Q2 2022 Cineplex Inc Earnings Call
Hello, everyone and thank you for joining may accelerate and then just second quarter 2022 earnings call. This could you just get into minutes. Thank you for your patience.
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Yes.
Thank you.
Okay.
Hello, everyone and thank you for joining the Cineplex, Inc. Q2, 2022 earnings conference call. My name is Derrick Darius and I will be moderating the call today.
How do you have a lot to your whole smartphone Johnny I would like to remind you that if you would like to ask a question during the Q&A session. Please press star followed the woman telephone keypad.
I now have the pleasure of happening over to your host Mark salvage Eddie Executive Director Corporate development and Investor Relations. Please go ahead.
Good morning, and welcome with me today is Ellis, Jacob President and Chief Executive Officer, and Gordon Wilson, Our Chief Financial Officer before I turn the call over to Alex Let me remind you that certain statements being made are forward looking and subject to various risks and uncertainties 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 statements factors that could cause results to vary include among other things the negative impact of the COVID-19 pandemic adverse factors generally encountered in the film exhibition industry.
It's associated with other National mall device discovery of undisclosed material liabilities and general economic conditions. Following today's remarks, we will close the call with our customary question and answer period I will now turn the call over to Ellis Jacob.
Thank you Matt.
Morning, and welcome to our Q2 2022 of the conference call.
Joining us today.
I'd, probably address our quarterly results I am pleased to announce business generated a positive net income at the highest adjusted EBITDA since then.
Thanks again.
This milestone was driven by a strong film slate our record results from across our diversified businesses.
These results benefited from a strong operational and.
Strategic marketing campaign.
Leading the box office is doctor strange in the multi versus madness, which delivered 75% more domestic box office in the original release in 2016.
Then there was Jurassic world and many of them.
That's where the top gun Maverick, which is growth of one 3 billion at the global box office.
Yes.
Thanks, Tom Cruise is most successful film of all time.
Even today 11 weeks after its release it continues to perform well. We were also pleased to see great success with mid tier titles.
<unk> Albert everything everywhere, all at once which vacated a 24th highest all time grossing motion picture.
The success of these films and other blockbusters. This year, it's a validation of the industry's recovery.
The North American industry box office exceeded $2 3 billion during the quarter, which is nearly a threefold increase from the same quarter last year.
It is no longer a question of whether customers.
The theaters they are.
Every cohort kind of all Jonathan.
We saw this with thoughts on an elephant so that brought back guests to our theaters and sonic the hedgehog to as many of the driver grew with broad families of the IV Philadelphia team demographic back controls.
Also originally unscripted films, such as the Black Hornet load performed well for the horror and suspense suspense genre.
Last weekend breakfast filing anticipated bullet train was released with the domestic box office is $30 million.
Yes.
As you can see like our industry peers globally. We are highly encouraged by the box office momentum reflected in our second quarter results.
Well, it's a very brief pandemic period in 2019 to 2022 April box office reached 56% May reached 72% and the growth continued into June at an impressive 18, 9%.
<unk> results, so almost a strong coming in at 85% of 2019. It is worth noting that April 2019 is a tough comparator period has some advantages and game was released tax months. It became the highest grossing film of all time.
These results to the second quarter year over year revenue growth of 439% and adjusted EBIT.
$35 $8 million, we drove strong core base of spend with the second quarter record <unk> of $12 29.
And then all time quarterly record CPP of $8 84.
In fact, all of our reporting segments generated positive adjusted EBITDA.
We were particularly pleased with the results so far the easements and leisure segment, which included an all time quarterly record adjusted EBITDA and <unk>.
And our record second quarter adjusted EBITDA in the LTE business.
It is also important to remember that we are driving the strong result, Ethernet derisked and bandwidth concerns over inflation that speculation of a looming recession.
The theatrical business has historically been resistant to recession or depression.
Going to the movies as an affordable form other format with David certainly most of the options such as supporting and live music events.
<unk> point, the domestic box office has actually grown in the last seven out of nine recessionary period.
Yes.
Overall, we are very pleased with our second quarter results and look forward to continued business growth I will now provide an update on the strategic priorities that were outlined during our previous earnings call. As a reminder, seasonally would read 19 theatrical exhibition growing our diversified businesses leveraging our.
Ecosystem and continuing to apply financial discipline and operational excellence.
First we are reigniting theatrical exhibition is driving attendance through numerous strategic initiatives.
If you can believe it one year ago today, we introduce cynical up to Canadians and we are pleased with the strong demand and interest in the program already attracting approximately 75000 members to date ahead of our projections what is even more impressive is that despite the closures and restrictions we saw on the first.
Three quarters of its launch similar clubs membership is sold showed strong growth each month since reopening.
It is also delivering a very low churn rate demonstrating the program the value to our members.
During the quarter Athene plus program expanded as we welcomed Empire company limited as core orders along with Scotiabank.
The addition of Empire over 1500 stores between.
Lasse will provide even more ways for customers to earn and redeem points on nearly all of the daily purchases.
For us the expanded partnership increases program engagement and will grow the membership base, allowing our team to target and engage with a wider range of consumers, including resolving moviegoers.
This quarter, we continued our efforts in offering alternative content to attract new audiences.
Programming from sort of flex event in the second quarter included the animated feature Jujitsu cases zero and the metropolitan awkward cycles, such as that arm dose in animals.
We continue to see momentum through our focus on international cinema. In fact every month during the quarter International flows consistently accounted for five or six of the top 20 surgeons on our film slate and we continue to take a dominant share in the north American market and international cinema.
For instance, the volume was already up to Soar Cineplex achieved with North American market share of 32% also we accounted for an impressive 66% of the domestic market for some time so need another Bollywood feature this is an incredible feat and it didn't have.
And by accident. It was fueled by customer data that enables us to match specific content to the right demographics in specific locations.
Yes.
We also continue active discussions with non traditional suppliers about showcasing their content.
Without question on traditional studios are forming a new and heightened depreciation for the rule of the theatrical release in increasing awareness and value for content prior to launching on streaming platforms.
A key focus area and reigniting theatrical exhibition as to increase per patron spend during the quarter. Our box office per patron was up 10, 4% compared to Q2, 2019, mainly resulting from the favorable mix shift to premium offerings as well as strategic.
Pricing actions.
Concession per patron reached an all time high which was up 25, 6% compared to the same quarter in 2019, a combination of a higher incidence rates higher average basket size of concessions and alcohol and strategic pricing actions were key drivers to these exceptional results.
In mid June we also followed in the footsteps of our industry peers and introduced an online booking fee. These ancillary revenues will fund the expansion and enhancement of our digital infrastructure and digital offerings to ultimately enhanced guest experience.
Yes.
Speaking of guest experience this quarter, we continued to benefit from investments, we've made and continue to make in premium amenities in our theaters across Canada.
Now offer eight different types of experiences for movie lovers and during the quarter added another screen X locations, bringing our total to $11 four agents.
These investments are showing strong results as we are seeing theaters with premium amenities experienced the fastest recovery coming out of the pandemic. In fact 42, 4% of our total box office was driven by premium formats.
Turning to our next strategic priority, we are pleased to see strong rebound and recovery in our diversified businesses.
Vacation strategy is an important pillar for the continued growth of the company.
This quarter, we reported an all time quarterly record in amusement revenue, our LTE business generated all time quarterly record results and saw strong same store growth in both top and bottom lines as compared to pre pandemic results.
In fact, the adjusted EBITDA for comparable creations reached 87% of pre pandemic levels during the quarter and then the Alberta all of our locations exceeded 100% of 2019 levels.
<unk> business also performed exceptionally well generating a record adjusted EBITDA and adjusted EBITDA margin of 18%. This is reflective of strong top line demand and our teams available ability to effectively manage inflationary pressures and control costs.
On the media side Cineplex media Cineplex digital media is continuing to demonstrate encouraging signs of recovery and we saw significant improvement in our overall media revenues for the quarter.
Going forward, we expect to see further momentum in both media businesses as audiences in mall traffic return and advertisers increase their media spend.
Cineplex digital media are gaining traction by winning new clients earlier. This week, we announced the addition of primary REIT in the circuit of shopping centers to our digital out of home <unk> excellence.
Our third strategic priority is to leverage the cineplex ecosystem to unlock value by leveraging a richer data available to us and the expanded six plus program and by applying digital tools to better mine opportunities within our existing moviegoing audience.
Our fourth and final strategic priority is focusing on optimizing our operations and assets during the quarter. We exited one location in Windsor, Ontario sold another location and take additional disclosure and received proceeds of $5 4 million on a restrictive lease rights transactions.
We continue to apply financial discipline to manage capital allocation across our businesses and work towards achieving our target leverage ratio of <unk> up to three times.
The second quarter marked the first credit facility debt covenants and we were pleased to report an annualized revenue leverage of three to four times, which is well below the required total leverage ratio of 375 times.
Before I pass things core IHOP.
Here's a brief update on the ongoing litigation with minimal as we announced in December 2021, the Ontario Superior Court of Justice issues, a judgment for $1 billion to $4 billion in favor of cineplex, while at the center.
We believe that alright.
We will take all steps to respond to an advanced <unk> process.
We remain focused on the Ontario Order book deal hearing, which is scheduled for October 12th and 13th of this year.
As we announced during our AGM in May we have engaged Moelis and company as a financial adviser and Goodman.
Sure.
And then maximize the judgment against the odds.
And future steps are a key focus for cineplex and its advisers.
Looking ahead. It is clear that global film industries rebounding as guests look back to the theaters and so it's a great movie moments premium experiences and a guaranteed escape.
The sustained quality and diversity of future releases will keep guests coming back to our theatres as consumer sentiment regarding the pandemic improves.
While we are optimistic about the upcoming film slate for 2022 and beyond we anticipate a short term bump in supply chain disruption in late August and September Brian early due to pandemic related production delays.
We are well equipped to however to fastest period and up quite adept at navigating temporary dips, we have the full support and confidence of our lending group and have proactively amended our credit facility with the suspension of financial covenants in the third quarter of 2022.
We look forward to a strong quarter of the year with a host of much anticipated title set for release, including don't worry Darling.
Halloween and black hat romantic comedies ticket to Paradise, starring George Clooney and Julio.
Great for the Delta.
Highly anticipated Black Panther, what kinda forever really yielded 172 million views in its first 24 hours.
Book to Bill the last wish so.
That theory of the board.
The Whitney Houston biopic, Warner dance with somebody and the most anticipated throughout the year.
The way a quarter.
We also remain highly encouraged as we look to 2023 with industry experts projecting another year with a strong film slate.
Just to name a few tent pole titles.
Cited to see Askmen and the Wasp quantum Indiana actual managed the last Kingdom, John Wick Chapter for Super Mario Brothers Guardians of the Galaxy volume three Spider man across the fiber versus Indiana Jones, five mission impossible Barbie Oppenheimer.
The Marvels and June plus two plus two.
In closing, we are confident enough business and our efforts to manage financial uncertainties as we have done during past economic downturns.
Our second quarter results and recent thermal performance clearly demonstrates that with strong filling product gaps want to come back to us either.
We are poised to capitalize on the impressive film slate and we will continue to reap benefits from the promising momentum we have seen in our other businesses.
Our balance sheet is solid we are <unk>.
Well positioned for a sustained recovery finally, we will continue to advance growth initiatives and drive long term value for our shareholders to maintain our position as an industry leader with that I will turn things over to board.
Thanks Bill.
We used to present, a condensed summary second quarter results for cineplex.
Further reference our financial statements and MD&A have been filed on SEDAR and are also available on our Investor Relations website at <unk> Dot com.
Our MD&A and earnings press release includes a fulsome narrative on the operational results.
I will focus on highlighting and quantifying some of the key operating results and provide commentary on our liquidity and outlook.
As Alex mentioned, we were extremely pleased with our Q2 operating results. We reported positive net income for the first time since the pandemic, we reported our strongest adjusted EBITDA of $35 $8 million since the pandemic and we reported record in some of our key metrics, including <unk> and CPB.
In addition, our amusement and leisure business reported reported its strongest adjusted EBITDA ever.
All of this despite certain operating restrictions being in place in early April .
Total revenues increased 439% to $349 9 million from $64 9 million in the prior year.
Net income was positive $1 3 million as compared to a net loss of $103 $7 million in the prior year.
And adjusted EBITDA, all approved improved to $35 $8 million from an EBITDA loss of $2 2 million in 2021.
Film exhibition and content segment.
<unk> increased to 11 1 million in the current quarter as compared to $1 1 million in the prior year.
We reported a record second quarter Pvp of $12 in 2009.
And an all time record quarter with CBP $8 84.
Our box office revenues were approximately 72% of the pre pandemic period.
Q2, 2019, and our total segment revenues were approximately 78% of the pre pandemic period.
Segment, adjusted EBITDA was $21 $3 million increased significantly from our segment EBITDA loss of $37 4 million in the prior year.
We have seen our media clients come back once we reopen and reported second quarter media revenue of $26 2 million as compared to $9 4 million.
In the prior year.
The increase was primarily due to the cinema media revenue, which increased $63 million in Q2 2022.
Our overall media segment adjusted EBITDA increased to $14 2 million from $1 4 million in the prior year.
Comparison to the pre pandemic period, our media segment revenue was approximately 54% of our Q2 2019 levels.
Media businesses were impacted by the operating restrictions in the early parts of April but also by the uncertainty that restrictions from a the year created in our client strategy.
Look to commit to cinema and our digital place based networks.
As we continue to see strong traffic patterns in our cinemas in malls, we expect to see further recovery in our media businesses.
Alright, amusement and leisure segment had an incredible record breaking quarter.
<unk> AG and our LTE businesses had record quarter that each had strong topline results margins and second quarter record adjusted EBITDA.
Segment revenue increased to $45 $1 million as compared to $2 $1 million in the prior year and segment adjusted EBITDA increased $8 1 million from.
From $8 million in the prior year.
In comparison to the pre pandemic period.
Our amusement and leisure segment total revenues were actually higher coming in at 109% of the Q2 2019 levels.
G&A expenses increased seven 8% to $15 $3 million from $14 2 million from the prior year, primarily due to increased payroll costs as a result of a decrease in wage subsidies.
Partially offset by reduced litigation and advisory costs and the reduction in share based compensation.
These items are described in more detail in our MD&A.
With the reopening of the businesses our focus remain on cost control as our business volumes ramped up.
And it is important to note that as one would expect our subsidy program received significantly reduced with the reopening of our locations without restrictions.
For the second quarter, we reported a government subsidy from approximately $1 6 million.
As compared to $28 $5 million in second quarter of 2021.
Although our landlord abatements also continued to decrease we did receive proceeds of approximately $5 4 million.
Related to a lease rates transaction.
For the second quarter of 2022, we reported net capex of $12 5 million as compared to $3 million in the prior year.
For 2022, and beyond we will continue to be prudent with our growth initiatives.
And our guidance for net Capex for 2022 has been decreased slightly to $65 million to $70 million.
Before discussing our liquidity position I wanted to discuss the following five items.
First I wanted to talk about <unk> plus <unk>.
As mentioned during the first quarter call same points are now treated as marketing expenses with growth up.
The related revenue and no net impact on EBIT.
The impact on the second quarter was due to increased box office and concession revenue by approximately $5 1 million.
Impacting BCP by approximately <unk> 24.
By approximately 22.
And marketing expenses increased by approximately $5 1 million for a net <unk> impact on EBITDA.
In addition, with respect to C. We disclosed subsequent to quarter end Cineplex will recognize a gain of approximately $45 million related to the 2020 sale of one third of our 50% interest in <unk>.
L P.
The economic and contractual obligations of the transfer will now.
Yeah.
Second with respect to the <unk> litigation, we were awarded damages of 124 billion and $5 $5 million for transaction cost exclusive.
Interest.
Cineworld has filed a notice of appeal and oral hearings are scheduled for October 12th and 13th of this year.
Due to uncertainty uncertainty.
Outcome.
And the ability to recover the full amount no amounts has been accrued as a receivable on our financial statements.
We have engaged Moelis and company's Goodman LLP as expert advisors with significant experience in these matters to assist and optimizing the value of this claim.
Third I want to remind you that the benefit of the tax asset that was de recognized during 2020 as a result of uncertainties related to the pandemic.
As described in note eight of our year end financial statements. We currently have non capital losses totaling $314 $6 million to utilize it in future periods. We.
We continue to evaluate the recoverability of these deferred tax assets.
And we will recognize such assets when and if appropriate.
Fourth in addition to the deferred tax assets as our business continues to recover and return to profit profitability. The reversal of a portion of previously recognized recognized impairments may be appropriate.
Since then our subsequent event note.
Got the plan and the limited like financing entity Canadian digital cinema partnership where CCP.
CDP expects to distribute its remaining assets and its partners in 2022 incentive costs and expect to receive approximately $1 9 million of this distribution.
Historically, we have excluded the impact of CDP in our calculation.
And that was a limited way.
Okay.
Now finally, I'd like to speak to our balance sheet, and particularly our strong liquidity position.
For Q2, 2022, we reported net repayments of $9 million under our credit facility, which left us with $294 million drawn on approximately $238 million available under our credit facilities as of June 32022.
Q2 was the first covenant test under the fourth amendment of our credit facility. We were pleased to report that we were in compliance with all test.
Total leverage of three to four times as compared to a covenant of 375 times senior.
Senior leverage of 179 times as compared to a covenant of 275 times and a fixed charge coverage ratio of 144 times as compared to a minimum covenant requirement of $1 two five times.
In addition, we maintain the minimum liquidity requirement of $100 million throughout the quarter.
As Alex mentioned the recent film performance clearly demonstrates that with strong film product guests want to be back in our theaters.
As we look forward into Q3 Q3.
We realize that a number of titles originally scheduled for release in Q3 had COVID-19 related production issues and have their exclusive theatrical release date delayed to a future period.
Alright eagerly awaiting.
Sandy titles in future periods.
Boyd in the release schedule, beginning in mid August , which would impact our Q3 results.
Given the nature and impact of these delays, we proactively approached our lending syndicate to ask for its expansion of covenant testing in Q3 and commencement again in Q4.
Their support continues to be strong and they quickly agreed to the suspension of testing in Q3, and we are pleased to announce that fits our credit amendment.
Agreement today further details are included in our filings today.
As Alex mentioned, there is a lot for the exhibition industry to be excited about it we have a resilient business great product coming in and we have a renewed focus from studios on the importance of the theatrical exhibition.
We continue to focus on the return of our businesses, while exploring opportunities for value creation.
That concludes our remarks for this morning, and we'd now like to turn the call over to the conference operator for questions.
Thank you. So if you would like to ask any question. Please press star followed by one minute telephone keypad. If you change your mind. Please press star followed by two <unk> to ask your questions. Please ensure you quoted mid to low teens.
So the first question comes from Adam Shine from National Bank Financial. Please go ahead, Adam Your line is now open.
Thanks, a lot good morning, maybe a couple of questions Ellis just just starting off obviously there is evolving recovery at moment at the box office I think.
As alluded to 72% level for box office revenue versus two.
<unk> I think attendance looks like 65% level and of course.
That's a key priority.
Company to sort of stimulate attendance can you speak at all to some of the pockets, maybe where some of the shortfall still exist, whether it's demographic frequency or just.
<unk> of the product that isn't necessarily bring in.
A wider grouping.
That attendees and obviously this is.
And I'd also for Gordon in the context of.
Questions that were asked when the Cinemark call last week regarding leverage I think the response was look if attendance comes back it drives other elements to the business and obviously helps support the inherent operating leverage in.
In the overall organization. So maybe you can.
Touch to those points of attendance and margins and then just one other point that was raised in the MD&A I think it was a bit about shortfall in staffing into Q2 at the <unk> level. Maybe you can just address if that was resolved as you work through the Q3. Thanks.
So Adam on the question.
Attendance is where we see things moving forward, what we've seen in a big block Buster movies are doing extremely well the middle range product.
They have not been those releases, but when they are theyre also perform.
And looking into the future.
GAAP was really with families in the order of audiences and they are starting to come back.
Remember.
April the comparator for 2019 was a tough one because of the moving into 2015.
And we also learned that will be gone to that until that particular period of time, but I got to be honest with you I've seen and visited theaters and see a lot of desire for guests to come back and especially in the movies like we saw with top gun, which did extremely well with <unk>.
Elvis for the older audience. So.
I think over the next 18.
10 months, you would see a strong return to product, which will be diversified enough to appeal to all the different audiences.
To me that it's something that.
We feel comfortable is going to happen.
In the future.
And Thats right, Adam with respect to your question.
A couple of questions you had for me.
We're obviously pleased to.
We report leverage of three to four times and as you mentioned roughly 72% of pre pandemic levels box office allowed us to generate there that level.
I would also make the comment that.
Our amusement and leisure business has been performing strongly.
And we made the comment about the return of the audiences and the media buyers for that a little bit of a lag.
Between the return of audiences.
Media revenue will ramp up so if you.
You look at our Q second quarter in isolation.
You would expect that.
At a run rate levels of media business.
It will be ramping up higher from where it was in Q2.
Once once they see the return of the audiences. So we were pleased in my notes where is that our target leverage ratio range is two five to three times until three to four as we're getting very close.
To where we would like to be in a quarter that was impacted in the month of April by some operating restrictions.
As we look as we look forward.
We see the media business is ramping up we see a little bit of a.
Challenges.
Characterize sort of the supply chain disruption in terms of the film content coming into Q3.
But as I mentioned, the strong product come in in Q4.
<unk>.
And into 2003.
And as I made in my comment and my Hope is we have a very support support of group.
We were able to quickly.
And proactively address what might be sure.
A shortfall of onetime shortfall in Q3.
Go ahead your reservoir type market.
Alright.
I apologize.
Up until to the other question.
I was talking much more about operating leverage rather than financial leverage, which I think you were very clear Ron in your opening remarks. So I would just try to push you maybe a little bit on it.
Current operating leverage in the business, which clearly as we get beyond Q3, and look to Q4 with greater strength.
But Ted did some of the other parts of the business and moving into 'twenty three as well I was talking about operating leverage and how margin.
Potential can evolve.
Within the context of any other puts and takes and okay.
And these are part of the business yeah, So with respect to that question and thanks for the clarification.
I guess you.
You gave me an opportunity to renovate reiterate how confident.
Yes.
Hi.
But with respect to Alere.
De leverage.
Okay.
If you take care.
Film costs, which.
100% variable cost.
And you look at our cost of food food.
Costs in our payroll costs those represent about 75%.
Other costs so.
The operating leverage is really strong.
Sure.
Each incremental customer.
Countries.
Significantly to our bottom line as we ramp up.
The EBITDA.
Yeah.
Increase.
We will reiterate what we said on past calls which is.
We believe that despite potential.
Yes.
Yes.
Changes in consumer behavior.
Our margins, our EBITDA margin level should get back to work.
Likely.
At some point in time in 2020.
Okay.
And then on your LTE question.
Yes.
First and foremost we were extremely pleased.
In our rail business.
And our <unk>.
The challenge.
We talked about.
Labor challenges.
Related to.
Okay.
Service.
Primarily kitchen staff.
Not unique to us.
Comment on the industry and so when you look at our revenue mix.
That's great.
If you look at our revenue execution weighted a little bit more.
Yes.
Thanks.
So.
As the labor challenges no correct themselves were up in others.
Yeah.
You would expect.
What kind of return back to more normal levels.
And we're seeing that happen.
Oh.
The labor.
Issues or not.
Okay.
Super Okay. Thank you very much.
Thank you.
The next question is from thyroid solid from TD Securities you may begin.
Yes, good morning, everybody I'm glad to see the lights turned back on so to speak.
Obviously, I don't want to necessarily our harp on Q3, which you don't have control on one.
Wondering if you had a sense of what the boy it could mean in terms of attendance relative to 2019.
Okay.
We gave.
July was a very strong.
At 85%.
2019.
19 levels up was very strong.
Derek the challenge really is disconnect and again, we're being we're being proactive here the sleeper hit.
We don't know what they will be there or not.
So that's the big unknown.
But when Youre looking at.
Sure.
Box office level.
For August and September .
Yes.
Their access to potentially that there could be like less than half of pre pandemic levels.
Okay, but Barry I mean, even in the first 10 days of office have been much stronger than we expected and there is product. It's a matter of how it delivers as we go through the balance of the quarter.
Absolutely and I appreciate how tough it is.
Last question.
Maybe just on the.
Membership fee plus it was flat just curious about the dynamics, there and sort of your expectation one.
Prior begin rolling it out more broadly.
Yes.
It's a stronger program and it's going to continue to grow and.
New base of participants and it will allow us to attract individuals who may not have been moviegoers in the past.
So it's positive and it's a great program as we move forward.
Okay.
And then maybe just one last one for me on the <unk>.
Obviously, very strong and I know its going August but curious.
If you've seen any early bookings for year end holiday party in things like corporate gatherings.
Yes, it continues to be strong and coming back and.
We basically.
Going back to levels, where I think we will approach pre pandemic and in some cases exceeded at the close of the desire to be together.
And add those social experiences.
Quite comfortable at.
And then moving forward.
Okay. Thanks for that everybody.
Thank you.
Sure.
Our next question comes from.
<unk> from Scotia Bank. Please go ahead. Your line is now open.
Yes. Thank you guys and thank you for taking my question.
I wanted to ask you first on CPP.
Nicely up from 2019 levels.
How are you guys thinking about continuing to grow that.
That number and what are the action plan and year on year.
Putting in place to continue to grow that just taking into consideration maybe beth.
Ongoing uncertainties in the economy and inflation affecting consumers and the second question I had is.
If you can maybe just.
Let us know your views as to what is really behind that.
The production delays.
That youre referring to.
Of course as you mentioned Q4 is expected to be very strong in 2023, but in general if we look bigger picture how much of the production delays R&D too.
Sorry.
The lower movie theater.
Production is due to production delays versus the movie is going directly to streaming.
So, let's look at the CPP and.
The future benefits and increases and we've seen that basket has changed and we have offered many new products and.
With the introduction of alcohol and with our VIP theaters. The CPB has continued to move forward and we see that level being sustainable and continuing to increase as we improve our.
Our guest experiences through technology with the ability to order the concession items prior to coming through the movie we've already done it in VIP and legal.
Looking into the next few months and initiated into all of our theaters across the country.
And maybe just sorry, I can add one comment there.
Because you talked about.
The economy is typically.
We've made some comments about the sort of the strength of the exhibition business.
Through recessions.
The last recession that we went through in 2008 and 2009.
Our concession spending actually continued to increase throughout that period.
Yes.
Second question was on the way it's related to.
Colby So we characterize these things.
Our supply chain disruption and content.
And it.
100% related to Covid. The studios are not moving the big releases that were scheduled for.
August and September .
Into over the top or industry and services Theyre just going into Q.
Q4 or into 2023.
Yes, we see some strong new leases as I talked about in 2023.
And the balance okay.
Okay.
Okay.
I just wanted to maybe just follow up on that.
Let's see.
Are you seeing any changes in terms of attendance.
Versus pre Covid.
Can you break down the movies in terms of the blockbuster versus mid to small.
Are you seeing any diversions.
Kansas attendant to these movies now versus what they were pre pandemic.
Well, if you have a lot more blockbuster attendance, but thats also the breakdown of the number of movies in the midrange movies that are coming out compared to the blockbusters and I think what will happen if that's going to change as we move forward with more of the midrange movie.
Being released over the next number of months.
But what we are seeing is when you announced the blockbuster. If you are actually outperforming pre pandemic levels. So with less content, we are still getting.
Some big returns on these feature films.
Alright.
Faster.
Okay.
A significant percentage of the box office was generated from these films.
Okay Alright.
As we look at it.
So as we look into 2023 what are your.
Use in terms of the supply chain constraints are they going to materially improve and that hopefully will allow you to achieve your objectives and returning to pre pandemic level of attendance.
From a product perspective, we see a lot of the movies that or is it going to be released at cost moves are going to be released in 2023 and <unk>.
Big movies movies like last fall that that was going to be released in December and move to the first quarter of 2023, So theres a lot of.
Good product that we are expecting in 2023 and <unk> continuing to ramp up we will see more movies that.
They have been slow.
Slide four.
For the balance of 2023.
So I'm pretty confident that.
Given no hiccups from a global perspective, we should be in a strong position as we move forward.
Great. Thank you. Thank you very much.
Yeah.
Thank you for your questions.
The next question comes from drew Buckley renal from RBC capital markets. Please go ahead. Your line is now open.
Okay.
Yes. Thank you very much good morning, three for me.
Just on the location based entertainment footprint, you have 10 rec rooms, and <unk> can you just remind us.
What that future footprint.
Like.
And then the second question just on Cineplex media.
Obviously, a lot of focus here on the macro dynamics in the advertising market, but.
Anecdotally being in a number of your movies and your theaters in the past automotive seem to be a pretty big category. Obviously, that's been challenged through Covid with supply chain, just wondering what youre seeing in that category.
And then just lastly on the amusement margins of 18%.
Often performance obviously in the quarter.
Certainly above the 12% to 15%.
That has been kind of the guided range in the past are we now looking at this kind of a higher level.
And for the business.
Yes.
So in response to your question about the.
Locations.
Committed to adding two locations, which will open in the next.
12 to 18 months.
Okay.
One is in.
The other one is in the province of Quebec.
Were we to date and not have a location in the province of Quebec, So that is going to be important.
We move that forward and that the business continues to grow we will continue to evaluate.
Opportunity to explore that way across the country.
And it really creates for us a great entertainment destination for all.
Our guests team members and we continue to see improvement as we move forward.
So we.
We should be in.
On a pretty good position as it relates to that.
Thank you.
On the media side.
There's always been a bit of a lag.
The media start to come back compared to.
Yes.
We see and you did mention.
The automotive side, we have seen that as a challenge and a lot of that has to do with the fact that the.
Dealerships are not getting enough product so it makes it harder with them too.
Come to market and advertise.
<unk>.
Cars that are available, but I see that coming back as we or they.
They closed that supply chain.
Changed, but we are filling those gaps with alternative including tumors.
Tourism.
Other opportunities that we see or.
So yes.
Yes, there are going to be ups and downs, but quite confident.
The tumor related products that will be.
Based on all the screens now.
<unk>.
Yes.
And then on the question.
The <unk> business than in the margin.
I think in the second quarter. It was primarily the higher margin width was related to.
Sales.
I think the good news.
What's giving you the range.
<unk>.
So I would expect that you've seen us get towards the higher end of that range.
That week.
It's not it's not the new run rate.
Okay got it thanks very much.
The next question comes from Tim Casey from BMO Capital markets. Please go ahead, Tim Your line is now open.
Yes. Thanks, good morning, a few for me.
<unk>.
Alex could you talk a little bit more about one of your priorities related to leveraging the ecosystem. Just wondering if you can put some.
Some context there.
What that would mean for financial results or operating room.
<unk> or whatever.
Key way, we should look at that.
Second question would be related to the near term box office.
Could you give us a little insight into how Q3 of 2019 played out in other words were July August September .
What was the relative mix there just so we can think about how the comps will look.
And last question just as there's been a lot of.
Retrenching of business models related to streaming and we are.
Zaslav.
They're being very forceful along his commitment to the exhibition and whatnot just wondering if.
Your discussions or the outlook for film rentals changes at all given the.
The change in streaming windows and whatnot.
Okay.
So in response to your first question about the ecosystem one of the key ingredients and the benefits we've seen through this.
Period of time is the situation as it relates to data we have some of the best data that's available and the movie exhibition business compared with many of our peers around the world and.
Actually the <unk> program for a considerable period of time. So we can pinpoint what we've seen what will be when and where and how to use that repeatedly and we see that continues to grow and then also using that data to drive.
In our other assets like even though correct.
Ladies.
That to me is.
Really really critical compared to.
Where are we.
Where we are where we were in the past and that's what we spent a lot of our time, you reported improving and making sure. It's best in class moving forward.
Your next question about Q3 2019 compared to.
Q3, 2022, and in Q3 2019, we had a number of movies that carried over into two movies like the Lion King Spider Man.
It chapter two which is a movie that did extremely well and Canada because it was reduced just out of sight and Hamilton and did very well. So we did have some.
Big product and that continued into the latter half of the quarter. So it's definitely a usual leads a month where it is.
Not as strong because it's Anna.
Families.
And also going back to schools and universities. So we continue to see that as not being the strongest but in all honesty July was a strong month of August so far we have been good.
Being careful and looking at where the comparative expand as meaningful.
And when you asked about the different studios and where.
<unk> as you mentioned David basketball from.
Discovery basically is committed to the theatrical window and he feels that it's a great overall deliver off.
Value and also building the brand as they continue to move forward.
A little less on discussions with all of the leaders of the studios and.
Even some of the streamers statesville feels that theatrical is the engine that drives the train.
So we.
We feel comfortable with that one.
The scope impact is behind us and get comfortable returning.
Just recently on a National Association of theater owners to report from NATO their level.
Level of reached its highest since.
<unk> commenced so we are confident that they can obtain <unk> business will be back in charging forward.
Hope that answered your question.
Yes, thanks for that just a clarification on box office performance Canadian box office performance in Q2, 2019 should we assume given the way you characterize the film slate there.
It was about a third a third a third.
July August September given that it would have had a quite strong performance in the month.
No.
Talking about this 2022 or 2019 no 2019.
So 2019, it would have been.
Higher in <unk>.
July and August as usual for us.
This September releases came out.
I would say it was more weighted to July and August because that's been on the big movies get released.
Thank you because once the U S students get students get back.
Go with small pitch.
Okay.
Yes. Thank you.
Thank you.
Okay.
If you would like to answer any further questions. Please follow up.
And then telephone keypad.
Yes.
It appears we have no questions at this moment, so I'm going to hand back to Alice Jacobs for the final remarks.
Thank you all for joining the call. This morning, and thank you for your questions. As you heard today. Our company is very well positioned we look forward to speaking with you again in November for our third quarter results until then please stay well.
And enjoy it at your local cineplex. Thank you.
Yes.
Yes.
Thank you for joining today's call.
You may now disconnect.
Okay.
Okay.
Okay.