Cineplex Inc. Reports Record Third Quarter Results

TORONTO, Nov. 14, 2018 /CNW/ - (TSX: CGX) - Cineplex Inc. ("Cineplex") today released its financial results for the three and nine months ended September 30, 2018.  Unless otherwise specified, all amounts are in Canadian dollars.

Third Quarter Results

Year to Date Results

"The film exhibition business continued to show growth during the third quarter. The strong film slate resulted in a 2.6% increase in theatre attendance - our second consecutive quarterly theatre attendance increase - and contributed to a third quarter total revenue increase of 4.4%," said Ellis Jacob, President and CEO, Cineplex. "Despite growth as a result of our diversification strategy, adjusted EBITDA decreased 9.3% to $53.4 million primarily as a result of an $8.4 million increase in share-based compensation expenses, due to the share price increase during the quarter, and $1.0 million in restructuring charges, coupled with a decline in media revenue."

"Box Office revenue increased 5.3% to $173.3 million and food service revenue increased 8.0% to a third quarter record of $115.6 million during the period with BPP of $10.07 and CPP of $6.25, both representing third quarter records. Media revenue decreased 16.0% to $33.5 million, primarily due to a decline in cinema advertising due to the cyclical nature of the business and timing of campaigns. Amusement revenue increased 10.0% to $53.8 million, primarily due to increases at The Rec Room and an increase in P1AG's revenue in the United States.

Key accomplishments during the third quarter included the opening of two new theatres; we announced plans to roll out additional 4DX locations across Canada; and CDM was selected to deploy, maintain and operate a network of digital menu boards for Subway locations across Europe. On the Virtual Reality front, we announced an exclusive expansion agreement with The VOID and made a significant investment in a partnership with VRstudios as we continue to increase our VR footprint within Canada.

On November 13, 2018, Cineplex entered into amended and extended credit facilities. The amendment includes an increased and extended five-year term revolving component, an extended seven year non-revolving component and additional flexibility in the permitted use of funds.  The amended facilities total $800.0 million comprised of a $150.0 million seven-year senior secured non-revolving term credit facility and a $650.0 million five-year senior secured revolving credit facility.

With the Canadian box office up 36% in October and our strongest October box office ever, we are encouraged by the outlook of film product for the remainder of the year and the ongoing growth in The Rec Room and our other businesses. Coupled with our focus on cost control, we are confident that we are positioning the company for success in the future."

KEY DEVELOPMENTS IN THE THIRD QUARTER OF 2018

The following describes certain key business initiatives undertaken and results achieved during the third quarter of 2018 in each of Cineplex's core business areas:

FILM ENTERTAINMENT AND CONTENT

Theatre Exhibition

• Reported third quarter box office revenues of $173.3 million, an increase of $8.8 million (5.3%) from the $164.5 million reported in the prior year period due to a 2.6% increase in theatre attendance and the growth in BPP.
• BPP was $10.07, a third quarter record for Cineplex, $0.26 (2.7%) higher than $9.81 reported during the prior year period.
• Opened Cineplex Cinemas Pickering and VIP in Pickering, Ontario, an 11 screen theatre featuring all recliner seating as well as an UltraAVX screen, D-BOX Motion Seats, 4 VIP auditoriums and Ontario's first location of the Cineplex Clubhouse, an auditorium designed for children and their families.
• Opened Cineplex Cinemas Seton and VIP in Calgary, Alberta, an 11 screen theatre featuring all recliner seating as well as an UltraAVX screen and D-BOX Motion Seats along with 4 VIP auditoriums.
• Opened the second VIP cinema in Edmonton, Alberta featuring 4 VIP auditoriums at Cineplex Cinemas North Edmonton and VIP.
• Cineplex, in partnership with CJ 4DPLEX, announced a new agreement that will expand the 4DX experience to as many as 13 additional Cineplex locations across Canada.

Theatre Food Service

• Reported third quarter theatre food service revenues of $107.5 million, an increase of $6.8 million (6.7%) from the prior year period as a result of the increase in theatre attendance and higher CPP.
• CPP was $6.25, a third quarter record for Cineplex, $0.24 (4.0%) higher than $6.01 reported during the prior year period.
• During the quarter, Cineplex added alcohol beverage service to an additional 4 theatres now totalling 20 excluding VIP.

Alternative Programming

• Alternative Programming (Cineplex Events) featured André Rieu's 2018 Maastricht Concert, the stage musical An American In Paris and the documentary Rachel Hollis presents: Made for More.
• Featured numerous strong performing international films, including Hindi, Punjabi and Filipino films with The Hows Of Us becoming the highest grossing Filipino title in Cineplex history.

Digital Commerce

• Cineplex.com registered a 2.2% increase in visits during the third quarter of 2018 compared to the same prior year period.
• Online and mobile ticketing represented 24.8% of total admission during the third quarter, up from 20.2% in in the prior year period.
• Cineplex Store registered a 90% increase in device activations over the prior year period, and a 37% increase in registered users.
• Cineplex launched the new Cineplex mobile app which improves customer experience through simplified ticket purchases, digital tickets for paperless entry and mobile food and beverage ordering in VIP auditoriums.

MEDIA

• Reported third quarter total media revenues of $33.5 million, a decrease of $6.4 million (16.0%) compared to the prior year period.

Cinema Media

• Reported third quarter revenues of $20.3 million, compared to $27.4 million in the prior year period, a decrease of 26.0% primarily due to decreases in Show-time and pre-show advertising as a result of the timing of corporate campaigns in the beverage and electronic and technology industries. Declines in the automotive industry and the government sector also contributed to the decrease.

Digital Place-Based Media

• Reported third quarter revenues of $13.2 million, an increase of $0.7 million (6.0%) compared to the prior year period due to an expanded client base which contributed to increased project installation and other digital services revenues primarily due to A&W and Citizen's Bank.
• Chosen to deploy, maintain and operate a complex merchandising network of digital menu boards for Subway Europe ("Subway") at locations across Europe. Cineplex will work with Subway to provide ongoing strategic content, consulting services and marketing initiatives to over 5,400 locations.

AMUSEMENT AND LEISURE

• Announced a strategic partnership with VRstudios Inc. ("VRstudios"), the largest provider of turn-key, location-based virtual reality solutions. Cineplex acquired a 34.7% interest in VRstudios for $4.7 million. The agreement also includes a commercial partnership which will provide expansion opportunities in North America and internationally.
• Announced a new exclusive expansion agreement with The VOID that provides Cineplex with the exclusive rights to operate The VOID concept in Canada. Cineplex plans to open a minimum of five VOID Experience Centres over the coming years, with the second location in Canada opened in the West Edmonton mall location of The Rec Room featuring Star Wars: Secrets of the Empire.

Amusement Solutions

• Reported an all-time quarterly record with revenues of $45.7 million, an increase of $1.0 million (2.3%) over the prior year period as a result of an increase in route revenues in the United States.

Location-based Entertainment

• The Rec Room reported third quarter revenue of $16.8 million which included food service revenues of $8.0 million and amusement revenues of $8.1 million.

eSports

• WGN held the Rocket League Canadian Challenge Finals on August 19 at the Scotiabank Theatre in Toronto, Ontario.
• WGN announced it will be hosting the national World Electronic Sports Games ("WESG") events, the world's only Olympic-style eSports tournament, via online qualifiers and will host live finals for both the United States and Canada. The Canadian WESG qualifying finals will be held on October 26-28 at the Metro Toronto Convention Centre. The US finals will be held on November 9-11 in Huntington Beach, California.

LOYALTY

• Membership in the SCENE loyalty program increased by 0.2 million members in the period, reaching 9.4 million at September 30, 2018.
• SCENE and Maple Leaf Sports & Entertainment Ltd. ("MLSE") recently launched the first campaign to bring MLSE's iconic Toronto Maple Leafs and Toronto Raptors teams to SCENE members, with access to "money can't buy" experiences and tickets that will engage sports-loving SCENE members.

CORPORATE

• Continued to execute the cost reduction program which was announced during the second quarter, incurring an additional $1.0 million during the third quarter ($4.8 million year to date).
• Cineplex was once again the entertainment sponsor for WE Day and WE Day Family which was held at the Scotiabank Arena in Toronto, Ontario.

OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

Total revenues

Total revenues for the three months ended September 30, 2018, increased $16.3 million (4.4%) to $386.7 million as compared to the prior year period.  Total revenues for the nine months ended September 30, 2018 increased $57.9 million (5.1%) to $1.2 billion 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 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 and the year to date (in thousands of dollars, except theatre attendance reported in thousands of patrons and per patron amounts, unless otherwise noted):

Third Quarter

Box office revenues increased $8.8 million, or 5.3%, to $173.3 million during the period, compared to $164.5 million reported in the third quarter in 2017. The increase was due to a 2.6% increase in theatre attendance to 17.2 million guests and the higher BPP. The theatre attendance increase was due to the stronger film slate in the third quarter of 2018 compared the third quarter of 2017.

BPP for the three months ended September 30, 2018 was $10.07, a $0.26 increase (2.7%) from the prior year period, setting a third quarter record for Cineplex. The increase in BPP was due to price increases in selective markets as compared to the prior year.

Year to Date

Box office revenues for the nine months ended September 30, 2018 were $541.9 million, an increase of $11.3 million or 2.1% over the prior year due to the higher BPP in the current year period compared to the 2017 period more than offsetting the 1.1% decrease in theatre attendance period over period.

Cineplex's BPP for the period increased $0.33, or 3.3%, from $10.04 in the prior year period to $10.37 in the current period. This increase was due to price increases in selective markets as compared to the prior year period.

Food service revenues

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