Cineplex Inc.

Good morning all, good afternoon all, and welcome to the Cineplex Q3 2024 Earnings Conference Call. My name is Adam and I'll be your operator for today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by 1 on your telephone keypad. I will now hand the floor to Massa Rajali, CEP of Corporate Development and Investor Relations. Please go ahead.

Good morning everyone. I would like to welcome you to Cineplex's third quarter 2024 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 discussion and analysis. Following today's remarks, we'll close the call with our customer question and answer period. I will now turn the call over to Ellis Jacobs.

Thank you, Masha. Good morning and welcome to our Q3 2024 conference call. Today, I'd like to focus on a few important factors that are top of mind for our investors. The first is the sustained content supply and consumer enthusiasm for moviegoing. The second is the strength of our diversified businesses. And finally, how we are positioned to deliver strong growth and shareholder value into the future. This past quarter, the exhibition industry collectively experienced a continued shift in the box office. Since June, we've enjoyed a steady stream of titles drawing moviegoers into their local theaters. Remarkably, five of the top six films of 2024 were released since the middle of June. The surge began with Inside Out 2, which became the highest-grossing animated film of all time. The film generated $653 million at the domestic box office and ignited the beginning of a strong run of titles through the rest of the year. Following closely was Despicable Me 4, which kicked off the third quarter on a high note, becoming the second highest grossing film in the franchise and generating $360 million at the domestic box office. It held a spot in the top five titles of the domestic box office for seven consecutive weeks. After these two incredible family films, Deadpool and Wolverine then stole the show, becoming the highest-grossing R-rated film ever, achieving $637 million in domestic box office revenues and staying in the top five of domestic box office for nine consecutive weeks. In addition to these three incredible titles, Twisters and Beetlejuice Beetlejuice rounded out Cineplex's top five titles for the third quarter. The box office results clearly demonstrate that consumers remain highly enthusiastic about compelling content in theaters. The return of content supply combined with strong movie-going demand resulted in Cineplex achieving box office revenues of $175 million in the quarter. This represented 98% of 2019 levels and total revenue of $395 million exceeding 2019 levels. Cineplex's total revenues were just shy of 2023 levels by 4.6% as Q3 2023 was the best quarter in our company's history due to the Barbenheimer phenomenon. Although Cineplex underperformed the North American box office relative to 2023, It once again outperformed the North American box office relative to 2019 by nearly 3%. When comparing Canada to the US on a year-over-year basis, it's important to note that certain films did not play in Canada and certain genres performed stronger in the US than in Canada. This will drive fluctuations from quarter to quarter depending on the film mix. We achieved a BPP of $13.19 and a CPP of $9.85, both all-time quarterly records. Premium experiences also represented 42.2% of the box office, performing better than last year's 35%. Our box office performance and per patron growth, along with the results from our diversified businesses, allowed Cineplex to deliver 47.5 million of adjusted EBITDA and 16.4 million of cash provided by operating activities. This performance enabled us to invest in the business and return capital to shareholders through share repurchases. Turning to our third quarter media results, Cineplex Digital Media achieved an impressive 40.3% year-over-year revenue growth as a result of expanded digital out-of-home shopping networks and new clients. We're also pleased with our cinema media results, which delivered $1.37 cinema media revenue for patrons, an increase of 10.5% compared to Q3 2023. Cinema media remains a compelling space for our advertisers to invest their dollars as it was one of the few media platforms that can capture consumers' undivided attention. Being the only exhibitor in North America that owns its media business creates a significant point of differentiation, ensuring an important revenue stream with high margins, especially now that content supply is returning at a steadier pace. During the quarter, we celebrated another win for our media segment. The Canadian Out-of-Home Marketing and Measurement Bureau welcomed Cineplex Media as a new member, and together with Cineplex Digital Media, they became part of its inaugural mall measurement methodology. With this new accreditation and measurement approach, we ensure our digital out-of-home clients receive the most value and transparency for their impressions. This further solidifies our leadership in the digital out-of-home advertising space. as we continue to win new business and roll out new campaigns. The rec room and palladium locations of our LBE business play an important role in strengthening our position and delivering growth and shareholder value. During the third quarter, our LBE business delivered revenue of $31.1 million and adjusted store level EBITDA of $7.6 million. We have three new LBE locations opening in the fourth quarter, including our first location of the Rec Room in Quebec, opening later this month. It will be located at the recently opened Royal Mount District, Montreal's newest premium shopping, dining, and entertainment destination. It is anticipated to become one of the leading retail developments in Canada. We are also excited to be opening a new Cineplex Cinema adjacent to the Rec Room Royal Mount creating a one-stop destination for entertainment. Guests can enjoy amusement games, duck pin bowling, augmented reality darts, delicious food, and handcrafted signature cocktails, live entertainment, and enjoy a movie all under one roof. Our Royal Mount Cineplex will consist of five auditoriums, all with full recliners, giving our guests the ultimate movie-going experience. Later this month, we are also opening a flagship location of the Rec Room on Granville Street in Vancouver. This 45,000 square foot historical location spans three floors, each offering a different experience, including a wide range of the latest amusement games, augmented reality darts, axe throwing, dining and bar offerings, live entertainment and events. New to this location on the lower level is The Palms, which is inspired by the historic Granville Street Hotel of the same name founded in 1913. It features a mini golf course, a gorgeous hotel-inspired bar, tropical cocktails, and a unique variety of bold, flavorful, tropic-inspired snacks. Lastly, in December, our fourth Palladium location is opening adjacent to a cineplex theater at Fairview Mall in Toronto. Once again, we are creating an entertainment destination for families within a high-traffic location, easily accessible by car or transit. In tandem with our new openings, we've developed Make Room for Play as our new brand positioning for the rec room to appeal and attract our target demographic. This new positioning came from the belief that the rec room is the perfect place to inject more fun and play into day-to-day life. To launch our new brand positioning, we released a comprehensive campaign aimed at driving awareness and visitation from Gen Zs and millennials. The cornerstone of the campaign is a 60-second spot being shown in cinemas across the country. We also redesigned the Rec Room website to deliver a more engaging and elevated platform for our newly defined guest experience. With an attractive return, our LBE business is a meaningful contributor to current and future EBITDA growth. We see an opportunity to continue investing in the LBE business with the potential to expand to 30 locations across the country, solidifying our leadership position in this entertainment space. As I mentioned earlier in the call, we are seeing excellent revenue from our premium offerings. We offer nine different ways to enjoy a movie at Cineplex. Ultra AVX, VIP, recliners, IMAX, D-Box, ScreenX, 4DX, 3D, and Clubhouse. This past quarter, we installed recliners at Cineplex Cinemas Fredericton and opened a ScreenX auditorium at Cineplex Cinemas Coquitlam and VIP in British Columbia. In the fourth quarter, we are opening two new IMAX screens, two ScreenX screens, and one Ultra AVX screen across the country. In addition to our guests' ability to choose their preferred movie watching experience, our concession offerings are just as important in creating a fulsome experience while also driving revenue. For the ultimate movie fan, merchandise like outlandish popcorn buckets and themed cups have become a customary upgrade and collectible. For Deadpool and Wolverine alone, a collection of merchandise offering generated $1.3 million in revenue. Our new mobile app, which has achieved a rating of 4.8 with both iPhone and Android users, allows guests to pre-purchase their concessions and simply pick up their snacks at the theater. We are seeing a notably higher average per patron spend compared to in-person transactions. We believe as adoption grows, this will be an opportunity for further growth in overall concession revenues. A strategy that I'm particularly proud of is the strength of international cinema. This quarter, international programming represented 9.3% of total box office revenues compared to the North American box office at 2.7. During the third quarter, the two largest international films for Cineplex were Streets 2, where Cineplex generated 44% of North America's market share, and Jet and Julia 3, which became Cineplex's highest-grossing Punjabi film of all time. We were able to attract diverse audiences to their favorite international films by leveraging our robust data. The use of data to drive incremental attendance and increased spend will continue to be a key differentiator for Cineplex's future growth. We've invested in building robust data models and marketing automation platforms to drive personalized campaigns. We've also developed detailed attendance prediction models that analyze global content to identify what resonates with Canadians. In addition, we have created propensity models using our customer base. By integrating these models and crafting unique personalized campaigns through marketing automation engines, we can enhance relevance and drive incremental visitation and spend. As a reminder, the adjusted EBITDA contribution for each incremental guest is approximately $13.46. Encouraging our customer base and the ScenePlus member population to visit more frequently could equate to significant incremental upside to our business. Before I conclude, I want to provide a brief update on the Competition Tribunal's decision regarding our online booking fee. On October 23rd, we filed a Notice of Appeal with the Federal Court of Appeal to overturn the Competition Tribunal's decision. With the consent of the Competition Bureau, we have been granted an interim stay of the monetary penalty and have brought a motion to stay the monetary penalty pending completion of the appeal. We continue to emphasize that the online booking is an optional value-added service. It provides moviegoers with the convenience of advanced online seat selection knowing that they have a ticket for a specific showtime and exact seat location before they arrive at a theater. While we disagree with the tribunal's decision, we've been ordered to make changes to our website and we are in the process of doing so. We remain confident that our fee was always presented in a clear and prominent manner and fully complied with the spirit and letter of the law. As a reminder, this ruling has no impact on our ability to charge the online booking fee, and we will continue to offer the optional value-added convenience of advanced online seat selection to our guests. As we approach the end of 2024, we are generating positive momentum within our business. I am proud to say we have successfully navigated the challenge of film state supply, and it is now behind us. Looking ahead, the fourth quarter is bringing some remarkable titles, including Wicked Part 1, Gladiator 2, Moana 2, Lord of the Rings, The War of the Roam, Sonic the Hedgehog 3, and Mufasa the Lion King. We are optimistic the momentum will continue into 2025, with SWAT shaping up to be a strong year for the film slate, including Captain America, Brave New World, Snow White, Mission Impossible 8, Karate Kid, How to Train Your Dragon, Jurassic World Revert, Superman Legacy, The Fantastic Four First Steps, Wicked Part II, Zootopia II, and Avatar Fire and Ash. The upside to a strong film slate means our media business can consistently offer a compelling place for advertisers to invest their dollars and capture our guests' undivided attentions. With three new LBE locations opening in key markets, our LBE business is set to solidify its position as Canada's destination for play. And the use of our robust data presents a significant untapped potential. To close, we've made tremendous strides to overcome product supply challenges, and the third quarter proved we are well on our way to a steadier stream of content now and into the future. Our diversified media and LBE businesses are following suit and gaining momentum and scale. As we look forward, we will continue to differentiate ourselves within the market and drive industry-leading results. We are confident we will sustain this momentum and our position as one of North America's leading entertainment and media destinations. With that, I will turn things over to Gord.