Cineplex Inc.

Good day and welcome to the Cineplex Inc. Q1 2020 Analyst Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Melissa Prasako, Senior Manager of Investor Relations and Communications. Ma'am, please go ahead.

Thank you, Katie. Good morning and welcome. Before I begin, I would like to remind you that certain statements being made are forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management's beliefs and assumptions regarding the information currently available. Actual results could differ materials from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, the negative impact of COVID-19 pandemic, adverse factors generally encountered in the film exhibition industry, risks associated with other national and world events, discovery of undisclosed material liabilities, and general economic conditions. I will now turn the call over to our President and CEO, Ellis Jacobs.

Thank you, Melissa. Good morning and welcome to Cineplex Inc's first quarter 2020 conference call. We are glad you could join us. Let me start by saying on behalf of all of us, we hope that each of you and your families are safe and healthy. On today's call, we will take a brief look at the first quarter results and the impact of COVID-19, but we'll focus much more on the actions we have taken to manage through this crisis, as well as our reopening plans to safely welcome guests back to our theaters and entertainment venues and ramp up our other businesses. Then, we will look ahead and share how we plan to position the company for its continued success in the future. We will briefly touch on the end of the transaction with the Cineworld Group and our proposed litigation. And at the conclusion of my remarks, our Chief Financial Officer, Gordon Elson, will provide an overview of the financials, specifically focusing on the ongoing impacts of COVID-19 on our Q1 financial statements and Cineworld's repudiation of the arrangement agreement. Following that, we will hold a question and answer period. The social and economic effects of COVID-19 have been widespread and hard-hitting. Like so many other businesses in Canada, as a direct result of the global pandemic, we were required by provincial governments across Canada to temporarily close all of our theaters and location-based entertainment venues on March the 16th. We had a strong start to the first quarter with our total revenue for January and February up approximately 6%. But with the capacity restrictions and mandated closures in March, our first quarter results were impacted by the COVID-19 pandemic, which had a negative effect on our business, resulting in decreases in revenue, operations, and cash flows. Gore will go into more detail shortly, but what I would like to emphasize is the swift action we took to mitigate the negative impact and support the long-term stability of the company. We immediately moved our attention to cash and expense mitigation strategies to ensure that the benefits of minimizing cash burn would be realized through the full period of our closures as well as our reopening. This included temporary layoffs of all hourly employees and voluntary salary reductions by all remaining full-time employees. We reduced all non-essential discretionary operational expenditures such as spending on marketing, travel, and entertainment. We also reduced capital expenditures, implemented a strict review and approval process for all outgoing procurement and payment requests, and continued the suspension of dividends. We also focused on partner support. This included government programs, primarily through the federal government and service level reductions, cessations and abatements from our supplier partners. We also proactively negotiated with our landlord partners for rent relief, including abatements during our closure period and converting fixed rent to variable rent during our ramp-up period until attendance returns to previous levels. Finally, we continued to meet the conditions of the Cineworld Arrangement Agreement until it was repudiated by Cineworld. Since Cineworld's repudiation, we have focused on working with our financial partners to ensure that our long-term liquidity needs are met. While we were able to dramatically reduce our cash burn, we also remain committed to growing and supporting the areas of our business which are not as impacted by the COVID-19 shutdowns. These include Cineplug's digital media, which has been working at full capacity with client work and proposals, I expanded food delivery services through Uber Eats and Skip the Dishes and our online Cineplex store which experienced significant growth as people consume more content from home. We also felt it was important to support the community in such troubling times, which is why, beginning in mid-April, we committed to donating $1 to Foodbanks Canada for every home delivery order that we fulfilled at our theatres and locations of direct rooms across Canada. To date, we have raised over $100,000 to improve access to food for Canadians facing social, economic and health impacts of the COVID-19 pandemic in the short term. During this time of uncertainty, we are focusing on what we can control and are taking prudent action in a variety of areas. We are and will continue to make difficult but necessary decisions to manage through this crisis and position Cineplex for continued success as we begin resuming operations. Shifting gears, I would like to take a moment to speak about the Cineworld transaction. Believe me when I say we share the frustration and disappointment felt by our shareholders at the repudiation of the deal by Cineworld, who purported to terminate the arrangement on June 12. As was communicated in our press release issued later the same day, we believe that Cineworld had no legal basis to terminate the agreement. We believe that Cineworld is, in fact, in breach of the arrangement and attempting to avoid their obligations under the arrangement agreement in light of the COVID-19 pandemic. In terms of timing, we expect to file our statement of claim in the Ontario courts within the next week or so and will disclose publicly when the claim is filed. Unfortunately, we cannot provide much more information at this time. but we are committed to working diligently to advance the legal process and seek to recover all damages available to us based on Cinnabon's breaches of its contractual obligations. Moving to reopening, the day our doors closed over three months ago was the day our team began diligently preparing for their safe reopening. We used that time to carefully re-examine all of our buildings and processes and our past theaters and entertainment venues now begin to reopen. We are implementing an industry-leading program with end-to-end health and safety protocols across the board. Our top priority has always been the health and safety of our employees and guests and ensuring that we can offer a safe, comfortable, and welcoming environment. This is why we are diligently following and implementing all guidelines from public health authorities as well as those put forth by municipal and provincial governments across Canada. We are also working with leading public health and infectious disease experts. Detailed information about all the measures we are putting in place is available on cineplex.com. At a high level, our strategy centers around three key components, enhanced cleaning, reducing capacity to ensure physical distancing and leveraging technology to ease operations and lessen touch points between our employees and guests. First, we are enhancing cleaning practices by using the highest levels of products throughout our theatres with a particular focus on high contact surfaces, restrooms and seats. We're also ensuring our team has the personal protective equipment they need to keep everyone safe. Second, we are implementing physical distancing measures throughout our buildings, including our lobbies, game slows, and food service areas. We are reducing capacity in all auditoriums and launching reserved seating across the entire network which means that seating options will be automatically blocked out to ensure proper physical distancing in every direction between guests. Finally, we are encouraging our guests to purchase their tickets online at cineplex.com or through the Cinepex app for contactless entry. In theaters, we will only be accepting debit and credit payments with the exception of exchanging cash for a Cineplex gift card, which you can do at our concessions counter. We will also be limiting our food offerings to Cineplex's famous popcorn and other cold concessions during our initial reopening. Taking our cues from government, we are also taking a gradual and phased approach to reopening. Each phase will be driven by provincial regulations around public gathering sizes and safety guidelines. The availability of first-run film product, social norms around physical distancing, and attendance levels at theaters and other venues once they have reopened. We are also implementing a number of pricing and marketing strategies to attract our guests and build consumer confidence as the impact of the COVID-19 pandemic subsides. As government restrictions continue to lift across individual provinces, we have already resumed measured operations at the rec room in Winnipeg, Calgary, Edmonton, and Toronto. We were excited to reopen the doors of six theaters in Alberta last Friday and will continue to resume operations at some of our locations in British Columbia, Saskatchewan, Quebec, New Brunswick, Nova Scotia, and Newfoundland on July the 3rd. Of course, things are changing quickly. Late last week, we learned of shifts in the film release schedule with Christopher Nolan's Tenet moving to August the 12th and Disney's release of Mulan moving to August 21st. In this moment, we know we must be flexible and cannot treat these new releases as we would a traditional release pre-COVID-19. As such, we have already adjusted our phased reopening approach. We will limit the number of theaters reopening in certain provinces in July and will continue to monitor our plans as necessary to comply with both provincial health authorities as well as the timing of major studio releases if need be. As we know, July will be a ramp-up period for the industry, so we are welcoming movie lovers back into our buildings with popular releases that missed their full theatrical run at a $5 price point. With travel restrictions still in place and summer vacation plans becoming staycations, we know that Canadians will be looking for affordable entertainment options that are close to home. Looking ahead, theater closures for the past three months have created a strong backlog of titles for the third and fourth quarters, so we anticipate a greater slate later in the year and into 2021. Movie lovers can look forward to films such as A Quiet Place 2, Wonder Woman 1984, Black Widow, No Time to Die, and Top Gun Maverick, among others hitting the big screens. I would like to take a moment to thank and congratulate our theater and location-based entertainment teams across Canada, as well as our field and home office employees who helped with reopening preparations and activations. Entertaining Canadians is what we do best, and we can't wait to get back to doing just that. While it is impossible to predict how long this crisis will last and how significant the impact will be on our business, We know that our guests miss the magic of the big screen and are looking forward to shared experiences with friends and family that cannot be replicated at home. And that's where our theaters and location-based entertainment venues come in. I strongly believe that we will emerge from this challenging time with a renewed sense of community and appreciation of social experiences such as movie-going that has proven to be an integral part of our culture and social fabric for well over a century. Finally, we'd like to thank Mr. Ed Sunshine, who resigned from our board of directors in May, for his dedication, valuable insight, and his support during his tenure with us. We would also like to announce the appointment and return of Ms. Phyllis Yaffe to the board of directors. As many of you may remember, Ms. Yaffe previously served on our board, including as a trustee of Cineplex Galaxy Income Fund from February 2008 to September 2016. Most recently, she served as Canada's Council General in New York from September 2016 to December 2019, and we are delighted to have her back. With Ms. Biafri's reappointment to the board, the directors have elected that she returns to the role of chair and thank Mr. Ian Greenberg for his commitment and service as chair. Mr. Greenberg will continue to serve on the board as a director. Throughout our history, Cineplex has demonstrated its agility and resiliency time and time again, and this time is no different. We have a highly strategic and seasoned senior management team who remains committed to our employees, our shareholders, our partners, and our guests through this time of change and transition. We are taking the necessary steps to navigate these uncertain times and remain steadfast on driving our business forward, reopening our network of theaters and entertainment venues across Canada, driving growth in other businesses and building a strong, well-positioned company for the future. With that, I will pass the call over to Gord.