Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cineplex Inc (CPXGF, Financial) saw record-breaking results from titles like Inside Out 2 and Deadpool and Wolverine, leading to strong box office months in June and July.
- The company achieved all-time quarterly records for box office per patron ($13.11) and concession per patron ($9.56).
- Cineplex Inc (CPXGF) reported a significant increase in digital place-based media revenue by 28.1%, primarily due to the addition of Cadillac Fairview.
- The company is expanding its Location-Based Entertainment (LBE) business with three new locations set to open in the fourth quarter.
- Cineplex Inc (CPXGF) announced a normal course issuer bid to acquire up to 6.3 million common shares, reflecting confidence in the company's intrinsic value.
Negative Points
- The company experienced a 24.6% decrease in total revenue to $177 million due to the impact of the Hollywood strikes.
- Attendance declined by 31.8% to approximately 8.7 million moviegoers in the second quarter.
- Adjusted EBITDA decreased significantly to $0.9 million from $47.2 million in the previous year.
- Store level adjusted EBITDA margins for the LBE segment decreased to 16.2% from 21.8% due to increased minimum wages and costs related to flooding remediation.
- The company closed three theater locations as part of its ongoing portfolio optimization strategy.
Q & A Highlights
Highlights from Cineplex Inc (CPXGF) Q2 2024 Earnings Call
Q: Can you elaborate on the higher costs within Cineplex Digital Media conversion?
A: Gord Nelson, CFO: The Cinema Media business typically operates around an 80% EBITDA margin, while the CDM business is in the low to mid-teen margin. The digital media business has faced additional costs due to the conversion of networks, particularly with Cadillac Fairview. However, margins are expected to stabilize in the mid-teen range in the latter half of the year.
Q: How do you balance international and alternative content with the strong film slate expected in Q4?
A: Ellis Jacob, CEO: Q4 2024 is expected to be significantly stronger than 2023 with well-spaced large movies. AI and intelligence help select specific movies for different markets, ensuring a high-class problem of having more movies than screens, which should increase overall box office and penetration.
Q: How does the NCIB (Normal Course Issuer Bid) affect the potential for implementing a dividend?
A: Gord Nelson, CFO: The current share price does not reflect the intrinsic value of the shares, making share buybacks a priority over dividends. Once the target leverage ratio of 2.5 to 3 times is achieved, a dividend may be introduced. The NCIB will be approached opportunistically.
Q: What are the plans to lift media revenue back to pre-pandemic levels?
A: Ellis Jacob, CEO: Leveraging great data to provide advertisers with a strong return on investment is key. The recall for screen advertising is significant, and the return of automotive advertising is a positive sign. As attendance increases, media revenue is expected to follow suit.
Q: Can you speak to the efficiencies put in place to expand margins in the Film Exhibition and Content segment?
A: Gord Nelson, CFO: Rent and occupancy costs have decreased by over 7% from pre-pandemic levels. Digital products and personalized consumer connections help optimize payroll costs. These measures are expected to enhance overall margins in the segment.
Q: How should we think about the cadence of movie releases in 2025 and its impact on revenue and EBITDA?
A: Ellis Jacob, CEO: 2025 has a strong slate of films distributed throughout the year, including major titles like Jurassic World and Superman Legacy. The focus will be on premium offerings and increasing concession revenue. The LBE business will also contribute significantly with new openings.
Q: How does consumer weakness impact box office and Rec Room attendance?
A: Gord Nelson, CFO: Historically, during tougher economic times, consumers downsize their out-of-home experiences, benefiting theatrical exhibition. Record spending metrics in BPP and CPP indicate continued consumer indulgence in moviegoing despite economic challenges.
Q: What are the expectations for the Film Exhibition and Content margins going forward?
A: Gord Nelson, CFO: Rent reductions and rationalizations continue to be a focus. Digital products and personalized consumer connections help optimize payroll costs. These measures are expected to enhance overall margins in the segment.
Q: How does the expansion of the LBE business affect EBITDA margins?
A: Gord Nelson, CFO: New LBE locations come in at roughly a 25% store level margin. As these expand, the overall EBITDA margin is expected to increase.
Q: What are the key factors driving the media business's performance?
A: Ellis Jacob, CEO: The effectiveness of cinema advertising, as shown by the Lumen study, attracts more media spend. The return of automotive advertising and the re-emergence of product on a recurring basis are positive signs for the media business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
