Cineplex Inc.

Good morning everyone and welcome to the Cineplex Inc fourth quarter 2023 earnings conference call. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press star followed by one on your telephone keypad. I would now like to turn this conference call over to our host, Masha Rajoli, Vice President of Corporate Development and Investor Relations. Please go ahead.

Good morning, everyone. I would like to welcome you to Cineplex's fourth 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 the 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's discussion 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 Jacob.

Thank you, Masa. Good morning and welcome to our Q4 2023 conference call. Today, Gord and I look forward to recapping the notable year we had in 2023. As I reflect on the year, Cineplex truly demonstrated why we are a North American leader in entertainment and media. We delivered a strong Q2 and a record-breaking Q3, the best in our company's history. During 2023, Cineplex delivered strong year-over-year revenue growth of 26% and nearly tripled its adjusted EBITDA to $157.4 million from continued operations. Adjusted EBITDA margins significantly improved to 11.3% in 2023 compared to 4.9% in 2022, and even approaching the 2019 margins of 14.1%. These results prove we have the ability to succeed amidst an evolving entertainment industry. Despite the anticipated content supply challenges, which the entire exhibition industry faced, we outperformed the North American box office relative to 2022 by 785 basis points. One of the reasons we are outperforming our peers in box office performance is by giving our guests more reasons to keep coming back. Our alternative content strategy played an integral part in navigating last year's content supply shifts. 2023 marked our biggest year for international programming, delivering 10% of Cineplex's annual box office revenues with films like Pathan, Animal, and Carry On Jata 3, This compared to our North American peers who generated only 4% of their box office revenues from international content. In addition, the partnerships we have with the Met Opera, National Theater Stage Productions, sporting events, and concerts allowed us to bring more immersive cinematic events and programming to our theaters. It was undeniably the year of Taylor Swift with the Taylor Swift, the heiress to a concert film generating over 180 million in domestic box office revenue and taking top spot at Cineplex's number one title in Q4 2023. The remarkable response to this concert film allowed guests to reimagine their local theaters as a place to enjoy the ultimate concert experience with friends dancing and singing along with their favorite artists. In addition, the expansion of our distribution business, Cineplex Pictures, allows us to source content from all over the world and distribute to Canadian audiences, like Oscar-nominated Japanese film, The Boy and the Heron. Last year, we announced a Canadian theatrical distribution agreement with Lionsgate for its 2023 film slate, bringing 11 titles to the big screen. They have extended the agreement for another year and Cineplex Pictures looks forward to upcoming Blumhouse horror film Imaginary and next summer's Borderlands based on one of the best-selling video game franchises of all time starring Cate Blanchett, Kevin Hart and Jack Black. What's also setting us apart from our peers is no other exhibitor has a loyalty program like ScenePlus. as it's both a great engagement tool and rich in consumer data. ScenePlus is Canada's most robust lifestyle loyalty program with over 14 million members and growing. Now with Empire Grocery and Home Hardware as new retail partners, we have gained significant opportunities to attract new guests. Meaning we've converting more non movie goers into movie goes. In fact, 25% of scene plus members who visited Cineplex in 2023 made their first visit as a scene plus member further expanding our loyalty guest base. Not only are we utilizing the power of data to drive repeat visits and acquire new guests, we are also investing in technology to provide our guests with expanded information and a seamless Cineplex experience. We enhanced our web experience, launched our new app, and are rolling out a program for mobile concession ordering. By creating a more personalized guest experience with relevant content and target offerings, We are increasing both frequency of visits and spend per person. It's also important to ensure guests have a variety of ways to immerse themselves within their favorite film through premium experiences. We are continuing to invest in premium offerings like the Panoramic ScreenX Experience, which we expanded in Montreal and Brampton last year, bringing the total number of ScreenX locations to 17 theaters across the country. In 2023, we expanded our partnership with IMAX, committing to an additional five screens, including one IMAX screen that opened last year at Cineplex Cinemas Coquitlam. Our latest IMAX location will be added to our Yonge and Eglinton Theatre in Toronto, just in time for the release of Dune Part 2 next month. By driving guests to premium experiences, our BPP in 2023 reached a record of $12.53, and we generated 41.1% of our 2023 box office revenues from premium margin accretive experiences like VIP, IMAX, and Ultra AVX. We also achieved a record CPP of $8.90. These results clearly indicate the multiplying effect of the sustained enthusiasm for a premium theatrical experience and our enhanced food and beverage offerings, paired with our unique ability to offer guests diverse content, personalized experiences, and a variety of entertainment options across our venues. As we look to create more opportunities for families and groups to visit our venues in 2023, We added another Cineplex Junction location. We introduced this new entertainment concept in 2022 with our first location opening in Winnipeg, Manitoba. It reimagines the exhibition venue, bringing movies, amusement gaming, casual dining, and live performances all under one roof, significantly expanding the entertainment experience beyond movies. Last May, we opened our second location, Cineplex Junction Erin Mills in Mississauga, Ontario, and it's off to a strong start, currently on track to exceed our original performance expectations. As the exhibition business continues to ramp up, we are also seeing accelerated growth in our diversified businesses. We've launched two unique LBE brands over the past eight years, each targeting a different consumer segment. These venues offer something for everyone with live entertainment, casual dining, a range of amusement games, and special attractions like archery, bowling, and axe throwing. We have three LBE locations on the horizon for 2024. In addition to new locations of the rec room slated to open in the fourth quarter in Vancouver and Montreal, We recently announced a new Palladium location opening in Toronto at Cadillac Fairview's Fairview Mall situated next to Cineplex Cinema's Fairview Mall. The addition of these locations will increase our total number of LBE venues to 16 across Canada. Over time, we are improving our margins, found operational efficiencies, and we are confident in our ability to scale this business further as we are just over halfway towards our goal of 30 locations across Canada. Our media business is also expanding as we recently signed a digital signage and media representation deal with Cadillac Fairview that will strengthen our leadership position in reaching consumers at premium shopping destinations across the country. Cineplex Digital Media will operate a network of 200 digital displays in 18 Cadillac Fairview shopping centers, bolstering CDM's out-of-home shopping network to 89 premium shopping destinations in Canada, including 9 of the top 10 busiest malls in Canada. With the addition of these media sales networks, this now positions Cineplex Media as the go-to supplier for in-mall advertising in the country. As we look at the state of the current film slate during 2023, we saw excellent progress on film release volumes during the second and third quarter. The consistent supply of product is what we missed due to pandemic impacts on the production schedule. Despite anticipated short-term supply challenges due to the now resolved writers and actors strike We expect the box office to strengthen in the back half of 2024 and into 2025 as film volume ramps up. When it comes to film supply, two things continue to hold true. Studios and streamers are committed to theatrical releases and movies may shift their release date, but they're still hitting theaters. Monkey Man, directed by and starring Dev Patel, famous for Slumdog Millionaire, has now been slated for a theatrical release this spring, as opposed to initial plans for direct streaming. We are even seeing films move up their release date, which will further enhance the 2024 supply. Just yesterday, Disney announced Moana 2 being released theatrically this November, in time for U.S. Thanksgiving. For the first quarter, we have the much-anticipated Dune Part II, directed by Cannes' own Denis Villeneuve. It's a movie made for the big-screen experience with loyal fans eager to see this film in IMAX. Movie lovers are also looking forward to Marvel's Madame Web, family favorite Kung Fu Panda 4, Ghostbusters, Frozen Empire, and Godzilla X- The New Empire. In addition to movie buzz, we've noticed an abundance of demand for premium concession items like cups and popcorn tubs, with Dune Part 2 and Ghostbusters Frozen Empire bringing some fun merchandise for fans in the first quarter. After the first quarter, and as we continue through 2024, we have a number of strong titles, including Kingdom of the Planet of the Apes, Inside Out 2, F, Despicable Me 4, Deadpool 3, Beetlejuice 2, Gladiator 2, Wicked Part 1, Lord of the Rings, The War of Roharim, Mufasa the Lion King, and Sonic the Hedgehog 3. Finally, on the international front, I know our teams can't stop talking about Bollywood film Fighter, which landed in theaters late January and is inspired by Top Gun Maverick. International firms are becoming a bigger contributor to total box office numbers, as I shared earlier. We will continue to focus on bringing a diverse slate of content to Canadians, and with our rich consumer insights, strong supply relationships, and distribution capabilities, I am confident we are well positioned to navigate any short-term supply challenges. While exhibition is growing and we are building upon our diversified businesses, we have also made great strides towards strengthening our balance sheet. Just last week, we announced the closing of the P1AG transaction for $155 million in gross cash proceeds, which represents an approximate 7.5 times multiple on a free cash flow basis, doubling our original investment. We have been in the amusement solution business since 2011, and through organic growth and acquisitions, we have grown it to become a North American leader. The sale of P1AG represents an important step towards accelerating the company's focus on deleveraging and acting as a catalyst for the company's refinancing plans that were announced earlier today. We are focused on extending debt maturities, removing restrictions, and reducing potential equity dilution. As we work towards our target leverage ratio of 2.5 times to 3 times, we will consider the reintroduction of a dividend. Gord will be sharing more on this shortly. I also want to provide a brief update on the Competition Bureau's allegations regarding our online booking fee. We strongly believe that we have complied with both the letter and spirit of the law and that the Competition Bureau's allegations are unfounded. We look forward to presenting our case before the Competition Tribunal later this month. We are also aware that class action lawsuits have been commenced in Quebec and British Columbia, and we intend to vigorously defend ourselves against these meritless allegations. As we look to the year ahead, we are starting on solid footing. Our strong performance in 2023 saw adjusted EBITDA and cash flows starting to approach pre-pandemic levels, and we have delivered strong year-over-year growth. As we kick off 2024, there's a lot we are excited about. We are seeing the return of moviegoing as the content supply is starting to return to a more consistent pace and volume, especially in the back half of 2024. We are well positioned to navigate any temporary supply shifts and are confident we will continue to outperform our North American peers when it comes to overall box office performance, and more specifically in regards to international programming and alternative content. We remain committed to delighting our guests at their local theater to ensure they enjoy the full Cineplex entertainment experience, from delicious food options, expanded entertainment and amusement gaming offerings to a wide range of premium viewing experiences and content offerings, including films and events. Our LBE business has reached significant scale and will be a Cree growth driver into the future. We've got three new locations set to open across Canada this year. Our unique brand offerings are a key differentiator and operationally we are ready to continue to scale this business in an efficient and profitable way. Our investment in digital products will continue to enhance the guest journey across all our entertainment offerings. Having ownership over our media businesses provides significant bottom line contributions as advertisers look to reach Canadians in a meaningful and engaging way across the country in cinema or out of home networks. We have the ability to provide attribution and measurement to our advertising clients through our rich data. And finally, strengthening our balance sheet will continue to be a focus for us this year, and we are making tremendous progress as discussed earlier. Overall, Cineplex has a history of driving industry-leading results and is well-positioned to achieve great success. 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.