, how something's gonna do on any given movie. You just until it shows up. I mean, I'll tell you right now, if I would have said that Top Gun is gonna be the fifth biggest movie of all time, it is gonna 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 have known, You know? We just don't know.
Yeah. The only thing I'd add on Jim, on the number of films and the slate is, you know, there's no doubt it's taken 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. 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. It's gonna take a while to get there. So it's just gonna 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? The nature of the box 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...
No, I-
...I'm all ears.
No, I'm just thinking, you know, would you have been more aggressive in bringing out additional products or something like that if the consistency of the box office was a little greater? Or is that really not something that worked into the, you know, the strategic elements?
No, I mean, I think- l ook, 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. No, I don't think that there's anything- I don't think there's anything that's shifting one way or the other, you know, because of what's coming in the door other than just, you know- y ou know, things that we're trying to do. Like, one of the really interesting things we're seeing is, you know, as we move to online ordering, you know, the ability to upsell, you know.
We were really ahead of the curve on developing the online ordering and, you know, we think that benefits us in two ways. Now recently we've added actually upselling to the technology. You know, now you automatically get a, you know, do you want an add-on or do you wanna make that medium soda a large? You know, we've got things, technology like that now. You know, with it, we had sort of two 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 get the people through the line. Also, when you have, you know, new people and high turnover and, you know, which is just natural in this business anyway, you know, training them is harder and making sure that they all, you know, again, upsell to drive more revenue. You know, you've got, you- h aving that built into the technology is really helpful. 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 do we.
You know, what are we doing going forward in our food and beverage operations. We think also it should save money, you know, at the concession stand in terms of labor as well, which is really important in this market. We're not here to give you a prediction on what that number might be, but, you know, 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 people actually moved from calling a reservation system and having to have a human being at the other end, you know, put in all the information on their reservation, that when that they move that work to the customer.
Now the customer, you know, when they're making a hotel reservation, does it themselves. They don't get the benefit of calling up a hotel system and doing it. They do all the work. To the extent that we can also move that work to the customer on the concession side, that should be labor saving on it, 'cause that just takes a certain percentage of time out of the transaction, you know, from the- f or, you know, 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.
Okay. Well, thanks very much for all your thoughts. Appreciate it.
Thanks, Jim.
Thank you. The next question goes to Mike Hickey of The Benchmark Company. Mike, please go ahead. Your line is open.
Hey. Thank you. Hey, Greg, Chad. Good afternoon, guys. Nice quarter.
Thanks, Mike.
Congratulations on your recovery here. Very impressive. Great job to all of you. I guess you gave some great data, Greg, on the hotel side. I guess thinking about 2023 here, you know, everyone's telling us that we're gonna be in a recession. Looking at some of the momentum in your business, clearly that there's indications that that will extend into 2023 and where the supposed recession is. I guess just, you know, as you sort of look back, maybe it's, you're sort of in a unique position here, and given that there's so much of the reopening tailwind that could push you through more difficult economic scenarios.
I know you're cautious on setting expectations, and I respect that. On the leisure side, I guess specifically, I mean, is this. You know, could we be looking at 2023 where normally you'd expect to pull back in leisure travel, but just given what we've all gone through, I guess you know 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.
Then I guess the same question on the business travel, if we're only 70% of where we were pre-pandemic, I think necessity to connect with people is still there. Just curious, broadly speaking, your thoughts there, tailwinds of reopening into a recession. Curious, Greg, what you're hearing just anecdotally from when you talk to other business leaders, the necessity and appetite to continue to travel?
Thank you. Thanks for that question, Mike. That's- i t's funny. You know, I hope you're right, and I have to admit. Okay, I'll start- I don't know, w e just don't know. The same thoughts have crossed my mind. You know, b ecause you're right. Typically, you know, when you get into a recession, you know, our hotel business isn't really.- y ou know, again, this is about having some diversity- y ou know, hotels tend to see that, you know, see more GDP impact, where theaters tend to, you know, actually go the other way because all of a sudden what- i t becomes cheap entertainment instead of going to a concert or going to, you know, a game.
All of a sudden, well, let's just go out and go see a movie. That can work to our benefit. On the hotel side, yeah, You know, 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, you know, the consumer is in a, you know, better shape than they've been in a long time, you know, going into something like this. They do wanna get out, and they do wanna travel, and they do want experiences. That is the- y ou know, we're seeing- i f you see, I know that, you know, anybody who's watching the economy is seeing stuff, you know, where there was big pull forward in demand, you know, goods and services.
I mean, not services, goods. You know, you're buying things, you know, for your home. You know, there was big pull forward there, and that group is now seeing that sort of some, you know, reversion to the mean. Experiences are now. People are saying, "Okay, I've been stuck in my house. I can't actually buy another bed for my house, or I can't, you know, buy another gutter to put on my house. I've done everything I can do to my house. I'm gonna get out and do stuff."
That's why I think, you know, that travel has been robust, frankly, while the movies we've played have been, people have responded to because they wanna get out. That was a long-winded answer of saying I really don't know. I hope you're right.
I guess we'll see. We're almost there, right around the corner. Thanks for that. Second question from me. I guess, you know, recently from the investor community, you know, I think there's been sort of, I guess, third quarter being weak in the theater side, there's been an injection, you know, sort of skepticism that, you know, maybe 2023 won't grow like we think. I think broadly speaking, a lot of numbers have come in and taken a more conservative approach on 2023 growth.
Curious, if 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, you know, it's gonna be a grind here for a few more years? Maybe there's too many screens and it's gonna take a while to get product back. If that's the case, maybe it's healthy optimism and everything's great, but if it's not, do you feel like we're reaching an inflection point here?
Obviously, we know Regal's got some screens for sale, all of them probably. I mean, are we, you know, reaching a point where maybe there's some incremental motivation here to maybe do something else, theater operators do something else with their lives and maybe try to sell an asset or two? Does that, given where you are in your recovery and your success historically of 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? Thanks, guys.
You know, again, it's, you know, we wonder the same. There's nothing happening yet. No, you know, the obvious, you know, the Regal thing going on, which, you know, I don't know what's gonna happen with them and look, if they've rejected a few leases, but they haven't really even done much that I can even respond to at this point.
You know, those theaters are gonna need a lot of work, though. I mean, I'm sure that they've had a lot of deferred maintenance, and that's gonna need a lot- t hat's a project. To your point, I don't know that anybody's actually started saying, "You know what? Okay, I got through it. I made it to the other side, and now, okay, it is, and I'm ready to go."
First of all, I don't think anybody actually necessarily. I think they think that. My guess is, well, again, it's a guess. No one's made a decision on what that might mean or have we reached that inflection point. I don't think so. Again, you know, it was again, it goes back to sort of like the consumer who's in pretty good shape.
You know, there was a lot of money. So anyone who wasn't public, you know, got these Shuttered Venue Operators Grants. That was significant money that the government put out to help people get through the pandemic. It relieved a lot of pressure to actually do anything and got them to the other side. I think, again, we're just not seeing it yet where people are saying, "Okay, I'm ready to hang it up. Let's see what's going on out there."
Yeah. Then on the forecast for the 2023 portion of your question and, you know, the outlook, we don't provide guidance. I would say we share some of the conservatism that you've heard in the last couple of months, from those who follow the space. 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. The pushouts that we saw during the course of this year have had domino effects on what 2023 looks like.
There's been a shift in a number of different areas. It just wasn't like all of a sudden we're gonna have this surge when they get caught up. I think it extends out the entire release calendar. You know, we're gonna be cautious knowing that there's still a lot of movement in the schedule and that, you know, will continue to be something that we'll be dealing with until the studios get through their content pipelines. As I said earlier, you know, we'll see when you get further out.
All right. Great, Chad. Thanks, guys. Good luck. Good holidays.
Thank you.
Thank you. As a reminder, if you would like to ask a question today, please press star followed by one on your telephone keypads. Our next question goes to Andrew Shapiro of Lawndale Capital Management. Andrew, please go ahead. Your line is open.
Hi. Thank you. I got a few follow-up questions along the same theme as Mike's questioning here at the end. It's a takeaway from your discussions with those in the industry, in particular, the studios, on whether the hollowing 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 post-production capacity issues, or was it a reduced amount of production?
You know, and 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? 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 anymore since the value per subscriber has been greatly readjusted with the decline of Netflix and the rise of interest rates.
Yeah. I mean, you answered it. I think- o r I'm not even sure if the value per subscriber. You have to make the assumption that you're not gonna have subscribers because somebody saw a movie somewhere. Otherwise, all you're talking about is incremental. You know, the one thing that's very different now that's happening. 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- t he P of P&A is gone or going, virtually gone. Now your only question is, well, can I at least get my marketing spend back? You probably will get that and more. Then can I get some benefit? Let's assume all you got was your marketing spend back. At least your marketing for what ultimately is your exclusive IP on your streaming service. The only way someone can see it- t o see it on the streaming service is got to be a subscriber.
We know that there's- I mean, the research has shown over and over again that, you know, that the people who are going to the movies tend to be high users of all media. If you think about, you know, the cost of going to a movie, it's the cheapest form of entertainment. I mean, I hate to admit, when I start comparing movies to streaming, I feel like I am comparing apples to oranges. If you wanna talk about s treaming versus something on linear, okay, that's a McIntosh compared to a Gala apple. I get it.
But- you know, the cost of going to a movie, and there's like, I was thinking of a streaming service the other night. I'm thinking, with for what they charge on a monthly basis, if a family went to the movies, that's like a year of their streaming service. Whatever they saw at the theater, the kids will watch 1,000 times over at home.
To me- t hat 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, you know? Here you become- because we have a limited shelf space, you become part of the zeitgeist, part of the discussion, you know, and part of the water cooler talk. It can't be for every film. It can only be for a certain limited subset. I think that for whether it's a rom-com or a drama, you know, I do believe that there is a place for putting them.
I actually saw Ticket to Paradise last night. What a fun movie. Fun to see it with some people in the theater laughing. Even though it was a Wednesday night, not our busiest night of the week, but there were people in the theater with me, and we all laughed together at the jokes. Was it the greatest movie of all time? No. Was it a great 1 hour and 45 minutes? Yeah. It was a great two-hour escape, two-hour vacation. It was fun.
I don't get- t o your point, Andrew, I don't get the math. You know, I don't get why you would want, you know, why you'd wanna take a lot, you know, especially the stuff, I mean, in a way.- i s the streamer gonna 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, you know. I keep thinking about, you know, the streaming services. You know, 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, the most effective ad in a theater is the one that plays right before the movie. If you're a streaming service, the last thing the customer is going to see, it's gonna have some of the, probably the highest recall, is gonna see this movie brought to you by X. It's like a giant ad for a streaming service in 70 ft 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. Seems to me there's a lot of value in that.
Uh, I- y ou're preaching to the choir. We both agree, I think, on the economics and the model, it makes sense. There's a few other reasons, frankly. You wanna milk the money out of the, like, exclusive theater where piracy is a shaky iPhone versus pristine pirated versions that come the moment something hits streaming, et cetera. The economics are clear to exhibitors, they're clear to us exhibitor investors. Is your takeaway from your contacts with the studios, where they're green-lighting 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?
You know, I don't have so much of a takeaway so much as I just have a 'cause it's not what you say, what you do. Look, if you just look at what's going on, and you're seeing, you know, windows come back, and you look year-over-year, and you see, you know, more windows for stuff. Is everything windowed? No. You know, like, when you have a great partner who's given a ton of product to theater, and then you do something day and date, well, okay, that's what you do for a great partner. You know? You say, "Okay, I'm gonna help your."
Because again, I think- b y the way, I do think that streaming and theatrical should be a you know a virtuous circle in that again more money in the kitty for everybody then makes you know makes for more movies- a ctually, the more movies you make and the more content you make, the more stuff you can play on your streaming service. The bigger the pie, the more robust the whole ecosystem is. You know, it goes back to the thing about windows. I'd say, you know, I think I talked about this in the last call. You know, the definition of windows, we used to joke about, you know, that it was sort of joking- y ou know, the definition of windows is selling the same thing to the same person over and over again.
A little subversive, a little humorous. The truth of the matter is, I came to this conclusion recently as 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. This idea of just taking one kick at the cat, you know, I'm having trouble seeing the math. I think that if you wanna 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.
Whether it's a rom-com or a tent-pole, you know. By the way, for the ecosystem to work, we need both. We can't just be tent-poles. It has to apply to- w e need a full slate of films for it to be optimized. Again, that's good for them too, because, you know, when you're sitting in that, in maybe that medium-sized film, you're watching a trailer for what the next giant tent-pole is. Again, we know the most effective form of advertising, studios know this too, they fight for the trailers, you know, is sitting in that seat seeing that ad, being captive to it. It's good for everybody to have a robust slate.
Right. Lastly, I noted even the streamers- w ell, Amazon's been doing it for a while, where they will show the movies exclusively in the theaters, and then they brought it out. Apple perhaps a little bit. Even now, Netflix, who had abhorred 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.
Okay. Excellent. All right. Thank you.
Thank you. 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 for joining. You may now disconnect your lines.