Cineplex Inc. Reports First Quarter and Announces Dividend Increase

TORONTO, May 9, 2019 /CNW/ - (TSX: CGX) - Cineplex Inc. ("Cineplex") today released its financial results for the three months ended March 31, 2019.  Unless otherwise specified, all amounts are in Canadian dollars.

First Quarter Results

"Although the Q1 results were impacted by the anticipated soft box office product, we continued to execute upon our diversification strategy and are encouraged by the results from our new businesses which resulted in Q1 records for media revenue, amusement revenue and other revenue," said Ellis Jacob, President and CEO, Cineplex.

"Total revenue for the first quarter of 2019 decreased 6.6% due to a 13.7% decrease in box office and an 11.9% decrease in food service. These decreases can largely be attributed to the 15.6% decrease in theatre attendance, which was a result of the quarter's expected weaker film product and the tough comparator quarter with last year's record success of the film Black Panther. Partially offsetting the theatre attendance decline is a record first quarter box office per patron of $10.44, and record first quarter concession per patron of $6.35, which increased $0.23 and $0.26 respectively from the prior year period.  Although there was a decrease in box office revenue in Q1, this was expected given the January and February 2019 release schedule.  As we look to Q2 and beyond we are encouraged by the recent record-breaking performance of Avengers: Endgame, which had the largest global opening weekend ever, and are confident in the strong film product scheduled for the remainder of the year.

As we continue to grow our diversified businesses, partially offsetting the Exhibition business decreases was a 17.2% increase in amusement revenue to an all-time quarterly record of $58.5 million as a result of P1AG and The Rec Room; and a 7.7% increase in total media revenue to a Q1 record of $35.0 million, largely due to a 21.9% increase in digital place-based media revenue as a result of higher project installation revenue.

The Q1 results are significantly impacted by the adoption of International Financial Reporting Standards ("IFRS") 16 - Leases and we encourage you to refer to our Financial Statements and MD&A for further details.  For the quarter, adjusted EBITDAaL (adjusted EBITDA after lease payments) decreased 30.6% primarily as a result of the theatre attendance decline as a result of the soft box office.  Net income was negatively impacted by approximately $3.3M related to the adoption of IFRS 16 in the current period and approximately $6.4 million or $0.10 per share as compared to Q1 2018.

Key accomplishments during the quarter included the opening of our sixth location of The Rec Room in Mississauga, Ontario; the expansion of alcohol beverage service to an additional 19 theatre locations, now totaling 54 locations; and our SCENE loyalty program reached 9.7 million members.

Although the first quarter film product was soft, the second quarter has been strong and we are encouraged by the outlook of the 2019 film slate.  We remain confident in our strategic direction as we continue to build scale in our other businesses, prudently manage our costs and execute on Cineplex's diversification strategy for future growth.  As such, we are pleased to announce a 3.4% dividend increase to $1.80 per share on an annual basis from the current $1.74 per share.  This increase will be effective with the May 2019 dividend, which will be paid in June 2019."

KEY DEVELOPMENTS IN THE FIRST QUARTER OF 2019

The following describes certain key business initiatives undertaken and results achieved during the first quarter of 2019 in each of Cineplex's core business areas:

FILM ENTERTAINMENT AND CONTENT

Theatre Exhibition

• Reported first quarter box office revenues of $156.5 million, a decrease of $24.9 million (13.7%) from $181.4 million reported in the prior year period due to a 15.6% decrease in theatre attendance from 17.8 million in 2018 to 15.0 million in the first quarter of 2019 due to a weaker film slate.
• BPP was $10.44, a first quarter record for Cineplex, an increase of $0.23 (2.3%) over the prior year period BPP of $10.21.

Theatre Food Service

• Reported first quarter theatre food service revenues of $95.2 million, a decrease of $13.1 million (12.1%) from $108.2 million reported in the prior year period as a result of the decrease in theatre attendance.
• CPP was $6.35 for the period, a first quarter record for Cineplex, and $0.26 (4.3%) higher than the prior year period.
• During the quarter, Cineplex added alcohol beverage service to an additional 19 theatres, now totalling 54 (excluding VIP).

Alternative Programming

• Alternative Programming (Cineplex Events) in the first quarter of 2019 included the release of Dragon Ball Super: Broly, Carmen from The Metropolitan Opera and the concert event BTS World Tour: Love Yourself in Seoul.
• Cineplex international film for the first quarter of 2019 included strong performances from The Wandering Earth and Gully Boy.

Digital Commerce

• Total registered users for Cineplex Store increased by 42% in the first quarter of 2019 as compared to the prior year period.
• Online and mobile ticketing represented 30% of total admission during the first quarter, up from 26% in the prior year period.
• Cineplex Store registered a 107% increase in device activation over the prior year period.
• Monthly active users of The Cineplex Store increased by 57% as compared to the prior year period.

MEDIA

• Reported a first quarter record for total media revenues of $35.0 million, an increase of $2.5 million, or 7.7% as compared to the prior year period.

Cinema Media 

• First quarter cinema media revenues of $21.4 million increased nominally from $21.3 million in the prior year period despite the significant theatre attendance decline.

Digital Place-Based Media

• Reported a first quarter record with revenues of $13.6 million, an increase of $2.4 million (21.9%) compared to the prior year period due to higher project installation revenues.

AMUSEMENT AND LEISURE

Amusement Solutions

• Reported an all-time quarterly record with revenues of $50.5 million ($2.8 million from Cineplex theatre gaming and $47.7 million from all other sources of revenues), an increase of $7.5 million (17.4%) over the prior year period. The increase was primarily due to an increase in distribution sales and increased route revenues in the United States.

Location Based Entertainment

• The Rec Room reported first quarter revenues of $16.4 million which included food service revenues of $7.9 million and amusement revenues of $8.0 million.
• On March 18, 2019, opened The Rec Room at Square One Shopping Centre in Mississauga, Ontario, the sixth location of The Rec Room.
• During the quarter, Cineplex announced plans to open Atlantic Canada's first Playdium location in Dartmouth, Nova Scotia at the Dartmouth Crossing Shopping Centre, scheduled to open in 2020.

eSports

• On March 24, 2019, WGN hosted the Madden 19 Canadian Challenge held at Live Nations's The Lounge in Toronto.
• During the first quarter, WGN hosted the Winnipeg Jets NHL 19 Tournament with the finals held at the Bell MTS Place in Winnipeg on February 18, 2019.

LOYALTY

• Membership in the SCENE loyalty program increased by 0.1 million members in the period, reaching 9.7 million members at March 31, 2019.

CORPORATE

• During the quarter, Cineplex was named by Waterstone Human Capital one of Canada's 10 Most Admired Corporate Cultures in the large enterprise category for 2018, the third time that Cineplex has won the award that celebrates best-in-class Canadian organizations.

OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2019

Total revenues

Total revenues for the three months ended March 31, 2019 decreased $25.9 million (6.6%) to $364.9 million as compared to the prior year period. A discussion of the factors affecting the changes in box office, food service, media, amusement and other revenues for the period is provided below.

Non-GAAP measures discussed throughout this news release, including adjusted EBITDA, adjusted EBITDAaL, adjusted free cash flow, theatre attendance, BPP, premium priced product, same theatre metrics, CPP, film cost percentage, food service cost percentage and concession margin per patron are defined and discussed in the Non-GAAP measures section of this news release.

Box office revenues

The following table highlights the movement in box office revenues, theatre attendance and BPP for the quarter (in thousands of dollars, except theatre attendance reported in thousands of patrons and per patron amounts, unless otherwise noted):

Box office revenues decreased $24.9 million, or 13.7%, to $156.5 million during the first quarter of 2019, compared to $181.4 million reported in the same period in 2018.  The decrease was due to the 15.6% decrease in theatre attendance to 15.0 million guests, partially offset by higher BPP.  The theatre attendance decrease was due to the weaker film slate in the first quarter of 2019 compared to the first quarter of 2018. The prior year period is a tough comparator due to the success of Black Panther which became the third highest grossing film of all-time in North America, and the carryover strength of Star Wars: The Last Jedi and Jumanji: Welcome To The Jungle from the fourth quarter of 2017.

BPP for the three months ended March 31, 2019 was $10.44, a $0.23 increase (2.3%) from the prior year period, and a first quarter record for Cineplex.  The increase in BPP was due to price increases in selective markets as compared to the prior year.

Food service revenues

The following table highlights the movement in food service revenues, theatre attendance and CPP for the quarter (in thousands of dollars, except theatre attendance and same theatre attendance reported in thousands of patrons and per patron amounts):

Food service revenues are comprised primarily of concession revenues, which includes food service sales at theatre locations.  Food service revenues also include food and beverage sales at The Rec Room.  Food service revenues decreased $13.9 million, or 11.9% mainly as a result of the $13.1 million (12.1%) decrease in theatre food service revenue. The decrease in theatre food service revenue resulted from the 15.6% decrease in theatre attendance, partially offset by the 4.3% ($0.26) increase in CPP to $6.35. Food service revenue from The Rec Room is not included in the CPP calculation.

Food services revenues from The Rec Room decreased $0.8 million (9.5%) compared to the prior year period to $7.9 million as bad winter weather conditions in the first quarter reduced evening business at several locations resulting in the food service decline. In addition, locations which have been opened for 12 to 24 months begin to move past the honeymoon phase and begin to settle into their expected long-term run-rate levels.  Newer locations of The Rec Room typically experience higher sales volumes in the first year of operations.

CPP of $6.35 is a first quarter record for Cineplex.  Expanded offerings outside of core food service products, including offerings at Cineplex's VIP Cinemas and Outtakes locations, have contributed to increased visitation and higher average transaction values, resulting in the record CPP in the period.

Media revenues

The following table highlights the movement in media revenues for the quarter (in thousands of dollars):

Total media revenues increased $2.5 million (7.7%) compared to the prior year period to a first quarter record of $35.0 million.  Cinema media revenues increased nominally (0.2%) compared to the prior year period despite the significant theatre attendance decline.  This increase was due to a 21.9% or $2.4 million increase in digital place-based media revenues as a result of higher project installation revenues.  During the quarter, digital place-based media added 345 new locations for a total of 13,847 locations (an increase of 5% over the prior year period).

Amusement Revenues

The following table highlights the movement in amusement revenues for the quarter (in thousands of dollars):

Amusement revenues increased 17.2%, or $8.6 million, to an all-time quarterly record of $58.5 million in the first quarter of 2019 compared to the prior year period. The growth was due to an increase in distribution sales as well as in route revenues in the United States in part due to the Cinemark agreement signed in the second quarter of 2018.  The additional location of The Rec Room in the current year contributed to an increase of $1.1 million to amusement revenues.

Other revenues

The following table highlights the other revenues which includes revenues from the Cineplex Store, promotional activities, screenings, private parties, corporate events, breakage on gift card sales and revenues from management fees for the quarter (in thousands of dollars):

Film cost

The following table highlights the movement in film cost and the film cost percentage for the quarter (in thousands of dollars, except film cost percentage):

Film cost varies primarily with box office revenues, and can vary from quarter to quarter based on the relative strength of the titles exhibited during the period. This is due to film cost terms varying by title and distributor. Film cost percentage during the first quarter of 2019 was 50.3%, a 2.2% decrease from the prior year period.  The decrease in film cost percentage is attributable to the reduced concentration of box office revenues from a few titles, with the top five film in the current period accounting for only 39.9% of box office revenues in the period (2018 - 45.2%).  Top films tend to have higher settlement rates than the other films in the slate due to their strong performance.

Cost of food service

The following table highlights the movement in cost of food service and food service cost as a percentage of food service revenues ("concession cost percentage") for both theatres and The Rec Room for the quarter (in thousands of dollars, except percentages and margins per patron):

Cost of food service at the theatres varies primarily with theatre attendance as well as the quantity and mix of offerings sold. Cost of food service at The Rec Room varies primarily with the volume of guests who visit the locations as well as the quantity and mix of food and beverage items sold.

The decrease in the theatre cost of food service compared to the prior year period was due to the lower theatre food service revenues which was partly offset by the increase in the theatre concession cost percentage from 20.7% in the prior year period to 22.4% in 2019.

The theatre concession margin per patron increased 2.1% from $4.83 in the first quarter of 2018 to $4.93 in the same period in 2019, reflecting the impact of the higher CPP during the period.

The decrease in The Rec Room cost of food service as compared to the prior year period was due to the lower food service revenues.

Depreciation and amortization

The following table highlights the movement in depreciation and amortization expenses during the quarter (in thousands of dollars):