Q3 2022 Cineplex Inc Earnings Call
Hello, everyone and thank you for standing by the Cineplex incorporated Q3, 2022 earnings conference call will be beginning in two minutes time at the end of the prepared remarks, you will have the opportunity to ask a question by pressing star fruit by the number one on your telephone keypad. Thank you for your patience for you we will be beginning shortly.
[music].
Okay.
Good morning, everyone and welcome to the Cineplex incorporated Q3, 2022 earnings conference call. My name is Emily and I will be coordinating Yoko today at the end of the presentation. You will have the opportunity to ask a question by pressing star followed by the number one on your telephone keypad I will now turn the call over to our host Masa, Virginia Executive director corporate development and Investor.
Relations. Please go ahead.
Yes.
Good morning, and welcome with me today is Alex Jacobs, our 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 such forward looking statements are based on management's beliefs and assumptions regarding.
The information currently available.
Actual results could differ materially from those expressed in the forward looking statements.
Actors 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 risks associated with other national and world events 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'll now turn the call over to Ellis Jacob.
Thank you, Matt Good morning, and welcome to our Q3 2022 conference call. We're glad you could join US today I am pleased to share that the third quarter marked another significant step in the resurgence of cineplex under theatrical exhibition industry.
The North American box office reached $1 9 billion during the quarter, which was 44% higher than Q3 2021.
These results were achieved despite the widely expected and thankfully temporary limited supply of Hollywood content in the second half of the quarter.
Leading the box office was minions rises grew its broad families in the highly sought after teen demographics back generating over $360 million in North American box office.
Then there was marvellous call 11, condo, which has earned over $340 million domestically to date and the continued success of top gun Maverick top gun, which has become one of only six films ever exceed $700 million in North America.
It is now the fifth largest domestic film of all time the sustained success of this type of 'twenty three weeks. After its initial release is truly remarkable.
These results along with many other examples from the past year demonstrates that consumer enthusiasm for theatrical moviegoing is as strong as ever.
Even more promising is that we continue to see significant growth in attendance premium offerings, which accounted for nearly 37% of our third quarter box office we.
Now offer eight different types of experiences for movie lovers and these investments are showing strong results as our theaters with premium amenities have been the fastest to recover the bottom line is when there is compelling content guests are coming back to our theaters.
Yes.
Leading up to the quarter cineplex than the industry as a whole anticipated limited Hollywood content in August and September as a result of the pandemic related production delays in response, we undertook a series of targeted marketing initiatives to drive attendance and diversify our film slate by increasing full.
First on international products.
We consistently taken an industry leading position in international cinema, and we were very pleased with this quarter's results. In fact, we earned an impressive 80% of the North American box office flip the Punjabi.
Sheldon with Kenai.
Disney's Bollywood title by math stroke part one chiller Cineplex took a notable 28% market share.
These are strong numbers, especially for cineplex, which generally account for 7% to 8% of the North American box office on plywood releases.
Years' worth of rich data about Canadian movie going habits has enabled us to map certain content to the right demographics in specific locations.
As a result of our efforts we achieved box office revenue of 70% compared to the same quarter in 2019.
Yes.
From a recovery perspective, our June box office came in at 89% compared to the same month in 2019, followed by 85% in July .
Due to the previously mentioned product supply issues box office results declined in August and September , but cineplex performed better than the industry. As a result of the initiatives I noted earlier.
In August we reached 64% of 2019 levels exceeding the domestic industry by a notable 500 basic basis points.
Similarly in September we reached 52% of 2019 levels outpacing the North American box office recovery by 300 basis points.
And in October we continued to be impacted by content supply challenges for the first half of the month, but so our box office recovery reached 62% of 2019.
Yes.
While the board will speak to our financial highlights in more detail. Shortly I did want to emphasize our commitment to growing our diversified businesses. We are particularly pleased with the results of our amusement and leisure segment, which included an all time quarterly record adjusted EBITDA in both the <unk> and LTE.
<unk>.
The momentum at the box office combined with growth in our diversified businesses fuels third quarter year over year revenue increase of 36% and adjusted EBITDA of $20 4 million, which is a 90% growth when compared to the same quarter last year.
And there is more to be optimistic about defense than successful opening of Black Adam last month has kick started the exhibition industry from a film slate perspective.
This holiday season will be a busy one with two of the most highly anticipated releases in years Black Panther, our condo forever and avatar the way of water.
Black Panther opens Tonight for advanced <unk> across Canada, and ticket sales. Thus far indicate that we are on track for a very strong weekend.
EBITDAR the way a quarter, which opens December 16th as the highly anticipated sequel to the highest grossing film of all time as you May know that Canadian Academy Award winner James Cameron directed the film and was also one of the writers.
Our team remains focused on marine lighting theatrical exhibition in driving attendance.
One key pillar this marketing is marketing and loyalty during the third quarter through targeted seen plus offers promotional campaigns and one to one engagement offers we outpaced the industry as noted above.
We also participated in the inaugural National Cinema Day campaign on September the third where theaters across Canada, the United States and Europe celebrated moviegoing by opening their doors with three dollar admission.
Welcoming over a half a million guests in one day National Cinema day was our busiest day, thus far in 2022 and third busiest stayed in the last five years.
During the quarter in partnership with Scotia Bank. We also officially welcomed Empire company limited to the <unk> plus loyalty program as a corner as it initiated its phase retail rollout across Canada.
This has resulted in substantial and membership growth in recent months, which will continue as the program is rolled out across Canada. Following the launches in Atlantic and Western Canada. The rollout for Ontario occurred last week and <unk> rollout schedule for early next year.
To further underscore the positive momentum for the <unk> plus home hardware stores limited would also be joining seen pluses loyalty partners sometime next summer.
<unk> plus growth provide cineplex with the opportunity to engage and reach a wider range of consumers, including non moviegoers.
From a subscription perspective, we are introducing two important innovations to our clinical program, leading up to the holidays just in time for the upcoming busy box office in the holiday gifting season.
First in September we launched the ability for members to purchase annual memberships and earlier. This week. We also launched gifting. This means that this holiday season, Canadians, who will be able to give the gift the for Europe movies to their loved ones.
The club has been a great success since its launch and we will continue to innovate and expand cynical up features as we focus on program growth.
In October we hosted the exclusive Black Adam Rocks, Canada fan event at the Rec room Roundhouse welcoming world famous Dwayne Johnson into our venue.
Over 900 fans and the media enjoyed exclusive photo opportunities the chance to win various surprises, including annual incentive club memberships and a special advanced screening of SaaS Adams at neighboring Scotiabank Theater Toronto.
Sure.
The success of events like this certainly demonstrates our ability to leverage assets across our ecosystem, whether in a theater or on an entertainment venue to engage with customers, while driving business across cineplex as operations.
I would like to thank Warner Brothers Pictures, Canada for partnering with US and we look forward to hosting similar events in the future.
In the quarter, we continued to diversify phone content and increased our international offerings through our distribution business Cineplex Pictures. The business continues to grow as we released the anime hit Dragon ball Super Super Hero, along with three international firms this quarter and.
<unk> titles from China, South Korea in Egypt, and in fact, this past weekend two of the top 10 films in Canada were distributed by Cineplex Pictures, one piece flow and Red and pray for the Devil.
In addition, we continue to make progress with non traditional suppliers that they're choosing to showcase their content on the big screen.
October we reached an agreement with Netflix for the theatrical release of Glossodynia knives out, Missouri later this month.
It is becoming increasingly clear that the approach by streamers to collapsed theatrical windows and squarely focused on growing the subscriber base does not deliver a sustainable competitive returns to return.
Traditional and non traditional studios are now forming a new and heightened depreciation for the rollout for theatrical release and increasing awareness and value for content prior to its launch on streaming platform.
That said, we believe this realization will read to lead to further content opportunities with exhibitors as you've heard me say before exhibition as the engine that drives the train four dropped downstream revenues for any and all content producers.
Turning to our next strategic priority, our diversified businesses continued their strong rebound and recovery.
As mentioned earlier, our amusement and leisure segment continues to consistently deliver strong results and this quarter. It generated all time quarterly record revenues and adjusted EBITDA.
In fact revenues were comparable LTE locations reached 95% of 2019 levels with many locations exceeding 2019 results.
<unk> business also performed exceptionally well generating a record adjusted EBITDA and adjusted EBITDA margin of 19, 8%.
This is reflective of strong topline demand, where we saw third quarter revenues exceed Q3, 2019, and our team's ability to effectively manage inflationary pressures and control costs.
Sure.
On the media side, we remain encouraged by continued signs of recovery for Cineplex media and Cineplex digital media, we're seeing significant improvements in overall revenues for the quarter.
With the promising film slate in holiday of mall traffic to look forward to we expect to see further momentum in these divisions moving forward.
Overall, we are pleased with the performance of all our businesses and the diversification strategy as a whole which has been an important pillar for the continued growth of the company.
Yes.
Looking ahead, we are particularly excited about opening the first location of our new Entertainment concept junction later this year in Winnipeg.
<unk> name as it Leverages, our capabilities and exhibition and location based entertainment junction will provide our guests the ultimate destination for a complete night out.
It features multiple entertainment options, including movies amusement gaming live events and expanded food and beverage offerings all in one great many venue.
So junction is a first of its kind in Canada. The location itself is not new to our circuit located in Winnipeg that new junction location will replace an existing older theater, a famous players still don't in place.
Second junction is scheduled to open at Arizona Town Centre in Mississauga, Ontario in mid 2023.
Yes.
Before I pass things to board Here's a brief update on the ongoing litigation with Cineworld as.
As we announced on September seven Cineworld filed for chapter 11 bankruptcy in the United States, which resulted in an automatic worldwide steel all enforcement proceedings against it.
We attempted to lift the stay with respect to the ongoing appeal in Ontario, but our request was denied and the litigation is on hold for now.
On October 31, Central received final board approval risk with respect to the debtor in possession facility, which required agreement from its lenders and landlords.
It is important to note that this is not a plan of reorganization that sets an overall remains under chapter 11 bankruptcy and we continue to work closely with our advisors to monetize and maximize the judgment claim.
Looking ahead. It is clear that all of our businesses are gaining momentum the global exhibition industry is rebounding as guests return to theaters in search a great movie moments premium experiences and a magical escape.
Our studio partners and non traditional studios recognize the underlying importance of an exclusive theatrical window as evidenced by the desire to release their content on the big screen.
We're excited by the robust film slate of blockbuster titles for the remainder of the year and into 2023.
We feel this lineup combined with strong consumer enthusiasm for moviegoing confirms that our business is back in a meaningful way.
When assessing the 2023 film slate it is important to remember that the volume of films isn't the only indicator of success at the box office.
Often times fewer titles means that they can have an extended life in the theaters at the end of the day quality is the key driver to the success of the box office.
Evidenced with the success of topline, we look forward to a much anticipated titles in 2023.
Including Ant man and the work John Wick Chapter for Super Mario Brothers Guardians of the Galaxy one three aspects.
Mermaid spiderman across the Spider verse, Indiana Jones, five mission impossible, seven Barbie Christopher loans, often hymer, the marvels and due in part to.
In closing, we remain focused on maximizing value across all our businesses and driving shareholder returns.
Our balance sheet is solid and we remain confident in our ability to manage financial uncertainties.
Cineplex is well positioned to fully capitalize on surging demand as we head into an exciting holiday season and beyond I'd like to thank our incredible team for all that they do to enhance our position as an industry leader.
With that I will turn things over to board.
Thanks, Alex I am pleased to present, the condensed summary of the third quarter results for Cineplex, Inc. For further reference our financial statements and MD&A have been filed on SEDAR and are also available on our Investor Relations website at Cineplex Dot com.
Our MD&A in the earnings press release include 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 pleased with our Q3 operating results, we reported adjusted EBITDA of $24 million and although the film exhibition segment faced some real weak film release schedule challenges, our diversified business model continues to deliver with our amusement and leisure businesses reporting its strongest quarterly.
Adjusted EBITDA ever.
Total revenues increased 36% to $339 $8 million from $254 million in the prior year.
Net income was positive $39 million as compared to a net loss of $33 6 million in the prior year and adjusted EBITDA increased 19% to $20 4 million from $10 8 million in 2021.
In our film exhibition and content segment attendance increased 34% to $11 1 million.
Sorry, $11 1 million people in the current quarter as compared to $8 3 million in the prior year.
We reported second quarter <unk> of $11 25.
And CPP of $8 35.
Both of these metrics were impacted by the industry wide national cinema date with its discounted product offerings.
As <unk> referenced earlier National Cinema day was a huge success driving approximately 5% of our total quarter attendance.
It impacted <unk> by approximately 43.
And CPP by approximately 15.
In mid June we introduced an online booking fee, which is included in other revenues and for the third quarter. This item contributed $5 $2 million in revenues.
For the quarter, our box office revenues were approximately 70% of the pre pandemic period in Q3 2019, and our total segment revenues were approximately 77% of this pre pandemic period.
Segment, adjusted EBITDA of $10 $7 million increased 21% from $8 8 million in the prior year.
On the media side of the business, we are seeing our clients return and reported third quarter media segment revenue of $25 million as compared to $13 9 million in the prior year.
The increase was primarily due to cinema media revenue, which increased $15 1 million in Q3 2022.
$6 6 million in the prior year.
Our overall media segment, adjusted EBITDA increased to $12 million from $6 million in the prior year.
In comparison to the pre pandemic period, our media segment revenue was approximately 58% of our Q3 2019 levels, but this was impacted by strong hardware sales in our digital place based media business in Q3 2019.
If we excluded hardware sales our overall media segment revenue is at approximately 66% of the Q3 2019 levels.
With cinema media at 67% of Q3, 2019 level and digital place based media revenue at 63%.
The results in our cinema media business are encouraging as we generated 67% of Q3 2019 level with 63% of the attendance level.
As we continue to see growing traffic patterns in our cinemas and in malls, we expect to see further recovery in our media businesses.
Our amusement and leisure segments had another incredible record breaking quarter. This business segment continues to outperform the pre pandemic period on a topline and bottomline basis.
Both <unk> and our <unk> businesses had record quarters as each had strong topline results margins and third quarter record adjusted EBITDA.
Segment revenue increased to $76 $6 million as compared to $57 2 million in the prior year and segment EBITDA increased $18 million from $15 million in the prior year.
Our amusement and leisure segment total revenues exceeded the pre pandemic levels coming in at 119% of Q3 2019 levels.
G&A expenses increased 11, 2% to $16 9 million from $15 2 million in the prior year, primarily due to increased payroll costs as a result of a decrease in wage subsidies.
And increased costs related to certain digital and technology initiatives.
Should we offset by reduced litigation and advisory costs.
These items are described in more detail in our MD&A.
For the third quarter of 2022, we reported net capex of $11 million as compared to $3 6 million in the prior year.
Yes.
For 2022, and beyond we will continue to be prudent with our growth initiatives our guidance for net Capex for 2022 remains at $65 million to $70 million and our guidance for 2023 is approximately $100 million.
Before discussing our liquidity position I wanted to briefly touch on the following five items seen cineworld taxes impairments and finally Canadian digital cinema partnership.
First I want to talk about seen during the third quarter, we recognized a gain related to the 2020 sale of one third of our 50% interest in feed LP as specified non financial milestones are met.
Such we are reflecting a gain of $51 million in the Q3 financial statements.
Second with respect to the center World litigation and to build our analysis earlier comments as in past quarters, No amount has been accrued as a receivable in our financial statements due to the uncertainties in timing and ability to recover.
Third I want to remind you of 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 against future periods and as such you should expect minimal cash taxes over the next two years.
We continue evaluating the recover on 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 returns to profitability. The reversal of a portion of previously recognized impairments may be appropriate.
Finally in our subsequent event note, we discuss the planned and of the limited life financing entity Canadian digital cinema partnership or CDC peak.
CVP expects to distribute its remaining assets to its partners in 2022, and cineplex expects to record a gain of approximately $4 $2 million on dissolution and receive a nominal cash amount.
Historically, we have excluded the impacts of CDP in our calculation of adjusted EBITDA as it was a limited life financing entity.
I'd be happy to answer further questions about these five items in the Q&A. However, I would like to now move on for the time being and speak to our balance sheet, and particularly our strong liquidity position.
Q3, 2022, we reported net borrowings of $38 million under our credit facilities, which left us with $332 million drawn and approximately $200 million available under our credit facilities as at September 32022.
As I spoke to earlier the industry saw a void in the release schedule beginning in mid August which would impact our Q3 results anticipating this we proactively approached our lending syndicate to ask for a suspension of covenant testing in Q3.
With their ongoing support they quickly agreed to the suspension of testing in Q3 with commencement again in Q4.
I would now like to address the macroeconomic concerns in today's environment, including recessionary concerns inflation and interest rates.
With respect to any recessionary concerns in the economic outlook. It is important to note that the exhibition industry has fared extremely well during past recessionary cycles.
As consumers trade down their out of home experience experiences moviegoing becomes the affordable option and factor in seven of the last nine recessionary periods box office revenues have increased.
As we see rates of inflation that we haven't seen in decades. It is important to understand the overall cost structure of the organization and understanding potential impacts.
Cineplex, our top four cap cost categories make up approximately 75% of our overall cost.
Film cost is approximately 25% of our overall costs and has a 100% variable cost based on the related box office revenues.
Rent and occupancy related costs represent approximately 20% of total costs and are typically contractual and fixed in nature.
Payroll related costs are approximately 20% of total costs and are subject to wage markets and minimum wage impacts and lastly, food costs represent approximately 10% of our overall costs.
And this is a cost category that is impacted by inflationary pressures.
As you can see our cost structure is one where we're not as significantly impacted by inflationary cost pressures.
To the extent that we do see cost pressures that we cannot offset through other means we believe cineplex can turn to pricing as others have done.
The last macro macroeconomic factor I want to discuss is the interest rate environment.
We believe we are well positioned in this regard cineplex is currently in an over hedged position on our bank credit facility, we have hedges totaling $450 million as compared to $332 million in borrowings as at September 32022.
These hedges are at fixed rates of between $2, 83% and 294, 5% maturing between November 2023 and November 2025.
In addition, our $250 million high yield offering is fixed at 7% and 5% and our convertible debenture is fixed at 575%.
As we look at our balance sheet, our capital allocation strategy is to remain focused on delevering and strengthening the balance sheet as we navigate towards our target leverage range of two five to three times.
Over the past six months since fully opening without restrictions in April 2022, we have generated positive free cash flow and adjusted free cash flow.
We expect this trend to continue as business volumes increase and during the next year or so we will continue to decline and move towards our optimal capital structure.
As milk as Alex mentioned, there is a lot for the exhibition industry there'll be excited about we have a resilient business great product coming and we have a renewed focus from studios on the importance of theatrical exhibition.
We remain focused on the recovery of our businesses, while exploring opportunities for 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.
Thank you if you'd like to ask a question. Please do so now by pressing star followed by the <unk>.
Number one on your telephone keypad, if you change your mind I would like to be released from Mccain. Please press star followed by K, We ask that when you prepare you to ask you a question that you ensure your device Andrew microphone on mute lately.
Our first question today comes from the line of Adam Shine with National Bank. Please go ahead, Adam Your line is open.
Thanks, a lot good morning.
You touched on the Cineworld litigation I, just want to go back to maybe some of the speculative headlines that we've seen over the last few weeks around the.
The bankruptcy and possible discussions that you guys might have had with lenders.
I'm going to presume that you can't say much but obviously there was a lot of.
Speculative headlines around.
What could get resolved around Regal and your particular outreach.
Just to suitable but in particular to the lenders. So anything there would be helpful. And then a couple for God. Please.
Adam It's a good question.
With our advisors are looking at all options and opportunities to maximize the value of our claim and looking at what.
Potential.
Situations moving forward, but there's not much I can disclose that.
We have discussed.
<unk> discussed that would be of any meaningful two hour.
Team.
Panelists and.
Groups.
Can I ask you just as a follow up Alan just in terms of the obvious next steps do we need to get to a plan of arrangement ultimately being approved.
For Cineworld has I guess next steps that you are either apart potentially and or obviously moving towards.
Sure.
Return of the appeals process sometime next year.
We really are in a position now where we have to wait and see when cineworld comes out of the position they're in and what the.
The Texas Judd says as it relates to you know the initial dip, which we just saw.
Process through so we are on the sidelines waiting.
Waiting to.
Six with our advisors any opportunities that are available.
Okay.
So I'll take it there.
Gordon.
A couple for you obviously, a great rundown in terms of the additional color that you've provided if we think about the scene dynamic and the context of the gain.
The third sale.
We know that there's been some accounting adjustments that you've elaborated on in prior quarters.
Regarding the re org. It seems is there anything you could help us with in regards to either profitability or evolving losses at seed and weather.
Those.
I presumed losses.
Improve as we move forward and any color around that would be great as a starting point.
Yeah. So a number a number of things there Adam so obviously be I referred to the gain amount, which.
It goes back to the.
The proceeds that we received back in 2020.
And as I mentioned during the call certain sort of non.
Our nonfinancial.
Covenants were met that are allowed us to record the gain during this quarter we've talked about.
With our.
Sort of.
With the new arrangement on <unk>, and <unk>, plus and having three partners and now with Ellis mentioned expanding to include home hardware in the future.
We we affected that sort of change in accounting, where we are.
Taking the same discount and charging as a marketing expense and we've been breaking that out for you in the MD&A each quarter. So that's a that's a change that.
We see and we disclosed for each quarter.
And then the last piece, which you referred to as sort of the overall economics of the <unk> program.
And you'll see in our other operating expenses, we do disclose the two items were related to the Siem one is related to be issued some points and then the other one is in effect sort of in that position related to <unk>.
It's relatively in line with where it has been in other quarters.
And I would expect that as we're going through the stage, where we're introducing.
Large new participants in the program that it will stay at that level at some point in time, and then when we sort of normalize in a more run rate.
<unk> alluded to is bringing home hardware into 2023 years as I would expect that would kind of neutralize itself down to potentially a more breakeven level after that.
Okay. That's very helpful and just lastly, I mean, you touched on.
A couple of elements in regards to the sea rework dynamic.
<unk> has created a bit of a.
In the context of obviously revenue at the top but also in terms of other Opex Q4.
It seems to be setting up as.
A more normalized if we can use that word quarter for the first time to nearly three years through COVID-19.
Which sort of sets us up with a line of sight towards other opex that if we go back to Q4 2018, let alone a number of the quarters in 2019.
To work its way up obviously into the 150.
1 billion plus zone, specifically in talking to other opex. So.
As we think about Q4 and puts and takes.
Should we think about a level moving back up above $150 million, but not necessarily above a $160 million for Q4 this year.
Look I think.
There's a lot of things that we're looking to see going forward, we've talked a lot about sort of some of the improving margins in the amusement and leisure business.
And some of the initiatives that we're seeing with respect to.
The exhibition business.
Well again, it's all going to depend on the volume of the business during the fourth quarter item.
Okay, well ill leave it at that thanks.
Thank you.
Okay.
Our next question comes from Matt <unk> with Scotiabank. Please go ahead.
Yes, Thank you for taking my questions.
Hello.
You mentioned.
Your prepared remarks.
The discussion amongst streamers to backtrack, a little bit from the drive to send everything online.
We did hear something like that coming from one of the brothers as well on their call. So hopefully we see this trend reverse soon.
But just specifically on the topic.
Yes.
Your deal with Netflix on knives out.
Can you discuss what you are hoping to achieve on this project.
Yes.
Success could lead to additional rollout of theatrical releases with Netflix.
Also if you can also discuss the.
The short window for that movie.
Whats your view on it and can we see longer.
Windows coming from Netflix going forward I have a follow up question after that thank you.
Good question.
Really whats important as ever as I've said publicly numerous times in my script was about we theatrically is still the engine that drives the train for future value and <unk>.
Even with knives out Netflix is recognize that look we need to basically get out there and get our subscribers aware of what we have in content. So it's a great marketing tool for them and it's also a great opportunity.
For our guests to come to the theaters and see the movie on a big screen, which the original one was released on the big screen. So is a lot of opportunity with you.
A number of these.
Different groups, including.
The streamers like Apple and Amazon and what Youre going to see is a move towards <unk>.
A window it may not be.
Long as some of the other windows, but again, it's basically.
Our costs versus reward perspective that one has to look at but it's very encouraging and I'm quite confident that we are going to see more content on the big screen.
Great.
Terms of margins for these let's say shorter release shorter window movies are we looking at similar margins in general.
Sure.
Longer release cycles.
Well, we can discuss publicly what we've negotiated with each one of the streaming companies but.
Overall.
Strong situation for both companies and we feel that.
This is a great model for others to participate and not specifically to gladstonian, but to other ways of releasing these movies.
When it comes to Windows.
The ability to get them out on the big screen.
Okay and my second question is more of a bigger question bigger bigger bigger question in terms of view as we look into 2023.
Good.
Moving slate of movies.
Can you provide some general view on how this improved slate would mean to your attendance and box office revenue levels are you, hoping to get back to 2019 levels for example in <unk>.
Next year is that the plan.
The goal.
Yes, we would like to see a strengthening and as I've said.
In my remarks, there are a lot of big movies that are being released in 2023 and one of the things.
I look at Cineplex as our average screen count is lower than our peers in the other north American cinema chains and that in a way helps because you don't want an extremely large amount of product that goes to what happens.
One product goes right into the other so if you've got a reasonable amount of strong titles, we should do very well and perform well and the benefit. We also have as we've grown our international products business significantly.
And then with Cineplex Pictures. We are also releasing films so taking that all into account I'm optimistic that 2023 will be a great year for us.
Going forward and this is all based on the fact that we don't end up with any COVID-19 issues as we move into 2023.
What's really promising as we've seen a strong research.
A resurgence in upscale.
Clientele coming back.
The number of the movies that we have out there like car ticket to Paradise. The Banshees, they're all done extremely well and that's a much.
More upscale audience.
Okay great.
My last question are you seeing so any push outs in terms of releases movies because of.
It depends.
Seeing the delays are we seeing a improvement and no delays or it's still the same let's say last quarter.
Yes.
There hasn't been an improvement because a lot of the studios have opened up to continuing with the productions, that's not to say there could be some slippage, but be COVID-19 related it may be an actor or actress.
It gets impacted on on the filming in has to delay the final production.
So, but we feel pretty confident with the release schedule that we're looking at into 2023 that they're all going to be some strong meaningful releases all through the year.
Our next question comes from Derek Lessard with TD Securities. Please go ahead Derek.
Hi, Good morning, this is Josh Youre, calling but derrick congrats on the solid results.
So my first question.
It looks like you've drawn about $38 million credit facility. This quarter I was just curious what's driving that and if you expect this to continue.
Yes, hi, its course here so we were.
Adjusted free cash flow positive.
Really the draws if you looked at our statement of changes is it's really timing of payments. So it's primarily the change in working capital.
Driving.
What's driving that increase borrowing amount.
Okay.
And.
So the thing right now.
To continue into Q4 or going forward.
No. It was and so just to provide yes. So it was about $26 million was a change in.
Radian assets and so now thats typically a timing issue usually over the course of the year it will be relatively neutral.
Okay. Okay.
Okay, Thanks for that and.
My second question is do you expect growth in your VPN CVP going forward following the passion.
And if you anticipate this to be an annual promotional campaign.
Yes.
We expect <unk> to continue to.
Grow as we move forward and on the National cinema.
So we are in discussions with all of our peers around the world and looking to make it even bigger in 2023.
Okay, that's great this year.
So for me if I may.
So it looks like your theater payroll as a percentage of box office revenue.
Above the pre pandemic level and I'm curious, what's driving that and are you seeing increases in labor cost. Thank you.
Yes, so as compared to the pre pandemic level, which is 2019, there's been obviously some minimum wage increases over that period. So.
And that's really driving it and so there's two parts to it one is that and then two is with respect to kind of just where the business volumes are.
Creates.
I'm not going to call it inefficiencies, but certain minimum levels of staffing that you need to have so thats impacting the overall ratio.
Our next question comes from Arvind <unk> with Canaccord. Please go ahead.
Good morning, Thanks for taking my questions.
I wanted to touch a little bit on cinema media.
You mentioned Dallas, you've kind of got back up close to that 90% of pre pandemic levels at box office in that June July level, I think 85%, 99% and as we kind of look at Q4, our strongest slate.
I suspect youre kind of re engaging.
Advertising, perhaps more vigorously.
I wanted to get a sense of what those conversations were like obviously on one hand stage, the macro headwinds, but it'd be out there.
Tendency is ramping and there are obviously as we can.
It's been discussed for years and there are benefits to incent them advertising wanted to get your thoughts on that to begin with.
There is a strong desire from our advertisers to get back on the big screen and with the.
Fourth quarter, we see some.
Strong continuation of where we will see growth both on the.
Overall side of the business and in the mall side of the business because of the strong momentum for advertisers and both those areas and one of the benefits of.
Our advertising and a lot of ways its very focused in.
It goes directly to the consumers that.
Our advertisers want to approach.
Okay. Thank you.
Fixed labor.
Okay.
Go ahead.
Finish your thought Alex I, just had a I had a second.
Second question unrelated.
No not at all I wanted to say is our labor costs on the media side is pretty well fixed so any additional monies.
I returned to the bottom line.
Okay, great. Thank you.
And then my second and last question, perhaps for court on the online booking fees haven't seems to be coming in nicely.
Think about this line item going forward.
It looks like it's close to $6 million a quarter could that kind of ramp.
Are you seeing any kind of pushback on that and maybe a little bit of color on.
That can kind of seep into the to the bottom line as well.
Yes, I mean, I guess from your perspective in terms of how you bring them on our model going forward is is if you looked at that on a per patron basis.
That may give you a good indication of how you want to how do you want to model going forward.
Obviously, we have three.
Different categories.
Booking fee.
Your subscription remember there is no fee if youre seeing remember, it's a dollar and a few are neither of the $2 50.
And we do both.
Somewhere between 50 and 60%.
Our purchases online.
So from a modeling perspective, I think you can do some of those.
The reference points that I provided going forward with respect to.
The reaction I guess.
As we look at I think the world has.
Has converged to transacting digitally.
Particularly during the pandemic and.
What we're also seeing as introductions of service.
Various types of fees on top of any transaction that we're doing whether we're ordering food or whether we're ordering a taxi.
And so it's kind of commonplace, we saw a little bit of reaction in social media. When it was first introduced but since then we haven't really seen much reaction.
Our next.
<unk> comes from drew Mcreynolds with RBC capital markets. Please go ahead.
Yes, thanks very much good morning.
For new cord on the $100 million in Capex for 2023 in the past you've done a good job.
In some of the moving parts Thats, a little higher I think than certainly we were.
Expecting or forecasting so wondering kind of how that breaks down but also looking beyond through the medium term. How are you kind of see the puts and takes on capex.
Sure so.
With respect to the Capex.
I would break out the $100 million of pause.
I would suggest that there is about $40 million in billed as I've mentioned.
To everyone. Historically is sort of the average cost of a build is about $10 million.
Some are less some are more depending on the size, but on average they're about 10.
So and in terms of what we're looking to do.
As I think youre going to see one theater.
We're going to have one injunction for the air and Miller's junction is going to come online next year and to LTE. So I think thats a good way of looking at our capital going forward is.
More towards diversified.
Business model has been the junction in the <unk> as we go forward so about $40 million.
Sort of an builds new construction.
30 in maintenance, Capex, which has been sort of our pre pandemic guidance number.
Introducing premium experiences additional premium experienced the cost of circuit somewhere between 10, and 20 and then in our digital media business and our amusement solutions business <unk> to the extent that we're bringing on new customers and that we need to make additional investments in those.
Potentially somewhere between 10 and 20, so so that would be the <unk>.
Down at the $100 million.
And as we go forward.
We would expect something on that level, probably plus or minus $10 million, depending on whether there's three built in a year or five builds for the year.
Okay. Okay.
That's super Thank you for.
For that and maybe.
Just extending the discussion as we can.
Come out of the pandemic and you've got a little bit more.
Kind of flexibility here, how do you how do you size up your footprint on the L.
<unk> side, but also on the theatrical exhibition side, if you can.
Kind of.
Give us give us to the extent you can just some some granularity just to set expectations here.
So.
And drew I kind of wanted to add also that.
<unk>.
Projects that I'm talking about that were half in capital for next year.
I really commitments that we had in place in 2019, there is obviously.
Very little building being done.
During the pandemic not only for us, but for others for various off for very good reasons, including supply chain issues amongst others.
So these are commitments that we had in 2019, we've always disclosed that from the LTE or the <unk> side of the business as we're at 13 locations. We believe there is opportunity to get up to 30. So we will continue to look for opportunities in this potentially disruptive landscape retail landscape.
That are promising so we will continue to look for those we're very excited to introduce the junction concept.
And our first will be opened in Winnipeg.
In the next month or so and then we have.
The milk coming out in 2023.
Both of these concepts are options that potentially could retrofit into other existing theaters or replace existing theaters. So as we look forward as I discussed premium.
There is a focus on kind of the core theater base L.
L B E concepts junction concepts, our potential for new <unk> retrofits.
And then we will always evaluate the.
<unk>.
The circuit capacity and determine.
Weather.
There's opportunities to either reduce or modify the uses.
In those theaters.
Okay Super.
Our next question comes from Tim Casey with BMO. Please go ahead Ken.
Yes. Thanks, just a couple for me one Gordon could.
Could you talk a little bit about.
Expectations, just following up on the working capital question.
Quite often.
In.
Historically, I guess you would see.
Significant contribution there from gift cards in the fourth quarter.
Wondering if.
Youre expecting that to kind of normalize so we should see.
Positive working capital swing a significant one in the fourth quarter.
And then with <unk>.
In respect to your comments on the outlook for junction and restrooms and whatnot.
And just.
You mentioned that you've wanted to be opportunistic.
What are you seeing out there.
Are you seeing positive signs that you are willing to commit to or do you just.
You still think you've got to let.
Potentially a recession hit or more of a wash out in the property market or whatnot, just any color you could provide there. Thanks.
Okay. Thanks, Tim So again, the first question yes.
Yes, Youre absolutely right is typically.
We would see as we would see an inflow of working capital.
In the fourth quarter as corporate customers and individuals.
We're buying gift cards and corporate tickets.
We've launched are watching digital gift cards this year.
So over the over the past few years, we always are trying to work to make sure that we can make it easier to transact with us.
And so yes, with a robust gift card.
Market, you would expect working capital to be positive in the fourth quarter that would be the typical.
And that's typical.
State.
On the second question is.
With respect to being opportunistic as we will always kind of continue to be opportunities to mystic I believe as we can.
Look at there's some changes going on right now.
Potentially.
Our attractive sites for us.
Mall landlords want.
Entertainment and food.
Destination to be anchors for the retail tenants.
The extent that we see attractive opportunities today.
That may not be there in a couple of years from now.
The specific site as we will take advantage of those so I would say, yes. We're in the period right now where we don't need to wait for further recession I think it.
It's time that we can start looking.
Nine.
Thank you.
Those are all the questions. We have time for today. So I will now hand, the call back to Ellis Jacob for closing remarks.
Thank you very much and thanks again for joining the call. This morning as the diversity of our company is very well positioned we look forward to speaking with you again in February for our fourth quarter results until then please stay well and enjoy a movie at your local Cineplex theater and thank you.
Awesome.
Number of days for the weekend.
Yes.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
Yeah.
Okay.