Cineplex Inc.

Stand by. Good day and welcome to the Cineplex Inc. Q2 2020 Analyst Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Melissa Prasako, Senior Manager of Communications and Investor Relations. Please go ahead, Ms. Prasako.

Thank you, Cody, and good morning and welcome. Before we 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 materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, the negative impact of the 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 Jacob.

Thank you, Melissa. Good morning and welcome to Cineplex Inc. second quarter 2020 conference call. We are glad you could join us today. On the call this morning, we will take a brief look at the second quarter results and the severe impact that COVID-19 has had on the numbers as well as provide an update on the status of the litigation between Cineplex and Cineworld Group. We will also provide an update on our reopening plans and how we are positioning the company's continued success in the future. Our Chief Financial Officer, Gordon Nelson, is on the call to provide a financial overview, including our liquidity position, which will be followed by a customary question and answer period. Like so many other businesses in Canada and around the world, and as a direct result of the global pandemic, our locations were closed for almost the entire second quarter, only beginning to reopen in select markets during the last few weeks of June where it was deemed safe to do so. While Gord will go into more detail in a moment, it goes without saying that our second quarter results were severely impacted by COVID-19, resulting in substantial decreases when compared to last year. And although our physical doors were shut during this time, the team has worked harder than ever before to mitigate the negative impact, prepare for reopening, and support the long-term stability of the company. Beginning in mid-March and continuing throughout the second quarter, we remained laser-focused on significantly reducing operating costs and capital expenditures. In our efforts to reduce operating costs, we continued working with our landlords and real estate partners to abate and defer rents, eliminated all variable spending, and worked with our suppliers to renegotiate and revise contracts. We benefited from government wage subsidy programs. In addition to laying off our entire part-time fuel workforce during the closure period, Our corporate employees took voluntary temporary salary reductions to help alleviate the financial burden. While we were able to dramatically reduce our cash burn, we also remain committed to growing and supporting the diversified areas of our business. This included Cineplex Digital Media, our expanded food delivery services through Uber Eats and Skip the Dishes, and our online Cineplex store, which experienced significant growth as people consumed more content from home. We also took meaningful action to provide further financial stability throughout the recovery period and to ensure that our long-term liquidity needs were met. This included obtaining relief from certain financial covenants under our credit facilities and securing additional financing in the form of a convertible unsecured subordinated debenture issued subsequent to quarter end. While our business strategy remains the same, in the short and medium term, we are focusing on a smaller number of projects and priorities supported by a sustainable financial model. As we monitor revenues and plan for our future, subsequent to quarter end, we have to make the difficult but necessary decision to reduce the size of our workforce. We reworked our teams, consolidated our organizational structures, and had to say goodbye to a number of colleagues across the Cineplex ecosystem. And as we navigate through these unprecedented times, we will continue to take bold action in a variety of areas and make those tough but required decisions to position Cineplex for sustained success. This includes our agreement with Topgolf. Unfortunately, given the global pandemic, Cineplex and Top Calls have agreed to mutually terminate their partnership. The current environment is simply not an opportune time for us to invest in these large development projects, but we hope to see Top Calls come to Canada in the future. Before I shift gears to our measured reopenings, I would like to share an update regarding the Cineworld litigation. As you know, on July 3rd, Cineplex filed its statement of claim in the Ontario court seeking damages after Cineworld wrongfully repudiated the transaction to acquire our company. Since then, the court has set a timeline to get to trial. While the trial is tentatively set to begin in September 2021, delays are possible. Having said that, we are diligently working to advance the legal process and seek to recover all damages as outlined in the claim. Turning the focus to our measured reopening, since we closed our doors in mid-March, the team has been diligently preparing for our safe return. We have used this time to carefully re-examine all of our buildings and processes. We worked with the country's top infectious disease experts to develop and implement an industry-leading program with end-to-end health and safety protocols across the board so that our guests feel confident and relaxed when they return to our venues. I'm pleased to share that as of today, we have reopened over 80% of our theater circuit with 137 theaters across Canada in all major markets. Plus, all of our locations of the Rec Room and Palladium are now all open. Early results are encouraging, and our guests are delighted to be back, almost as delighted as our teams were to reopen our doors and get back to doing what we do best, providing some much-deserved entertainment, fun, and escape. Taking our cues from all levels of government, our phased approach to reopening continues to evolve and is driven by provincial regulations and safety guidelines, the availability of first-run film products, social norms around physical distancing, and attendance levels at theaters and other venues that have reopened. We remain extremely strategic and agile in our approach as we welcome our guests back and build consumer confidence. And speaking of first-run film products, today is truly a momentous day for Cineplux and for the industry. After five long months, today we are welcoming our guests back with new first-run content, and we couldn't be more thrilled. We have three new titles coming to the big screen today, including the exclusive Canadian release of the SpongeBob movie, Sponge on the Run, the thriller Unhinged, and the highly anticipated Quebec film, Morset MR. Also of note, Christopher Nolan's Tenant will be released in Canada on August 27th as part of the international release, which is a week before the United States. This isn't something that would have happened pre-COVID and is a testament to the strength of our reopening plans and the studio's belief in our business and the theatrical model. Having said that, we were all very surprised to learn of Disney's decision to send Mulan straight to Premium VOD or PVOD. While we were excited to bring the film to the big screen and were confident that it would perform well in our theaters, Disney is a valued partner, and while we are disappointed, we respect their decision. That said, Disney has assured us that the decision was a one-off as a result of the pandemic environment and that they are still very committed to the theatrical window. Which leads me to our next topic. I know there's been a lot of speculation and noise in the media over the past few weeks regarding shortened theatrical windows that I would like to address. Cineplex is not changing its release windows at this time. Over the years, I've had many conversations with our studio partners about the importance of the theatrical window, and we will continue to have these discussions moving forward. In speaking with our partners, they have assured me that the theatrical run is still important to them. They know that the global theatrical box office for a film often represents 50% or more of its overall revenue. which means that significantly shortening the theatrical window could have a serious impact on the latter part of a film's life. As exhibitors, we are the engine that drives the train and sets the stage for additional downstream revenues for a film from the creation of sequels to merchandising opportunities to theme park attractions and other offshoots. We create great brand awareness and loyalty for our distribution partners. not to mention providing the social and audio-visual experience that guests love and crave, especially right now. In fact, as we continue to look at new ways to attract different audiences, we are working with Rogers Sportsnet and TSN to bring select NHL and Raptor playoff games to the big screen. Admission is free with a $5 donation to the Boys and Girls Club of Canada, and attendance has been encouraging. Looking ahead, there's still a very strong backlog of titles as the back half of the year continues to ramp up. In addition to Tenant, that I already mentioned, we have Wonder Woman 1984, Death on the Nile, Black Widow, Candyman, James Bond, No Time to Die, Pixar's Soul, West Side Story from Steven Spielberg, Dune directed by Quebec Sloan, Denis Villeneuve, and Crude Stew, among others, hitting the big screens. While there could still be some movement over the course of the year, we expect 2021 to be a very strong year at the box office. Several key titles have shifted from 2020, including Top Gun Maverick, Fast and Furious 9, A Quiet Place 2, The Eternals, and Minions, The Rise of Groove. This, of course, in addition to titles previously announced for 2021, such as The Batman, Jurassic World, Dominion, Sync 2, Mission Impossible 7, and Cruella. What I know for certain is that these past five months have given us all a new appreciation for the importance of friends and family and the power of shared experiences with those we love. We know people have missed the wonder of the big screen and are craving that social interaction after being constrained in their homes for months. And we are excited to now be in a position to safely welcome them back. Cineplex has been entertaining Canadians for over 100 years, and this has certainly been an order unlike any our company or the industry has experienced. While so much of what is happening right now is out of our control, our priority over the past several months has been on what we can control decreasing costs, trimming our capex, and securing the financial relief and resources we need to ensure the financial health of the company during these uncertain times. I remain confident in our ability to evolve and emerge stronger in this new world, particularly with our passionate and dedicated employees who have worked tirelessly throughout these tough times. I would like to thank the team for their resilience and perseverance in the face of such adversity as we forge ahead to the next phase of our future together. I would also like to thank our committed board of directors who have provided great knowledge and guidance throughout this period. With that, I will now pass the call over to Gordon Ellison.