Cineplex Inc.

Good day and thank you for standing by. Welcome to Cineplex's first quarter 2022 earnings call. There will be an opportunity to ask questions after the speaker's prepared remarks, but you can do so by pressing star one on your telephone keypad. I would now like to hand the conference over to your first speaker today, Masha Rajali, Executive Director, Corporate Development and Investor Relations. Thank you. Please go ahead.

Thank you. Good morning and welcome. With me today is Ellis Jacob, our President and Chief Executive Officer, and Gord Nelson, 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 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 customer question and answer period. I will now turn the call over to Ellis Jacob.

Thank you, Marissa. Good morning and welcome to our Q1 2022 conference call. We are glad you could join us today. As I address our results, I need to say that the theatrical exhibition industry in Cineplex continued to make significant strides in recovering from the effects of the pandemic. This resulted in a first quarter year-over-year revenue growth of 452% and a reduction in net loss of 53% for our company. Leading film performances during the quarter included the highly anticipated title The Batman, which has grossed over $765 million at the global box office, and the continued success of Spider-Man No Way Home. The film delivered record-breaking results with $1.9 billion in global box office to date. Despite a December release and closures in January, our guests waited to watch it on the big screen when we resumed operations, with the film contributing 20.4% to our first quarter box office. We were also pleased with the performance of alternative content in the quarter, and our company has been a pioneer in bringing such content to the big screen, particularly with international titles. For instance, the Bollywood title, Haja Mexico Chalier, was very well received globally and generated nearly $100 million, with Cineplex leading the charge in North America and contributing 65% of the domestic box office. Next came the K-pop sensation BTS, which returned to cinema for a global one-day event. Permission to Dance becoming the single biggest feature of its kind in the history of event cinema achieved with only two showtimes. Then came Jujutsu Kaisen, an anime film released in mid-March which rose to the number two position at the North American box office after The Batman on its opening weekend and generated more than $154 million worldwide. Looking to the remainder of 2022, the film slate is expected to be even stronger. with titles so far in Q2 including Sonic the Hedgehog 2, Fantastic Beasts, Secrets of Dumbledore, and Doctor Strange in the Multiverse of Madness. This film exceeded industry expectations and debuted with an incredible opening weekend gross of $185 million at the domestic level, $100 million higher than the first Doctor Strange film. We are proud to say this represents Cineplex's sixth largest film opening of all time. We are excited by these results and the industry's momentum as we move forward. This enthusiasm was shared amongst our peers, studio partners, and other stakeholders at our industry's annual trade convention, CinemaCon, which took place in Las Vegas this April. CinemaCon brings together studios and exhibitors from around the world and provides a forum for our studio partners to showcase their upcoming film slate. During this year's convention, we had the opportunity to view highly compelling content that is sure to delight diverse audiences over the coming months. It was clear to us that our studio partners are committed to an exclusive theatrical release window and viewed as critical to maximizing revenue streams for a film including improving performance on streaming platforms. Furthermore, we heard from actors and directors that they are making films for the big screen and the magic of moving away. Overall, the feedback received at CinemaCon was overwhelmingly positive and there was strong consensus that the theatrical exhibition industry is back and poised for a strong recovery. While government mandated restrictions and closures due to the Omricorn variant continue to pose significant challenges in Q1 for our company, There's no question that we are on a path to recovery. As we announced on April 18th, we are now operating our entire circuit across the country. In the past two years, whenever operating restrictions were lifted, our guests and customers quickly returned to our theaters and entertainment venues. In January, the vast majority of our venues were either closed or operating under restrictions, And as expected, this was reflected in our venue results with box office revenue reaching only 22% of 2019 levels. Starting early February, all our venues were open but with significant operating restrictions in most provinces, which resulted in box office revenues that still managed to reach 60% of 2019 levels. Then in March, operating restrictions relaxed further and enabled an increase in box office revenue to 70% of 2019 levels. As I mentioned earlier in my remarks, in April, all our venues began operating at full capacity with no restrictions, including mask mandates, vaccine passports, with the exception of Quebec, which will be free of mask mandates on Sunday. This momentum is very promising and provides confidence in the future and our quick recovery. Despite the challenges noted earlier, we still delivered strong revenue growth during the first quarter compared to the prior year period, welcoming 6.7 million guests to our team. We achieved a first quarter record BPP of $12 driven by premium offerings and an all-time quarterly record CPP of $8.82, which is an increase of 44.1% when compared to the prior year. CPP growth was driven by product mix, modest price increases, additional VIP cinemas, and higher concession spend by our guests. However, due to the material negative impact of Omicron and the mandated operating restrictions during Q1, we reported a net loss of $42.2 million during the quarter compared to $89.7 million in Q1 2021. Our adjusted EBITDA loss improved to $5.7 million from $62.1 million last year. Looking at our segmented results, although the adjusted EBITDA contribution from our film and entertainment business was marginally negative at 6.3 million, our media and our amusement and leisure delivered positive adjusted EBITDA for the quarter. Furthermore, even though our LBE business was impacted by closures and operating restrictions, It was the biggest contributor of EBITDA for the quarter, due in part to the huge success during the March school break. These results highlight the strength of our diversification strategy and the significant opportunities they represent for our future growth. While our recovery is ongoing, we can now say for the first time in over two years that our entire circuit of venues is open without restrictions as we begin to emerge from the pandemic and transition towards a normalcy. We are particularly encouraged by results that surpass pre-pandemic box office numbers, such as last weekend's opening of Doctor Strange in the Multiverse of Madness, where we achieved 129% of the comparable box office period in 2019. This overachievement also occurred during the opening weekend of Fantastic Beasts, The Secrets of Dumbledore, where we achieved 107% of 2019 box office levels. Our audience demographics are also beginning to return to the pre-pandemic profile, and as we see the release of a more diverse film slate, we expect these demographics to increasingly resemble the mix of guests we welcomed before the pandemic began. Two great examples are the release of Sonic the Hedgehog 2 and the Bad Guys, which brought more families to our theaters. We are also incredibly excited by the highly anticipated film Top Gun Maverick, which we expect will have great appeal for a wide spectrum of adults to get. As we move forward in 2022 and gain momentum in all of our businesses, we will continue to effectively navigate the effect of the pandemic and drive long-term value creation for our shareholders. We expect to achieve growth in our business by a focused implementation of our strategic priorities, which include reigniting theatrical exhibition, growing our diversified businesses, leveraging our ecosystem, and continue to apply financial discipline and operational excellence. Our first priority is to reignite theatrical exhibitions. This effort includes, first and foremost, our objective of driving attendance and increasing movie-going frequencies. To achieve this, we will be focused on growing our entertainment subscription program, CineClub. Since its launch in the third quarter of 2021, the program has received a positive response from our guests. And we believe CineClub's value proposition will continue to encourage additional visits and engagements across the Cineplex ecosystem. Another way we will look to drive attendance and frequency is through our long-standing Scene Loyalty Program. Now in its 15th year, Scotia Award members were recently added to Scene, which is now Scene Plus, providing future opportunities for greater connections with more Canadians. The expanded base will enable our team to target and engage with a wider range of members, both growing our customer base and increasing movie-going frequency. We continue to explore alternative content offerings to attract new audiences, including the expansion of our distribution business, Cineplex Pictures, for select feature films in Canada. This is in addition to our successful efforts to increase and diversify content with international titles, non-traditional studios, and other alternative programming through Cineplex events. Non-traditional studios recognize the importance of a theatrical release as it increases awareness and the value of their content prior to being released on their streaming platforms. We are continuing discussions with non-traditional suppliers to expand the content of our screen. Further to these efforts, for the month of March, seven out of our top 20 titles were driven by alternative content, which included four international titles, two non-traditional titles, and Cineplex's picture release of the feature film Ella and the Little Sorcerer. Some of our alternative titles even outperform Hollywood films in select theaters, and this underscores the importance of this content. Finally, we will drive guests to our theaters through focused and measured marketing initiatives. This ranges from high-level awareness campaigns to remind all Canadians of the magical escape of returning to the movie theater, right down to one-to-one offers which target unique cohorts of guests, with titles or promotions designed specifically to bring them back to our theaters. These one-to-one initiatives are a growing focus area for us, and they allow us to profitably leverage our significant customer data to enlist our marketing capabilities and digital and media assets to drive and measure consumer demand and conversion. Our second objective in reigniting theatrical exhibition is to increase per patron spent. We will accomplish this through numerous initiatives such as expanding and enhancing our concession offerings, optimizing our pricing strategies, and again, leveraging customer data and one-to-one offers to drive purchase and upsell. Last but certainly not least, we will reignite moviegoing by enhancing the guest experience. For us, This entails continuing to invest in our digital products to simplify and improve transactional processes. We will also continue to expand our premium offerings, including Ultra AVX, IMAX, VIP cinemas, D-Box, recliners, 3D, 4DX, and ScreenX to make sure our best experience is truly unique and memorable, one that can't be replicated at home. While exhibition remains our core business, we remain focused on our diversification strategy and will persist in our efforts to scale and drive growth in our non-exhibition businesses, which is our next strategic priority. Within our amusement and leisure segment, we are excited about the strong numbers we are seeing from our location-based entertainment and P1AG businesses. In our LBE business, we currently have 10 rec rooms and three palladiums across the country, with almost half of the new locations opening within the last two plus years. Given the number of locations, we are starting to build scale in this business, and it's becoming a most significant part of our total revenue. Going forward, we will look to drive results in this segment through organic growth from existing locations. the addition of new locations through the opportunistic and prudent rollout of the LB concept, and by enhancing operational efficiencies to increase margins. The recovery of our P1 AG business has been strong. Two-thirds of its business is generated in the United States, which was less impacted by operating restrictions. Going forward, we will continue to grow the business, both within our existing customer base and by attracting new customers. Within the media segments of our business, both Cinemaplex Media and Cinemaplex Digital Media continue to show encouraging signs of recovery. Cinema media is showing strong growth as client confidence returns and companies build out their advertising budgets for the remainder of 2022. Typically, there's a delay between the return of our audiences and the return of spending from our media advertisers. Our team at Cineplex Digital Media continues to be busy with the rollout of new products and services which optimize digital signage, expand offering for our clients, and unlock value from data and experience design services. Going forward, we believe we can expand the business through high-margin opportunities from these initiatives, drive growth within our existing client base, and add new clients. A great example of this is the recent addition of Primaris Mall to our digital out-of-home mall network. Our third strategic priority is to leverage the Cineplex ecosystem to unlock the value of data across all our business lines. Collectively, we have millions of touchpoints that translate into meaningful data collection opportunities. This has great potential for value creation and can help us improve our decision-making capabilities improve our guests' insights, enhance our one-to-one marketing efforts, and evolve our media value proposition. Another way we will look to unlock data is to leverage our ScenePlus loyalty program, which I spoke about earlier. In addition to the benefits of leveraging data across the ecosystem, we constantly strive to drive both revenue and cost synergies across our business lines. Our fourth and final strategic priority is focusing on optimizing our operations and further solidifying our financial positions. For us, this entails three objectives, the first of which is using automation and artificial intelligence to streamline processes and improve workforce management. Secondly, we want to optimize the use of our retail square footage, including the conversion of excess space within some of our theaters to provide additional entertainment experiences. There's also opportunity to be unlocked by potentially exiting select locations which are underperforming. And thirdly, we will apply financial discipline as we've always done to manage capital allocation across our businesses and work towards achieving our target leverage ratio of 2.5 to 3 times. Given everything that I've highlighted today, Cineplex has an exciting future and we are optimistic about our position in exhibition and all other businesses we operate. Before I pass things to Gord, I want to provide a brief update on the ongoing litigation with Cineplex. As many of you heard, in December 2021, the Ontario Superior Court of Justice issued a judgment for $1.24 billion in favor of Cineplex. While Cineworld has filed its appeal, we remain confident in the court's decision and will defend all aspects of the judgment. The oral hearing at the Court of Appeal for Ontario has been set for October 12th and 13th of this year. We recognize the significance of this matter and have engaged world-class advisors to assist in the optimization of the value of the judgment. Looking ahead, it is clear the global film industry is poised for a big return as we emerge from the pandemic and content supply remains strong. As you've heard me say, theatrical exhibition has and will always be the engine that drives the train. This is consistent with the key message that was echoed during CinemaCon about the importance of a theatrical release and the cinematic experience to promote and elevate content to its utmost potential. With that said, we are particularly encouraged by the remainder of this year's film slate, which is very promising as we saw during the premieres of these films at CinemaCon. In addition to Dr. Strange, for the remainder of Q2 2022, the following titles are slated for release. The highly anticipated Top Gun Maverick, which basically is opening on May 22nd. I had the pleasure of seeing this film and can't recommend it enough. Jurassic World Dominion, Lightyear, Elvis, and The Black Phone. And for the remainder of the year, we have Minions, The Rise of Groot, Thor, Love and Thunder, Nope, Bullet Train, DC, League of Super Pets, Don't Worry Darling, Halloween Ends, Black Panther, Wakanda Forever, Shazam, Furious the Guards, and likely the most anticipated film of the year, Avatar, The Way of Water. I was fortunate to see some breathtaking 3D footage of this film, and I can't wait for its release. When I look at these titles, I am delighted by the variety among genres, including mid- to top-tier films that will surely captivate moviegoers in our theaters for the remainder of the year. In closing, we are excited about the future. Our theaters and entertainment venues are open across the country without operating restrictions. We are poised to capitalize on the impressive film slate for the remainder of the year and the promising momentum we are witnessing in our other businesses. Our balance sheet is solid and we are well positioned for a strong recovery for the remainder of 2022 and beyond as we emerge from the pandemic. Finally, we will continue to advance growth initiatives and drive long-term value for our shareholders to maintain Cineplex's position as an industry leader. With that, I will turn things over to Gord.