Cineplex Inc

TSX:CGX

Q2-2025 Earnings Call

[Operator]

Good morning or good afternoon, and welcome to the Cineplex Q2 2025 Earnings Conference Call. My name is Adam, and I'll be your operator for today. [Operator Instructions] I will now hand the floor to Rayhan Azmat to begin. So please go ahead when you are ready.

[Rayhan Azmat, executive]

Good morning, everyone, and thank you for joining us to discuss Cineplex's second quarter 2025 results. I'm Rayhan Azmat, Vice President, Investor Relations, Corporate Development and Financial Planning and Analysis at Cineplex. Joining me today are Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer.

I'll 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 may differ materially from those expressed in forward-looking statements. Information regarding factors that could cause results to vary can be found in the company's most recently filed Annual Information Form and management discussion and analysis. 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.

[Ellis Jacob, executive]

Thank you, Rayhan, and good morning, everyone. I'm pleased to share with you today our second quarter results for 2025. Following the softer first quarter, we saw a strong and steady rebound in quarter 2. For the first time since 2019, we delivered box office revenues exceeding $50 million in each month of the second quarter and in the month of July. This is the first time since 2019, we've had four consecutive months of box office revenues exceeding $50 million, which is an encouraging sign of the sustained momentum in theatrical exhibition.

This performance was driven by a consistent supply of high-performing diverse titles with strong consumer demand for premium experiences. Q2 box office revenue reached $158.5 million, up an incredible 38% from the prior year and driven mainly by attendance, which grew by nearly 33% to 11.6 million guests. We achieved an all-time quarterly record for both Box Office per Patron at $13.68 and Concession per Patron at $10.04. This is the first time we delivered a CPP of over $10 in any quarter as a result of increased trips to concession, large basket size and strategic pricing initiatives.

The top 5 films in Q2 showcased the breadth of content driving our success. A Minecraft Movie delivered the biggest opening of the year and the largest ever for a video game adaptation. Mission: Impossible – The Final Reckoning achieved a franchise best opening domestically and the performance over indexed in Canada. Lilo & Stitch and How to Train Your Dragon both live action adaptations of family-friendly titles tapped into nostalgia and delivered strong sustained performance. F1, the movie marked the biggest global opening for an Apple original with nearly 77% of its opening weekend box office coming from premium formats.

Premium experiences continue to be a popular choice for cinema guests. In Q2, 46.2% of our box office came from premium formats up from 41.4% in the prior year. This reflects the growing appetite for immersive high-quality theatrical experiences whether it's UltraAVX, IMAX, VIP Cinemas or ScreenX. We are also seeing encouraging signs of increased moviegoing frequency, particularly among our CineClub members. Cineclub is a great way to save where members receive a monthly movie ticket they can use, upgrade or rollover. CineClub members also receive a discount on concessions and exclusive offers and events. CineClub has now surpassed 200,000 members, a major milestone for the program. It had a very strong first half of 2025, growing by 10.3% year-to-date. In Q2, over 20% of new members opted for the annual plan, which is helping to reduce churn and drive more consistent visitation.

CineClub members continue to drive strong engagement, visiting more frequency upgrading to premium formats and purchasing more concessions. As we continue to scale both the CineClub and Scene+ programs, our ability to understand and effectively target loyal guests through personalized marketing initiatives presents a meaningful opportunity to deepen engagement and drive incremental revenue across our ecosystem.

Turning to our media business. Despite a soft advertising market, our cinema media revenue grew 4% year-over-year. This growth was driven by strong showtime performance and our ability to deliver premium audiences in a high attention environment. We remain one of the few exhibitors globally that own its cinema media business, an important strategic advantage.

Cineplex Digital Media also had a standout quarter. Project revenue grew 18.2% over the prior year due to large-scale deployments with Suncor, and we will continue to see growth in hardware deployment. In May, we signed a 10-year agreement with the North Carolina Education Lottery to deploy digital signage across more than 1,500 retail locations and claim centers. This marks a significant expansion into the U.S. and reinforces CDM's leadership in data-driven end-to-end digital signage solutions. As we look ahead, we believe our media business with the unique combination of first-party data, premium inventory and national scale continue to offer advertisers a compelling platform to reach and engage consumers.

With multiple touch points from the big screen to digital out-of-home our assets have the ability to drive measurable impact and brand affinity in an increasingly fragmented media landscape. Our location-based entertainment business continues to be an important part of our entertainment offering, welcoming millions of guests annually to our innovative venues that deliver state-of-the-art gaming, dining options and live entertainment across Canada.

In Q2, our LBE revenue grew 13% year-over-year to $33.2 million with adjusted store level EBITDAaL nearly 22%. The increase in revenue during the second quarter is primarily due to 3 additional locations compared to the prior year. While Q2 is historically the slowest quarter for LBE, these destinations continue to resonate with guests looking for a one-stop entertainment and dining experience. As we work towards solidifying our position as the entertainment destination choice for Canadians, our ability to offer a variety of experiences and food and beverage options under one roof continues to resonate strongly with our guests.

Before I close, I'd like to provide a brief update on our feel of the Competition Tribunal's decision regarding our online booking fee. On October 23, 2024, Cineplex filed its notice of appeal with the Federal Court of Appeal and with the Competition Bureau's consent, was granted a stay regarding payment of the Competition Tribunal's administrative monetary penalty pending the Federal Court of Appeal's decision. Our appeal is now scheduled to be heard on October 8th of this year.

As we look to the second half of the year, we are energized by the momentum we are seeing across our business. The summer movie season extended into the third quarter, starting in July with Jurassic World Rebirth, Superman and The Fantastic Four: First Steps. On the heels of these iconic superheroes, the rest of the quarter brings a wide range of genres, starting with family favorite, The Bad Guys 2, Weapons, Freakier Friday and the supernatural horror, The Conjuring: Last Rites. Further ahead in the later part of the year, we'll see a powerful slate of films, including Tron: Ares, the return of Glinda and Elphaba in Wicked: For Good, Zutopia 2, Five Nights at Freddy's 2, The SpongeBob Movie: Search for SquarePants and the highly anticipated Avatar: Fire and Ash. These titles are expected to drive significant traffic and engagement, reinforcing the enduring appeal of the theatrical experience.

Our market position remains strong, supported by a diversified business model and a commitment to premium entertainment experiences at our venues. The success we've seen in Q2, combined with our strategic initiatives to win with our guests gives us confidence in our ability to deliver results as we move through the remainder of 2025.

Finally, as many of you know, I announced my plans to retire at the end of 2026. I remain fully committed to leading Cineplex through this transition, and I'm incredibly proud of what we've built together.

With that, I will turn things over to Gord.

[Gord Nelson, executive]

Thank you, Ellis. I am pleased to present a condensed summary of the second quarter results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR+ and are available on our Investor Relations website at cineplex.com. Our MD&A and earnings press release include a complete narrative on the operational results. So I'll focus on select highlights as well as commentary on liquidity, capital allocation priorities and our outlook. All elements referenced are from continuing operations unless otherwise stated.

As Ellis mentioned, we were pleased to see a strong rebound in diverse film content during the second quarter. The slate helped drive a 32.7% increase in attendance to 11.6 million guests, a significant lift over the same period last year. Total revenue for the quarter was $361.8 million, representing a 30.5% increase over the prior year. Adjusted EBITDAaL was $33.4 million compared to just $0.9 million in Q2 2024. It is important to note that this Q2 adjusted EBITDAaL amount includes a onetime $2.9 million restructuring charge, which I will discuss later. Our consolidated adjusted EBITDAaL margin improved significantly to 9.2% up from 0.3% in the prior year.

So let's take a closer look at our segments. Box office revenue in the Film Entertainment and Content segment was $158.5 million, up 38.4% from the prior year, driven by a 32.7% increase in attendance to $11.6 million, supported by a robust slate of quality films throughout the quarter. Box Office per Patron reached an all-time quarterly record of $13.68, supported by strategic pricing increases and sales mix of premium priced products. Concession per Patron also set a record at $10.04. Segmented adjusted EBITDAaL was $36.3 million, with an adjusted EBITDAaL margin of 12.2% and compared to 1.3% in the prior year, highlighting our substantial operating leverage when supported by higher attendance. Strong box office performance has continued into July. Cineplex has now delivered 4 consecutive months of strong box office results with each month from April through July exceeding $50 million, a level of consistency not seen since before the pandemic. This trend reflects not only the steady supply, steady flow of various genres but also the enduring appeal of the theatrical experience.

Media revenue was $31.8 million, representing a 9.1% increase compared to the prior year. Cinema Media revenue grew 4.1% to $19.3 million, supported by increased demand for showtime advertising. Financial services, pharmaceutical and tourism continue to be categories that capitalize on the value of cinema advertising. In a challenging media environment, we were pleased to show growth in cinema advertising. Digital Place-Based Media revenue increased 17.8% to $12.5 million. Project revenue was $4.2 million, up 18.2%, driven primarily by the continued rollout of the digital signage network under our agreement with Suncor which began with deployments in 2024 and will continue through 2027. Media and service revenue was $8.2 million, up 17.7% reflecting growth in advertising sales across our mall networks, including both new additions like Cadillac Fairview and Cominar and long-standing clients such as Oxford. With the growth in revenue segment, EBITDAaL for the quarter increased to $14.6 million from $13.8 million in the prior year.

Location-based entertainment segment revenue was $33.2 million, an increase of 13% compared to the prior year, driven by the addition of 3 new locations that opened in late 2024. Adjusted store level EBITDAaL was $5.8 million, up 21.8% over the prior year, with an adjusted store level EBITDAaL margin that improved to 17.5% from 16.2% in the prior year. Margins are typically lower in Q2 than the full year run rate as Q2 is the slowest quarter of the year for the LBE business. Same-store revenue in Q2 declined 4.4% compared to the prior year, an improvement from the same-store decline in Q1. Given current economic conditions for 2025, we are anticipating a year-over-year same-store revenue decline in the range of 3% to 5%, as communicated in the prior quarter call. Despite this, our strong operating discipline drove segment adjusted EBITDAaL to $4.4 million with an improved adjusted EBITDAaL margin of 13.3% compared to 10.9% in the prior year.

Our G&A expenses were up $3.5 million during the quarter for 2 reasons: our LTIP expense increased $1 million due to increased stock price during the quarter, and we reflected a $2.9 million restructuring charge related to organizational changes implemented in May to streamline our structure and combined with the adoption of new technologies and tools create a more efficient, agile operating model. We expect annualized savings of approximately $10 million across the organization as a result of these changes.

I want to speak briefly about our liquidity and capital priorities. We ended the quarter with $42.1 million in cash an increase of $24.1 million from Q1 and no drawings under our $100 million covenant-light credit facility. Our liquidity position remains strong as we strive to a target of $50 million of cash on the balance sheet and full capacity under the revolver, and we continue to manage working capital and capital expenditures with discipline.

Our capital allocation priorities remain unchanged. We are focused on maintaining appropriate levels of maintenance capital expenditures, strengthening the balance sheet to achieve our target leverage ratios, making strategic investments in our assets that support long-term growth and providing shareholder returns over time. Net cash capital expenditures for the quarter were $6.3 million of which approximately half related to maintenance with the remainder related to the timing of cash payments. We continue to expect full year net CapEx to be in the range of $40 million to $50 million consistent with prior guidance. There is no activity under the NCIB during the quarter as we continue to recover from the softer Q1 results and balance our capital priorities.

The past several months have marked a meaningful shift in the theatrical landscape. With a steady cadence of diverse content and consistent audience engagement, we're seeing a return to rhythm, a confidence in the industry that's beginning to feel familiar again. We believe this momentum is more than a trend. It's a signal of what's possible when content, experience and execution align. With a strong foundation and a clear focus, we're energized by what lies ahead and are well positioned to deliver long-term value for our shareholders. We're excited about the path ahead and remain focused on executing our strategy. And with that, I'll turn things over to the conference operator for questions.

[Operator]

[Operator Instructions] And our first question comes from Derek Lessard from TD Cowen.

[Derek Lessard, analyst]

Yes. Congrats on the quarter. Ellis, I know probably a few years later than expected, but congratulations well deserved and enjoy the next phase.

[Ellis Jacob, executive]

Thank you very much.

[Drew McReynolds, analyst]

Maybe I'm just going to start on the restructuring program. Thanks, Gord, you highlighted the savings you intended to get from the program. Just curious if you can maybe talk about the timing, maybe some more color on some of the specific initiatives you have in place?

[Gord Nelson, executive]

Yes. So as I mentioned, there's numerous elements to the program. So we looked at some of the technology tools that we've been investing in and developing over time in order to create a more sort of agile and efficient operating model. And we're at the point this year, where we're able to kind of execute and look at some headcount reductions that allow us to operate more efficiently. So it's a combination of operating model changes, focus on key initiatives as well as use of some of the tools that we've invested in and developed over the past number of years that will just make us operate more efficiently.

[Derek Lessard, analyst]

Okay. That's super helpful. And maybe just on the cinema media, just curious on how much visibility you have on sort of the advertising spend, just given the, I guess, the content mix and maybe with -- given the context of the economic backdrop.

[Gord Nelson, executive]

Sure. So look, we had a spectacular Q1 in our media business, cinema media business in particular. With the announcements coming out from south of the border on tariffs and other things created a significant amount of economic uncertainty during the first quarter, which is impacting sort of the general advertising environment as we look forward. So as we mentioned in our commentary, we are very pleased that despite that backdrop is we're able to show growth in cinema advertising. So as we look forward, the attractiveness of cinema advertising, the attention, which is a key statistic that advertisers look at is significantly above most other -- almost all other advertising mediums. So as we look forward, it's a challenging advertising environment. And we will fight and deliver strong results relative to that backdrop.

[Derek Lessard, analyst]

Okay. Maybe I'll just lob one final one for myself. The NCIB is expiring at the end of this month. Just curious on your views for the future buybacks. Again, congrats on the quarter.

[Gord Nelson, executive]

Yes. Thanks, Derek. So I think one would expect a renewal of that.

[Operator]

The next question comes from Drew McReynolds from RBC.

[Drew McReynolds, analyst]

And just would echo Ellis, congratulations on your pending retirement and wish you all the best.

[Ellis Jacob, executive]

Thank you very much, Drew.

[Drew McReynolds, analyst]

So Cord, just a couple of clarifications here. Just first on the NCIB in terms of being active post renewal. Just what are your kind of puts and takes to kind of how aggressive you want to be with share repurchases? And then second, on the restructuring, so thanks for the additional color. On the timing of these savings, just how the cadence kind of flows through. And then the bigger question here, Gord, you've often highlighted about the operating leverage of every additional patron in attendance and what flows down to adjusted EBITDAaL, just wondering if there's any kind of change to that operating leverage following this type of restructuring.

[Gord Nelson, executive]

Drew. Hopefully, I got all those. But on your first question then on the NCIB and during my notes, obviously, gave our capital allocation priorities. One of those elements is to consider to get more active would be once we sort of hit that $50 million cash balance and have the full draw on the operating facility, that would be a trigger. We're obviously always opportunistic to as we look at where our share prices are. So that would be my commentary with respect to the NCIB.

On the restructuring charges on the timing, I mentioned in my commentary that we implemented this in May. So you should expect see the savings into the back half of the year and then going forward. And then I think your last question was on sort of the operating leverage. And I've given you sort of a kind of -- I've given most investors sort of a ballpark of around $13 a person is the incremental EBITDA contribution of each incremental guest. And so that would really continue on. That would not change that statistic material.

[Drew McReynolds, analyst]

Okay. That's great. Final one for me on the LBE side. Again, I appreciate kind of the same-store kind of guidance on modeling this. In terms of adding to the footprint, it feels like you're on -- I can't remember your phrase last quarter, but a prudent pause, I think it was. Any update in terms of returning to more of an expansion mode or you're comfortable in the prudent pause at least through the end of this year?

[Ellis Jacob, executive]

So we already have one that we plan to open in 2026 in the second quarter, and that will move forward and we are just looking at our capital and where we should be allocating our dollars, and we will continue to be opportunistic as we move forward.

[Operator]

[Operator Instructions] We have a question from Maher Yaghi from Scotiabank.

[Maher Yaghi, analyst]

Sorry, my question was asked. I got cut off 2 times already today on the call. So Ellis, congratulations on your retirement, long career. I wanted to ask you the transition, what is the Board looking for in a new CEO? And if you can just update us on the path forward, I know it's been -- there's still quite a bit of time until your official departure. But maybe just give us an idea what is the process? And the objectives of who you're looking for, what the Board is looking for?

[Ellis Jacob, executive]

As I've said before, we have spent the last 4 decades building up the business. And with COVID, it basically impacted us. And I think now we want to see -- the business has come back nicely, and I think it's stabilized. And the 18 months is more to give the Board the opportunity to look inside and outside within the company, and they have an adequate amount of time to conduct extensive search, so we can get the best candidates that they feel could basically move this thing forward. And I think it's important to realize that we've got a very strong senior team at the company.

[Operator]

No other questions at this time. Maher, please go ahead if you have any follow-ups. We have no further follow-ups at this time. We have no further questions. [Operator Instructions]

[Ellis Jacob, executive]

Thank you again for joining us this morning, and we look forward to sharing our third quarter results in November. Thanks again, and have a great day.

[Operator]

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.