Cineplex Inc.

Good morning, everyone, and welcome to the Cineplex Incorporated Q3 2022 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. At the end of the presentation, you will have the opportunity to ask a question by pressing start, followed by the number one on your telephone keypads. I'll now turn the call over to our host, Marcel Rogini, Executive Director, Corporate Development and Investor Relations. Please go ahead.

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 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 remark, we will close the call with our customer request question and answer period. I will now turn the call over to Ellis Jacobs.

Thank you, Martha. Good morning and welcome to our Q3 2022 conference call. We are glad you could join us today. I am pleased to share that the third quarter marked another significant step in the resurgence of Cineplex and the theatrical exhibition industry. The North American box office reached $1.9 billion during the quarter, which was 44% higher than Q3 2021. These results were achieved despite the widely expected and thankfully temporary limited supply of Hollywood content in the second half of the quarter. Leading the box office was Minion's Rise of Gru, which brought families and the highly sought-after teen demographics back, generating over 360 million in North American box office. Then there was Marvel's Thor Love and Thunder, which has earned over 340 million domestically to date, and the continued success of Top Gun Maverick, Top Gun which has become one of only six films to ever exceed $700 million in North America. It is now the fifth largest domestic film of all time. The sustained success of this title 23 weeks after its initial release is truly remarkable. These results, along with many other examples from the past year, demonstrate that consumer enthusiasm for theatrical moviegoing is as strong as ever. Even more promising is that we continue to see significant growth in attendance for our premium offerings, which accounted for nearly 37% of our third quarter box office. We now offer eight different types of experiences for movie lovers, and these investments are showing strong results as our theaters with premium amenities have been the fastest to recover. The bottom line is, when there's compelling content, guests are coming back to our theaters. Leading up to the quarter, Cineplex and the industry as a whole anticipated limited Hollywood content in August and September as a result of pandemic-related production delays. In response, we undertook a series of targeted marketing initiatives to drive attendance and diversify our film slate by increasing focus on international products. We consistently take an industry-leading position in international cinema and were very pleased with this quarter's results. In fact, we earned an impressive 80% of the North American box office for the Punjabi film Chalamud Ki Nahi Aaye. For Disney's Bollywood title, Bamastra Part 1 Shiva, Cineplex took a notable 28% market share. These are strong numbers, especially for Cineplex, which generally accounts for 7-8% of the North American box office on Hollywood releases. Years worth of rich data about Canadian movie-going habits has enabled us to match certain content to the right demographics in specific locations. As a result of our efforts, we achieved box office revenue of 70% compared to the same quarter in 2019. From a recovery perspective, our June box office came in at 89% compared to the same month in 2019, followed by 85% in July. Due to the previously mentioned product supply issues, box office results declined in August and September, but Cineplex performed better than the industry as a result of the initiatives I noted earlier. In August, we reached 64% of 2019 levels, exceeding the domestic industry by a notable 500 basis points. Similarly, in September, we reached 52% of 2019 levels, outpacing the North American box office recovery by 300 basis points. And in October, we continued to be impacted by content supply challenges for the first half of the month, but saw our box office recovery reach 62% of 2019. While Gord will speak to our financial highlights in more detail shortly, I did want to emphasize our commitment to growing our diversified businesses. We are particularly pleased with the results of our amusement and leisure segment, which included an all-time quarterly record adjusted EBITDA in both the P1AG and LBE business. The momentum at the box office, combined with growth in our diversified businesses, fueled third quarter year-over-year revenue increase of 36% and adjusted EBITDA of $20.4 million, which is a 90% growth when compared to the same quarter last year. And there's more to be optimistic about. The fanfare and successful opening of Black Adam last month has kick-started the exhibition industry from a film slate perspective. This holiday season will be a busy one with two of the most highly anticipated releases in years, Black Panther Wakanda Forever and Avatar The Way of Water. Black Panther opens tonight for advance showing across Canada and ticket sales thus far indicate that we are on track for a very strong weekend. Avatar The Way of Water, which opens December 16th, is the highly anticipated sequel to the highest grossing film of all time. As you may know, the Canadian Academy Award winner James Cameron directed the film and was also one of the writers. Our team remains focused on reigniting theatrical exhibition and driving attendance. One key pillar of this marketing is marketing and loyalty. During the third quarter, through targeted ScenePlus offers, promotional campaigns, and one-to-one engagement offers, we outpaced the industry as noted above. We also participated in the inaugural National Cinema Day campaign on September the 3rd, where theaters across Canada, the United States and Europe celebrated movie going by opening their doors with $3 admissions. Welcoming over a half a million guests in one day, National Cinema Day was our busiest day thus far in 2022 and third busiest day in the last five years. During the quarter, in partnership with Scotiabank, we also officially welcomed Empire Company Limited to the ScenePlus loyalty program as a co-owner as it initiated its phased retail rollout across Canada. This has resulted in substantial membership growth in recent months, which will continue as the program has rolled out across Canada. Following the launches in Atlantic and Western Canada, the rollout for Ontario occurred last week, and Quebec's rollout is scheduled for early next year. To further underscore the positive momentum for ScenePlus, Home Hardware Stores Limited would also be joining ScenePlus as loyalty partners sometime next summer. ScenePlus growth provides Cineplex with the opportunity to engage and reach a wider range of consumers, including non-moviegoers. From a subscription perspective, we are introducing two important innovations to our Cine Club program leading up to the holidays, just in time for the upcoming busy box office and the holiday gifting season. First, in September, we launched the ability for members to purchase annual memberships, and earlier this week, we also launched gifting. This means that this holiday season, Canadians will be able to give the gift of a year of movies to their loved ones. Cine Club has been a great success since its launch, and we will continue to innovate and expand Cine Club features as we focus on program growth. In October, we hosted the exclusive Black Adam Rocks Canada fan event at the Rec Room Roundhouse, welcoming world-famous Dwayne Johnson into our venue. Over 900 fans and the media enjoyed exclusive photo opportunities, the chance to win various prizes, including annual Cine Club memberships and a special advanced screening of Plath Adams at neighboring Scotiabank Theatre Toronto. The success of events like these certainly demonstrates our ability to leverage assets across our ecosystem, whether in a theatre or an entertainment venue, to engage with customers while driving business across Cineplex's operations. I would like to thank Warner Brothers Pictures Canada for partnering with us and we look forward to hosting similar events in the future. In the quarter, we continue to diversify film content and increase our international offerings through our distribution business Cineplex Pictures. The business continues to grow as we release the anime hit Dragon Ball Super Super Hero. along with three international films this quarter, including titles from China, South Korea, and Egypt. In fact, this past weekend, two of the top ten films in Canada were distributed by Cineplex Pictures, One Piece Film Red and Pray for the Devil. In addition, we continue to make progress with non-traditional suppliers as they are choosing to showcase their content on the big screen. In October, we reached an agreement with Netflix for the theatrical release of Glass Onion, a Knives Out mystery, later this month. It is becoming increasingly clear that the approach by streamers to collapse theatrical windows and squarely focus on growing a subscriber base does not deliver sustainable or competitive returns. Traditional and non-traditional studios are now forming a new and heightened appreciation for the role of theatrical release in increasing awareness and value for content prior to its launch on streaming platforms. That said, we believe this realization will lead to further content opportunities with exhibitors. As you've heard me say before, exhibition is the engine that drives the train for downstream revenues for any and all content producers. Turning to our next strategic priority, our diversified businesses continue their strong rebound and recovery. As mentioned earlier, our amusement and leisure segment continues to consistently deliver strong results, and this quarter it generated all-time quarterly record revenues and adjusted EBITDA. In fact, revenues for comparable LBE locations reached 95% of 2019 levels, with many locations exceeding 2019 results. Our P1 AG business also performed exceptionally well, generating a record adjusted EBITDA and adjusted EBITDA margin of 19.8%. This is reflective of strong top line demand where we saw third quarter revenues exceed Q3 2019 and our team's ability to effectively manage inflationary pressures and control costs. On the media side, we remain encouraged by continued signs of recovery for Cineplex Media and Cineplex Digital Media, both seeing significant improvements in overall revenues for the quarter. With the promising film slate and holiday mall traffic to look forward to, we expect to see further momentum in these divisions moving forward. Overall, we are pleased with the performance of all our businesses and the diversification strategy as a whole, which has been an important pillar for the continued growth of the company. Looking ahead, we are particularly excited about opening the first location of our new entertainment concept, Junction, later this year in Winnipeg. Aptly named as it leverages our capabilities in exhibition and location-based entertainment, Junction will provide our guests the ultimate destination for a complete night out. It features multiple entertainment options, including movies, amusement gaming, live events, and expanded food and beverage offerings, all in one great venue. Though Junction is the first of its kind in Canada, the location itself is not new to our circuit. Located in Winnipeg, the new Junction location will replace an existing older theater of famous players, Gildon, in place. Our second Junction is scheduled to open at Aaron Mills Town Center in Mississauga, Ontario in mid-2023. Before I pass things to board, here is a brief update on the ongoing litigation with Cineworld. As we announced on September 7th, Cineworld filed for Chapter 11 bankruptcy in the United States which resulted in an automatic worldwide stay of all enforcement proceedings against it. We attempted to lift the stay with respect to the ongoing appeal in Ontario, but our request was denied and the litigation is on hold for now. On October 31st, Cineworld received final court approval with respect to its debtor and possession facility, which required agreement from its lenders and landlords. It is important to note that this is not a plan of reorganization. That said, Cineworld remains under Chapter 11 bankruptcy, and we continue to work closely with our advisors to monetize and maximize the judgment claim. Looking ahead, it is clear that all of our businesses are gaining momentum. The global exhibition industry is rebounding as guests return to theaters in search of great movie moments, premium experiences, and a magical escape. Our studio partners and non-traditional studios recognize the underlying importance of an exclusive theatrical window as evidenced by the desire to release their content on the big screen. We're excited by the robust film slate of blockbuster titles for the remainder of the year and into 2023. We feel this lineup, combined with strong consumer enthusiasm for moviegoing, confirms that our business is back in a meaningful way. When assessing the 2023 film slate, it is important to remember that the volume of films isn't the only indicator of success at the box office. Oftentimes, fewer titles means that they can have an extended life in the theaters. At the end of the day, quality is the key driver to success of the box office. As evidence of the success of Top Gun, we look forward to much anticipated titles in 2023, including Ant-Man and the Wasp, John Wick Chapter 4, Super Mario Brothers, Guardians of the Galaxy 3, Fast X, The Little Mermaid, Spider-Man Across the Spider-Verse, Indiana Jones 5, Mission Impossible 7, Barbie, Christopher Nolans, Oppenheimer, The Marvels and Dune Part 2. In closing, we remain focused on maximizing value across all our businesses and driving shareholder returns. Our balance sheet is solid and we remain confident in our ability to manage financial uncertainties. Cineplex is well positioned to fully capitalize on surging demand as we head into an exciting holiday season and beyond. I'd like to thank our incredible team for all that they do to enhance our position as an industry leader. With that, I will turn things over to Gord.