Q3 2020 Cineplex Inc Earnings Call
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And so far resumed operations as we seek to welcome gets back to our revenue and what we are doing to position the company as we continue to assess the looking forward.
As always we will conclude the call with our customary questions and answers period.
Overnight team continues to significantly impact the financial performance of from many businesses and Canada and around the world.
And while we are feeling the effects of the pandemic much longer than we had originally anticipated. We are encouraged by the recent news of the vaccine available and in the near future.
In the meantime, we are confident in our ability to navigate through the remainder of the storm and ensure the long term success of the company.
Throughout our 100 plus year history, we have faced the adversity, and and Poland summers and well positioned for future growth and this time and will be negative.
Despite the tough industry and economic conditions, we remain confident and three key areas.
First we are confident and our response to COVID-19, and the actions we've taken to stabilize the companys financial position.
Second we remain confident and our business reopening plan as of the safely welcome guess back to the Caesars and entertainment venues, where and when permitted.
And third we remain confident of the exhibition industry's ability to recover in the long term as we look ahead to an exciting of film slate the 2021 and beyond.
Well on will go into more detail and enrollment it goes without saying that much like the first and second quarter on third quarter results were again severely impacted by poor with 19, resulting in substantial decreases on compared to last year.
Although we were able to reopen all of our way of venues with the phased approach during the quarter of the combination of capacity restrictions and the lack of stone products impacted our revenues.
However, during this time of the team continued to work harder than ever to adapt our operations and manage our cash burn and strengthens and the plexus financial position.
Building on our response of the pandemic and the second quarter, we remain laser focused on significantly reducing capital expenditures and our two primary operating cost lease costs and payroll, which quarter will elaborate on shortly.
Overall on the short and medium term, we are focusing on a smaller number of projects and priority and supported by the sustainable financial model as a result of year to reduce our operating cost and overhead to accordingly to reflect this.
In addition, we raised over $300 million in official and financing of.
The extended release on the credit facilities materially reduced on the net cash lease outflows by approximately 58 million received approximately 22, and a half million and weak subsidies.
And on generating a substantial tax assets from our operating losses, which we will realize and 2020 one.
We also began the sales process of our head office, which we expect to complete this through 2021.
We remain focused on all other revenue generating areas of our business.
Cineplex digital media for expanded food delivery services from script, the dishes and overeat and the online digital multi platform the cineplex still which has experienced significant growth this year.
So far this year of Cineplex store customer base on by 41% to 1.8 million registered users and we have completed more than 2 million transactions.
To drive additional revenue and through our groups and events business since reopening we're pulling from lowering private events at our venues and we are now set the ramp of marketing efforts for this program today I'm pleased to officially launched price it will be nights, and cineplex, which offers movie lovers and easy and the whole.
Of the way to reserve and the entire auditorium with up to 20 guess, starting with and accessible price point of just $125.
The people looking for creative and safe ways to come together, particularly as the holidays approach driving the movie nights and venue rentals that rack room and palladium on great options. The six share the social experience with family and friends safely.
Moving on to our resumed operations and the re openings during the quarter, we remain confident and our guests and mounting desire to return to our theaters and entertainment venues as well as the industry, leading health and safety protocols, we have put in place to keep them sales.
After almost four months of closure of during the pandemic and as restrictions lifted across individual provinces. We moved ahead with the of phased approach the reopening our theaters and entertainment venues in late June and July.
Then on August 21st we became one of the first of major theater circuits and North America to reopen all of its theaters across the country post the course.
During the third quarter with the first major film released and five months debt and we proudly welcomed 1.6 million guests back to our theaters the.
On the signal to us as well as our studio partners that Canadians have missed the magic of the big screens and are confident of the rigorous health and safety protocols. We of course translates in our venues.
As you've heard me say before the helped US safety of our employees and guests is our top priority and we are proud of no outbreaks of transmissions of COVID-19 can be attributed to the movie theaters.
Our guest the happy to the back not just anecdotally, but the the validates this as well service conducted by our team during the quarter showed that 95% growth satisfied with the overall experience.
96%, we are satisfied with overall cleanliness, and 95% was satisfied with auditorium and health and safety.
First of all these figures the actually up from the same period, one year ago reflective of our strong force focus of efforts and execution excellence by our operations team.
When we look at movie going and we know that it doesn't cause the same of risk of other in those services and gathering the.
The spacious footprint and the headroom nationally offers a great ability per guest is physically this and food in the lobby and the auditoriums.
We deliver on perishable and predictable growth guess, the most of the businesses cannot replicate by staggering also ties and implementing reserve seating with physically disciplined spacing.
We know that the magic of the movies and escape into moving theater provide EPS and their families with the safe and temporary break from the mounting pressures and anxiety created by the and day.
This is one of so many of us need right now the safe escape.
And we as we approach the loss of winter months.
We continue to take arguments from the government as they respond to the second wave across the country and adjust provincial regulations and safety guidelines as required.
We know there is the risk we may be required to shutdown of theaters and venues again, such as the recent reinstate the temporary closures and Ontario, Quebec and Manitoba.
And the response to public health authorities, we have made proactive operational changes and we'll continue to adjust as required.
During the future adjustments will depend on how the core with case numbers of evolve over time, but we continue to actively work with government regulators to advocate for of 50 safety protocols within our venues and the zero transmission record the of provided to date.
And of course, we are encouraged by the recent news of the successful trial of over 19 vaccine.
As the initial reports suggest of over 19 vaccine could be available with the first half of 2021 and this is an important milestone.
As of the vaccine becomes widely available over the cases will reviews restrictions on those and and attendance numbers will rebound as of yet FICO social experiences, especially when the differ from content, it's the big screen.
Looking at what's happening in Japan since the government ease restrictions on movie theaters and allowed them to open at full capacity and mid October the country's box office has been booming and there remains low claims of over 90 and transmission and and cinema.
The recent release of the anatomy of phone shattered the records of the biggest opening weekend and Japanese history. So the parsing. The three day total of frozen too and it opened in Japan last year. This.
This is the clear sign the Japan's movie industry has rebounded from the damage caused by the Corona of virus Jeff.
Just at the exhibition industry will rebound in Canada, and the other parts of the world.
As we look to the remainder of 2020 and into Twentytwenty, one we remain extremely strategic and agile and our approach and and lower the and confident in the team's ability to service as needed through these challenging times.
Which leads me to the final key area, our confidence and Cineplex and the exhibition industry is the ability to rebound and 2020, one as evidenced by our guest desire to return to the theaters and the upcoming film slate.
As I mentioned earlier, I guess on craving human connection and sharing social experiences of the one of the low.
We know that when the new moving their release it will want to come back and experiences and the theater and while they're still low risk that the share Joe could shift the game right now we have the following the phones to look forward to for the balance of Twentytwenty.
The crudes, the new age finding oil all my life low My plan. This is the People's Choice Award winner the Tom Hanks on news of the World and of course Wonder woman 1984, among others hitting the big screen.
As you know many of the title and shifted from Twentytwenty into next year, which when combined with what was previously announced the 22 and one makes for a very exciting year at the box office. These on the restaurant of titles that are ready to be released and the studios and want and need to learn and theaters.
Even though the certain titles have shifted studios have showed us the us still supporting theatrical releases.
Which is why when we look at Twentytwenty, one now we can't help and expected to be an even bigger year than originally anticipated given the sheer volume of pride on the it looks like we may have on new major release almost every week.
These include James Bond and overtime to dive talk on Maverick fast and furious line a quiet place to the term loans minions. The rise of group Black widow, Candyman West side story, saying to mission impossible seven and grew up.
When I look back at the past eight months I am extremely proud of our team's ability and focus in this environment and everything we have accomplished.
We have fortified the financial position of our company raised the necessary funds to extend our financial runway and develop the gold standard of and health and safety protocols to safely welcome GAAP staff.
We are working hard to mitigate the impact of course and 19 on our business and we will continue to do so.
Although we know of vaccine is on the horizon. We also recognize that there will be challenges ahead, we are confident and the measures we have put in place and manage through the endemic and soften the Nokia the impact on our business.
As we look to the future, we will remain extremely strategic and agile and in our approach to operating the company.
We will review and refine our class across the entire business and continue to take the necessary steps to ensure cineplex remains on the solid financial ground and is well positioned for a strong and help the future.
With that I will pass the call over to go on.
Thank you.
Hi, Thanks, Alice I am pleased to present, the condensed summary of the third quarter results for Cineplex, Inc, and to provide additional detail on the ongoing financial impacts on October 19 on our operations.
For your further reference our financial statements and Mdna have been filed on SEDAR and are also available on our Investor Relations website at Cineplex Dot Com and in addition, our credit facility Amendment has been filed on SEDAR and this morning.
Our Mdna and earnings press release include the fulsome narrative on the operational results. So I will focus on highlighting and quantifying some of the key items, including commentary on cost control accounting matters liquidity initiatives and outlook.
The COVID-19 pandemic continued to have the material negative impact on all aspects of cineplex as core businesses, resulting in material decreases and revenue results of operations and cash flow for Q3 2020.
As a result, we continue to focus on cost control and liquidity.
With respect to cost control I want to provide some additional details on our largest fixed and semi fixed costs, our lease costs and our payroll expenses.
Lease costs are our largest fixed costs during Q2 and Q3, we maintained strong communication channels with our landlord partners and identifying opportunities from relief during these unprecedented times.
Our focus has been on working with them to identify opportunities for abatements during the closure period to convert the fixed components of rent the variable rent during the reopening period and the jointly look for other opportunities under our existing lease agreements.
During the Q2 in Q3 period, we were able to materially reduce net cash receipt of outflows by approximately $58 million, which includes approximately $37 million and with savings and $21 million as a result of the sale of certain restrictive rights to landlord.
We anticipate further savings will be secured during the fourth quarter of this year as well into the 2021.
The benefits of the initiatives taken in Q2 and Q3, we will continue to provide relief through the remainder of 2020.
Payroll as are the largest semi fixed cost with the mandated closure, we immediately initiated temporary layoffs and reduce full time employee salaries across the board by the agreement with the employees.
We reviewed and apply for government subsidy programs were available, including the Canada emergency wage subsidy.
During Q3, we benefit and benefited from approximately 22, and a half million dollars and subsidies primarily under this program and we were able to materially reduce our theater payroll to approximately $3.9 million and Q3 Twentytwenty from.
Approximately $40.9 million in the prior year quarter.
Our total company employee salaries and benefits for the quarter as identified in the 12 of the financial statements decreased to $21.7 million from $78 million and prior years.
In July and the company initiated the restructuring process, which will result in the elimination of approximately 130 rules for an annualized savings of approximately $12 million of.
Proximately half of the savings relates to Gionee and half relates to Opex savings in the various businesses.
During Q3 of the company recorded approximately $5.4 million and restructuring expenses related to this initiative.
As we look forward, we will continue to benefit from the queues program through its expiring in June 2021, and we will derive future savings as a result of the recent restructuring process.
With respect to others supplier partners and expense control, we put in place a media expense and Capex curtailment programs during the closure period and worked with our supplier partners to provide the elements of relief, including the eliminating or reducing the amounts due for contractual of monthly services. In addition.
The payment of referrals and abatements you.
You can continue to see the benefits of these initiatives in the substantial cost reductions in a number of our controllable cost categories.
In addition, we continue to monitor others subsidy and relief programs, which could benefit cineplex.
With all the actions previously described we were able to continue to achieve our projected monthly cash burn rate of approximately $20 million per month before working capital.
During the second quarter, we had a positive source of working capital of approximately $69 million as we were negotiating negotiating concessions with our landlord and others supplier partners.
And during the third quarter, we had a use of working capital of approximately $35 million as we settled amounts outstanding as a result of the successful negotiations.
In total during the second quarter. This positive working capital the impact offset the Nash net cash burn, whereas during the third quarter. This use of working capital was additive to the net cash burn.
I would now like to discuss select accounting impacts during the quarter.
As I mentioned during last quarter's call. We had completed a thorough review of our rights under our lease agreements and where we thought we had attractive rates, we approached landlords to monetize some of these rights during the third quarter, we monetized approximately $21 million and lease rates and this is reflected as proceeds on.
On our statement of cash flows and we have the recorded a gain of approximately $14 million on these transactions after.
After d. recognizing the component of our right of use assets.
We issued approximately $316.3 million in the face value of convertible debentures during the third quarter.
Of this total approximately $91.3 million has been reflected as a net equity component in our financial statements.
I refer you are right I refer you to the 10 of our financial statements for further details.
With respect to the previously announced program to eliminate approximately 130 employees, we recorded a restructuring charge of approximately $5.4 million during the quarter.
And finally, we recorded a goodwill impairment charge of $65.6 million, which was which was related to a triggering event caused by the substantial decline in our share price as at quarter end.
I would now like to focus on some of our liquidity initiatives.
We entered into the second the credit agreement Amendment with our banks in the kit on November 12 the.
This amendment extends the suspension of financial Covenant testing until the second quarter of 2021. The provides for a monthly liquidity test until the filing on financial covenants or reintroduce.
Please refer to our financial statements and our Mdna from further details on this amendment.
This amendment provides additional relief during the extended the closure and reopening period.
As previously mentioned, we issued approximately three $316.3 million and face value of the ventures during the quarter of this issue and $100 million of the proceeds was used the permanently pay down the current credit facility.
In addition to the convertible debenture offering we are investigating extracting value from our owned real estate portfolio, which includes our head office building and Toronto and the other assets assets, which would include some of our equity investments.
With respect to the building we initiated the sales process and September 2020, and the and expect to close this transaction and early January 2021.
Well 2020 has been a challenging year from an operating perspective Cineplex has historically been a tax paying entity.
And the losses created and Twentytwenty will be eligible for carry back and for refund upon filing our 2020 tax returns and.
No slides and our financial statements, we identify approximately $78 million and operating losses available for carry forward and carry back.
Some of these are and losses on sort of some of these losses are and the entities that are not eligible for carry back, but we estimate a referral and of approximately $60 million as a result of loss carry backs when we file our tax returns in the early 2021.
We are continuing to bring capex down to approximately $50 million for the next 12 months from our previously estimated run rate of approximately $150 million.
This capex reduction coupled with the elimination of our dividend will provide approximately $200 million and funding.
The additional liquidity as compared to prior years.
We have taken the number of significant steps during Q2, and Q3's manage our costs and improve our liquidity position and balance sheet.
Despite the current current environment, we feel very comfortable with where we have positioned the company today as we look ahead and we continue to focus on the reopening of our businesses and continuing to explore further opportunities for cost reduction and value creation.
And that concludes our remarks for this morning, and we'd now like to turn the call over to the conference operator for questions.
Great. Thank you I'd like to ask the question the taking the way pressing the star one on your telephone keypad.
The net speaker phone, please make sure your meat and cheese and turned out to the lines and not to recur.
Again that is the star one to ask the question.
And just a moment to allow everyone and opportunity to the signal for question.
And we'll take our first question from Derek the sorry, the TD Securities.
[noise] body and hope for the year, all well and say a few questions.
For me and maybe one for sportswear hour I'm, just interested and give me and the what you're hearing and maybe in terms of Hollywood production schedules and the plate for next year of course, the survey and ER adept and improvement in the cobot situation and and Gord and just wondering how much you think you can squeeze out of the.
Restrict the lease rights or was $21 million all of it.
Hey, Thank you for your question Derrick as it relates to production of production and still continues and the number of parts of the world and also a locally with the proper.
Proper of procedures that they of following the are looking to continue with the production that being said there have been delays along the way, but with the backlog of product from 20 or 20 moving into 2021, I don't think and should be a concern as we move forward with the number of.
Big movies that will be available for the exhibition side of the business.
And then on the lease rates.
Section.
During the last call I mentioned that we expected in excess of $20 million and.
That was our focus from lease rights transactions.
You know, we we delivered $21 million during the quarter, we continue to discuss with landlords.
But at this point in time on I would say that Theres, no kind of material additional rights that destructive.
The structure of discussions and progress.
Thanks, Thanks, gentlemen.
And we'll take our next question from Jeff fan from Scotiabank.
Hey, good morning, everyone.
Just a quick clarification on gourds comment about the tax refund the do say that was six the around 60 million.
And then maybe it's 60 now okay and that you expect to receive the in early 2021.
Yeah. So on the filing of the Twentytwenty tax returns, which we will file as soon as we possibly can.
The is the refund would come up and from any of those tax true. So select the returns on those entities of which of those losses.
And we'll be available the military back.
Okay excellent.
Regarding the cash burn looking forward on because it's on the good job of keeping the within the range of about 15 to 20 million per month to.
Before working capital wondering if you can give us the senses to what whether that's going to continue through Q4, and what we should we should assume for working capital.
You sort of sourced from Q4, and then what are you thinking about that maybe a bigger picture question looking out a little bit further the covenant relief extension for six months.
How do you know and how do you think about the six month period, what about the enough from what are some of the assumptions that you think are really important to get us to get you to about six month extension on that that would be some kitchen. Thanks.
Yeah. Thanks, Jeff So so with respect to the first part of your question on kind of cash square and and as we look forward is there is a number of mitigating factors as we look for the one thing that we're very pleased with as of the government of Canada has announced the extension of the queues program until June 2021, and now they have and up and the continued to.
Kind of increase the amount of the benefit.
Throughout the remainder of Twentytwenty, but the at this point of time the of not provided the details with respect to the first six months of 2021. So we have been encouraged by the increased the amount of of subsidy available under excuse program.
The extension of the Jews program from what was originally.
From provided earlier this year in addition, and as we look with our of our rent abatement to the key to work with our landlord partners. As I mentioned is those on benefits work to extend through the remainder of Twentytwenty and then strength likely not as significantly, but we continue to work with our landlord part of.
And the 2021.
So you know.
And then as we work through 2020 of the remainder of 2020 of the else mentioned, we've got some encouraging product being released into December.
And so the the extent that we can provide some some incrementally positive results from the open you put all those factors together and and as I've always said and as you know we hope that we can manage to keep our cash burn rate around $20 million of money and I do expect back the continued.
On the second question related to the Covenant relief and the assumptions behind that Covenant relief is the is you know as we mentioned.
The the earnings test has been extended until the second quarter of 2021 and its place.
There has been the liquidity test, which works at the headroom that we have available under our board and facility and the.
The credit facility Amendment as and brought on SEDAR and this morning, and so I invite you to of talk.
And we'll get the month free details and provided and the credit facility as filed.
So the assumptions.
With respect it is so first and foremost there's a number of of liquidity events, which ex sort of referred to in my my script. This morning, including the sale of our office building, which we expect to happen in early January 2021, and you asked the.
Question regarding the tax refund.
And that we expect on the fly on many of our Twentytwenty tax returns.
So those are two material inflows that we expect to occur.
Within the first half of 2020 on the the reintroduction of the the of the earnings test.
And then as we look at Q2 and you've seen.
You know, obviously, we're expecting a tough winter and winter.
And as the environment around us.
And whats the the expansion of Covance and when it was seen films shift and we see them shift into early Q2.
Is we are.
Our confidence.
On a relatively confident and with the announcement of the vaccine on becoming available. The as you know there is the isn't and insight and then obviously.
With respect to the liquidity matters I also mentioned that we're exploring other potential asset sales and opportunities to create value and create liquidity. So a number of balls and the court I could fortunately the can't detail any of that specifically at this point in time and I just wanted and the people feel comfortable that you know, we're exploring anything and everything.
Thank you.
And we'll take our next question from Air of Anda Gallo packaging.
Okay, great Yeah.
The.
Good morning, guys off of your Ralph Thanks for taking my question of couple of from me fiscal on on the on the changes.
Changes and adjustments to the the lease that lease.
The lease payments.
On a go can you just talk to what that's true true is and understand the monetization of the rights back in terms of lowering the ongoing payments is that based on on new kind of Oh flexible I'll call. It variable structure has that been negotiated or is that sort of more costly.
Negotiating the data happening then on constant he had the kind of go back I want to understand the construct of that.
And secondly, with respect to two asset sales beyond the had the and the sale of the head office job what with the out there you have the.
Equity investments that Keith I think you alluded to and.
From a bigger picture question for all of US in terms of the returns and the sort of the examples we have globally, Japan, and I think you've been trying to sort of come back quite well.
Do you and how do you see the sort of the of the potential trend and I'd say very futuristic question back on.
Is that the danger of that like in China, and Japan, where the closures were more limited in terms of any of that if there's an extended closure of that back from going tendency could sort of the effect at exactly the closure period of extended I just want to get your thoughts on that day on that stuff going on.
All of that thank you.
So air of in a score from I'll take your first two questions and then with the third one for out of US on your first question regarding kind of the cost and the structuring of.
The whole rent concessions.
But with the liver during Q2 Q3.
First of all I want to ensure that people understand and and it's important to look at kind of Q2 in Q3 together as opposed to one one quarter and isolation, because we were negotiating dealing with their landlords.
Primarily through Q2 and into Q3, and then papering those agreements in Q3. So so the the net impact is really when I think you should look at both the Q2 and Q3 together and that's where we described.
You know the significant amounts of of delivered of over that time period. Now. Your question is purely on the rent abatements number and so a lot of what I wanted to I want to stress.
The everyone has the these are not the for all of us so.
So this is really a permanent forgiveness of rent during the closure and reopening period and this is not rent and we're going to repay you know over of future date. This is a negotiated per month forgiveness of a component of rent during the quarter period.
And and so we've continued to work with our landlord partners to provide relief throughout the remainder of 2020 and into 2021.
And the element of relief.
It is typically provided in and some of the abatements. The full of bases that we received from certain closure period as well and as I described as the conversion of some elements of rent of a variable component of rents and.
And based on how successful the revenue was in the boxes and on the war reduced the fixed the amounts as the business is projected to ramp up over the next day, you know number of months.
And so hopefully that answers your question on kind of the structure of those those rent concessions.
With respect to your second question.
On the other liquidity events, which include the potentially asset sales and equity investments in particular.
You know, we have a number of equity related investments.
On our balance sheet.
We have investments and the cinema partnership we have investments in some of the our company and we have an investment and seen as an example of loyalty partnerships. The we haven't the number of investments out there.
That have potential value that we could potentially the.
For some of liquidity on.
Thank you everybody the good morning, and up no question about the you know our guest of returning to the theater and what would be a great example of this week, where and we have the Oh the holiday on Tuesday flow Remembrance day and a number.
The provinces, the and the when I looked at the numbers for example for our border of British Columbia, and Nova Scotia, the numbers of was significantly higher than what we were seeing in previous weeks and there was really no change and the type of product that was out there and the other than 10, and which is long into the two.
And there wasn't any really big movie, but yes, we're out there they love the magic of the movie and they wanted to be and then environment, which was safe with their families and we're providing that the with the you know physical this and thing and making sure that we of staggering offshore times and into the.
Planting reserve seating and all of those different categories. So to me I think of what we're going to see is have the theaters continue to be allowed to increase capacity and open our guests are going to want to come back and Japan. So that we have seen that and Australia in them and the big weight.
To Taiwan, and China, there's a lot of locations, where the numbers I'd just astronomical compared to you know what they were even creek over and so we have you know in the struggle because of where we are today, but we see the light at the end of the ton on looking at some of the other country.
Ladies and what they've been able to achieve.
So that puts me in a much more positive thought process as we move forward.
Great. Thank you.
Thank you [noise].
And we'll take our next question from Adam Shine from the.
National Bank financials.
Hi, Thanks, a lot good morning, and maybe one for you Gord and then I'll try it and for Alice.
The Gord and I guess, the number of us might of assumed that you would have certainly got in the second day relief in Q.
Do you want at the very least you got it into Q2 and I'm. Just curious [laughter] you know the lack of the last of concession or the first confession that you've got in terms of the waiver on.
Queen of an Annualization task.
For the leverage in Q4.
And that's not necessarily the case going into Q2.
I'm just wondering.
Maybe you can answer the first part and then tied into analysts of and Sir.
Yes is there the ongoing concern that with all of these ongoing the spokesman that white play games on.
You know getting after what exactly is going to be the real reboot of new releases in Q2 work and that bleed into Q3 next year is that part of the consideration at all or if it was just a cleaner way to approach what continues to be obviously, an extended period of uncertainty.
Yeah. So look at I think you know from Theres, obviously, you know risk elements from the bank's perspective that they want to cover and so looking for two more quarters.
You know, there's an element of of vaccine and the really schedules kind of line up that are you know the board.
On coming in early April that the Q2 will be the quarter that the industry returns strong and and so the leverage test and Q2 of of Twentytwenty. One is an annualized amount. So it is you know and essence four times the Q2 results.
I'm from for the earnings test and there are some elements.
Of the credit facility Amendment and.
You know, including elements related the capex of and others that are more of an L.P.M. basis.
But the earnings test and Q2 2021 is based on the in essence, a four times Q2.
Earnings result, so you know I think its of vote of confidence from our of our lending syndicate.
That you know there's going to be a tough winter as we go through with the spectacle, but 90, and but the spring looks encouraging and our business okay.
Okay. So maybe sorry, Alex I'll ask you a more detailed question about the Gordon I guess I initially misread. It I thought there was a force extension.
The current past all the way through and the Q2 and indeed.
And what was the originally created as the annualized testing for digital.
And just getting the spoke out because the Q2 correct battery pack, okay not perfect.
Okay, which which makes my question rather move I guess from the scheme of things, but thanks for that clarification. So Alex I guess the question to you is.
And you look you've always said you know you don't you don't have control over the.
The product set the table and the.
People certainly being stats and you guys are doing a great job in regard to controlling costs and and things that you can't control, but [laughter] like can you get us under the hood on into some of the conversations with the studios, we all know and you can put in your release that.
California call and Elyse, specifically, and New York, New York City, specifically our.
Our issues that the industry the look to in terms of resolving to baby high EBITDA.
On some of the studios inclination lock the move at the present time, but.
Look out, let's say the wonder woman and makes a lot of hope.
For you know a big movie the close out this year and what's the risk.
Of that just gave.
Pushed out the obviously and then really not much showing up [laughter].
In Q1, and we really do weight ultimately for no time to die and the real first moving.
Good day post pandemic.
Yes, and out of them I mean, as we've seen and number of movies have moved from a 2020 2021 and I Wonder woman is one that you know we keep talking to our.
Our studio partners and Warner Brothers, but again the challenges like you mentioned the whole issue of way and New York and and they are when you know the opening day derived and they also have to have a couple of weeks the market the movie and further to that Europe in many many locations and countries have.
And you know cools down again, so they look at it from an overall perspective and say what a position of little this movie and then how much can we released at the across the World and also in specific markets in a in North America. So that one is still the you know one that's the.
On the Scott, but again, it's something that the move there would probably and move it into the first or second quarter of 2021, but at the moment. They haven't indicated that the the risk is there that that could also of from its current date.
And we still have other movies, we opening Freaky, you know and and number of of movies through the next couple of weeks and knock on massive the title, but they do bring people back to.
You know the theaters, which to me is really and.
Hello, Thanks for that maybe just one follow up.
It's other the intended and Chris and no one's concession to the industry. It really has been every man for and yourself. During the pandemic is there is there anything going on that perhaps you know the studios the offer some concessions.
To the industry, which we moved into 2021, the field splits or or other considerations.
I think on the that goes to a much broader discussion as to you know where is the movie playing and how long it plays and the theaters and all of the when doing that the you know weve discussed for years and years and there could be adjustments based on that but I'm.
I'm not a on the boards and not the including that as part of the follow projections of going forward.
Okay. Thank you.
Yes.
And we'll take our next question from Tim Casey the amount.
Thanks, Good morning, Gord could you walk us through the earnings test and should too in terms of and.
The the I guess the does on later and the numerator I mean, what is the of the debt the calculation used in the <unk> and.
Maybe just walk us through the.
Any adjustments to the traditional the port of EBIT, though anything of the gets a the taken away from just so we can get a sense of what.
Thanks, or I guess, the expecting the the low end of the projected.
Projected the bid.
And to be to sell us like that.
Yeah. So.
So that as the find in the covenant would be credit facility debt on at least of the to make it clear to everyone on this call and excludes amounts due under the convertible debentures.
And then earnings so earnings would be Q2 EBIT Dal.
Adjusted for unusual or non recurring items, and then that would be more to Q2, EBITDA and adjusted for unusual or non recurring non cash cash items would be the and multiply by four and that would be your annualized earnings the amount.
And the nap and and and so those are your two elements the annualized or in the mail and then the debt balance under the credit facility does that help clarify.
Sure. It does just just one follow up if I could I'm just speaking the working capital and usually you get a big the source of working capital of in Q4, when when the buy gift cards and then they're reverse its usually into war and you could walk through what your assumptions are.
On the held the swing so couple of this year and then just to the working capital build up in Q2, I think it was close to 70 million and.
And yeah.
Roughly half of that they deal with the war reversed in Q2, how should we think about that answer for you I guess whats the working capital and look look like over the next couple of quarters.
Yeah. Thanks for that question and also thanks for the reminder, because I had to look back and I know, it's on a real agenda that component of the question I think I may have missed the response to that so.
Yeah. The we look forward to like the typically.
You know in a in a traditional year.
Got you all know the of Q2 in Q3, our relatively working capital neutral, there's typically a big source of working capital and the Q4, you know as we as we sell corporate <unk> gifts gift cards and gift certificates to customers.
As well and have fields of the significant ramp up to the holiday business from a media perspective, and then and Q1 and there's typically a large drain and working capital so that would be of the typical year, we're not in a typical year right now.
So in and and and as you noted.
And and as I noted in the my call script too is we had a a large source of working capital and Q2 as you know we dealt with.
Our suppliers and our partners and the landlord partners.
And as we came to terms with negotiated agreements with and we paid and made made full on her obligations to those partners. During Q3, so I'm, so large source and Q2.
Followed by and as you noted a drain and Q3, so as I look to Q4.
And the Big question is and it's a bit on known as I I would fully expect were not going to get that material large source of working capital.
In Q4 that we would typically get because I'm a little bit uncertain about you know of consumer demand for purchase and gift cards. During the you know true.
And the pandemic so.
The there'll be a source and just I don't believe it will be in the magnitude and it has been historically.
And then vice versa and expect the same thing the large drain and Q1 to being on a significant so relatively neutral over the two quarters.
And but not having the same degree of variability of that we would historically hope that helps.
Sure, Doug just and just to clarify on the on the the big source and.
In Q2.
Is there more of that to reverse or its to think that's for the script.
I think that's pretty from now because I mean part of the two of the collection of receivables. So we and you can see our receivable balance at the end of Q3. So there is a large source.
So that was really collection of Ah and he is collection of receivables of which you know with the low business and volumes and et cetera. The receivable balance is that sort of historically low level right now.
The group.
Thank you.
Once again, if you make the ask a question. Please press star one.
Your next question and the drew Mcreynolds from RBC.
[noise] [noise] injuries and my might be needed.
Oh I am sorry can you hear me.
Yes, we can hear you now.
Okay. So the hurt a little bit of choppy box on the flow.
A couple of and I guess follow ups from mine on that and quite question around video revenue since I guess, the you Alex just to be clear.
I know, it's it's alright.
Make sense, the Trump points two years to do secured and.
And he says.
You know what the two what's been done and that's just one of the and.
From the and we isn't on.
On the <unk> at this point and then separately from the minutes and from the I guess, yes.
[laughter] and off what kind of.
Financially the rents problems and the set up for you guys and Q1, assuming the Chris.
We are the the first question do the you asked the where are you talking about the different ways that the studios are releasing the movies because it wasn't clear when I.
I heard the question.
Yeah, that's right now and so you obviously got a weekly and.
And the 10 basis, I think back and just.
Like of the World.
On measure organic feed and equal measure and.
Okay, and then it makes sense to kind.
And the studios, just yet and I'm a little bit more.
More tactical on on the release slate of.
Yes, yes and are on the studios are really committed to the theatrical experience and on the big movies that really works to their advantage because I always say we are the engine that drives the train and the fact that we create the sequence of the studios we create the benefits.
For merchandising and for a team thought price and all of those kinds of the thing. So will there be a changes there will be changes, but I don't see that happening with the big blockbuster movies that the of the studios have made and will keep them for release as we move forward into 2021.
On and there will be changes and how you know deferring the studios approach the the movies and during the call. The theory. It you know we are always talking to them about you know ways that we can benefit both the extent of black and the studio partner.
As we move forward and.
And you know part of that and we have the cineplex store, which is basically being used the regularly now given the situation we are faced with with call. It.
And I hope that helps.
Hello, Thank you.
And then I think on your second question, and which was related to the building and.
Obviously as I described are in the middle of the negotiations you know with the number of part of the so I'm you know and I don't want to signal the value I will note the that and drew I'm not sure whether it was you or someone else noted that and the previous credit agreement.
There was a the provision on the sale of the building that indicated and a minimum of proceeds the amount of.
$50 million. So so that's the only.
Number I will provide of that guy will come from the yes that was and the agreement on but we're currently in negotiations right now so that's all I can say.
Okay, and they keep that.
And I guess.
And it appears there are no further questions at this time the Stanley stick up I'd like to turn the conference back to you for any additional for closing remarks.
Thank you very much thanks again for joining our call. This morning, we look forward to speaking with you again and the new year for a fourth quarter and year end results until the end on behalf of the entire of senior leadership team at Cineplex, We wish you and your families of safe and joyful holiday season, Thank you and have a great weekend.
Thank you and again that does conclude todays call you may now disconnect.
HM.
Hmm.
HM.