Marcus Corp: Form 10-Q for the period ended Sep 28, 2023

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and elsewhere in this Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may generally be identified as such because the context of such statements include words such as we “believe,” “anticipate,” “expect” or words of similar import. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which may cause results to differ materially from those expected, including, but not limited to, the following: (1) the adverse effects the COVID-19 pandemic, or future pandemics, may have on our theatre and hotels and resorts businesses, results of operations, liquidity, cash flows, financial condition, access to credit markets and ability to service our existing and future indebtedness; (2) the availability, in terms of both quantity and audience appeal, of motion pictures for our theatre division (including disruptions in the production of films due to events such as a strike by actors, writers or directors); (3) the effects of theatre industry dynamics such as the maintenance of a suitable window between the date such motion pictures are released in theatres and the date they are released to other distribution channels; (4) the effects of adverse economic conditions in our markets; (5) the effects of adverse economic conditions on our ability to obtain financing on reasonable and acceptable terms, if at all; (6) the effects on our occupancy and room rates caused by the relative industry supply of available rooms at comparable lodging facilities in our markets; (7) the effects of competitive conditions in our markets; (8) our ability to achieve expected benefits and performance from our strategic initiatives and acquisitions; (9) the effects of increasing depreciation expenses, reduced operating profits during major property renovations, impairment losses, and preopening and start-up costs due to the capital intensive nature of our business; (10) the effects of changes in the availability of and cost of labor and other supplies essential to the operation of our business; (11) the effects of weather conditions, particularly during the winter in the Midwest and in our other markets; (12) our ability to identify properties to acquire, develop and/or manage and the continuing availability of funds for such development; (13) the adverse impact on business and consumer spending on travel, leisure and entertainment resulting from terrorist attacks in the United States, other incidents of violence in public venues such as hotels and movie theatres or epidemics; and (14) a disruption in our business and reputational and economic risks associated with civil securities claims brought by shareholders. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Our forward-looking statements are based upon our assumptions, which are based upon currently available information. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are made only as of the date of this Form 10-Q and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

RESULTS OF OPERATIONS

General

We report our consolidated and individual segment results of operations on a 52- or 53-week fiscal year ending on the last Thursday in December. Fiscal 2023 is a 52-week year beginning on December 30, 2022 and ending on December 28, 2023. Fiscal 2022 was a 52-week year that began on December 31, 2021 and ended on December 29, 2022.

We divide our fiscal year into three 13-week quarters and a final quarter consisting of 13 or 14 weeks. The third quarter of fiscal 2023 consisted of the 13-week period beginning on June 30, 2023 and ended on September 28, 2023. The third quarter of fiscal 2022 consisted of the 13-week period beginning July 1, 2022 and ended on September 29, 2022. The first three quarters of fiscal 2023 consisted of the 39-week period beginning on December 30, 2022 and ended on September 28, 2023. The first three quarters of fiscal 2022 consisted of the 39-week period beginning December 31, 2021 and ended on September 29, 2022. Our primary operations are reported in the following two business segments: movie theatres and hotels and resorts. Within this MD&A, amounts for totals, subtotals, and variances may not recalculate exactly within tables due to rounding as they are calculated using the unrounded numbers.

COVID-19 did not materially impact our results for the third quarter and first three quarters of fiscal 2023. For discussion regarding the impact of COVID-19 and related economic conditions on our results for the year ended December 29, 2022, see “Part II-Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report. For discussion regarding potential impacts of future pandemics refer to the discussion of our operational risks and financial risks found in “Part I-Item 1A-Risk Factors” in our 2022 Annual Report.

Overall Results

The following table sets forth revenues, operating income, other income (expense), net earnings (loss) and net earnings (loss) per diluted common share for the third quarter and first three quarters of fiscal 2023 and fiscal 2022 (in millions, except for per share and variance percentage data):

Revenues and operating income increased and net earnings (loss) and net earnings (loss) per diluted common share improved during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022. Increased revenues and operating income from our theatre division contributed to the improvement during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022. Increased revenues and operating income from our hotels and resorts division at comparable hotels (excluding the impact of the sale of The Skirvin Hilton) also contributed to the improvement during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022. The first half of fiscal 2022 was negatively impacted due to the fact that releases of new films were limited and travel was reduced due to the lingering impacts of the COVID-19 pandemic and subsequent variants, particularly during the first quarter of fiscal 2022.

Net earnings (loss) during the third quarter and first three quarters of fiscal 2023 was favorably impacted by decreased interest expense compared to the third quarter and first three quarters of fiscal 2022 and investment income during the third quarter and first three quarters of fiscal 2023 compared to investment losses in the third quarter and first three quarters of fiscal 2022.

We recognized investment income of $0.4 million and $1.1 million during the third quarter and first three quarters of fiscal 2023, respectively, compared to immaterial investment losses during the third quarter of fiscal 2022 and $0.8 million of investment losses during the first three quarters of fiscal 2022. Variations in investment income were due to changes in the value of marketable securities.

Our interest expense totaled $2.9 million and $9.0 million for the third quarter and first three quarters of fiscal 2023, respectively, compared to $3.7 million and $11.8 million for the respective fiscal 2022 periods. The decrease in interest expense in fiscal 2023 was primarily due to decreased borrowings and a decrease in non-cash amortization of deferred financing costs. Changes in our borrowing levels due to variations in our operating results, capital expenditures, acquisition opportunities (or the lack thereof) and asset sale proceeds, among other items, may impact, either favorably or unfavorably, our actual reported interest expense in future periods, as may changes in short-term interest rates.

We reported income tax expense for the third quarter of fiscal 2023 of $5.9 million compared to income tax expense of $1.5 million during the third quarter of fiscal 2022. We reported income tax expense for the first three quarters of fiscal 2023 of $7.1 million compared to an income tax benefit of $0.3 million during the first three quarters of fiscal 2022. Our fiscal 2023 first three quarters effective income tax rate was 30.5%, and was negatively impacted by changes in valuation allowances related to deferred tax assets for state net operating loss carryforwards and by excess compensation subject to deduction limitations. Our fiscal 2022 first three quarters effective income tax rate was 9.8%, and was impacted by an increase in valuation allowances related to deferred tax assets for state net operating loss carryforwards. We anticipate that our effective income tax rate for fiscal 2023 may be in the 28-32% range, excluding any potential changes in federal or state income tax rates, valuation allowance adjustments or other one-time tax benefits. Our actual fiscal 2023 effective income tax rate may be different from our estimated quarterly rates depending upon actual facts and circumstances.

Theatres

The following table sets forth revenues, operating income (loss) and operating margin for our theatre division for the third quarter and first three quarters of fiscal 2023 and fiscal 2022 (in millions, except for variance percentage and operating margin):

Our theatre division revenues and operating income increased during the third quarter and first three quarters of fiscal 2023, with increased revenue per person, strong film performance, and an increase in the number of new films released by movie studios resulting in higher attendance compared to the third quarter and first three quarters of fiscal 2022. Our operating income during the third quarter and first three quarters of fiscal 2023 significantly improved compared to the third quarter and first three quarters of fiscal 2022 as a result of higher overall revenues and greater labor productivity.

The following table provides a further breakdown of the components of revenues for the theatre division for the third quarter and first three quarters of fiscal 2023 and fiscal 2022 (in millions, except for variance percentage):

According to data received from Comscore (a national box office reporting service for the theatre industry) and compiled by us to evaluate our fiscal 2023 third quarter and first three quarters results, U.S. box office receipts increased 37.6% during our fiscal 2023 third quarter and 24.8% during our fiscal 2023 first three quarters compared to the same comparable weeks in fiscal 2022, indicating that our increase in admission revenues for comparable theatres (excluding theatres closed during the past year) during the third quarter and first three quarters of fiscal 2023 of 29.8% and 20.0% underperformed the industry by 7.8 and 4.8 percentage points, respectively. We believe our underperformance is attributable to the more significant impact of lingering variants of COVID-19 in other regions of the country than in our primarily Midwestern markets during the third quarter and first three quarters of fiscal 2022, representing a higher opportunity for growth in 2023 nationally than in our markets. We believe this is evidenced by the recovery in our admission revenues relative to pre-pandemic periods in fiscal 2019 compared with the overall recovery of the U.S. box office. During the third quarter and first three quarters of fiscal 2023, our admission revenues for comparable theatres were 93.4% and 85.2%, respectively, of admission revenues in the respective periods in fiscal 2019. This compares with U.S. box office receipts for the third quarter and first three quarters of fiscal 2023 that were 93.5% and 83.0% of U.S. box office receipts for the respective 2019 periods, indicating that our recovery in admission revenues was in-line with and outperformed the U.S. box office recovery during the respective periods.

We also believe our underperformance during the third quarter of fiscal 2023 compared to third quarter of fiscal 2022 is attributable to an unfavorable film mix during the third quarter of fiscal 2023 that was more appealing to audiences in other parts of the U.S. than in our Midwestern markets, compared to a favorable film mix during the third quarter of fiscal 2022 that included Top Gun: Maverick and Minions: The Rise of Gru, which played well in our Midwestern markets. Additional data received and compiled by us from Comscore indicates our admission revenues during the third quarter and first three quarters of fiscal 2023 represented approximately 2.9% and 3.1%, respectively, of the total admission revenues in the U.S.

during the periods (commonly referred to as market share in our industry). Our goal is to continue our past long-term pattern of outperforming the industry, but our ability to do so in any given quarter will likely be partially dependent upon film mix, weather and the competitive landscape in our markets.

Total theatre attendance for our comparable theatres increased 15.6% during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022, which was primarily attributable to a stronger performance from the top film this year (Barbie) versus the top film last year during the third quarter (Minions: The Rise of Gru) and the favorable impact of a small increase in the number of wide-release films (films showed in over approximately 1,500 theatres in the U.S.). During the third quarter of fiscal 2023 there were 24 wide-release films compared to 23 wide-release films during the third quarter of fiscal 2022.

Total theatre attendance for our comparable theatres increased 7.3% during the first three quarters of fiscal 2023 compared to the prior year period, resulting primarily from an increase in the number of wide-release films. During the first three quarters of fiscal 2023 there were 76 wide-release films compared to 61 wide-release films during the first three quarters of fiscal 2022.

Our highest grossing films during the fiscal 2023 third quarter included Barbie, Oppenheimer, Sound of Freedom, Indiana Jones and the Dial of Destiny and Mission: Impossible - Dead Reckoning Part One. Our top five films during our fiscal 2023 third quarter accounted for 57% of our total box office results, compared to 62% for the top five films during the third quarter of fiscal 2022, both expressed as a percentage of the total admission revenues for the period. A decreased concentration of blockbuster films during a given quarter often has the effect of lowering our film rental costs during the period, as generally the better a particular film performs, the greater the film rental cost tends to be as a percentage of box office receipts. As a result of a less concentrated film slate, our overall film cost as a percentage of admission revenues decreased during the third quarter of fiscal 2023 compared to the same period in the prior year.

Our average ticket price increased 12.8% and 12.2% during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022, respectively, and was favorably impacted by inflationary price increases that we implemented in the first quarter of fiscal 2023 in response to increases in labor and supply costs, an increase in the percentage of our weekly attendance on days other than Value Tuesday, and a film mix featuring more films for adult audiences at higher ticket prices. During the last week of the first quarter of fiscal 2023, we implemented several pricing changes to our Value Tuesday promotion across our theatre circuit, which has historically offered $5 admission and free complementary-size popcorn to our loyalty program members. Our new Value Tuesday promotion features $6 admission for members of our free Magical Movie Rewards (MMR) loyalty program and $7 admission for non-MMR customers. The overall increase in average ticket price favorably impacted our admission revenues of our comparable theatres by $6.9 million and $18.9 million during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022, respectively.

Our average concession revenues per person increased by 6.5% and 6.2% during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022, respectively, due to inflationary increases in concessions prices in response to increases in food and labor costs and due to the net positive impact of changes to our Value Tuesday promotion, which replaced free complementary-size popcorn with a 20% discount on all concessions, food and non-alcoholic beverages for MMR members. We also believe average concession revenues per person was positively impacted by a new food and beverage menu introduced in the fourth quarter of fiscal 2022. The increase in average concession revenues per person favorably impacted our concession revenues of our comparable theatres by $3.2 million and $8.7 million during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022, respectively.

Other revenues during the third quarter of fiscal 2023 increased by $1.3 million compared to the third quarter of fiscal 2022. Other revenues increased by $2.0 million during the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022. The increases were primarily due to the impact of increased attendance on internet surcharge ticketing fees and preshow and in-app advertising revenue.

Several films have performed well in the early weeks of our fiscal 2023 fourth quarter, including Taylor Swift: The Eras Tour, The Exorcist: Believer, PAW Patrol: The Mighty Movie, Saw X, The Creator and Five Nights at Freddy’s. In fact, Taylor Swift: The Eras Tour has produced the highest box office concert film of all time in North America. Although it is possible that schedule changes may occur, new films scheduled to be released during the remainder of fiscal 2023 that have potential to perform very well include The Marvels, The Holdovers, Trolls Band Together, Hunger Games: The Ballad of

Songbirds and Snakes, Wish, Napoleon, Renaissance: A Film by Beyonce, Wonka, Aquaman and the Lost Kingdom and The Color Purple.

Revenues for the theatre business and the motion picture industry in general are heavily dependent on the number of films produced by studios and the general audience appeal of available films, together with studio marketing, advertising and support campaigns and the maintenance of appropriate “windows” between the date a film is released in theatres and the date a motion picture is released to other channels, including premium video-on-demand (“PVOD”), video on-demand (“VOD”), streaming services and DVD. These are factors over which we have no control.

The quantity of films released to theatres is also dependent upon the timing of film production by the studios. On May 2, 2023, the union representing script writers, the Writers Guild of America (WGA), went on strike after its contract expired with the Alliance of Motion Picture and Television Producers (AMPTP), which represents media companies including film studios. On September 27, 2023, the WGA ended its strike and on October 9, 2023, the WGA ratified a new contract with the AMPTP, with the term of the agreement through May 1, 2026. On July 14, 2023, the union representing actors, the Screen Actors Guild - American Federation of Television and Radio Artists (SAG-AFTRA), also went on strike over an ongoing labor dispute with AMPTP. Film production has stopped as a result of these strikes, and a prolonged shutdown in film production may impact the film release schedule, particularly in 2024 and 2025.

We ended the third quarter of fiscal 2023 with a total of 993 company-owned screens in 79 theatres, compared to 1,064 company-owned screens in 85 theatres at the end of the third quarter of fiscal 2022. We made decisions to close several underperforming theatres during fiscal 2023, including one of our owned theatres in the first quarter of fiscal 2023, two owned theatres in the second quarter of fiscal 2023, and two owned theatres and one leased theatre in the third quarter of fiscal 2023.

Hotels and Resorts

The following table sets forth revenues, operating income and operating margin for our hotels and resorts division for the third quarter and first three quarters of fiscal 2023 and fiscal 2022 (in millions, except for variance percentage and operating margin):

On December 16, 2022, we completed the sale of The Skirvin Hilton in Oklahoma City, Oklahoma (we held a majority-ownership position in this hotel prior to its sale). The results of The Skirvin Hilton are included in our divisional and consolidated results of operations during fiscal 2022 through the date of the sale.

Excluding The Skirvin Hilton from fiscal 2022 results, hotels and resorts revenues increased 4.9% and 8.3% during the third quarter and first three quarters of fiscal 2023 compared to the third quarter and first three quarters of fiscal 2022, respectively. Our hotels and resorts division operating income during the first three quarters of fiscal 2023 decreased compared to the first three quarters of fiscal 2022 due to the sale of The Skirvin Hilton (which had operating income during the third quarter and first three quarters of fiscal 2022) and increased labor costs during the fiscal 2023 periods as we increased our staffing levels to enhance the customer experience compared to the third quarter and first three quarters of fiscal 2022 when various positions were unfilled due to staffing shortages.

The following table provides a further breakdown of the components of revenues for the hotels and resorts division for the third quarter and first three quarters of fiscal 2023 and fiscal 2022 (in millions, except for variance percentage):

Division total revenues before cost reimbursements decreased during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022, due to the negative impact of the sale of The Skirvin Hilton. Excluding The Skirvin Hilton from fiscal 2022 results, division revenues before cost reimbursements increased $2.8 million, or 4.1% during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 due to increased occupancy at four of our seven owned hotels and increased average daily rate at five of our seven owned hotels. Division total revenues before cost reimbursements decreased during the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022, due to the negative impact of the sale of The Skirvin Hilton. Excluding The Skirvin Hilton from fiscal 2022 results, division revenues before cost reimbursements increased $11.7 million, or 7.0%, during the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022 due to increased occupancy at five of our seven owned hotels and increased average daily rate at all seven of our owned hotels.

The following table sets forth certain operating statistics for the third quarter and first three quarters of fiscal 2023 and fiscal 2022, including our average occupancy percentage (number of occupied rooms as a percentage of available rooms), our average daily room rate, or ADR, and our total revenue per available room, or RevPAR, for comparable company-owned properties:

Note: These operating statistics represent averages of our seven distinct comparable company-owned hotels and resorts, branded and unbranded, in different geographic markets with a wide range of individual hotel performance. The statistics are not necessarily representative of any particular hotel or resort. The Skirvin Hilton is not included in the fiscal 2022 statistics.

RevPAR increased at six of our seven comparable company-owned properties during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022, and increased at all seven of our comparable company-owned properties during the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022. Group demand continued to grow during the fiscal 2023 third quarter, with weekday and weekend growth increasing group business as a percentage of our overall business mix. During the third quarter of fiscal 2023, our group business represented approximately 40.7% of our total rooms revenue, compared to approximately 39.2% during the third quarter of fiscal 2022. Non-group pricing remained strong in the majority of our markets during the third quarter of fiscal 2023, with leisure demand contributing to increased ADR.

According to data received from Smith Travel Research and compiled by us in order to evaluate our fiscal 2023 third quarter and first three quarters results, comparable “upper upscale” hotels—hotels identified as our industry— throughout the United States experienced an increase in RevPAR of 3.2% during our fiscal 2023 third quarter compared to the same period during fiscal 2022, leading us to believe we outperformed the industry during the fiscal 2023 third quarter by approximately 2.3 percentage points. During the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022, comparable “upper upscale” hotels experienced an increase in RevPAR of 10.2%, leading us to believe we underperformed the industry during the first three quarters of fiscal 2023 by approximately 1.1 percentage points. We believe our underperformance during the first three quarters of fiscal 2023 occurred because occupancy at our hotels recovered earlier in fiscal 2022, particularly in the first quarter of fiscal 2022, than the industry, which generally lagged our occupancy levels in fiscal 2022. This resulted in the industry growing occupancy at a faster rate than our owned hotels during the first three quarters of fiscal 2023 compared to the prior year.

Data received from Smith Travel Research for our various “competitive sets”—hotels identified in our specific markets that we deem to be competitors to our hotels—indicates that these hotels experienced an increase in RevPAR of 4.7% during our third quarter, again compared to the same period in fiscal 2022. Therefore, we believe we outperformed our competitive sets during the third quarter of fiscal 2023 by approximately 0.8 percentage point. We believe our outperformance to our competitive sets during the third quarter of fiscal 2023 results primarily from our strong mix of leisure customers at higher rates during the seasonal peak summer months with our properties that have a stronger appeal to leisure travelers compared to the competitive sets. During the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022, hotels in our competitive sets experienced an increase in RevPAR of 9.8%, leading us to believe we underperformed our competitive sets during the first three quarters of fiscal 2023 by approximately 0.7 percentage points. We believe our underperformance to our competitive sets during the first three quarters of fiscal 2023 results primarily because occupancy at our hotels recovered earlier in fiscal 2022, particularly in the first quarter of fiscal 2022, than our competitive sets, which generally lagged our occupancy levels in fiscal 2022. This resulted in our competitive sets growing occupancy at a faster rate than our owned hotels during the first three quarters of fiscal 2023 compared to the prior year.

Looking to future periods, overall occupancy in the U.S. is expected to continue to slowly increase. In the near term, we expect leisure travel demand to normalize. Leisure travel in our markets has a seasonal component, peaking in the summer months and slowing down as children return to school and the weather turns colder. We expect gradual increases in business travel as corporate training events, meetings, and conferences return and office occupancy increases. As of the date of this report, our group room revenue bookings for the remainder of fiscal 2023 - commonly referred to in the hotels and resorts industry as “group pace” - is running approximately 11% ahead of where we were at the same time last year. Group room revenue bookings for fiscal 2024 is running approximately 14% ahead of where we were at the same time in late fiscal 2022 for fiscal 2023. Banquet and catering revenue pace for fiscal 2023 and fiscal 2024 is similarly running ahead of where we were at this same time last year. We are encouraged by continuing positive trends in group bookings for the remainder of fiscal 2023, fiscal 2024 and beyond.

Adjusted EBITDA

Adjusted EBITDA is a measure used by management and our board of directors to assess our financial performance and enterprise value. We believe that Adjusted EBITDA is a useful measure for us and investors, as it eliminates certain expenses that are not indicative of our core operating performance and facilitates a comparison of our core operating performance on a consistent basis from period to period. We also use Adjusted EBITDA as a basis to determine certain annual cash bonuses and long-term incentive awards, to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is also used by analysts, investors and other interested parties as a performance measure to evaluate industry competitors.

Adjusted EBITDA is a non-GAAP measure of our financial performance and should not be considered as an alternative to net earnings (loss) as a measure of financial performance, or any other performance measure derived in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of liquidity or free cash flow for management’s discretionary use. Adjusted EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.

We define Adjusted EBITDA as net earnings (loss) attributable to The Marcus Corporation before investment income or loss, interest expense, other expense, gain or loss on disposition of property, equipment and other assets, equity earnings or losses from unconsolidated joint ventures, net earnings or losses attributable to noncontrolling interests, income taxes, depreciation and amortization and non-cash share-based compensation expense, adjusted to eliminate the impact of certain items that we do not consider indicative of our core operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses that are the same as or similar to some of the items eliminated in the adjustments made to determine Adjusted EBITDA, such as acquisition expenses, preopening expenses, accelerated depreciation, impairment charges and other adjustments. Our presentation of Adjusted EBITDA should not be construed to imply that our future results will be unaffected by any such adjustments.

Definitions and calculations of Adjusted EBITDA differ among companies in our industries, and therefore Adjusted EBITDA disclosed by us may not be comparable to the measures disclosed by other companies.

The following table sets forth Adjusted EBITDA by reportable operating segment for the third quarter and first three quarters of fiscal 2023 and fiscal 2022 (in millions, except for variance percentage):

The following table sets forth our reconciliation of Adjusted EBITDA (in millions):

The following tables sets forth our reconciliation of Adjusted EBITDA by reportable operating segment (in millions):

23

(1) Non-cash expense related to share-based compensation programs.

(2) Non-cash impairment charges related to one permanently closed theatre in fiscal 2023.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our movie theatre and hotels and resorts businesses, when open and operating normally, each generate significant and consistent daily amounts of cash, subject to previously-noted seasonality, because each segment’s revenue is derived predominantly from consumer cash purchases. Under normal circumstances, we believe that these relatively consistent and predictable cash sources, as well as the availability of unused credit lines, would be adequate to support the ongoing operational liquidity needs of our businesses.

Maintaining and protecting a strong balance sheet has always been a core value of The Marcus Corporation during our 88-year history and our financial position remains strong. As of September 28, 2023, we had a cash balance of approximately $36.0 million, $220.6 million of availability under our $225 million revolving credit facility, and our debt-to-capitalization ratio was 0.26. With our strong liquidity position combined with cash generated from operations, we believe we are positioned to have sufficient liquidity to meet our obligations as they come due and to comply with our debt covenants for at least 12 months from the issuance date of the consolidated financial statements, as well as our longer-term capital requirements.

Financial Condition

Net cash provided by operating activities totaled $68.6 million during the first three quarters of fiscal 2023, compared to net cash provided by operating activities of $60.4 million during the first three quarters of fiscal 2022. The $8.3 million increase in net cash provided by operating activities was due to an $18.9 million increase in net earnings and the favorable timing in the payment of accounts payable and other working capital payments during the first three quarters of fiscal 2023 compared to the first three quarters of fiscal 2022, partially offset by the receipt of refundable income taxes of $22.7 million and government grants of $4.3 million during the first three quarters of fiscal 2022 that did not recur in fiscal 2023.

Net cash used in investing activities during the first three quarters of fiscal 2023 totaled $26.9 million, compared to net cash used in investing activities of $22.9 million during the first three quarters of fiscal 2022. The increase in net cash used in investing activities of $4.0 million was the result of the impact of the sale of non-core real estate assets of $4.9 million during the first three quarters of fiscal 2022 that did not recur in fiscal 2023 and an increase in cash used in the purchase of trading securities and other investing activities, partially offset by a decrease of $1.6 million in capital expenditures. Total cash capital expenditures (including normal continuing capital maintenance and renovation projects) totaled $25.8 million during the first three quarters of fiscal 2023 compared to $27.5 million during the first three quarters of fiscal 2022.

Fiscal 2023 first three quarters cash capital expenditures included approximately $10.4 million incurred in our theatre division, primarily related to normal maintenance capital projects. We also incurred capital expenditures in our hotels and resorts division during the first three quarters of fiscal 2023 of approximately $15.1 million, including costs related to guest room renovations at the Grand Geneva Resort and Spa, meeting space renovations at The Pfister Hotel and normal maintenance capital projects.

Net cash used in financing activities during the first three quarters of fiscal 2023 totaled $26.2 million compared to net cash used in financing activities of $44.8 million during the first three quarters of fiscal 2022. During the first three quarters of fiscal 2023, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As short-term revolving credit facility borrowings became due, we replaced them as necessary with new short-term revolving credit facility borrowings. As a result, we added

$38.0 million of new short-term revolving credit facility borrowings, and we made $38.0 million of repayments on short-term revolving credit facility borrowings during the first three quarters of fiscal 2023 (net zero borrowings on our credit facility). We ended the third quarter of fiscal 2023 with no outstanding borrowings under our revolving credit facility. During the first three quarters of fiscal 2022, we increased our borrowings under our revolving credit facility as needed to fund our cash needs and used excess cash to reduce our borrowings under our revolving credit facility. As a result, we added $62.0 million of new short-term revolving credit facility borrowings, and we made $43.0 million of repayments on short-term revolving credit facility borrowings during the first three quarters of fiscal 2022 (net $19.0 million of borrowings on our credit facility).

Principal payments on long-term debt were approximately $11.1 million during the first three quarters of fiscal 2023 compared to payments of $11.3 million during the first three quarters of fiscal 2022. Our debt-to-capitalization ratio (excluding our finance and operating lease obligations) was 0.26 at September 28, 2023, compared to 0.28 at December 29, 2022.

During the first three quarters of fiscal 2023 and the first three quarters of fiscal 2022, we did not repurchase any shares of our common stock in the open market. As of September 28, 2023, approximately 2.4 million shares remained available for repurchase under prior Board of Directors repurchase authorizations. Under these authorizations, we may repurchase shares of our common stock from time to time in the open market, pursuant to privately-negotiated transactions or otherwise, depending upon a number of factors, including prevailing market conditions.

Dividends paid during the first three quarters of fiscal 2023 were $5.3 million. In the third quarter of fiscal 2022, we reinstated our quarterly dividend that had been suspended as a result of the COVID-19 pandemic. Dividends paid during the first three quarters of fiscal 2022 were $1.5 million. We have the ability to declare quarterly dividend payments and/or repurchase shares of our common stock in the open market as we deem appropriate.

During the first quarter of fiscal 2023, we amended the Credit Agreement by entering into the Fifth Amendment effective on February 10, 2023, which replaced the variable rate LIBOR benchmark with the secured overnight financing rate (“SOFR”). Borrowings under the Credit Agreement now generally bear interest at a variable rate equal to: (i) SOFR plus a credit spread adjustment of 0.10%, subject to a 0% floor, plus a specified margin based upon our consolidated debt to capitalization ratio as of the most recent determination date; or (ii) the base rate (which is the highest of (a) the prime rate, (b) the greater of the federal funds rate and the overnight bank funding rate plus 0.50% or (c) the sum of 1% plus one-month SOFR plus a credit spread adjustment of 0.10%), subject to a 1% floor, plus a specified margin based upon our consolidated debt to capitalization ratio as of the most recent determination date. In addition, the Credit Agreement generally requires us to pay a facility fee equal to 0.125% to 0.25% of the total revolving commitment, depending on our consolidated debt to capitalization ratio, as defined in the Credit Agreement.

New Credit Agreement and Sixth Amendment to Note Purchase Agreements

Subsequent to the end of the third quarter of fiscal 2023, on October 16, 2023, we entered into a Sixth Amendment to the Credit Agreement (as previously amended, the “Credit Agreement” and, as amended by the Sixth Amendment, the “New Credit Agreement”), which provides for a new five-year revolving credit facility that matures on October 16, 2028, with an aggregate amount of available borrowings of $225 million. Upon the effective date, the Sixth Amendment amended the New Credit Agreement to, among other things: (i) revise the applicable interest rates for benchmark and ABR (defined below) loans to be determined by a net leverage ratio, rather than the previously used debt to capitalization ratio; (ii) revise the definition of consolidated EBITDA to include certain non-recurring costs and one-time expenses and exclude certain non-recurring recognized gains; (iii) exclude our hotel properties and certain theatre properties from the collateral under the New Credit Agreement; (iv) revise the financial covenants to eliminate covenants regarding the consolidated fixed charge coverage ratio and consolidated debt to capitalization ratio and replace these covenants with a requirement that our consolidated net leverage ratio not exceed 3.50:1.00, provided that, with some limitations, such ratio may be increased to 4.00:1:00 for the full fiscal quarter in which a material acquisition (in which aggregate consideration equals or exceeds $30,000,000) is consummated and the three fiscal quarters immediately thereafter; (v) replace the required consolidated fixed charge coverage ratio with a covenant that our interest coverage ratio at the end of any fiscal quarter not be less than 3.00:1.00; (vi) revise permitted indebtedness under the agreement to include, among other items, (a) borrowings or finance lease obligations to finance capital expenditures up to $40 million at any time outstanding, (b) indebtedness under our senior notes up to $100 million at any time outstanding; (c) indebtedness of up to $25 million in any new restricted subsidiaries at the time such entity becomes a restricted subsidiary, (d) other indebtedness not exceeding $50 million at any time outstanding and (e) other indebtedness as long as the consolidated net leverage ratio is at least 0.25 less than otherwise required under the New Credit Agreement; and (vii) revise the covenants to allow us to make investments as long as no default has occurred under the New Credit Agreement, or would occur as a result of the investment, as long as the consolidated net leverage ratio is at least 0.25 less than otherwise required under the New Credit Agreement.

Borrowings under the New Credit Agreement bear interest at a variable rate equal to (i) the term SOFR, plus a credit spread adjustment of 0.10%, subject to a 0% floor, plus a specified margin based upon our net leverage ratio as of the most recent determination date, or (ii) the alternate base rate (“ABR”) (which is the highest of (a) the prime rate, (b) the greater of the federal funds rate and the overnight bank funding rate plus 0.50% or (c) the sum of 1% plus one-month SOFR plus a credit spread adjustment of 0.10%), subject to a 1% floor, plus a specified margin based upon our net leverage ratio as of the most recent determination date; provided, however, as of the effective date of the New Credit Agreement, in respect of revolving loans, the applicable margin is 1.75% for SOFR borrowings and 0.75% for ABR borrowings, and will be adjusted for the first time thereafter based upon our net leverage ratio as determined for the fiscal year ending December 28, 2023. We will also be required to pay a variable rate facility fee depending on our consolidated net leverage ratio; provided, however that such fee will be 0.25% and will be adjusted for the first time thereafter based upon our consolidated net leverage ratio as determined for the fiscal year ending December 28, 2023.

In connection with the New Credit Agreement, (i) we and certain of our subsidiaries have pledged, subject to certain exceptions, security interests and liens in and on (a) substantially all of their respective personal property assets and (b) certain of their respective real property assets, in each case to secure the New Credit Agreement and related obligations; and (ii) certain of our subsidiaries have guaranteed our obligations under the New Credit Agreement.

In connection with entering into the New Credit Agreement, on October 16, 2023, we and certain purchasers entered into the Sixth Amendment to: (i) the Note Purchase Agreement, dated December 21, 2016, for our 4.32% Senior Notes due February 22, 2027, and (ii) the Note Purchase Agreement, dated June 27, 2013, for our 4.02% Senior Notes due August 14, 2025 (collectively, the “Note Amendments” and such Note Purchase Agreements, as previously amended and as amended by the Note Amendments, the “Amended Senior Note Agreements”). The Note Amendments revise the Note Purchase Agreements so that the Amended Senior Note Agreements’ covenants and collateral provisions are consistent with those set forth in the New Credit Agreement. Customary fees were payable in connection with the closing of the Note Amendments.

Critical Accounting Policies and Estimates

We have included a summary of our Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 29, 2022. There have been no material changes to the summary provided in that report.

a. Evaluation of disclosure controls and procedures

Based on their evaluations and the evaluation of management, as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

b. Changes in internal control over financial reporting

There were no significant changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes from the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 29, 2022.