Cineplex Inc.

Good day and welcome to the Cineplex Inc. First Quarter 2021 Analyst Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melissa Prasako, Senior Manager, Communications and Investor Relations. Please go ahead.

Thank you, Todd. Good morning and welcome. With me today is Ellis Jacobs, our President and Chief Executive Officer, and Gould Gordon-Elson, our Chief Financial Officer. Before I turn the call over to Ellis, let me 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. Following today's remarks, we will close the call with our customary question and answer period. Right now, I will turn things over to Alice Jacob.

Thank you, Melissa. Good morning and welcome to our Q1 2021 conference call. We are so glad you could join us today. I hope you and your families are well and staying healthy as we make our way through the third wave of the pandemic. Given the reinstated restrictions and mandated temporary closures across Canada that continued into the first quarter, it won't come as a surprise that we experienced a significant decline in our Q1 results. Therefore, I would like to focus today's discussion on the measures within our control and the groundwork we have laid for our recovery and success over the long term. I'm going to discuss three key areas of focus. First, how we further solidified our financial position. Second, how we continue to control costs and manage cash flow. And lastly, how we are well prepared to capitalize on the pent-up demand for social experiences as restrictions lift. Recognizing that the pandemic has lasted much longer than originally estimated, we created the financial stability needed to see us through the pandemic recovery period. During the first quarter, we received $57 million in gross proceeds from the sale leaseback of our head office in Toronto. In February, we completed a private placement offering of $250 million in the form of second lien secured notes, an offering that was significantly oversubscribed by our interested investors. It is a true testament to the market's faith in our business and the strength of our recovery once we are permitted to reopen. In addition, tax refunds of $63 million are starting to come in, and we obtained further relief from certain financial covenants under our credit facilities, which will extend to the fourth quarter of 2021. While Gord will provide a more fulsome financial update shortly, we also remain prudent in managing costs during Q1 and reported an average monthly net cash burn of $26.9 million and net capex of $5.1 million for the quarter. This was a result of continued cost controls and wage subsidies, primarily under queues, as well as rent abatements and government occupancy subsidies. With the expanding impact of the third wave of COVID-19, we continue to work with our landlords to obtain further relief. This includes negotiating lease-related abatements rather than rent deferrals during the closure period and pursuing other opportunities to extract value under our existing lease agreements. In addition, as I've mentioned on previous calls, we minimize all capital expenditures by deferring or canceling projects pending during the crisis. We are only moving forward with projects that are already significantly underway have binding legal commitments or where the need is critical to our business operations. We have a number of new builds that were near completion last year, including our Palladium in Dartmouth, Nova Scotia, which opened earlier this year and performed extremely well prior to the recent shutdown. Other anticipated openings include locations at the Rec Room in Barrie, Ontario, and Burnaby, B.C., as well as two VIP cinemas in Montreal and Burnaby. We expect these remaining locations will open shortly, which means we should see a reduction in construction costs in the second half of the year. Looking ahead, we will continue to actively monitor all aspects of our business and operations in order to minimize the impact of COVID-19 wherever possible, and we'll assess our future capital spending as we make our way out of the recovery period. Let me take a moment here to pause and restate what all of these actions mean for us. The team has done an outstanding job focusing on what we can control to bulletproof our company during this unprecedented time. The key liquidity actions I mentioned, combined with our ongoing focus on minimizing cash burn, provide the runway we need to see us through to the other side of this. And the other side is closed. We can all see the light at the end of the tunnel now. We will stay the course and remain focused over the next few weeks and months as the vaccine rollout continues across the country and restrictions lift. We know that the exhibition, amusement, and leisure industries will recover. In fact, we've already seen positive results from our peers in geographies that have reopened. We are thrilled to see strong desire from audiences in other countries to get back to the theater, and the numbers have exceeded the industry's expectations. The recent success of films like Detective Chinatown 3 in China, Demon Slayer in Japan, and box office results in Australia all point to where we are heading in the coming months. We've already seen proof within North America with the release of Godzilla vs. Kong a few weeks ago. The film's opening weekend brought all industry projections and is now over the $90 million mark in North America. Last week, Demon Slayer and Mortal Kombat exceeded over $40 million in box office in North America, signifying that audiences are excited to see movies in the theater on the big screen with big sound. These positive indicators extend to our LBE business as well. Dave & Buster's just announced it has 98% of its locations open and is seeing a strong uptick in results, which is encouraging for our locations of the Rec Room and Palladium. Out of the border, our P1AG business is seeing positive results as well. Most of our gaming operations within family entertainment centers have reopened and in many cases are comparing very well against 2019 business results even with several locations still closed and many with occupancy restrictions. I've been saying this for over a year, and it's even more true now. Everyone is missing the social connections that have been restricted for such a long time. We miss welcoming our guests into our theaters and LBE locations, and based on the data, our guests are eager to return too. Surveys conducted by our team this quarter show that scene members are excited to visit our venues, highlighting optimism amongst Canadians in returning to the big screen and our LBEs. We have remained extremely flexible and agile with our reopenings and subsequent mandated closures, responding quickly to reinstated or lifted restrictions as they come from local and provincial health authorities. We have diligently prepared for the safe reopening of all our theaters and LBE venues, carefully reexamining our buildings and implementing an industry-leading health and safety program to keep our employees and guests comfortable and safe. When we consider the safety of movie going, we know that it doesn't pose the same risk as other indoor services and gatherings. and we continue to actively work with government regulators and public health experts to highlight the safety protocols within our venues. We are proud of the continued track record of zero reported cases of in-cinema COVID transmission globally. What's more, a recent study published by the Technical University of Berlin concluded the risk of spreading the virus through aerosol particles and infecting someone else is much lower in cultural venues such as cinemas, theaters, or museums than it is in classrooms or offices, especially when you consider the unique conditions of moviegoing, which have largely silent, mass guests who are spaced out facing one direction in a typically high-ceilinged environment with little interaction amongst one another. We know our venues are safe and we are confident in our preparations for our guests returning. One thing is for sure, the team is eager to get back to the business of entertaining and providing our guests with a safe escape from the everyday. People are craving the experiences that we have to offer and we are ready to capitalize on this pent-up demand. As we continue to reopen our circuit, we will hit the ground running and deliver safe, first-class experiences as we welcome back our guests. As inoculation numbers rise across the country, we will see more people reenter social environments, especially with the great lineup of films coming out in the next few months. That is exactly what we are starting to see in parts of the U.S., What's more, the strength of the U.S. vaccine program has given confidence to the studios, which means the upcoming slate is very likely to hold firm with few changes. Right now, we are looking forward to films like A Quiet Place Part II, Peter Rabbit II, The Runaway, F9, Black Widow, The Suicide Squad, Free Guys, Shang-Chi and the Legend of the Ten Rings, The Boss Baby, Family Business, No Time to Die, Ghostbusters, Afterlife, Top Gun Maverick, and Spider-Man No Way Home, just to name a few for the balance of 2021. Even as studios rethink some of their theatrical release strategies, we know that streaming doesn't compare to the theatrical experience the studio recognizes this and moviegoers feel the same way. What we are seeing is that the pandemic has reinvigorated a love for the cinematic experience and escape that you just can't get from your couch. And after experimenting with release strategies for the past year, the studios have recognized that an exclusive theatrical release window is critical to a film's success as evidenced by recent announcements. While windows are changing, they are not disappearing and nor will moviegoings. Movie exhibition has been growing globally and pre-pandemic was over $40 billion worldwide. As I have said many times, we are the engine that drives the train and we are focused on driving our business forward full steam ahead. There's a difference between watching a movie and going to a movie theater, playing games online and playing them together, ordering in and dining out. And that's exactly what we're going to focus on as we come out of this pandemic. Providing our guests with an exceptional experience that they can only get in one of our theaters or LBE venues. We can't wait to get back to doing what we do best, entertaining Canadians and giving them the safe escape everyone is craving. With that, I will pass the call over to Gord.