Q1 2020 Cineplex Inc Earnings Call
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Good day and welcome to the Cineplex Inc. Q1, 2020 analyst call.
Today's conference is being recorded at this time I like to turn the conference over to minimalist shippers Daqo senior manager of Investor Relations and Communications Ma'am. Please go ahead.
Thank you Katie good morning, and welcome before I begin I would like to remind you that certain statements being made our 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 could differ materially from those expressed in the forward looking statement factor that factors that could cause results to very include among other things the negative impact of cobot 19 pandemic adverse factors generally encountered in the film exhibition industry risks associated with other national and World event discovery.
Undisclosed material liabilities and general economic conditions.
Now I'll turn the call over to our President and CEO Alex Jacob.
Thank you Melissa good morning, welcome to Cineplex Inc.'s first quarter Twentytwenty Conference call Im glad you could join US let me start by saying on behalf of all of US We hope that each of you and your families safe and healthy.
On today's call will take a brief look at the first quarter results and the impact of school that 19, but we'll focus much more on the actions we have taken to manage to depress crisis as well as our reopening plans to safety welcome gets back to our theaters and entertainment venues and ramp up.
As this is Dan we will look ahead and show we plan to position the company for its continued success in the future.
We will briefly touch on the end of the transaction to listen to send it will then offer so it was litigation.
And at the conclusion of my remarks, our Chief Financial Officer, Subordination will provide an overview of the financials, specifically focusing on the ongoing amdocs with Golden 19 on on Q1 financial statements and send it was repudiation of the arrangement agreement following that we will hold a question and answer theory.
The social and economic effects of Golden 19, I've been wife's friend or the hard hitting like so many other businesses in Canada as a direct result of the global Pandemics, we were required by provincial governments across Canada to temporarily closed all fall teeters on location based entertainment venue on.
Launch to 16.
We have strong start to the first quarter without the older revenue for January and February or approximately 6%.
With the capacity restrictions and mandated solutions in large I'll first quarter results were impacted by the pool was 19 pandemic, which had a negative effect on our business, resulting in decreases in revenue operations and cash flows.
Well go into more detail shortly but what I would like to emphasize just a swift action, we took to mitigate the negative impact and support the long term stability of the company.
We immediately moved our attention to cashed in expense mitigation strategies to ensure that the benefits of minimizing cash burn would be realized through the full period of far closures as well as our meals me.
This included temporary layoffs of all hourly employees and voluntary salary reductions by all remaining full time employees.
We reduced all non essential discretionary operational expenditures such as spending on marketing travel and entertainment. We also reduced capital expenditures implemented a strict review and approval process for all out wins procurement and payments requests and continue to suspension of dividends.
We also focused on partner simple. This included government programs, primarily through the federal government and service level reductions to stations and abatements from a supply of partners. We also proactively negotiated with our landlord partners for rationally.
Looting abatements during all closer period, and converting fixed rent a variable rent during a ramp up period until attendance returns to previous levels.
[laughter] finally, we continue to meet the conditions of the send the world arrangements agreement on lift was repudiated Bison awards. Since then it was repudiation, we have focused on working with US financial partners to ensure that long term liquidity needs are met.
Well, we were able to dramatically reduce our cash burn. We also remain committed to growing in supporting the areas of <unk> business and should not has impacted by the pool with 19 shutdowns.
These include Cineplex digital me to media, which has been working at full capacity with clients work and proposals by expanded food delivery services, who eats and skipped the dishes.
Online Cineplex, Stow, which experienced significant rules as people consume more content from home.
It also sounds it was important to support the community as such and such troubling times, which is why beginning in mid April we committed to donating one dollar to food banks, Canada every home delivery order that we fulfilled at our theaters and locations of direct rooms across Canada to date, we have raised over 100.
$1000 to improve access to the food for Canadians facing social economic and held impacts of the covert 19 pandemic in the short term.
During this time up uncertainty we are focusing on what we can't control or not taking prudent action in a variety of areas.
We are and will continue to make it difficult, but necessary decisions to manage through this crisis and physician Cineplex with continued success has we've begun resuming operations.
Shifting gears I would like to take a moment to speak about the system will transaction.
When I say, we shared the frustration and disappointments felt by our shareholders at the repudiation, often do you bison the world.
Afforded to terminate the arrangement on June 12.
As we as was communicated in our press release issued later at the same day, we believe that's in the World had no legal basis to terminate the agreement.
We believe that's in the World is in fact in breach of the arrangement and attempting to await their obligations under the arrangement agreement in light of the pool was 19 pandemic.
In terms of timing, we expect to file our statement of claim in the Ontario reports within the next week or so and we will disclose publicly when the claim is fine.
Unfortunately, we cannot provide much more information at this time, but we are committed to working diligently to advance the legal process and seek to recover all damages available to us based on signals breaches of its contractual obligations.
Moving to reopening the D.R. dose close over three months ago was that they are team began diligently preparing for this safe reopening.
We use that time to carefully read examine all of our buildings and processes and not passed theaters and entertainment when venues now begin to reopen.
Yeah, implementing an industry, leading program with end to end health and safety protocols across the board.
Our top priority has always been the health and safety or five employees and gets and ensuring that we can offer a safe comfortable and welcoming environment.
This is why we are diligently following on implementing all guidelines public health authorities as well as those put forth by municipal let the original governments across Canada.
We're also working with leading public health and infectious disease experts.
Detailed information about all the measures we are putting in place is available lot cineplex start call that a high level our strategy centers around three key components enhanced cleaning reducing capacity to ensure physical distancing and leveraging technology to he's operations and lessen touch points.
Between our employees and guess.
First we are enhancing cleaning practices by using the highest levels of products to outdoor theaters with the particular focus on high contact surfaces restrooms and seats were also ensuring our team has the personal protective equipment they need to keep everyone safe.
Second we are implementing physical distancing measures throughout our buildings, including our lobbies game slows and food service areas.
We are reducing capacity in all auditoriums and launching a reserve seating across the entire network, which means that seating options will be automatically blocked out to ensure proper physical distancing and every direction between guess.
Finally, we are encouraging August purchased their tickets online that cineplex starts Paul or through the center pets, absolutely contact less entry into theaters, we will only be accepting debit and credit payments with the exception off exchange in cash for a cineplex's gift card, which you can do it all concessions counter.
We will also be limiting our food offerings to cineplex's famous popcorn and other coal concessions during our initial reopening.
[noise] digging out to use from government. We're also taking a gradual and phased approach to reopening.
Each phase will be driven by provincial regulations around public the idling sizes and safety guidelines.
I live video first one phone brought up social norms around physical distancing and attendance levels that theaters and other venues once they have reopened.
We're also implementing a number of pricing and marketing strategies to attract I would guess unbilled consumer confidence as the impact of the coldest 19 pandemics of sites.
As government restrictions continue to lift across individual provinces have already or is your measured operations at direct from in Winnipeg, Calgary Hedman and Toronto.
We were excited to reopen the dose of six theaters in Alberta last Friday, and we'll continue to resume operations at some off mall locations in British Columbia is this catch alone pulled back New Brunswick, Nova Scotia, Newfoundland on July that are.
Of course things are changing quickly late last week, we learned of shifts in the film release schedule with Christopher Nolan instead of moving to August 12, and Disney's release of Moolah moving to August 21st at this moment, we know we must be flexible and cannot treat these new releases as we would.
The traditional release freak over 19, as such we have already adjusted up phase reopening approach, we will limit the number of theaters reopening in certain provinces in July and we'll continue to monitor our plans as necessary to comply with board provincial health authorities as well as the timing of major studio.
If need be.
As we know July will be a ramp up period for the industry. So we are welcoming movie lovers back into our buildings with popular releases that misstep full theatrical run at a $5 price point.
The travel restrictions still in place and some of vacation plans became becoming Staycations, we know that Canadians we'd be looking for affordable entertainment options that are close to home.
Looking ahead theater closures for the past three months have created a strong backlog of titles for the second and third quarters. So we anticipate third and fourth quarter. So we anticipate a greater slate later in the year on into 2021.
Movie lovers can look forward to films such as acquired place to Wonder woman 1980 fault block window, no time to die and top gun Maverick among other sitting the big screen.
I would like to take a moment to thank and congratulate our theater a location based entertainment teams across Canada as well as our field than home office employees, who helps with reopening preparations and activations.
Entertaining Canadians is what we do best and we can't wait to get back to doing just that.
Well it is impossible to predict how long this crisis will last and how significant the impact will be on our business. We know that I guess I missed the magic of the big screen am I looking forward to shed experiences with friends and family that cannot be replicated at home.
And that's where our theaters on location based entertainment venues covenants.
I strongly believe that we will emerge from this challenging time with the renewed sense of community and appreciation of social experiences such as movie going that has proven to be an integral part of our culture and social fabric for well over a century.
Finally, we would like to thank Mr., Ed Sunshine, who resigned from our board of directors and me for his dedications valuable insight and support during his tenure with us.
I would also like to announce the appointment and return of MS. Phyllis feed to the board of directors.
As many of you may remember that Ms. Yassine previously, so don't onboard including as a trustee of Cineplex Galaxy income fund.
February 2008 to September 2016.
Most recently she served as Canada's Council General in New York from September 2016 through December 2019, and we are delighted to have a bath.
I missed the Afreeza, we appointment to the board of directors have elected that she returns to the role of check antagonist, even Greenberg was commitment and services check. This agreement will continue to serve on the board as a director.
Throughout our history Cineplex's demonstrated its agility and resiliency time and time again.
And this time is no different we have a highly strategic open season senior management team remains committed to our employees our shareholders. Our partners on August through this time of change and transition.
We are taking the necessary steps to navigate these uncertain times and remain steadfast on driving up business for reopening on network of theaters and entertainment venues across Canada driving growth in other businesses and building a strong well positioned the company for the future.
With that I will pass the fall of divorce.
Thanks else I am pleased to present, a condensed summary of the first quarter results for Cineplex Inc. and to provide additional detail in the financial impacts of coal that 19 on our operations.
For your further reference our financial statements and Mdna had been filed on SEDAR and are also available on our Investor Relations website at Cineplex Dot com.
Our Mdna and earnings press release includes a fulsome narrative on the operation.
So I will just focused on highlighting and quantifying some of the more unusual items, including Sunworld's repudiation of the arrangement transaction and the impacts of the ongoing effects of the Covance 19 on our Q1 financial statements.
The covert 19 pandemic had agreed to real negative impact on all aspects of Cineplex's businesses, resulting in material decreases in revenue results of operations and cash flows for Q1 2020.
As mentioned, we were off to a good start with our total revenues of approximately 6% for the first two months of Twentytwenty.
It was capacity restrictions and mandated closures and our exhibition and that will be businesses in the month of March our total revenue for Q1 ended up down 22.4% and this impacted all other financial mean metrics.
Although covenant I see material impacted our exhibition in Lv. He businesses. We were pleased to report record Q1 results in our digital place based media business and growth in our digital commerce and food delivery businesses.
Constraining that our diversification strategy has continued to serve us well.
I now want to provide additional commentary on some of the unusual items in our Q1 financial statements.
I would like to start with the $173.1 million impairment charge, we recorded in Q1.
This 173.1 million charges broken down as falls 88.5 million related goodwill 50.6 million related to rights of use assets and $33.9 million related to property equipment and Leaseholds and.
In addition, as it for.
$34.4 million was set up related to this charge.
There are number of nuances related to discharge that are important to understand and I would suggest that the magnitude of comparability of this charge against our peers and the other issues or other issuers is subject to understanding nuances.
I want to discuss or the timing of Wiley versus the data the financials U.S. GAAP versus infers quarterly versus semiannual reporting in for 16 impacts market views, including stock price and finally, the potential reversal of impairment charges.
[noise] triggering event for the impairment analysis was obviously cobot 19, and the effective date for the testing was the balance sheet states.
Similar to others, the issuer as required to assess the impacts of the cool with 19 on the Recoverability of its net assets as compared to their carrying value.
The recoverable amount to the assets as determined by their fair value, which cineplex calculated using projected in the future cash flows beginning from the date of the balance sheet in other words March 31st and using the best available information as of the filing dates which is in our case is June 29.
This is an important.
You a number of months ago was like covert 19 closures would be shorter and the return to normal would be quick and thus filers, who release. The Q1 financial statements earlier may have underestimated the ultimate impact of cold and 90.
Given our current knowledge, we know that the impacts of the more severe and thus we are reflecting this knowledge in our Q1 results.
Given the testing date is the balance sheet date of March 31st we need to include the known negative impacts in Q2 during the closure period and also through the reopening period in Q3, and our future cash flow analysis.
These negative impacts or increases in her impairment in the analysis.
Quite the fact that they would theoretically reverse all other outlooks in assumptions equal why our next testing date.
As a result of this it is important to consider our charge versus other filers, who filed financial earlier.
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What are the key differences between U.S. GAAP and if reserves at the initial test for impairment isn't undiscounted cash flow analysis for U.S. gap as opposed to a discounted cash flow analysis for differs.
As such the near term losses during the closure period have a much more significant effect under differs than U.S. gap.
In this regard it is difficult to compare our charge versus our U.S. peers.
As we look to our European peers reporting under IFRS went up must also consider the time.
Given our quarterly.
Our quarterly reporting an impairment testing triggered date of March 31st we were required to include the full impact as the Q2 losses during the closure period in our testing.
If you report on a semiannual basis and I have a first half reporting period of June.
30 in.
The newest benefit by not having to include these near term losses in your impairment calculation.
It is difficult to compare our Q1 charge versus others that adopt semi annual reporting.
Next I'd like to focus on the impacts of the recently adopted for 16 and the fact that we're in a business with long term leases on adoption of efforts 16 in 2019, the right abuse assets, we're setting up using a weighted average discount rate of approximately 3.5% incremental costs.
The borderlines at that time.
December 31st 2019, the net book value of right of use assets was $1.2 billion. We're now testing impairment using discount rates of between 9% and 11.9% and have an effective mismatch in discount rates between the asset and cash flows which is impacting the.
Impairment analysis [noise].
In addition to the above items, we need to reconcile our overall analysis to market pews, which includes considerations the current stock price and future stock price estimates given the market uncertainty and significant decline in our stock price. This has also negatively impacted our overall impairment analysis.
And my last comment is related to the potential reversal charts under.
We will continue to evaluate our projections as more certainty regarding the impacts of corporate 19 become known and we will refine our estimates, but we do know that once we reassessed at year end of the near term impacts of the Q2 mandated closer and estimated Q3 reopening period will be behind us.
And this could lead to river reversal of these impacts assuming no other changes in estimates or assumptions.
My apologies for the long commentary on the nuances of the impairment charge standards, what I wanted to stress the comparability and calculation of this item is based on a number of factors that need to be understood before coming to any conclusions on this matter and in particular when comparing this to other filers.
My next comments with respect to the going concern reference in the financial statements Cineplex continued to act within the terms of the arrangement or agreement and it wasn't until sort of world repudiated. The deal on June 12, Twentytwenty that cineplex could actually plan and discuss liquidity matters with third parties.
Since June 12, Cineplex's entered into a credit facility Amendment, which we announced yesterday after market close that provides for the immediate suspension of covenant testing, which can be extended through Q2 in Q3 upon a mandatory permanent repayment of $100 million of our credit facility from the proceeds of.
Minimum $250 million financing August 31st.
Cineplex works for financing options of potential asset sales, but as the date of our filing yesterday there's no.
Events and as such there is no certainty and accordingly, we have including the going concern language in our financial statements.
As our peers and others have had successful financing events, we're confident that we will be able to deliver on this requirement prior to August 31st and as such the going concern note with no longer be required assuming no other changes to the future outlook.
Why don't my final comment on Q1 is with respect to the impacted repudiation of this in a world transaction on our Q1 results.
The Q4 2019 results based on the assumption that the center World transaction would close in Twentytwenty.
Following the repudiation on June 12, we adjusted certain items in Q1 2020.
The most significant item is that we have reversed the accelerated they accelerated vesting rights on certain stock based compensation items, which would have occurred at the transaction closed.
This is the stock price decline were the key contributors to the approximately 14.8 million dollar reduction.
Well to an option plan expenses during Q1.
We continue to occur transaction costs of approximately $1.3 million.
And lastly, we ceased hedge accounting in Q4 on the preserve presumed early repayment of debt on the transaction close and this has contributed to the increase in noncash interest charges of $9.9 million in Q1 2020.
All of your but above items have discussed have had a material impact on our Q1 financial statements.
Now, let's move forward and spend some time talking about the impacts of coven 19 in Q2, and some of our remediation initiatives.
First I would like to talk about our debt balance.
March 31st 2020, our total borrowing under the credit facility was $665 million.
And as of June 29, Twentytwenty, It was $664 million. So our net borrowings decreased during the closure period.
How did we do this.
This is provided some commentary on our key initiatives, but let me provide some additional color.
First not all of our businesses were impacted by the mandated closures were able to continue to operate our digital place based media business and our digital commerce and food delivery businesses.
From a payroll perspective on closer we immediately initiate a temporary layoffs and reduced full time employee salaries across the board by agreement with the employees.
These were voluntary permanent reductions and not the for girls.
We reviewed and applied for government subsidy programs were available, including the Canada emergency wage subsidy.
The result of these various initiatives, we were able to materially reduce our payroll costs during the second quarter.
We continue to maintain strong communication channels and work with our landlord partners in identifying opportunities for relief during these unprecedented times.
Our focus has been on working with them to identify opportunities.
Abatements during the closure period.
To convert the fixed components of rent to variable rent during the reopening period.
And to jointly look for other opportunities under our existing lease agreements.
We have been very successful in this regard to date and appreciate the strong relationships and support we have built and maintained with our landlords during our history.
Well, we are still in the process of finalizing some of these initiatives and the accounting for that any amendments as more complex under it for 16 I'm pleased to share that we expect to have the material reductions in cash payments related occupancy costs during the closure period.
With respect to other supplier partners and expense control, we put in place immediate expensing Capex curtailment programs during the closure period and worked with our supplier partners to provide elements of relief, including cessation for reduced the amount of contractual services and payment deferrals, we expected on.
The goals going forward basis, our growth Capex will be curtailed and I will detail more on this later.
In addition, we focused on managing managing our working capital to ensure that we were optimizing our cash position as a result of the above and other key initiatives, we're able to rone remain in a relatively neutral position during the second quarter and also provide for benefits, which will extend into the recovery period.
Although we were effectively that neutral during the quarter operationally, we did have an effective cash burn rate of approximately $15 million to $20 million a month before the impact of working capital initiatives supported in particular by the focused strategies on the collection of outstanding receivable balances.
As we look ahead, we continue to focus on our reopening plans and continuing to explore opportunities for further cost reduction and value creation.
As we consider liquidity, we had eliminated the monthly dividend as part of the arrangement agreement and do not expect to reserve restart paying a dividend again in the near future.
In addition, we were looking to bring capex down to approximately $50 million for the next 12 months from our previously estimated run rate of approximately $150 million.
These two initiatives alone will preserve approximately $200 million in cash.
We will continue to explore appropriate financing and further opportunities to drive value.
Whereas disappointed as you are by Sunworld's repudiation of the transaction, but are fully committed to preserve our legal rights under that deal and expect to file or statement of claim in the near term.
Addition to all the above matters, we will continue to work on behalf of our short shareholders to deliver value in the future [noise].
That concludes our remarks for this morning, and we'd now like to turn the call over to the conference operator for any questions.
Thank you, Sir if you'd like to ask a question. Please take note by pressing star one on your telephone keypad, if you're using his speakerphone. Please make sure you meet functions turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question.
Well pause for just a moment to allow everyone the opportunity to signal for questions.
Our first question will come from Jeff fan with Scotia Bank.
Thank you good morning, good to hear from both of you and what people are saying well I got a couple of I'm kind of housekeeping clarification questions and one.
On the film release schedule.
From a housekeeping and clarifications regarding the fourth quarter 2020 covenant.
With leverage at 3.75 times Court can you just clarify the mechanics.
How that will be calculated because in the release you talk about annualized.
Just a deep itself. So we just don't understand your mechanics on how we calculate that.
The second one is just on your impairment tests disclosure and thanks quote for all the qualifications on that but just one final point in your disclosure you talk about EBITDAO growth that's in the ranges in your assumptions.
Minus 4% to plus 40% between the second half 2020 to 2024.
I guess I want to.
Your sense of how that range was a wide and whether that's a quarterly or annual EBITDA. Alan just comment on the minus 4% because that certainly is probably better than what so many people were estimating and then just the final question.
Bigger picture regarding the film release versus the U.S. I'm seeing that the U.S. cases are still going up and not.
My soul, some other real compliance and the states and therefore, there from the leases.
Is it possible I'm just question probably for hours.
To negotiate really release schedule for Canada, how did the U.S. I know this probably hasn't been done in the past but.
We're all can agree that wherever and unprecedented times in lots of things that happened in the last three months that weve never seen before so.
It's one of you tend to here if you if theres any possibility about thanks.
So Jeff has scored I will take the first a housekeeping questions and they know us well, China, but the film releases.
So first of all with respect to the Q4 covenant calculation.
And how we will annualize it or not considerably as typically will take the Q4 results will just out for any nonrecurring type items during that quarter and annualize the results based on that quarters activities. So we will no longer we will no longer include the Q2 in Q3 results that will be based on an annualized.
Q4 result.
With respect to the range.
Of Ah.
Growth estimates and with respect to the impairment testing.
Obviously, we looked at business by business and we drill down into the EBITDA range. As we ran a number of sensitivity analysis under different scenarios, we probability weighted all those scenarios to come up with the overall impairment test.
So those were the ranges.
Of EBITDA CAGR, so we developed.
During that period, taking into account any mitigation strategies in any growth opportunities that we had in those businesses now I'll turn it over to allow us to take the tone question, Yes, Jeff as you've seen the slate continues to move depending on what is happening.
You know south of Us and we are fortunate that bought tenant a new long in the month of August stand there are other movies like unhinged.
There are also opening a within that period and then we'd go to hold slew of phone staking out through the end of the year, but we have been talking to studios. The challenges is very very difficult for them to release a movie Institute specific countries. When they look at the box office for the whole.
World to deliver for their new movies so.
Yes, we are very conscious and I know when the U.S. at this point in time as part of the National Association of Theater owners. We've got over 40 states that are now permitted movie theaters to open but there are a key states like New York, New Jersey, and certain parts of California that we're still working on but it will all day.
Depend on what happens as it relates to the number of cases in these jurisdictions.
So we have strong hope and you know we opened up for a number of theaters in Alberta Love. This past weekend. So we're slowly growing towards making sure that we have bought theaters available for the real things in August.
Okay. Thank you book.
Thanks, Tim.
Thank you. Our next question comes from Derrick, let's start with TD Securities.
Yeah, good good morning, everyone.
Good morning, Derek good morning.
[noise] seems we have lost Ericsson little move onto our next.
Question. Our next question comes from parents into Gallup have together with Canaccord Genuity.
Good morning, Thanks for taking my questions and hope you guys doing well my asked this question relates to cash spread and Gord I think you provided some really helpful color with respect to Q2.
But obviously when you think instead of the ramp up process. It will take many months a two cents get back to its a set of more normalized levels.
Can you help us understand said the flexibility in the model given the changes that have been affected you know at the end level I'm trying to get a sense and you know where that breakeven points would be in terms of in terms of attendance and in terms of occupancy I realize that that number to provide but any kind of color around how.
The modern would work as you kind of ramp up and what cash strength it looks like.
Secondly, and I was wondering if you could you provide little bit more insight as to set up your financing options I know the 250 million minimum that as being cited in the the credit agreement.
Sure have been done so with respect to your first question I would say that you know as we discussed we've taken great efforts and to look for opportunities.
To reduce and mitigate costs as we look forward I would say I'd say that our two largest sort of a relatively fixed costs or semi fixed cost or rent costs in our payroll costs. Obviously, you know food cost in film costs are totally variable with respect to those two items I want to make some comment.
Yes on those the first is with respect to payroll is we've been able to materially reduce our payroll expense during the closure periods and you're in and we will during the reopening periods.
As the Canadian emergency wage subsidy becomes available that subsidies in place currently until the end of August So we will benefit from that through the reopening period for the next two months.
If that would if the subsidy were to extend further.
And that will provide us other opportunities going forward. The other comments that I made during my prepared remarks was.
Weve continued to maintain strong relationships.
With our landlord partners and as we look to.
As we look to.
Renegotiate and look at our terms going forward as is during this period, we have worked together.
And are looking to convert fixed rent to variable rents during our reopening phase we're still in the process of finalizing a number of those but we've been very successful to date. So again that will mitigate some of the cash burn so.
What we would expect is that Jerry to reopen in period as we were able to reduce the amount of cash burn rate that we had during the closure period obviously.
Part of that will be based on continuation of any wage subsidies and finalization of.
Of agreements with landlords.
Your other question with respect to financing options and when we look at financing options. We want to obviously, we're exploring and everything that is available to us including potential asset sales and you know and well probably have more to report on that way.
Thank you and just a quick follow up for a four Alice.
Going back to the film slate obviously the funds of 2021 is very significant to the Cineplex story as it is for the other theatrical business is you know it looks on on paper to be a very good slate, particularly in the second half the year unless you had been insight as to sort of the principal photography on these R&D.
These movies, particularly the big ones coming up like Batman Spiderman Avatar is that.
Boy, that's set of I'm sort of on hold because koby 19 conditions, particularly in the U.S. and would need to be sort of pushed out to 2022 or any kind of early news on that that you can share and.
Cost like from that thank you.
Yeah, and a loss in movies in 2021 look extremely strong and a number of them have moved over from 2020. So those movies will definitely be there you know we have fast and furious then you bought Jurassic world.
Any is there a whole bunch of movies so.
Space Jam to the suicide squad.
Batman as you mentioned, so I think 2021.
Given our revamped mission impossible did Godzilla versus call Ghostbusters, There's a strong strong linked in 2020 watt and most of those movies, so I'm pretty far down the road from a production perspective and it all depends on how long the covert 19 continues because.
Some of the work that is not being done in particular places that impacted as other you know filming locations. So I think 2021 will be a very strong year for us going forward.
Thank you.
Thank you we have Derek will start with TD securities back on the line Sir. Please go ahead.
Thanks, guys, sorry about that seems like I got dropped and I apologize if I'm. If it's been answered, but I was wondering for the required 250 million dollar rate there any.
Limit on your on the new agreement on whether it would be could be equity or debt.
Oh, Yeah Sylvia.
As I as I said earlier, we're going to explore kind of all options that are available to us including asset sales you know as we go through this process though.
In terms of liquidity.
What we want it wasn't sure that shareholders are comfortable.
That we're gonna have our you know adequate resources in place to continue to execute our strategic plan throughout 2021.
Okay and [noise].
I guess I'm on on on not plan I think one other conditions sort of requirement the amended facility with limited growth Capex and number one I guess I just want they did you say $50 million versus.
Versus 150 or 50.
No five zero, so and then we kind of fall rep to say that.
So we would typically run at around 150, So 100 million dollar reduction in the near term and growth Capex, our maintenance, sorry, and total capex or maintenance Capex is typically about 30 million. So.
Yes, well look in the near term to to invest about $50 million in total capex.
Thanks for that and then I guess I was wondering if you could talk about how that pertains to somebody initiative that you had going on for the Cineworld transaction and more specifically to the recruitment.
On top golf.
So bucket Derrick I would say.
You know, obviously, there's a little bit of a slowdown, but I think it's prudent for us to actually this is that.
As a triggering event in the retail landscape and this is not necessarily about us as a company. This is about the retail destination as a future.
And there's going to be significant impacts to landlords and how those destinations are gonna be.
Other industries that are going to exist in the future. So.
Although we're slowing it down I think it's prudent because I think there's going to be more opportunities and the future and we're going to be prepared to take advantage of those opportunities.
Okay, and I guess, one final one for me before every Q.
Just on the P. One AG I just wondering if the route locations opened up.
Or was this business essentially zero for Q2 as well.
No there's something I mean, there's there's obviously ongoing business there and the rest businesses have because as a for a large percentage of the business in the U.S. and so and we have reopened in the U.S. So yeah, I mean look at the business was impacted.
But not as impacted as the mandate closures in the.
In the from Peter perspective.
Thanks, everyone.
Thank you.
[noise]. Thank you.
Next question comes from Adam Shine with National Bank financial.
Hi, Thanks, a lot to morning football's wells.
[laughter] Love flip Flopping go home state side at least maybe once a one stop visa be mandating masks you guys have chosen not to mandate that any any particular reason why.
I don't we are going to be handing out mass and we are encouraging people to wear them and we are following the local guidelines that the government is putting forward and we feel a when people are in places where they are in close proximity they should be wearing their mouse and that's what.
We're going to be doing adds a company all across the country. So to us it's important that Ah, we keep a physical distancing in place and that we do all the things we need to keep the environment safe for all work employees and our guests.
And that's what the or a goal is so when youre in the hallways and the washroom. So we encourage you to where your mouse and that's going to be a what we're going to be asking people to do as they walk through the theater.
Oh.
Oh I couldn't be careful because I know obviously the I see a pro says, it's a very quite a bit one but.
No.
I think one could argue.
That they didnt want to serve you well in regards the timing.
All of what transpired here pull bid.
Did not help of course, but can you speak at all to what exactly transpired.
The file.
It seems a lot less agency during its first 75 days and in theory.
Could have avoided you know what transpired you know I guess after mid March.
Okay, and honesty I don't want to get into a question of legal strategy. However are the application for the I see approval was brought by Synta World and what it was up to them to direct to process. We use all of our authority under the arrangement agreement to push that process forward and.
Basically a send a world did not.
Moving forward in the speed that we anticipated would happen and would have resulted in the transaction closing Oh earlier.
Okay.
And maybe one for you Gord Oh, yeah, when we look to buy transpired with the disclosures around you know the lenders.
And the provision of Covenant relief, albeit you know with with the conditions.
Is there something here that the lenders are particularly concerned about.
In the context, obviously, you know of what they see into Q2, which otherwise gets a bit more been noise right in terms of how you've presented clearly you know.
Very good consoles that you put in place.
With respect to a you know where the balance sheet actually sits at the end of June.
But it looks as though they put the screws to you a little bit [laughter], they want weve necessarily seen.
Among some of your peers something that perhaps maybe a bit of a timing factor where the other guys, we're able to move a little bit sooner.
In a head of the recent.
Delay in the reopening and certainly the release slate being pushed but can you speak at all to the matrix. Some of those discussions because it does appear to be a bit more onerous than what we might have expected.
Yeah, So Adam I mean, it really look at <unk> and you know it's not something that you can really do appear a comparison on I would suggest that you know our credit facility is made up of Canadian financial institutions, and and nothing at the appropriate comparison would be other Canadian retail or so look at within the Canadian financial.
The banking system, you know a number of industries have been designated you know as covert impacted with uncertainties out there and so its common practice and it's very coming into these credit facility.
Waivers that as you said it.
You know that there's tighter restrictions placed on the companys until that uncertainty you know becomes clear. So I would suggest that don't compare us to peers and it's nothing but you know views of our business versus you know a another lenders views to a U.S. company's business.
That's about a Canadian lenders view about Canadian businesses that are impacted by coven 90.
Maybe just going back to the earlier question.
In regards to the growth initiatives I guess, the 50 million of Capex over the course of the next 12 months, where the clean takes a made didn't speak about 30 million does does still suggests that there's some room to maneuver in regards to any potential it'll be location or maybe two to be put.
Suit is that still a fair, yes, that's happened as you're characterizing.
Capex within the constraints of this.
Well, yeah, absolutely, yes, so there's some growth capex in those numbers absolutely. So we look to continue to grow but like I said I think it's a good it's a good opportunity to kind of review the landscape and see what new opportunities may become available for us too, so and new opportunities from data scientists to starting to builder.
Well would be over 12 month period so.
Okay. Thank you very much.
Thank you.
Once again, if you'd like to ask a question. Please press star one now I can that a star one if he would like to ask a question.
Our next question comes from drew Mcreynolds with RBC.
Thanks, [laughter], thanks, very much good morning.
Maybe I'll start.
Started off with a clarification question on the cash burn or do you alluded to the 15 to 20 million per month.
Alright, I missed and under kind of what condition with that under kind of they closed condition.
With all the things you did on the cost side through Q2 or or am I missing the context.
Drew sorry, you're absolutely correct. So that was a that was my indication through Q2.
Okay perfect foreclosure on.
Yeah on the.
On the business going forward.
You're talking a lot of measures that will be put in place I think.
Obviously cineplex take takes all of that incredibly series.
What when you when you're looking at retooling and using technology.
There's the profitability here of the business change from a cost standpoint, but also.
Getting past, the really low price points and marketing expenses.
Do you feel you can have the same pricing power on the other end. So just more of a profitability or margin question overall for the business once it.
Gets out of the gets out of the whole here.
[noise]. He a good question and I really what we're looking at is indeed from what the reduced prices just getting our gas from the habit of coming back to the theaters, making them feel safe in the environment and once the bigger films get back.
You know in August we will be going back to our prices that we had a pre a cold it and looking at opportunities. There there will be slight incremental costs on the cleaning side, but we are negotiating with our suppliers to keep.
The best efforts forward as it relates to making sure that that gets added the employees up protected pads, we move forward and stuff. It's important that pp. He is all part of that process.
Andrew another coming I want to make is because you referenced technology and look at I think the important thing and this is a little bit different than some of our peers is that we had businesses. So our online business and our food service business delivery business, which allowed us to engage with their customers rather closure period. So what we've maintained that ongoing engagement with her.
With our customers, which perhaps some other exhibitors haven't been able to do.
In on that Gore, thanks for that when you look at.
The consumer behavior side of things and certainly I don't think everyone as any crystal ball out there, but that seems to be the billion dollar question here in convincing folks.
To get out of the home in back to.
You know at a home entertainment venues are you able to or have you done any you know surveys using the scene program just to see where.
You know your patrons are at on this particular issue maybe maybe it's too soon and then last question for me on the theatrical window outlets you seem to always be it the ground zero of you know bad that evolving.
Debate on on the window itself or perhaps you can just provide us with an uptick there if you happen. Thank you.
[noise] of into other customer survey at perspective actually we've been very active on surveyed our customer base.
You know customer or views have evolved over time, obviously with the let the pandemic, but what I would say, it's as we look our customer base.
The desire to go out and see movies is it in one of the top three out of home experiences.
I'm, sorry out of home events that that consumers are looking to do so you know and I think if I recall correctly.
The top three where I'm going up to restaurants again vacations, and then movie going So you know so significant interest in coming back out and watch the movies.
Yeah, I mean, it on an overall basis when we did the seen a survey so far I guess we saw.
Numbers of close to 80% of them wanting to come back up and experience to the movie theater in 2020.
Okay.
And to your second question about Windows. So I mean, this is kind of Ah different period. That's why we've seen a couple of movies that normally would have been into theater going into a you know the Disney blocks and some other situations of streamers, but in the long run.
Oh from our discussions with the studios and Oh partners, we continue to see the window as an important piece going forward and as you can tell this is a 40 billion dollar business worldwide and I don't think the studios wants to be trading dimes for Nichols.
So it's really really important and all the big films will continue to have that window and even the smallest phones will move forward with those particular windows. So I don't see much of what changed there other than some smaller films, maybe falling out of the shed you, but then you got opportunities with companies like happens getting.
Into the movie business, which will help us so over the long term.
Okay. Thank you very much.
Thank you. Our next question comes from Canaccord, sorry, with TD Securities.
[laughter] just a follow up for me you said that you are exploring all options.
Sales could you help me a wrap my head around what would cost through the dots itself given your your business small.
Sure. So like Oh, good asset sale could include such items as owned real estate switch you know would include.
Portfolio of I've, I've owned real estate, including or head office is building on the street in Toronto.
You know what include could include on some of the equity investments that we've accumulated over time.
As well as potentially could be a business that we announced in our.
Q1 financial statements that we with wells the our E sports business.
At the just the other day, so those would be the types of items. So.
Owned real estate equity investments business units.
Okay. Thank you.
Thank you I'm showing no further questions at this time I would now like turn it back over to management for closing remarks.
Thank you all for joining this call. This morning, we look forward to providing additional updates as we continue to reopen us circa those theaters and entertainment venues across the country and hope to see you in person soon thank you very very much.
And have a great deal and a happy Kennedy.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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