Cineplex Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2024

There are 9 speakers on the call.

Operator

Earnings Conference Call. My name is Adam, and

Speaker 1

I'll be your operator for today.

Operator

I will now hand the floor to Martha Rejali, Vice President of Corporate Development and Investor Relations. Please go ahead.

Speaker 2

Good morning, everyone. I would like to welcome you to Cineplex's 2nd quarter 2024 earnings release conference call hosted by Ellis Jacob, President and Chief 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.

Speaker 2

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 will close the call with our customary question and answer period. I will now turn the call over to Ellis Jacob.

Speaker 3

Thank you, Massa. Good morning, and welcome to our Q2 2024 conference call. As Gordon and I shared highlights from the Q2 today, I wanted to start off by echoing my peer sentiment as we all felt the extended impact of the Hollywood strikes in the first half of twenty twenty four. While we anticipated the film slate would have a slow start this quarter, the month of June also signaled a pivotal change towards a more positive outlook for the rest of the year. We saw record breaking results from recent titles, including Inside Out 2 in June and Deadpool and Wolverine's massive $211,000,000 domestic opening weekend in late July.

Speaker 3

The success of these titles in addition to stellar performances by reaching over 90% of 2019 levels. In the month of July, we entertained 5,500,000 guests, representing our largest attendance of the year. These results clearly show that supply, not demand, depressed the global grosses of the early summer. Having been in this industry for over 35 years, I've seen the ebbs and flows of the film slate. But what always rings true is when compelling content is there, moviegoers head to their local theater to escape and immerse themselves in films of all genres.

Speaker 3

This past quarter, as we managed through the fluctuating film slate, our diversification strategy continued to serve us well. During the Q2, we entertained 8,700,000 moviegoers and generated total revenues of 277,300,000 dollars We delivered box office per patron of $13.11 and concession per patron of $9.56 both all time quarterly records. Inside Out 2 stole the show as it became the top animated film of all time with over $1,500,000,000 at the global box office, even outperforming last year's Super Mario Bros. Other top performing titles from the quarter included Kingdom of the Planet of the Apes, The Fall Guy, Godzilla versus Kong, The New Empire and Bad Boys: Ride or Die. This quarter continued to see consumer interest in premium experiences with 41.4% of the box office coming from offerings like IMAX, UltraAVX, 3 d, LDIP.

Speaker 3

We are very pleased with our Cinema Media results as revenue increased 4% over prior year despite the attendance decline in the quarter. Fully owning our media business allows us to retain all our revenues and drive higher margins. By offering a portfolio of media products, we attract advertising customers of all sizes across a wide range of categories, driving our revenue per patron to industry leading levels, reaching over 3.5 times the revenue per patron of our U. S. Peers for the past quarter.

Speaker 3

Recent Canadian research reinforced the power of cinema advertising as virtually unmissable with 100% of cinema audiences viewing ads on the big screen. High attention scores in cinema deliver strong impact for brands with 75% average 5 28.1%, primarily due to the addition of Cadillac Fairview, which significantly expanded our digital out of home shopping network. In addition to the recently announced operating and media sales agreement with Cadillac Fairview, CDM also signed a deal with them to sell, install and manage directories at 14 properties across Canada starting in Q3. Cadillac Fairview is one of the largest owners, operators, investors and developers of office, retail, residential and mixed use properties in North America. Our LPE business continues to perform well, generating 2nd quarter record revenues of 29,400,000 dollars Building on the momentum of our LBE business, we are gearing up to open 3 new locations in the Q4 in key markets across the country.

Speaker 3

Montreal will get its 1st rec room within the Royal Mount Eco community, which is a mixed use residential and retail area that will be 100% carbon neutral. It is anticipated to become one of the leading retail developments in Canada. We're also opening a Cineplex theater at Royal Mount with 5 auditoriums offering full recliners and laser projectors. Vancouver will also get a flagship rec room location on Granville Street in the Downtown Entertainment District. This is sure to be one of our top performing LBE locations.

Speaker 3

Located on 3 floors in a prime location, this premium venue will drive significant revenue from both corporate events and consumer visits. Lastly, situated adjacent to our Cineplex Cinemas Fairview Mall in Toronto, we are opening a new Palladium. This high traffic location is near a residential area and easy to get to by transit. This creates a go to one stop entertainment destination for family and friends to come together for movies, gaming and delicious food. While we are building new LBE locations, we are also exploring opportunities to maximize our revenue per square footage at our theaters.

Speaker 3

Examples include using excess space to add additional amusement gaming or other high ROI generating entertainment concepts similar to our Junction locations. Our real estate team has had success negotiating both rent reductions and reducing the total rentable square footage in addition to obtaining landlord funding for theater upgrades. We have also exited 3 theaters this year as part of our ongoing strategy to optimize our portfolio. Our pursuit of operational excellence and creating a seamless experience for guests led us to launch our online and mobile concession ordering earlier this year, where we've seen a significant increase in adoption among our guests. The average per patron spend is notably higher compared to in person transactions, helping to increase our overall concession revenues.

Speaker 3

We are continuing to enhance our mobile app functionality, reducing customer friction and elevating overall consumer satisfaction. While our mission is to create an exceptional experience for our guests, we also want to ensure we are offering a wide array of comes to alternative content like the opera, sporting events, concerts and classic films. This past June was our best ever for event cinema programming. The Met Opera's Madame Butterfly was the strongest opera title since 2019 and Ghost Right Here Right Now was the biggest new concert so far this year. We also welcome Canadian Cricket fans into our theaters to cheer on their favorite teams in the ICC Men's C-twenty Cricket World Cup.

Speaker 3

The India versus Pakistan game in June was the highest attended sporting event we've done since 2016. Our international programming contributed 9.2% to the 2nd quarter box office, once again outperforming the North American box office at 3.1%. JAT and Juliet 3, which released in June, is our highest grossing Punjabi film of all time, with Cineplex delivering 70.4 percent of the North American box office. Our distribution arm, Cineplex Pictures released the Amazon MGM studio film I am Celine Dion in select theaters this past quarter, reinforcing the importance of the cinematic experience for key streaming releases. They also successfully relaunched the horror film franchise The Strangest Chapter 1 and the Hindi action film Kill.

Speaker 3

Up next is Borderlands with an all star cast including Klay Belanchette, Kevin Hart and Jamie Lee Curtis. We have no update on the Competition Bureau's allegations regarding our online booking fee. As a reminder, we presented our case before the Competition Tribunal in February. We note that the Competition Bureau is not contesting our right 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.

Speaker 3

We await the Competition Tribunal's decision in the coming months. Before I pass it on to Gord, I want to reinforce that future film slate is looking bright. The 3rd quarter is off to a great start and strong content has kicked off the back half of 2024. Despicable Me 4 led the charge in July, becoming the 2nd highest grossing predecessor, Twister, which is the predecessor, Twister, which is the 2nd highest grossing film of the year when it was released back in 1996. Of course, the film capturing everyone's attention around the globe is Deadpool and Wolverine smashing The film The film gave us the biggest opening weekend since 2021, which had Spider Man: No Way Home, the 3rd highest grossing film of all time domestically.

Speaker 3

These films are just the beginning of what we are seeing as a stable stream of notable titles coming in 2024 with It Ends With Us, Alien Romulus, Beetlejuice, Beetlejuice, Transformers 1, Joker, Folie Adoo, The Last Dance, Gladiator 2, Wicked, Moana 2, Mufasa: The Lion King and Sonic The Hedgehog 3. Looking ahead to 2025, we are very excited by the RUPAS film slate on the horizon, including another Jurassic World Superman Legacy, the next installment of Mission Impossible, Helio, Captain America Brave New World, Wicked Part 2, How to Train Your Dragon live action, Fantastic Four, Zootopia 2, Thunderbolts, Snow White, Avatar 3 and many, many more. We believe we've reached a pivotal point in the post strike rebound with a variety of content hitting the big screen on a consistent basis to keep moviegoers on the edge of their seats. The pipeline of blockbusters over the next several years is truly remarkable. This is a promising moment for our business and shareholders, which leads me to my next point, capital return.

Speaker 3

As you know, we addressed the balance sheet in the Q1 through the sale of our Amusement Solutions business as well as a comprehensive refinancing plan, which included extending maturities and increasing financial flexibility. With the strength of our balance sheet and the confidence we have in our business plan, our Board approved a normal course issuer bid to acquire up to 6,300,000 common shares of Cineplex, subject to TSX approval. We along with our Board are focused on driving long term shareholder value. We firmly believe our share price is currently trading well below the intrinsic value of our business. We see tremendous value and opportunistically repurchasing our shares in an accretive manner with excess free cash flow, while balancing our target debt leverage rate As we look ahead, we have a lot to be excited about.

Speaker 3

As the film slate strengthens, so does our market leadership as Canada's entertainment destination. With 156 theaters across Canada, Cineplex is the largest exhibitor in Canada with an industry leading market share. Our leadership in alternative content and international programming will continue to ensure Canadians have even more reasons to come together and visit their local Cineplex, bringing content from around the world to their neighborhood. Our LBE business is set to grow on the back half as we build new locations as the leading Canadian player delivering attractive store level margins. This diversification of our business allows us to profitably deliver on our position as the destination for escape, play and fun.

Speaker 3

With a wide range of attractive media channels, we offer a compelling place for advertisers to invest their dollars and capture our guests' undivided attention. We will continue to leverage Canada's most robust lifestyle loyalty program, SEEN Plus. This award winning program has over 15,000,000 members and we are strategically engaging them through personalized offers and value driven promotions. To close, I know you've all been watching the rebound of our industry as closely as we have, and I hope you are as excited for what's to come. Over the last several years, our team has been working hard to strengthen our position, optimize the balance sheet, fine tune operations and differentiate us in the market.

Speaker 3

We are looking ahead towards a new horizon and we are more confident than ever about Cineplex's ability to sustain its leadership within entertainment and media across North America. With that, I will turn things over to Clorence.

Speaker 1

Thank you, Ellis, and I am pleased to present a condensed summary of the Q2 2024 results for Cineplex Inc. For further reference or financial statements and MD and A have been filed on SEDAR Plus and are also available on our Investor Relations website at cineplexdot com. Our MD and A and earnings press release include a complete narrative on the operational results, so I will focus on highlighting select items in addition to providing commentary on our liquidity, capital allocation priorities and outlook. For my comments on operations, all amounts following will be from continuing operations unless otherwise stated. As you are all aware, our Q2 results continued to be impacted by the Actors and Writers' Strikes, which delayed the release dates of a number of key titles, particularly impacting April May.

Speaker 1

Our April May box office was at 46% 49% of 20 nineteen's pre pandemic levels respectively. But in June July, this box office percentage almost doubled to 90% and 94% respectively. As a result of the April and May attendance impacts on our 2nd quarter results, our total revenue decreased 24.6 percent to $277,000,000 and our adjusted EBITDA decreased to $900,000 in 2024 as compared to $47,200,000 in 2023, primarily due to the reduced supply of product as a result of the industry strikes. Now let's take a closer look at our segments. In the Film Exhibition and Content segment, attendance declined $4,100,000 or 31.8 percent to approximately 8,700,000 dollars Total revenue decreased 30% and segment adjusted EBITDA decreased to $2,900,000 primarily as a result of the attendance decline.

Speaker 1

On a positive note, we achieved all time quarterly BPP and CPP records of $13.11 $9.56 respectively. As part of our portfolio optimization and rationalization strategy, we closed 2 locations during the quarter and a third subsequent to quarter end. We also monetized some underutilized land and overflow parking lots for cash proceeds of $11,900,000 Pairing Q2 2024 to the pre pandemic Q2 2019 period, our theater portfolio has decreased to 156 locations from 165 locations and our theater cash rent paid and payable has decreased 7.7 percent to $35,900,000 from $38,900,000 In the media segment, as we've mentioned previously, the cinema media business model post pandemic has shifted to a CPM based model. Encouragingly, despite the attendance challenges, the media segment revenue increased 11 point 6 percent to $28,900,000 and segment adjusted EBITDA increased slightly to $13,800,000 Segment adjusted EBITDA was negatively impacted by conversion costs related to the new digital media networks. Cinema Media revenue increased 4% to $18,500,000 and Cinema Media revenue per patron or CMPP increased a very impressive 52.5 percent to $2.12 per patron from $1.39 in the prior year.

Speaker 1

Given the change to a CPM based model and the transition to a regular product supply, we are introducing the CMPP metric in our public disclosures. Our digital place based media revenue had a strong results with total revenues up 28.1 percent to $10,600,000 primarily as a result of the addition of Cadillac Fairview to our shopping mall 2024. And lastly, in our LBE segment, segment revenues increased 1% to $29,400,000 The second quarter is typically the seasonally weakest quarter for the LBE business and year over year comparisons are impacted by Easter falling in Q1 and 2024 versus in Q2 and 2023. Store level adjusted EBITDA margins were 16.2% versus 21.8% in the prior year, primarily as a result of increased minimum wages, costs related to flooding remediation in a number of locations and timing of spend on new marketing initiatives. We continue to expect that store level margins for the year will exceed our 25% targets.

Speaker 1

I would now like to move on and speak to our balance sheets and in particular our liquidity position. At quarter end, we had $57,000,000 in cash and nothing drawn under the covenant like credit facilities, which have a capacity of $100,000,000 With the comprehensive refinancing plan, we have meaningfully pushed out near term maturities and removed restrictions related to covenant testing and no testing was required under the credit facilities at quarter end. As we have mentioned previously, our capital allocation priorities include maintenance capital expenditures, continuing to strengthen the balance sheet to achieve our target leverage ratios, investing in growth opportunities and providing shareholder returns in the form of dividends and or share buybacks. Driving the potential for significant free cash flow generation. Driving the potential for significant free cash flow generation.

Speaker 1

We see limited current commitments on growth CapEx and we see a current share price, which we believe does not reflect the intrinsic value of the company. Such, we believe that it is appropriate at this time to introduce a normal course issuer bid to deliver current and long term shareholder value. Board has approved the filing of an NCIB with the Toronto Stock Exchange to purchase up to 10% of the outstanding float or approximately 6,300,000 shares. Once approved, we will take a prudent and opportunistic approach to acquire shares using excess cash while balancing all our capital allocation priorities. We will press release once all approvals have been obtained.

Speaker 1

Now I'd like to take a few moments to consider the future. I want to revisit the very real scenario I've described during our past analyst calls. This is where we achieve or exceed pre pandemic adjusted EBITDA levels on 75% to 80% of pre pandemic attendance levels. No near term cash taxes due to the NOLs. In this scenario, we could generate in excess of $100,000,000 of free cash flow and use this free cash flow to invest, delever and provide additional shareholder returns.

Speaker 1

June attendance was 72% of pre pandemic levels. Our July attendance was 76% of pre pandemic levels. And early August results suggest this percentage will continue to grow into August. We are taking action today with the planned NCIB and we will continue to build back this business stronger than it was before the pandemic. In summary, we believe there's a lot to be excited about.

Speaker 1

With our long history of a disciplined operations and capital management approach, we remain highly focused on creating long term shareholder value. And with that, I would like to turn things over to the conference operator for questions.

Operator

Thank you. And our first question today comes from Drew McReynolds from RBC. Drew, your line is open. Please go ahead.

Speaker 4

Thanks very much and good morning. 2 for me. First on the cost side. Gord, I think you commented on just the higher cost on LBE. But I missed within Cineplex Digital Media conversion costs, if you can just kind of elaborate on those.

Speaker 4

And then the second question, with respect to the Cineplex Media business, obviously, great to see the year over year growth given kind of the lower attendance. Wondering kind of the reasons for your ability to do that just given obviously revenues being more tied to attendance? I know there's some moving parts underneath there. And most importantly, do you think you can kind of continue that kind of outperformance relative to attendance in the back half of twenty twenty four? Thank you.

Speaker 5

Thanks, Drew.

Speaker 3

So let me just kind of

Speaker 1

step back and talk about sort of the media business and the overall margins and then talk about kind of costs and where we see things going. So, as we've kind of described on previous calls, once we're ramped up is the Cinema Media business would typically operate around an 80% EBITDA margin and the CDEM business would be in that sort of lowtomidteens type margin. As we look into the 1st and the second quarter, I'm pleased to say that the Cinema Media business with its it continues to ramp up and continues to deliver at those margin levels. But as we look at the Digital Media business with respect to the kind of transition and the takeover of the Cadillac Fairview and now the common air networks is there some additional cost from our perspective in terms of converting over the networks and ensuring that everything will operate smoothly as we kind of ramp up and build the media networks across with Cadillac's Fairview. So with that said, I would suggest that the margins in the cinema Digital Media business have been depressed during the first two quarters.

Speaker 1

But as I look at the back half of the year, what's the integration initiatives that have been put in place is we should be operating at that mid teen margin. As far as the ramp up of the businesses go then, so with respect to the media business is I think what we're seeing is and what you have what you may not have noticed is we put out a lumen study or initiated a Lumin study in our media business to really show the effectiveness in the spend and that was just recently deployed in the first half of this year. Advertisers recognize and are evaluating their spend and as they look at kind of what the spend is in the digital categories, sometimes they're looking to kind of question the effectiveness of that spend. And our Lumin study being out there at the right time has now attracted more media people to engage and look with us in terms of advertising in the cinema space and the attractiveness of the film titles and the reemergence of product on a recurring basis is all helpful. So we're very encouraged about the outlook for the back half of the year in the media space.

Speaker 3

Andrew, the recall on the screen advertising is huge and it's very beneficial and we can even have ROIs for our advertisers, which really add significant value compared to other ways of reaching your guests.

Speaker 4

Okay, that's great. It's a great rundown. Thank you.

Speaker 3

Thanks, Stuart.

Operator

The next question comes from Derek Lessard from TD Cowen. Derek, your line is open. Please go ahead.

Speaker 6

Yes. Good morning, everybody. Happy to see the buyback announcement and hopefully we never have to speak about COVID and strikes ever again. I just want to talk to you about the slate for a second. Obviously, we're expecting a much better second half and into 2025.

Speaker 6

But how should we look or how should we think about it from a quarterly cadence? Is Q4 expected to be the strongest of the year? And then second and maybe a follow-up to that is, with that film slate coming back strong, how do you balance your international and alternative content, which has been really successful for you guys?

Speaker 3

Yes. Great question. And the first part of it on Q4, the coming Q4 of 2024 is going to be one of the strongest Q4s and significantly better than 2023. There are a lot of large movies, and they are well spaced out through October, November December. And on your question relating to international, we basically, with the help of AI and intelligence, are basically able to select specific movies for playing in our theaters and also looking at opportunities in different markets across the country.

Speaker 3

So it is going to be, to me, a high class problem when you've got more movies than you have screens to put them in. And hopefully, we'll increase our overall box office and penetration right across the ecosystem.

Speaker 6

Okay. Thanks for that. And maybe just one last one for me. Consumer weakness has been sort of the trending narrative this quarter. Just maybe talk about what you're seeing on that front, whether it's at the box office or any weakness maybe in rec room attendance?

Speaker 1

Derek, it's Gord. I'll take the first half of that question then. As we see and as you look at historically too and we have this in our investor PowerPoint, when consumers are facing kind of tougher economic times is what they tend to do is downsize their out of home experiences. And so theatrical exhibition has tended to benefit during those periods. 7 out of the last 9 recessionary periods, industry box office has actually gone up.

Speaker 1

And so we're encouraged because as you as we've mentioned, we continue to report record results in our spending metrics of BPP and CPP. So those trends are continuing with us. In tougher economic environments, spending continues to increase and they're looking to indulge and downsize their out of home entertainment experiences from things like concerts and professional sporting events to movie going.

Speaker 6

Thanks everybody.

Speaker 3

Thank you. The

Operator

next question comes from Maher Yaki from Scotiabank. Maher, your line is open. Please go ahead.

Speaker 5

Great. Thank you for taking my question. It's very encouraging to see you guys embark on this NCIB. Maybe I wanted to ask you how does this affect or should we interpret this announcement versus about implementing a dividend. Eventually, you guys talked about that in the past.

Speaker 5

Trying to figure out the priority that you guys will allocate capital to in terms of dividend payment and stock buyback. And related to the stock buyback, how should we expect your free cash flow evolve so that we can maybe better forecast the buyback then how it will evolve over time, I. E, is it earlier in the year that you think you're going to be active? Or after seeing Q3, Q4 results and how they pan out then you would have enough visibility to undertake more aggressively the buyback?

Speaker 1

So, Maher, thanks for those questions. It's Gord. Look, I think the first half of your question was on buybacks versus dividend. And we made some commentary about we're in a position right now where we over the near term, it's almost like a switch has been flipped and we're going to be creating significant excess cash flow with and as we also mentioned, not a significant number of new build commitments. So we have a window where we have significant excess cash flow and we believe that the current share price does not reflect the intrinsic value of the shares.

Speaker 1

So with those factors, it weights our decision more into a share buyback versus a dividend. The other thing is, as we mentioned, I think and we've described is that once we're hit our target leverage ratio of 2.5 to 3 times on a look back basis or trailing LTM basis is I think that you will see will be the catalyst for introducing a dividend. We are committed to our shareholders and we're committed to return through both of those vehicles. But it's our position that the share buyback is more of a priority given where everything is in the short term. With respect to timing, I'm not going to make any comment on timing.

Speaker 1

As we mentioned, we will opportunistically look and engage at those times and I don't think it's appropriate for us to commit on timing.

Speaker 5

That's fair. I was trying my luck. So in terms of

Speaker 7

the cadence

Speaker 5

you can't blame me. So in terms of the cadence when it comes to the financial results in the back half of the year, Maybe you can as we look through Q3 and Q4, how does 2025 look like how does 2025 look like when it comes to the cadence of movie releases that you see? And on an annual basis, how should we think about rolling forward on a 12 month basis that we should be forecasting in terms of revenue and EBITDA? And just a follow-up to that. As you continue to increase the number of sorry, the entertainment business footprint.

Speaker 5

So how should we think about your EBITDA margin moving as you expand that investment over time?

Speaker 3

Now when we talk about the movie business moving into 2025, we see a really strong slate of films distributed all through the year. And I mentioned some of the large ones like Jurassic World, Superman: Legacy, I expect that in July is going to be massive. The Mission Impossible, Elio, Captain America, Wicked Part 2, Out of Train Your Dragon, Fantastic 4, Zootopia, Snow White, Avatar 3, and there are many, many more movies that are in the year for 2025. And that to me is all about giving our guests the best experience. And we will continue to increase our penetration on premium offerings for our guests because they do enjoy that, and it's something that has done very well for us in driving our overall cost per patron and revenue.

Speaker 3

And on the concession side, we will continue to see growth. And I'm optimistic that we will cross the $10 mark in 2025 as we move forward. So I think there's a lot of opportunities in the theatrical side. And then when we look at the LV in 2025, we would have had 3 new openings at the end of this year, which will provide us with relatively strong numbers into 2025 and into the future. And we will continue to focus on the 2 major an important part of our overall EBITDA contributions.

Speaker 3

And as you know, we are one of the few companies in the world that basically own our media business, which allows us to retain a significant amount of the incremental dollars that we get from media sales.

Speaker 1

And Maret, just 2 other quick comments here then. On the back half of the year

Speaker 5

Yes, Gord, I'm just trying to figure out as you open more rec rooms and playdiums, how is the margin initially going to get affected?

Speaker 1

Yes. So but I want to make one other quick comment too. So the back half of the year, last year, we delivered $99,000,000 of EBITDA in the last half of the year, and that's in a strike impacted 4th quarter. So again, we have renewed confidence in our ability to deliver at those pre pandemic levels going forward. On your question on the LBEs, is the LBEs as we add new LBEs is they come in at a roughly a 25 percent store level margin as I communicated.

Speaker 1

So as those expand and we bring them in, you should expect the overall EBITDA margin to increase all things equal.

Speaker 5

Great. Thank you.

Speaker 3

Thank you.

Operator

The next question comes from Aravinda Galappatthige from Canaccord Genuity. Aravinda, please go ahead. Your line is open.

Speaker 7

Good morning. Thanks for taking my questions. I wanted to focus a little bit on media. Just going back to some of the comments God made about returning to pre pandemic levels of EBITDA, adjusted EBITDA. What would what does media have to do in that context?

Speaker 7

I mean, obviously, decent quarter considering where your attendance was, but you're still 30% to 40% below pre pandemic levels. Maybe, Alice O'Gourd, you can kind of talk to some of the initiatives to try and lift media up. Are you is it a case of sort of getting newer accounts in? Is it sort of getting larger campaigns with the existing accounts? Wanted to get a sense of what your plans are to sort of lift that back up towards over $100,000,000 in revenue, which you used to do in cinema media.

Speaker 7

And I think even the reported EBITDA pre pandemic was over $100,000,000 I think it was in 2018. So any kind of longer term color on that? Thanks.

Speaker 3

Thank you for your question. And the main focus there as compared to pre pandemic is we have some great data and we will be able to leverage that and give our advertisers a great return on their investment with the movies on the screen because the recall for some of the advertisers are huge and they're seeing it. And I know there's some comments being made where sometimes they remember the ad more than the movie, which is good and bad. But that's something that we continue to see, and we are also seeing a strong return of the automotive back onto the screen. So as the attendance continues to increase and as we move forward, we see a great positive impact on our media side of the business.

Speaker 3

And Gord, do you want to make any comments or

Speaker 1

No, I think that's a fair comment.

Speaker 7

Thank you.

Speaker 3

Thank you.

Operator

The next question comes from Adam Shand from National Bank Financial. Adam, your line is open. Please go ahead.

Speaker 8

Thanks a lot. Good morning. Lots of questions obviously on the recovery at the box office, which you guys are very enthusiastic about and we certainly agree with that. Maybe Gord, you could talk a little bit about the Filmed Entertainment and Content margins, the context being that last year, obviously, a depressed year, 11.5% margin, going back to 2019, just shy of 15%. Can you maybe speak to some of the efficiencies that you have put in place that you're continuing to put in place, notwithstanding minimum wage increases that could help frame the prospect of further margin expansion as a further kicker to the recovery story?

Speaker 1

Yes. So Adam, great question. And then I tried to hint on few of those in my call scripts today. When you think about the category, our overall cost categories, our rent and rent related items or occupancy related items represent about 25% of our overall costs. And as I highlighted, our rent our theater rent cash paid and payable decreased over 7% from the pre pandemic period.

Speaker 1

So we've continued to describe that our focus for us is rent reductions and rationalizations as we go forward. And so and we see that as continuing opportunity going forward. So you have a 25% cost category, which tends to be either flat and or potentially declining. And then as you look at your other cost categories, so payroll is 1, as you mentioned. And as Ellis described, we look to continue to deploy our digital products, our connections with our consumers to ease the journey through our environment.

Speaker 1

And the 2 components of that is, one is it allows us to kind of personalize and increase revenue per patron, but also gives us the ability to optimize our payroll costs as we have better ideas about volumes and requirements from a staffing perspective. So we continue to be feel confident that we're going to see continued kind of enhancements in the overall film entertainment and content margin as we go forward.

Speaker 8

Super. Thanks a lot.

Speaker 3

And Adam, we are creating a seamless experience for our guests and that's what we've been focused on. And that helps us overall for increasing our revenue per patron and also minimizing the impact of the minimum

Speaker 8

wage increases. Can I maybe just follow-up? I mean, one thing in the past when you were building up all these diversification elements was the whole overall other theater OpEx element that tended to be very difficult to forecast and tended to surprise to the upside. We certainly saw less than expected spend in this Q2. Is that a particular area where I know there are a bunch of expenses lumped in there, but an area where there should not necessarily be a surprise to the upside going forward as in years past with further efficiencies to be gained there?

Speaker 1

Yes. Adam, look at part of, and what's there's 2 items in that cost category that tend to kind of go up or down. The rest of the cost carriers are relatively flat. And that would be, if there's initiatives and costs related to bringing in new partners related to the SCENE program, would be one component. And the second would be, our distribution business.

Speaker 1

So there's revenue that goes into other revenue and then there's cost related to the distribution business. So in a quarter like the comparator quarter as an example for Q2, we had John Wick IV driving up the other revenue a little bit and then driving up the other operating expenses a little bit. I think when I say a little bit, about $3,000,000 or so. So in quarters where we have strong films being released through Cineplex Pictures is there will be a bit of an anomaly, but otherwise it should be relatively consistent.

Speaker 4

Perfect. Thank you.

Operator

We have no further questions. So I'll hand the call back to Ellis Jacob for any concluding remarks.

Speaker 3

Thank you very much and thank you again for joining the call this morning. We are excited about the strong film slate for the balance of 2024 and into 2025. As our business continues to ramp up, we look forward to sharing our strong results during our Q3 2024 earnings call in November. Have a wonderful day.

Operator

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.

Powered by Quartr

Key Takeaways

  • Despite Hollywood strikes dragging Q2 attendance to under 50% of 2019 levels, a rebound in June-July lifted attendance over 90% of 2019 and drove record quarterly box office per patron of $13.11 and concession per patron of $9.56.
  • Cineplex’s diversification paid off as full ownership of Cinema Media grew segment revenue 4% year-over-year and digital place-based media revenue 28% via key partnerships like Cadillac Fairview, with media revenue per patron at industry-leading levels.
  • The Location-Based Entertainment (LBE) segment hit a Q2 record of $29.4 million in revenues and is set to open three new Rec Room and Palladium venues in Q4, while optimizing its portfolio through select theater exits and real estate deals.
  • Liquidity and financial flexibility were bolstered by refinancing that left Cineplex with $57 million in cash, a $100 million undrawn credit facility, extended debt maturities, and no near-term covenant tests.
  • To return capital and signal confidence in its valuation, the Board approved a normal course issuer bid to repurchase up to 6.3 million shares, with dividends under consideration once target leverage ratios are achieved.
AI Generated. May Contain Errors.
Earnings Conference Call
Cineplex Q2 2024
00:00 / 00:00