Cineplex Inc.

Hello everyone and welcome to the Cineplex Inc Q2 2023 earnings conference call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypads. I will now hand over to our host, Masa Rajali, Vice President of Corporate Development and Investor Relations to begin. Masa, please go ahead.

Good morning, everyone. I would like to welcome you to Cineplex's second quarter 2023 earnings release conference call hosted by Ellis Jacob, President and Chief Executive Officer, and Gord Nelson, Chief Financial Officer. Before we begin, 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 may differ materially from those expressed in forward-looking statements. Information regarding factors that could cause results to vary can be found in the company's most recently filed annual information form and management discussion and analysis. Following today's remarks, we will close the call with our customary question and answer period. I will now turn the call over to Ellis Jacobs.

Thank you, Mansa. Good morning and welcome to our Q2 2023 conference call. It is a pleasure to be with you today on the heels of a strong second quarter. Our business made tremendous strides during the quarter and that momentum continues. We have much to report on and a lot to be excited about. The wave of blockbusters that hit the big screen during the second quarter did not disappoint as guests flocked to our theaters to enjoy the shared immersive experience of movie going. This led to Cineplex's strongest post-pandemic quarter, where for the first time since the pandemic, our revenues exceeded $420 million and our EBITDA surpassed $60 million. Our strategic initiatives and sound execution helped us achieve strong per-patriot results with quarterly BPP reaching $12.84 and a CPP of $9.21, both records for the second quarter. We are pleased to announce that our strong quarterly performance enabled us to delever and repay $26 million in bank debt. This will surely remain a focus for us as business continues to ramp up. The third quarter is off to a sensational start with the month of July becoming our highest grossing July ever and the second highest grossing month in Cineplex's history. Even more promising is that July's EBITDA surpassed every month in 2019, and this momentum has continued into August. In fact, the first eight days of August brought in 70% more box office revenues than the same period in 2019. We are back in business, and our results show just that. Clearly, consumer demand for the shared immersive and premium theatrical experience that Cineplex delivers is as strong as ever. There's simply no better way to amplify excitement and cultural relevance for films than with an exclusive theatrical release. The perfect illustration of this was seen with the Barbenheimer Cultural Phenomena. where scores of moviegoers dressed up like characters from the Barbie and Oppenheimer movies which opened on the same day. The buzz around these films created an unprecedented box office and cultural event that transcended any streaming service experience by leaps and bounds. Guests arrived early in their special outfits, took pictures and shared stories while waiting with great anticipation to watch these films. Some even watched them back to back and enjoyed many of our concession offerings for food and drinks during their extended stay. In addition, many guests chose to watch Christopher Nolan's Oppenheimer in our various premium formats as 58% of its box office came from our premium offerings. This remarkable momentum led to Oppenheimer surpassing market expectations with Barbie passing the $1 billion mark at the global box office and Oppenheimer exceeding the half a billion dollar mark globally. These phenomenal results, coupled with the impact of Tom Cruise's Mission Impossible, led to Cineplex's highest July box office in history. A similar cultural phenomenon was seen with the Super Mario Brothers movie in April, where fans dressed up like Mario, Luigi and Princess Peach to enjoy a special outing at our venues. Many guests watched the movie more than once, choosing to enjoy it in a shared immersive environment each time. All in all, this was a great film that brought families to the theaters in droves, and it came as no surprise when it exceeded $1.3 billion at the global box office, making it the second highest animated film of all time. Experiences like these remind us of the significant role cinemas play in creating memorable experiences and how as exhibitors we are uniquely capable of bringing people together to share cultural moments that stay with us forever. The momentum we experienced in the second quarter and third quarter to date was largely driven by the industry's recovery from a film supply perspective. The second quarter was the first time since the pandemic where we benefited from a regular cadence of weekly films across multiple genres. Cineplex's top performing films during the quarter included the Super Mario Brothers movie, Guardians of the Galaxy Volume 3, Spider-Man Across the Spider-Verse, which all surpassed $100 million at the domestic box office in their opening weekend. Then there was The Little Mermaid, Fast X, and the impressive carryover of John Wick Chapter 4, which was distributed in Canada by distribution business Cineplux Pictures. This consistent supply of product is what we dearly miss since the pandemic began. While some titles had mixed results with the regular supply of products, strong performers offset films that fell short of expectations. Now that we are seeing a regular weekly cadence of films, we are encouraged to see box office results that exceed or approach the pre-pandemic period. This speaks to the strength and resilience of the theatrical exhibition industry despite inflation and recessionary dynamics. While the second quarter and third quarter to date saw accelerated moviegoing, as we look forward, we are cognizant of the potential impact of the writers' and actors' strike on our future release dates. We are monitoring these strikes closely. The degree of any downstream delays will ultimately depend on the duration of the strikes by the Screen Actors Guild and the Writers Guild of America. While there may be temporary shifts in the future film slate, it is important to recognize they are just temporary, and these films will have their day in theaters. Any potential delays will not affect consumer interest for moviegoing or studio plans for scaling theatrical volume to pre-pandemic levels. Our studio partners have seen time and again the irreplaceable value proposition of an exclusive theatrical release. As I've said before, we are still the engine that drives the train. Even non-traditional studios such as Amazon and Apple are committing to theatrical releases to maximize returns on their best films. Apple is releasing two long-awaited films, Martin Scorsese's Killer of the Flower Moon, starring Leonardo DiCaprio and Ridley Scott's Napoleon, both slated for later this year. And Amazon has already had tremendous success with the release of Creed III and Air earlier this year. Notably, these non-traditional studios are expressing intentions to scale theatrical film production over the next few years to levels comparable to traditional studios. As we look forward, the flow of content coming from both traditional and non-traditional studios gives us great confidence about the long-term recovery of content volumes to pre-pandemic levels and beyond. In the meantime, Cineplex remains well equipped to navigate any potential short-term delays and film shifts as we have done effectively in the past. You have heard me previously talk about our content diversification strategy and our ability to outperform the North American industry when there has been a lack of films. We continue to build this part of the business which isn't tied directly to Hollywood. Through our relationships with international content suppliers and our ability to understand consumer preferences, we have attractive audiences such that the contribution of international product to our box office has increased from 4.3% in 2019 to 9.4% in the first half of 2023. The rest of the industry in North America only generated 3.4% of its box office from international product. We will continue to grow and capitalize on this part of our business with the use of data analytics, which continues to get stronger. Additionally, we are pursuing the expansion of our distribution business, Cineplex Pictures, where we look to source content from all over the world and distribute it to Canadian audiences. On a year-to-date basis, we have successfully distributed eight titles, And as always, we are focused on delivering alternative programming, including opera, concerts, educational programming, sporting events, and much more. Our diversified businesses also continue to perform well and contribute to the company's performance. This helps offset any potential impact of a shifting Hollywood slate. Our P1AG business continues to shatter records quarter after quarter for top line, bottom line, and margins. This growth is driven by the high margin family entertainment segment, further recovery in the theater segment, and the expansion of attractive new verticals including the lodging and leisure space within the roof business. During the second quarter, P1AG generated record adjusted EBITDA of $13.1 million and an impressive margin of 23.7%, up 570 basis points from the same quarter last year. Our LB business generated revenue of $29.1 million, which is a second quarter record, and an EBITDA of $6.3 million. This part of the business continues to scale and add meaningful bottom line contributions. On the media side, both Cineplex Media and Cineplex Digital Media perform well despite the challenging macroeconomic environment. While there are some economic headwinds in the advertising sector, it is important to remember that cinema continues to be the most attractive and captivating form of advertising. Cinema attention consistently scores four to seven times greater than other video channels including TV, social and digital ads across a variety of brands and categories. Both our media teams are focused on data initiatives, and we anticipate this will provide a competitive advantage as advertisers increasingly return to spend in the cinema and mall space. I'd now like to provide an update on our strategic priorities. During the quarter, we opened our second junction location in Mississauga, Ontario. This new concept features multiple entertainment options including movies, amusement gaming, live events, and expanded food and beverage offerings all under one roof. While it is still early days, we are extremely pleased with the performance of these two new locations and the concept as a whole as it allows us to maximize revenue per square foot in our venues while driving incremental attendance and spend from expanded offerings. In addition, we continue to advance our data analytics capabilities to create personalized campaigns that aim to upsell, cross-sell, and increase conversion and visitation across the Cineplex ecosystem. This is combined with utilizing sophisticated marketing techniques that leverage our highly valued and engaging loyalty programs, including the ScenePlus program with over 13 million members and our industry-leading subscription program, CineClub, which has nearly 135,000 members. And while we pursue multiple data support revenue-generating opportunities, we are also leveraging data tools to improve productivity and optimize showtime planning decisions. Overall, we remain disciplined and focused on maximizing the use of our swear footage and resources, drive attendance, and effectively manage costs. Before I turn the call over to God, I want to provide an update on the Competition Bureau's allegations regarding our online booking fee. Cineplex filed its response to the Competition Bureau's allegations on June 30th, and the Bureau filed its reply on July 14th. An administrative case management conference to determine scheduling and procedural matters was held on July 27th. We strongly believe that we have complied with both the letter and spirit of the law. We believe the Competition Bureau's allegations are unfounded and we continue to seek an early determination of this matter. Moving on to Cinevol, they emerged from bankruptcy on July 31st and as previously disclosed, our claim recovery will be minimal. We are just as disappointed with the outcome as our shareholders, but I want you to know that we worked tirelessly to explore all options to optimize the value of the litigation judgment. We will now put this chapter behind us. Looking ahead, we remain highly confident in the strength of our exhibition and other businesses. We are excited about our strong year-to-date results, which reflect positive momentum from the industry's rebound and our strategic actions to maximize attendance, box office, and drive growth from our diversified businesses. As previously discussed, our diversification strategy is just one of several compelling factors that differentiate Cineplex from our North American peers. We hold a leading market position for entertainment destinations in Canada. We are 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 a first mover innovator in the exhibition industry. We hold a leading market position in international cinema and alternative content. Our full ownership and control of the cinema media business drives industry leading revenues for patron results. The consumer data we collect is utilized across the Cineplex ecosystem to drive additional revenue and make our operations more efficient. Overall, Cineplex is well positioned to achieve great success and a history of driving industry-leading results. Our innovative and successful growth initiatives, along with our disciplined capital and cost management, will serve us well for years to come. I am 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.