Cineplex Inc.

Good morning. Thank you for attending today's Cineplex Inc. first quarter 2024 earnings call. My name is Jennifer and I'll be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, press star one on your telephone keypad. I would now like to pass the conference over to our host, Massa Rajali, VP of Corporate Development and Investor Relations. Massa, please proceed.

Good morning, everyone. I would like to welcome you to Cineplex's first quarter 2024 earnings release conference call hosted by Ellis Jacob, President and Chief Executive Officer, and Gordon Ellison, 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 the 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 and analysis. Following today's remarks, we'll close the call with our customary question and answer period. I will now turn the call over to Ellis Jacobs.

Good morning. Thank you, Mata, and welcome to our Q1 2020 full conference call. Today, Gord and I look forward to highlighting some of our key accomplishments this quarter. While the first quarter North American box office saw a decline of 5.2% versus 2023, Cineplex's box office increased 1.4% to $125 million over the same period. Once again, we exceeded the domestic box office relative to Q1 2023 by a sizable 6.4% and outperformed our peers. We achieved record Q1 BPP of $12.74 and concession per patron of $8.95, surpassing records we set in Q1 2023. While an anticipated shortage of films impacted the start of the year, Given the prolonged disruptions from the Hollywood strike last year, 2024 began on a more positive note than expected. This quarter, we not only exceeded our box office projections, but also surpassed market expectations. Cineplex's top three films during the quarter were Dune Part 2, which generated over $280 million in domestic box office revenue to date, Kung Fu Panda 4, and Migrations. Cineplex delivered strong performance across all three titles, over-indexing the domestic box office in each instance. Furthermore, Cineplex continued to benefit from the strategic management of international content with three titles ranking in the top 20 films. Fighter, Warning 2, and Shaitan contributed meaningfully to our box office with Cineplex capturing significant market share ranging from 30% to 80%. In addition to achieving industry reading results, our focus remains on executing important corporate actions designed to reduce leverage, improve financial flexibility, and position Cineplex for accelerated long-term growth. In February, we successfully closed the strategic sale of P1AG for $155 million in gross cash proceeds and recognized the gain of $67 million, a testament to the success of our diversification strategy. The net proceeds were used to repay bank debts, serving as a pivotal catalyst to commence a comprehensive refinancing plan, which we also successfully completed in the first quarter. This refinancing plan was meticulously crafted to deliver three key benefits for our company and shareholders. extending debt maturities, easing restrictions, and minimizing potential delusion from existing convertible debentures. Our new three-year note offering of $575 million had robust demand, surpassing $2 billion across North America, a clear testament to the remarkable confidence the market has in our business plan and team. Now with our strengthened balance sheet, we are focused on executing our growth initiatives and shifting our capital allocation priorities to support enhanced shareholder return. I'd like to highlight some of these key initiatives that continue to differentiate us from our peers. The first is our ongoing investment in LBE, which is a profitable and successful business with attractive store-level margin in excess of our 25% target. The Rec Room and Palladium brands feature a variety of food and entertainment offerings appealing to an attractive demographic. We entered the business in 2016 as we saw an opportunity in Canada with no other national competitor in the market operating at scale. This first mover advantage served us well and positioned us as a leading Canadian player. Our expertise in multi-unit retail locations and our customer database through SCENE helped us extract significant synergies within our business and create an overall entertainment destination for Canadians. Currently, we operate 13 LBE venues strategically positioned in key markets with an additional three locations opening in the fourth quarter of this year. Among these, a new Palladium Venue will be added to the Greater Toronto area adjacent to the Cineplex Cinemas Fairview Mall. We will also open two new venues of the Rec Room, a marquee location in downtown Vancouver and another in the exciting Royal Mount development in Montreal. Given the success of our LBE business, we believe there's an opportunity to grow to 30 locations across Canada. This expansion has the potential to double the store-level EBITDA contribution from the LBE business to approximately $75 million. By fortifying our leadership position in the market, we have good runway to further grow in a highly accretive, high-margin business and strengthen our position as a leading entertainment destination for Canadians. Our media business is also expanding as Cineplex Digital Media signed two important deals in the quarter, with Cadillac Fairview and Common Arm growing our digital out-of-home shopping network to 94 premium shopping centers, which includes nine of the country's top 10 busiest malls. We now operate and have media representation agreements for more than 1,000 screens in malls across Canada. Cineplex Digital Media is also working closely with retailers looking to innovate their in-store experience with digital displays as a way to inspire and engage shoppers throughout their experience. This speaks to the future of retail. Walmart Canada announced the grand reopening of its flagship location at Square One in Mississauga, a first of its kind concept for Walmart globally. that will test new technologies and concepts as it modernizes its retail operations. Cineplex Digital Media supported Walmart by building digital signage solutions and integrating them throughout the new store design. These solutions included new digital wayfinding technologies with the goal of being part of an immersive retail experience to enhance in-store shopping. As Cineplex Digital Media's network grows, this positions Cineplex Media as a one-stop shop for advertisers looking to reach Canadians through digital out-of-home advertising and in shopping malls and cinemas. A key differentiator amongst our peers is that we fully own our cinema media business and retain all the revenue generated from the advertising on our screens. By offering a portfolio of media products, we attract advertising customers of all sizes and drive our revenue per patron to industry-leading levels, almost doubling our peers in the U.S. Not only do our expanded media offerings drive increased results, but our in-house team allows us to retain significantly more of this revenue. Our cinema media business operates at an EBITDA margin of approximately 80%, while our US peers retain only a fraction of the revenue stream through an access fee. As attendance continues to grow, we expect further growth in our cinema media business. What makes cinema advertising so compelling is its attention power. The first ever Canadian cinema advertising attention study was conducted in partnership with Lumen, a global attention technology company. Marketers and advertisers are becoming increasingly conscious of the challenge in capturing an audience's attention due to online information overload. This study shows ads played in cinemas are virtually unmissable. 100% of cinema audiences not only viewed the ads, but also paid an average of 80% active attention to the advertising content on the big screen, regardless of the ads left. It also demonstrates an average brand recall of 75%, with audiences being 35% more likely to choose those brands as a result of exposure in cinema. As the advertising sector continues to recover, we know cinema advertising provides a compelling ROI to clients and one our team is well-positioned to capitalize on. As I mentioned earlier, we consistently surpass the industry box office results and outperform our peers. In March alone, we exceeded the North American box office relative to 2023 by nearly 30%. This consistent outperformance is a direct result of our relentless efforts to elevate the guest experience and drive increased attendance and frequency through our alternative content and premiumization initiatives. We are at the forefront of bringing diverse content to movie lovers and the box office has been responding. This past quarter, 13% of Cineplex's box office revenues came from international cinema and this continues to be an important content play for us to expand our offerings. When guests visit a Cineplex theater, not only do they have a variety of content to choose from, they can also choose to upgrade and optimize their movie-going experience. In this quarter, 41% of box office revenue came from premium experiences like IMAX, Ultra AVX, 3D and VIP. Cineplex's VIP in particular has been extremely successful and not many of our peers have been able to duplicate this offering. Continuing our commitment to premium experiences, we are adding IMAX, ScreenX and Ultra AVX screens and upgrading to laser projections this year further enhancing our portfolio and solidifying our position as leaders in the industry. We pride ourselves on giving guests an exceptional experience when visiting our theaters, and now we are also making their movie-going experience a more seamless one with the introduction of online and mobile concession ordering. When purchasing tickets on the Cineplex app or online, guests can add their favorite concessions to their cart and easily pick them up on their way to their seats. We're also creating operational efficiencies through data, automation, and technology. We've shared in the past how we use data to attract and retain guests. We are also leveraging advanced data analytics, automation, and technology to create operational efficiencies across our business. Using these tools helps us create more accurate attendance forecast models that help us anticipate business volumes and more precisely plan staffing levels. I also want to provide a brief update on the Competition Bureau's allegations regarding our online booking fees. We presented our case before the Competition Tribunal in February. We note that the Competition Bureau is not contesting our rights to charge the online booking fee. It is only contesting the manner in which we presented the fee to consumers. We strongly believe we have complied with both the letter and spirit of the law and that the Competition Bureau's allegations are unfounded. We await the Competition Tribunal's decision in the coming months. Before I pass it on to Gord, I want to touch on last month's CinemaCon, our industry's annual trade show and meetings the Executive Committee of the Global Cinema Federation had with studios and the directors' and producers' guilds. The feedback was extremely encouraging as every studio and the guilds spoke about the return of product and the importance of theatrical to the overall success of content. As studios unveiled their film lineup for the next year and a half, the emphasis at CinemaCon and in our discussions was on the immense value of theatrical releases. One resounding message from our studio partners was their commitment to both volume of film release and quality of content on the horizon. With the Hollywood strikes resolved and major players like Amazon and Apple meaningfully leaning into theatrical, Our optimism for the box office in the latter half of the year and beyond is growing. In fact, over 30 new films have been added to the 2024 pipeline since December 2023. We are starting to see a build-up of content with exciting titles such as Kingdom of the Planet of the Apes, If, Garfield, Furiosa, Mad Max Saga, Inside Out 2, A Quiet Place, Day 1, Despicable Me 4, Twisters, and Deadpool and Wolverine. In the back half of the year, the slate further strengthens with titles like Beetlejuice, Beetlejuice, Moana 2, Joker, Foliadu, Wicked, Gladiator 2, The Lord of the Rings, The War of the Rohirrim, Sonic the Hedgehog 3, and Mufasa the Lion King. Looking ahead to 2025, we already see a robust film slate on the horizon, including Another Jurassic World, Superman Legacy, the next installment of Mission Impossible, Ballerina from the John Wick universe, Captain America, Brave New World, Minecraft, How to Train Your Dragon, live action, Fantastic Four, The Bad Guys 2, Blade, Snow White, Avatar 3, and many more. With this exciting lineup, we are returning to a consistent flow of new and diverse films landing on screens each week, and we are energized by the potential box office ahead. Our recent refinancing has well positioned our company to drive growth and effectively navigate periods of reduced film volume. We remain confident in our disciplined and balanced approach and in the successful strategic initiatives we've achieved so far. We have meaningful potential upside as we expand our LBE business and grow as an industry-leading, diversified entertainment and media company. We are optimistic about the future and our ability to drive long-term shareholder return. With that, I will turn things over to Gord.