Cineplex Inc.

Hello and welcome to the Cineplex Inc Q1 2023 earnings conference call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I'll now hand over to your host, Mesa Rajali, VP of 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 Gordon Ellison, 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 world events, discovery of undisclosed material liabilities, and general economic conditions. Following today's remarks, we'll close the call with our customary question and answer period. I will now turn over the call to Ellis Jacob.

Thank you, Masha. Good morning and welcome to our Q1 2023 conference call. We are glad you could join us. I am very excited to be addressing you today as our business moves forward to a promising era in the exhibition industry. First, guests are continuing to show up. They love coming to our theaters and are choosing the shared and immersive theatrical experiences that we offer. Second, content supply is ramping up with Hollywood, international suppliers, and streamers releasing many anticipated titles. Third, the commitment of traditional and non-traditional studios to an exclusive theatrical window is stronger than ever. And lastly, I want to discuss Cineplex's advantageous position and the strategies we deploy in capitalizing on the positive momentum in the return of moviegoings. Consumer enthusiasm for the theatrical experience is strong across a range of genres and for all demographics. Here are just a few examples. Top Gun Maverick, Spider-Man No Way Home, Doctor Strange and the Multiverse of Madness, Creed III, and John Wick Chapter Four were all the highest grossing domestic films of their respective franchise. Three of the top 10 highest grossing domestic films of all time have been released since 2020, including Spider- No Way Home, Top Gun Maverick, and Avatar The Way of Water, which has now crossed the $2 billion mark and become the third highest grossing movie globally. Horror films Megan and Smile substantially exceeded industry expectations, delivering domestic box office revenue of over 95 million and 105 million respectively. Smile was originally slated for direct streaming, but was given an exclusive theatrical release instead, which was highly beneficial to the bottom line, so much so that a sequel is now being produced. And more recently, family favorite, the Super Mario Brothers movie, released in April of this year, has surpassed $1 billion at the global box office and is now in the top five family movies of all time. These and other record-breaking results demonstrate a point you hear me say on each and every one of these calls. When there's compelling content, consumer enthusiasm for theatrical moviegoing is as strong as ever. Coming out of this year's movie convention, CinemaCon, we are thrilled by the increase in supply of great films for the remainder of 2023 and into 2024. In April, we benefited from a variety of titles that truly appealed to a wide range of audiences, including the Super Mario Brothers movie, John Wick Chapter Four, and Amazon Air courting a legend starring Ben Affleck and Matt Damon. The remarkable performance of these films, along with the success of our diversified businesses, resulted in Cineplex generating impressive April results, with adjusted EBITDA being higher than April 2019, and the month alone generating higher EBITDA than the entire first quarter. Then in May, we started with a strong performance of Guardians of the Galaxy Volume 3, which generated $118 million at the domestic box office this past weekend. Also, we are excited about Fast X's opening next weekend and The Little Mermaid, which is a live-action adaption of the Disney animated classic 34 years after its initial release. In June, the blockbusters continue with Spider-Man Across the Spider-Verse, Transformers Rise of the Beast, and the next feature in the beloved Indiana Jones franchise, Indiana Jones and the Dial of Destiny. There's also The Flash, which we had an opportunity to screen at CinemaCon, and it is incredible. I can say it's probably one of the best DC movies to date. The momentum continues in July with the release of Mission Impossible Dead Reckoning Part 1. We saw 20 minutes of this film at CinemaCon and Tom Cruise doesn't disappoint. We end July with Barbie and Christopher Nolan's much-anticipated World War II epic Hoppenheimer. It is important to note that I have not yet mentioned upcoming movies from non-traditional studios. Apple is releasing two long-awaited films. In October, we will see Martin Scorsese's Killers of the Flower Moon starring Leonardo DiCaprio and slated for November is Ridley Scott's Napoleon. In addition, we are highly encouraged by Amazon's express intention to release 10 to 12 films per year. We are excited by the amazing lineup of films for 2023 and believe we have overcome pandemic-related content supply challenges. A key message we heard from every studio at CinemaCon was the importance of the cinematic experience and theatrical windows in maximizing the performance of each film. The industry took note when multiple studios confirmed that the theatrical window was critical to the success of streaming. This belief is now prevalent in our industry as it has been backed by financial results. Overall, the feedback from CinemaCon was overwhelmingly positive, and the biggest star of the show was optimism. Before I move on, I want to address the Writers Guild of America strike, which started over a week ago. While we are monitoring the situation, we don't expect the strike to have a material impact on our business. Typically, these strikes have a greater impact on short-term content delivery cycles, including content for network TV and streamers. Given the long lead times in making theatrical films, such strikes have historically not had an impact on our industry. In fact, if we look at the previous two strikes, the 100-day strike spanning 2007 and 2008, and the 154-day strike in 1988, you will note that in both cases, industry box office revenues were higher in each of the three years after the strike than the three years prior. I am now going to discuss our content broadening strategy, which we continue to advance by expanding our distribution business, Cineplex Pictures. Last quarter, we announced the Canadian Theatrical Distribution Agreement with Lionsgate for its 2023 film slate bringing 11 titles to the big screen. To date, we have already distributed four titles to Canadian audiences, and we are happy to say that they have been very successful, with John Wick Chapter 4 being Cineplex Pictures' biggest title thus far. We look forward to distributing the remaining Lionsgate titles in 2023, including the prequel to the Hunger Games franchise, The Hunger Games, The Ballad of Songbirds and Snakes, which is slated for November of this year. Regarding international cinema programming, Cineplex consistently over-indexes the North American market share, particularly with Bollywood product. During the quarter, Cineplex took the number one position in North America for Bollywood titles Pathan and Kali Jota, with 31 and 83% share of the domestic box office, respectively. We also realized great success with the film The Wandering Earth 2, which is now Cineplex's highest-grossing Mandarin language film, earning a 32% share of North American box office. These efforts were instrumental during the quarter as we outpaced the North American box office industry recovery by an impressive 10% when comparing Q1 2023 to Q1 2019. This was all made possible by our rich consumer data that we leveraged to drive attendance through our strategic film programming and marketing initiatives. Cineplex has a proven successful history of using data, predictive and analytics, and targeted communication strategies to drive revenue growth. We will continue to leverage our data for personalized content engagement and targeted offers including through the Scene Plus loyalty program, which continues to grow and now has over 13 million members. At Cineplex, we continue to develop and introduce enhanced cinematic and entertainment experiences. We are extremely pleased with the success of our first Cineplex Junction location, which opened in December 22 in Winnipeg, Manitoba. This new concept features multiple entertainment options, including movies, gaming, live events, and expanded food and beverage offerings, all under one roof. We are excited to announce the opening of our second junction location in Mississauga, Ontario, just in time for next week's opening of FastX. The junction concept is a great example of how we look to maximize revenue per square foot in our venues by driving incremental attendance and spend from expanded offerings. Turning your attention to our first quarter results, we welcomed 9.8 million guests in Q1, which was up 47% year over year. We generated total revenue growth of 49% and a sizable increase in adjusted EBITDA to 20.2 million. While Gord will speak to our financial highlights in more detail shortly, I want to emphasize our commitment to growing our diversified businesses, which we continue to scale and meaningfully contribute to the bottom line. We are particularly pleased with our amusement and leisure segment and its performance, which helped mitigate the short-term film content supply challenges during the first quarter. Our LBE business saw an all-time quarterly record adjusted EBITDA of 12.1 million and margin of 34.6%. This business is a strategic growth initiative for our company and it's gratifying to see the results from our 13 locations. LBE continues to be an area of growth for us as we look for strategic expansion opportunities. Our P1 AG business also performed extremely well, generating a first quarter record adjusted EBITDA of 8.9 million and margin of 17.9%. These exceptional results were driven by robust demand in the high margin family entertainment segment and continued theater revenue growth within the root business. In the previous 12 months, this business surpassed the 200 million revenue mark and generated a $31 million contribution before intercompany elimination. On the media side, both the Cineplex Media and Cineplex Digital Media businesses saw significant growth in overall revenues for the quarter, collectively increasing 43% to $22.3 million from the prior year. The Cineplex media team is focused on data initiatives and anticipates this will provide a competitive advantage as advertisers continue to return to spend in the cinema space. With further content supply and mall traffic recovery underway, we expect further momentum in these divisions. Overall, we are pleased with the performance of all our businesses and our diversification as a whole. which is an important pillar for the continued growth of the company. Our diversification strategy is just one of several compelling attributes that differentiate Cineplex from our North American peers. Other attractive and notable differentiating factors include our leading market position for entertainment destinations in Canada, which provides us with meaningful scale in the market. Second, being the most innovative exhibitor when it comes to guest experiences. From premium formats to enhanced gaming in our venues to new entertainment destinations like Junction, Cineplex is the first mover innovator in the exhibition industry. We have the widest array of premium offerings in North America with nine formats including 3D, Ultra AVX, IMAX, VIP, D-Box, 4DX, ScreenX, Clubhouse, and Recliners. The Cineplex VIP offering in particular has been extremely successful in driving incremental attendance and spend. These efforts have led to industry-leading revenue per patron results. For example, in its opening weekend, Cineplex delivered approximately 80% of its box office for Avatar, The Way of Water, from premium experiences which significantly exceeded our peers in North America by approximately 20%. These results were also seen in our first quarter, where we earned over 47% of our box office revenues from premium experiences. Not only is this a first quarter record for us, but it is also the highest percentage of any exhibitor in North America. The third differentiating factor is our leading market position in international cinema and alternative content. Through our relationships with international content suppliers and rich customer data, we have attracted audiences such that the share of our total box office from international product has increased from 4.3% in 2019 to 9.8% in Q1 2023, with the rest of the industry in North America only at 2.7% in the first quarter, well below Cineplex's levels. The fourth differentiating factor is our full ownership and control of the cinema media business. With over 33 years of experience in this business, we have built a portfolio of media offerings that drive industry-leading revenue per patron, almost double that of our U.S. peers. Not only do our expanded media offerings drive increased revenue per patron results, but our in-house team allows us to retain a significantly higher portion of this revenue stream. And the last, but certainly not least differentiating factor is the volume and value of the consumer data collected that is used to drive additional revenue and make our operations more efficient. The ScenePlus program has over 13 million members representing almost one-third of the Canadian population and 15 years of history which provides us with access to expanded member data including non-moviegoers. In addition, we have an extensive customer data platform which has thousands of variables for each guest and provides enhanced capabilities to execute personalization initiatives. Overall, Cineplex is well positioned to achieve great success and has a history of driving industry leading revenue per patron results. Looking ahead, we are incredibly confident in the future of our business. We are excited about the strong start to the second quarter and are encouraged by the positive momentum our industry and company have realized year to date. With strong consumer demand for movie going, content volume returning to pre-pandemic levels, commitment to exhibition from our studio partners, and the record results from our diversified businesses, we have much to be excited about. When you look at Cineplex's attributes, you can see that there are huge opportunities for investors in our business. Innovative and successful growth initiatives, along with our disciplined capital and cost management, will serve us well for years to come. I'm extremely proud of the Cineplex team and want to thank them for their agility, resourcefulness, and determination as we work together to grow our business. With that, I will turn things over to Gord.