Earnings call: Cineplex reports robust Q3 with strong film slate
Cineplex Inc. (CGX) reported a strong third quarter in 2024, with total revenues of $395 million, nearly matching pre-pandemic levels. The company's success was attributed to a robust film slate, including hits like "Inside Out 2" and "Deadpool & Wolverine," and diversified revenue streams. Despite a minor decline in attendance and increased film costs, Cineplex's adjusted EBITDAaL stood at $47.5 million. The company remains optimistic about the future, with major releases on the horizon and a focus on maintaining momentum in the entertainment sector.
Key Takeaways
Cineplex's box office revenue reached $175 million, with premium offerings contributing significantly."Inside Out 2" and "Deadpool & Wolverine" drove strong box office performance.Cineplex Digital Media saw a 40.3% revenue increase year-over-year.Location-based entertainment (LBE) generated $31.1 million in revenue, with new locations planned.The company is appealing a Competition Tribunal ruling regarding online booking fees.Adjusted EBITDA for Q3 decreased to $47.5 million from the previous year's $74.6 million.A share buyback program has been initiated, with a focus on balance sheet strength and growth opportunities.Cineplex anticipates strong releases in Q4 2024 and into 2025, aiming to reach pre-pandemic adjusted EBITDA levels.
Company Outlook
Cineplex anticipates a strong Q4 with titles like "Wicked Part 1" and "Gladiator II."The company expects to achieve pre-pandemic adjusted EBITDA levels by leveraging a strong film pipeline and operational efficiency.Growth opportunities are seen in the automotive and pharmaceutical sectors for cinema advertising.
Bearish Highlights
Q3 2024 attendance slightly declined to 98% of pre-pandemic levels.Adjusted EBITDA fell due to decreased attendance and higher film costs.The LBE segment's revenue fell by 9.1%.Media margins are under pressure, particularly in the cinema media business.
Bullish Highlights
Premium offerings accounted for 42.2% of box office revenue.Cineplex's Media segment outperformed industry peers by focusing on attention metrics for advertising.The company is optimistic about the strong film slate for 2024 and beyond.
Misses
Cineplex closed three locations year-to-date.SG&A costs have increased due to a transition to a cloud-based environment and the shift to a SaaS model.
Q&A Highlights
CEO Ellis Jacob emphasized the importance of recurring revenue and the sustainability of Cineplex Media's revenue outperformance.The company's Lumen study revealed that cinema ads garner significantly more attention than digital ads.Cineplex aims to reposition cinema advertising to compete more effectively with digital media.The company plans to share fourth-quarter results in February 2025.
Full transcript - None (CPXGF) Q3 2024:
Operator: Good morning or good afternoon all, and welcome to the Cineplex Q3 2024 Earnings Conference Call. My name is Adam and I will be your operator for today. [Operator Instructions] I will now hand the floor to Mahsa Rejali, VP of Corporate Development and Investor Relations. Please go ahead.
Mahsa Rejali: Good morning, everyone. I would like to welcome you Cineplex's third quarter 2024 earnings release conference call hosted by Ellis Jacob, President and Chief Executive Officer; and Gord Nelson, Chief Financial Officer. Before we begin, 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 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's discussion and analysis. Following today's remarks, we'll close the call with our customary question-and-answer period. I will now turn the call over to Ellis Jacob.
Ellis Jacob: Thank you, Mahsa, good morning and welcome to our Q3 2024 conference call. Today I'd like to focus on a few important factors that are top of mind for our investors. The first is the sustained content supply and consumer enthusiasm for moviegoing. The second is the strength of our diversified businesses and finally how we are positioned to deliver strong growth and shareholder value into the future. This past quarter, the exhibition industry collectively experienced a continued shift in the box office. Since June, we've enjoyed a steady stream of titles drawing moviegoers into their local theaters. Remarkably, five of the top six films of 2024 were released since the middle of June. The surge began with Inside Out 2, which became the highest grossing animated film of all time. The film generated $653 million at the domestic box office and ignited the beginning of a strong run of titles through the rest of the year. Following closely was Despicable Me 4, which kicked off the third quarter on a high note, becoming the second highest grossing film in the franchise and generating $360 million at the domestic box office. It held a spot in the top five titles of the domestic box office for seven consecutive weeks. After these two incredible family films, Deadpool & Wolverine then stole the show becoming the highest grossing R-rated film ever, achieving $637 million in domestic box office revenues and staying in the top five of domestic box office for nine consecutive weeks. In addition to these three incredible titles, Twisters and Beetlejuice Beetlejuice rounded out Cineplex's top five titles for the third quarter. The box office results clearly demonstrate that consumers remain highly enthusiastic about compelling content in theaters. The return of content supply combined with strong moviegoing demand resulted in Cineplex achieving box office revenues of $175 million in the quarter. This represented 98% of 2019 levels and total revenue of $395 million exceeding 2019 levels. Cineplex's total revenues were just shy of 2023 levels by 4.6% as Q3 2023 was the best quarter in our company's history due to the Barbenheimer phenomenon. Although Cineplex underperformed the North American box office relative to 2023, it once again outperformed the North American box office relative to 2019 by nearly 3%. When comparing Canada to the U.S. on a year-over-year basis, it's important to note that certain films did not play in Canada and certain genres performed stronger in the U.S. than in Canada. This will drive fluctuations from quarter-to-quarter depending on the film mix. We achieved a BPP of $13.19 and a CPP of $9.85, both all time quarterly records. Premium experiences also represented 42.2% of the box office performing than last year's 35%. Our box office performance and per patron growth, along with the results from our diversified businesses, allowed Cineplex to deliver $47.5 million of adjusted EBITDAaL and $16.4 million of cash provided by operating activities. This performance enabled us to invest in the business and return capital to shareholders through share repurchases. Turning to our third quarter media results, Cineplex Digital Media achieved an impressive 40.3% year-over-year revenue growth as a result of expanded digital out-of-home shopping networks and new clients. We're also pleased with our cinema media results, which delivered $1.37 cinema media revenue per patron, an increase of 10.5% compared to Q3 2023. Cinema media remains a compelling space for our advertisers to invest their dollars as it is one of the few media platforms that can capture consumers' undivided attention. Being the only exhibitor in North America that owns its media business creates a significant point of differentiation, ensuring an important revenue stream with high margins, especially now that content supply is returning at a steadier pace. During the quarter we celebrated another win for our media segment, the Canadian Out of Home Marketing and Measurement Bureau welcomed Cineplex Media as a new member and together with Cineplex Digital Media, they became part of its inaugural mall measurement methodology. With this new accreditation and measurement approach, we ensure our digital out-of-home clients received the most value and transparency for their impressions. This further solidifies our leadership in the digital out-of-home advertising space as we continue to win new business and roll out new campaigns. The Rec Room and Palladium locations of our LBE business play an important role in strengthening our position in delivering growth and shareholder value. During the third quarter, our LBE business delivered revenue of $31.1 million and adjusted store level EBITDAaL of $7.6 million. We have three new LBE locations opening in the fourth quarter, including our first location of the Rec Room in Quebec, opening later this month. It will be located at the recently opened Royalmount District, Montreal's newest premium shopping, dining and entertainment destination. It is anticipated to become one of the leading retail developments in Canada. We are also excited to be opening a new Cineplex Cinema adjacent to the Rec Room Royalmount, creating a one-stop destination for entertainment. Guests can enjoy amusement games, duckpin bowling, augmented reality darts, delicious food and handcrafted signature cocktails, live entertainment and enjoy a movie all under one roof. Our Royalmount Cineplex will consist of five auditoriums hall with full recliners, giving our guests the ultimate moviegoing experience. Later this month, we are also opening a flagship location of the Rec Room on Granville street in Vancouver. This 45,000 square foot historical location spans three floors each offering a different experience including a wide range of the latest amusement games, augmented reality darts, axe throwing, dining and bar offerings, live entertainment and events. New to this location on the lower level is The Palms, which is inspired by the historic Granville street hotel of the same name founded in 1913. It features a mini golf course, a gorgeous hotel inspired bar, tropical cocktails and a unique variety of bold flavorful tropic inspired snacks. Lastly, in December, our fourth Palladium location is opening adjacent to a Cineplex theater at Fairview Mall in Toronto. Once again we are creating an entertainment destination for families within a high traffic location easily accessible by car or transits. In tandem with our new openings, we've developed Make Room for Play as our new brand positioning for the Rec Room to appeal and attract our target demographics. This new positioning came from the belief that the Rec Room is the perfect place to inject more fun and play into day to day life. To launch our new brand positioning we released a comprehensive campaign aimed at driving awareness and visitation from Gen Zs and millennials. The cornerstone of the campaign is the 62nd spot being shown in cinemas across the country. We also redesigned the Rec Room website to deliver a more engaging and elevated platform for our newly defined guest experience. With an attractive return, our LBE business is a meaningful contributor to current and future EBITDAaL growth. We see an opportunity to continue investing in the LBE business with the potential to expand to 30 locations across the country, solidifying our leadership position in this entertainment space. As I mentioned earlier in the call, we are seeing excellent revenue from our premium offerings. We offer nine different ways to enjoy a movie at Cineplex: UltraAVX, VIP, Recliners, IMAX (NYSE:IMAX ), D-BOX, ScreenX, 4DX, 3D and Clubhouse. This past quarter we installed Recliners at Cineplex Cinemas Fredericton and opened a ScreenX auditorium at Cineplex Cinemas Coquitlam and VIP in British Columbia. In the fourth quarter we are opening two new IMAX screens, two ScreenX screens and one UltraAVX screen across the country. In addition to our guests ability to choose their preferred movie watching experience, our concession offerings are just as important in creating a fulsome experience while also driving revenue. For the ultimate movie fan, merchandise like outlandish popcorn buckets and theme cups have become a customary upgrade and collectible. For Deadpool & Wolverine alone, a collection of merchandise offering generated $1.3 million in revenue. Our new mobile app, which has achieved a rating of 4.8 with both iPhone and Android users, allows guests to pre-purchase their concessions and simply pick up their snacks at the theater. We are seeing a notably higher average per patron spend compared to in-person transactions. We believe as adoption grows, this will be an opportunity for further growth in overall concession revenues. A strategy that I am particularly proud of is the strength of international cinema. This quarter international programming represented 9.3% of total box office revenues compared to the North American box office at 2.7%. During the third quarter, the two largest international films for Cineplex were Stree 2, where Cineplex generated 44% of North American’s market share, and Jatt & Juliet 3, which became Cineplex’s highest grossing Punjabi film of all time. We were able to attract diverse audiences to their favorite international films by leveraging our robust data. The use of data to drive incremental attendance and increase spend will continue to be a key differentiator for Cineplex’s future growth. We’ve invested in building robust data models and marketing automation platforms to drive personalized campaigns. We have also developed detailed attendance prediction models that analyze global content to identify what resonates with Canadians. In addition, we have created propensity models using our customer base. By integrating these models and crafting unique personalized campaigns through marketing automation engines, we can enhance relevance and drive incremental visitation and spends. As a reminder, the adjusted EBITDA contribution for each incremental guest is approximately $13.46. Encouraging our customer base and the Scene+ member population to visit more frequently could equate to significant incremental upside to our business. Before I conclude, I want to provide a brief update on the Competition Tribunal’s decision regarding our online booking fee. On October 23, we filed a notice of appeal with the Federal Court of Appeal to overturn the Competition Tribunal’s decision. With the consent of the Competition Bureau, we have been granted an interim stay of the monetary penalty and have brought a motion to stay the monetary penalty pending completion of the appeal. We continue to emphasize that the online bookings optional value added service. It provides moviegoers with the convenience of advanced online seat selection, knowing that they have a ticket for a specific showtime and exact seat location before they arrive at a theater. While we disagree with the Tribunal’s decision, we’ve been ordered to make changes to our website and we are in the process of doing so. We remain confident that our fee was always presented in a clear and prominent manner, and fully complied with the spirit and letter of the law. As a reminder, this ruling has no impact on our ability to charge the online booking fee and we will continue to offer the optional value added convenience of advanced online seat selection to our guests. As we approach the end of 2024, we are generating positive momentum within our business. I am proud to say we have successfully navigated the challenge of film state supply and it is now behind us. Looking ahead, the fourth quarter is bringing some remarkable titles including Wicked Part 1, Gladiator II, Moana 2, Lord of the Rings: The War of the Rohirrim, Sonic the Hedgehog 3 and Mufasa: The Lion King. We are optimistic the momentum will continue into 2025 with what’s shaping up to be a strong year for the film slate, including Captain America: Brave New World, Snow White, Mission: Impossible 8, Karate Kid, How to Train Your Dragon, Jurassic World Rebirth, Superman: Legacy, The Fantastic Four: First Steps, Wicked Part Two, Zootopia 2 and Avatar: Fire and Ash. The upside to a strong film slate means our media business can consistently offer a compelling place for advertisers to invest their dollars and capture our guests undivided attention. With three new LBE locations opening in key markets, our LBE business is set to solidify its position as Canada’s destination for play. And the use of our robust data presents a significant untapped potential. To close, we’ve made tremendous strides to overcome product supply challenges and the third quarter proved we are well on our way to a steadier stream of content now and into the future. Our diversified media and LBE businesses are following suit and gaining momentum and scale. As we look forward, we will continue to differentiate ourselves within the market and drive industry-leading results. We are confident we will sustain this momentum and our position as one of North America’s leading entertainment and media destination. With that, I will turn things over to Gord.
Gord Nelson: Thanks, Ellis. I am pleased to present a condensed summary of the third quarter 2024 results for Cineplex, Inc. Further reference, our financial statements and MD&A have been filed on SEDAR+ and are also 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 will focus on highlighting select items in addition to providing commentary on the accounting provision for the Competition Bureau matter, liquidity, capital allocation priorities and our outlook. For my comments on operations all amounts following will be from continuing operations unless otherwise stated. We were pleased to see the return of the supply of film content in the third quarter. Our third quarter box office was 98% the pre-pandemic third quarter of 2019 and 93% of the record breaking third quarter of 2023. As a result of the decline in attendance as compared to the Barbenheimer quarter, our total revenue decreased 4.6% to $395.6 million and our adjusted EBITDA decreased to $47.5 million in 2024 as compared to the record $74.6 million in 2023. Let’s take a closer look at our segments. In the Film Exhibition and Content segment attendance declined 2.4 million or 15.5% to approximately 13.3 million. Total (EPA:TTEF ) revenue decreased 5.3%. And segment adjusted EBITDA decreased to $48.8 million primarily a result of the attendance decline and higher film costs due to the concentration and mix of films. As part of our portfolio optimization and rationalization strategy, we closed one location during the quarter, bringing the total to three location closures on a year-to-date basis. Comparing Q3 2024 to the pre-pandemic Q3 2019, our theater portfolio has decreased by 10 locations and our theater cash rent paid and payable has decreased 6.8% to $36.5 million from $39.1 million. The Media segment revenue increased 9.3% to $31.3 million. Segment adjusted EBITDA decreased by $2.4 million to $13 million as a result of a sales mix shift to the lower margin CDM business from the Cinema Media business and by ongoing conversion costs related to the new digital media networks. As compared to the prior year, Cinema Media revenue decreased 7% to $18.1 million primarily due to the 15.5% of tenants decline. Our digital place-based media business had strong results, with total revenues up 40.3% to $13.3 million, primarily as a result of the addition of Cadillac Fairview to our shopping mall network beginning in 2024. And lastly in our LBE segment, segment revenues decreased by 9.1% to $31.1 million. The third quarter of the prior year 2023 was positively impacted by weather and stay indoor advisories due to wildfires in some of our major markets. As compared to 2022, LBE segment revenues were up marginally from $31.1 million in that period. Store level adjusted EBITDA margins were 24.4% versus 29% in the prior year, primarily as a result of increased volume driving operating efficiencies in the prior year period and the impacts of minimum wage increases. We continue to expect that store level margins for the year will meet or exceed our 25% targets. And at the segment level segment EBITDAaL was negatively impacted by pre-opening and campaign production costs for our new brand campaign for the Rec Room designed to drive increased awareness and visitation from our target audience. These together totaled approximately $1.1 million during the quarter. I want to now briefly discuss our accounting for the Competition Tribunal’s decision in favor of the Competition Bureau and the related administrative monetary penalty of approximately $39 million. We continue to believe that our online booking fee fully complied with the letter in the spirit of the law and have filed our Notice of Appeal with the Federal Court of Appeal. With the Commissioner’s consent, we were granted an interim stay regarding this payment and we are requesting a stay pending completion of the appeal, also with the Commissioner’s consent. The agreed upon stay would result in payment being deferred until a decision by the Federal Court of Appeal. Although we strongly believe in our position, we are accruing the full $39 million in our Q3 results. This amount appears in a separate line item on the income statement and balance sheet entitled provision for Competition Tribunal’s administrative monetary penalty. And given its one-time nature is excluded from our definition of adjusted EBITDA and adjusted EBITDAaL. Should the amount be adjusted or eliminated on final appeal, this amount will be adjusted accordingly at a future date. I would now like to move on and speak to our balance sheet and particularly our liquidity position. At quarter end, we had $32 million in cash and no drawings under the covenant-lite credit facility, which has a capacity of $100 million. With the comprehensive refinancing plan, we have meaningfully pushed out near term maturities and removed restrictions related to covenant testing and no testing was required under the credit facility at quarter end. As we have mentioned previously, our capital allocation priorities include maintenance capital expenditures, continuing to strengthen the balance sheet to achieve our target leverage ratios, investing in growth opportunities and providing shareholder returns in the form of share buybacks and/or dividends. As we discussed at last quarter end, we saw a strong product pipeline going forward driving the potential for significant free cash flow generation. We have limited commitments on growth CapEx and we saw a current share price, which we believe did not reflect the intrinsic value of the company. We announced and received approval for a normal course issuer bid during the quarter and commenced at the end of the quarter with purchases of approximately $2 million in shares under this program at quarter end. We have repurchased an additional $3.9 million in shares subsequent to quarter end. Now, I'd like to take a few minutes to remind our investors of the world we see going forward. This is where we achieve or exceed pre-pandemic adjusted EBITDAaL level on 75% to 80% of pre-pandemic attendance levels. With no near term cash taxes due to the NOLs, in this scenario we could generate in excess of $100 million of free cash flow and use this free cash flow to invest delever and provide additional shareholder returns. Annualizing our $47.5 million in Q3 EBITDAaL gives us comfort that we are on the path to achieving our pre-pandemic annualized EBITDAaL of $209 million. In summary, we believe there continues to be a lot to be excited about with our long history of disciplined operations and capital management, we remain highly focused on creating long-term shareholder value. And with that I'd like to turn things over to the conference operator for questions.
Operator: Thank you. [Operator Instructions] And our first question comes from Derek Lessard from TD Cowen. Derek, your line is open. Please go ahead.
Derek Lessard: Yes, good morning, everybody. Glad to hear your voices.
Ellis Jacob: Thanks, Derek.
Gord Nelson: Thanks.
Derek Lessard: So, again, congratulations on the BPP and CPP metrics. I think some of it was driven by price. So could you maybe just talk about the consumer reaction given, the tougher macro backdrop and if you're seeing any changes in consumer behavior?
Ellis Jacob: Yes. On the BPP, the increase is largely, as we talked about in the script, driven by the premium offerings that we have. And we were over 42% for the quarter, which helped us drive the BPP. And in addition to that, there's some small price increases, which resulted in the highest number that we had. And on the CPP side, we basically got a couple of issues that are beneficial to us. One is the increase in the basket size. There's higher visitation. Then we've also got more product offerings and slightly the price, which all add up to the improvement in the CPP. And then the mobile app is also helping us contribute to that as we see more guests ordering online and resulting in a higher overall CPP. So, Gord, anything else?
Gord Nelson: Yes. So, Derek, just one thing I also want to add and remind people is that during the third quarter of last year, in the month of September, we introduced a Cinema Day, which was a discounted admission during that period. We noted last year that it adversely impacted the BPP by about $0.36. So without having a Cinema Day this year with the return of product is, and so $0.36 for the BPP and roughly $0.14 for the CPP. So a lot of the growth you're seeing year-over-year is also in part due to that.
Ellis Jacob: Yes. And there's no negative consumer sentiment on the changes in the prices.
Derek Lessard: Okay, that's great color guys. And maybe just following up to that. Going forward, could you maybe just maybe go ahead and talk about the cost structure? I think more specifically, are you able to give us some direction on your film costs going forward? And then maybe on the SG&A line, you did have some software and professional fees in there. So could you maybe talk about those cost items going forward?
Ellis Jacob: Yes, so I'll do film costs and Gord will do the SG&A. So on film costs for the quarter, the reason it was high as it was because as we see the top movies in the quarter did a significant amount of the business, which results in a higher cost. Now, you may say, well, you had Barbie and Oppenheimer last year, but when you look at the 10 top movies for the quarter, we did a lot more business than the 10 top movies from 2023. So that was one of the reasons for the increased film rental. And the other reason is basically with certain studios we do annual reconciliations and in 2023 there was a pickup and in 2024 during the quarter there was a charge. So there's a delta differential between the quarters from the prior year to this year.
Gord Nelson: And then on the G&A and the technology related comment, as we also, I think, we mentioned in the MD&A as there's a couple things going on here, Derek, so very similar to everyone else. As you transition to a cloud-based environment, costs tend to increase and as your software providers move from an ownership model to more of a rental model, a SaaS type model is you're paying regular subscription model rather than paying like a lower maintenance kind of model in your historic [ph] software. Ellis also spoke about, our use of data and some of the marketing automation platforms that we're putting in place. So there is a cost that we're incurring in terms of implementation fees, professional fees and some additional upfront software fees related to kind of building [Technical Difficulty]. That's what we're seeing sort of in the current period. Some of that will continue on as we go into a subscription model, but some of the upfront consulting fee will dissipate in the future.
Derek Lessard: Okay. And then maybe just to clarify on the film cost, that means we should expect it, it should return to historical like over a full year should return to a historical levels.
Ellis Jacob: Yes, it should basically moderate, again one of the arguments, I always say, if we are exceeding our box office and we've got lots of strong films, that's a high class problem. The challenge is during the quarter, if you have only big films and none of the smaller films, that impacts the overall cost. But I think we can look forward to being back to a more moderate level on the film rental side.
Derek Lessard: Yes…
Gord Nelson: Yes, sorry, we've – there's been historic periods where, films like the first Avatar as an example, where absolutely dominated a quarter and the film rent, was up and then it kind of normalized over the course of a full year.
Derek Lessard: Yes, high class problems are good to have. Thanks guys.
Ellis Jacob: Thank you.
Operator: The next question is from Maher Yaghi from Scotiabank (TSX:BNS ). Maher, your line is open. Please go ahead.
Maher Yaghi: Great. Thank you for taking my question guys. I wanted to ask you just on the box office cost here. I understand the separation in terms of cost, but is it true to say that more and more we're seeing high cost films being produced bigger blockbuster movies and less smaller movies. And why is that not a cause for potentially to think that your box office revenue cost will trend towards the higher end of the 50s rather than the low end of the 50% range like you had in the past? I'm just trying to like play The Devil's Advocate here.
Ellis Jacob: Yes. And what one has to look at is, a lot of the studios have been focusing on the big titles, but now you've got other groups that are coming out with movies. And this year at our Toronto International Film Festival, we had a lot of movies that will fall into that category that will fill the gaps and also result in lower costs for us. And then you've got the international content, which helps us on an overall basis. So the mix as we move forward will continue to get better for us because we'll have both types of films that will be released during the quarters.
Maher Yaghi: Okay, thank you for that. Appreciate it. So my question that I wanted to ask you is first on Media. So if we compare your Media margins in this quarter with a similar level of run rate on the revenue side, like Q2 of last year, you were running a little bit lower on margins versus Q2 of last year where you had similar revenue run rate. So can you discuss some of the reasons why we're seeing that pressure on margins and Media?
Gord Nelson: Yes, so Maher, Gord here. So with respect to the cinema media business, the margins tend to kind of, as I've mentioned, historically hover around the 80% level. So and that's where they can really, they continue to be during the quarter. It's really in the CDM business where as we are rolling out these new mall clients and if you look at the disclosure in the MD&A now just highlight this, it's a revenue mix issue. So our project revenue was up 73%. And so the mix is shifting to project revenue. That includes a lot of the refresh that is going on within our new mall networks and particularly Cadillac Fairview. And so that refresh is going on and so that's Cadillac Fairview’s capital. It's an extremely tiny margin on that revenue. And it's also there's some additional costs in our perspective as we kind of go and implement that refresh across their network. So we have a little bit of a negative impact. And you can kind of see it in just the shift of the mix more to the project side of things. That should dissipate and again, the advertising strength of having a refresh network will come back in Q4 and beyond.
Maher Yaghi: Yes. Okay, that makes sense. Thank you. And my last question is, Gord, you keep bringing up that the company is set up to produce as much free cash flow on a lower attendance base. And you mentioned it again in your prepared remarks. The $206 million, I think. But just to compare, if I look at your EBITDAaL generation this quarter, and I compare it to Q3 of 2019, you're running close to 80% of attendance this quarter compared to Q3 2019. So the comparison works out. But you generated $47 million of EBITDAaL and back then you generated $56 million after the sale of…
Gord Nelson: Yes, let me take you through it, Maher. Okay, so, because I know that's a great question, and thank you. So let me look at our segments then. So by segment. So in Q3 2024, our Exhibition segment generated $49 million of EBITDAaL at the segment level. In Q3, 2019, the pre-pandemic level period, we generated $50 million, so $1 million less of EBITDAaL, so basically equal, on 75% of the attendance. The Media business generated $14 million of EBITDAaL versus $20 million. So the Media business is really where we're seeing a bit of the compression, not the Exhibition business. And we know in today's environment there's a challenging Media business. So we did, roughly 20% less media sales on an attendance decline of roughly 25%. So our media sales did not decline as significantly the attendance. And it's a tough media market. So we are encouraged about where the Media business can go. From the LBE side, we were up marginally from $2 million to $5 million [ph]. And then the corporate costs, the corporate costs were up about $4 million in 2024 versus 2019. $2 million of that $4 million increase is the change in LTIP. And that was due to the share price increase during the quarter. So, I get really comfortable when I look at this to say that world is real, that media model is going to come back. The corporate costs are being offset by, that's where the share price rolls. And so, yes, I'm very comfortable that, once media, the media space comes back and just starts to generate, we're going to be in that world that I described.
Maher Yaghi: Great. Thank you, Gord, for your detailed answer and I appreciate it. Thank you.
Gord Nelson: Yes, my pleasure.
Operator: The next question comes from Drew McReynolds from RBC. Drew, your line is open. Please go ahead.
Drew McReynolds: Thanks very much. Good morning. Gord, I know we've chatted about this before with respect to the Cineplex Digital Media business. Obviously in your MD&A you break it down by project revenues and other revenues and then there's kind of subcategories of those two buckets and just want to kind of better understand or at least get an update, what's generally recurring, what's transitional in terms of contract deployment, et cetera. Can you just kind of break that down for us just to help us kind of model this going forward?
Gord Nelson: Yes. So always, and again, so if we look at the third quarter, then, we had $13.3 million in total revenue, which about $7.7 million was what we categorized as other, which really includes the advertising, the network management fees, the creative content fees, and basically those I would consider as more recurring type project revenues are always there. So we're always deploying new hardware. Big brands are refreshing their stuff. Those are always there, but they're a lower margin source. So as you go forward, we're seeing the, and you can kind of see the lumpiness of the project revenue quarter in and quarter out, but it's the other revenues that you would focus in on the recurring and that's where we're looking to drive value and drive margin.
Drew McReynolds: Okay, super. And then just back to the last question on the Media business. Maybe, if you can flush out just where the pockets of industry weakness would be. And obviously the year-over-year performance of Cineplex Media revenue exceeded the year-over-year performance of attendance. Is that kind of outperformance there sustainable and if so, what are kind of the drivers that you're doing to, basically over index on the peer attendance side of things? Thank you.
Ellis Jacob: Yes. So look at Drew. There's a number of factors in play here and I'll just also comment that NCM reported yesterday and again we had significant sort of outperformance relative to what they did during the third quarter. We've chatted a bit about, our media and our sort of strategy as we go forward. Part one was we sort of, was we morphed to a CPF-based model, a few years ago as we went into the pandemic. This year and again, this impacted margins a little bit. But we've launched and published a Lumen study which talks about attention and, you can all relate to, sort of a world where impressions are less relevant people, impressions, you may be able to count them, but there's actually someone actually paying attention and seeing what that ad is. So attention has become the new statistic. We published that Lumen study earlier this year and in that study, we demonstrated that the attention statistics. So who actually notes an ad is eight to nine times higher than it is for a digital ad? So that's kind of step two as we're focusing on this new metric that's critical to advertisers attention and we're selling that we can drive more attention to or cinema drives more attention. I will also make a comment that during tough advertising climates, brands look and reevaluate their spend. If they need to cut back, they want to cut back on what they would call inefficient spending. So having this Lumen study out there at this time is going to help us go forward. And then lastly, what we will look to do next year is, we look at the mix of spending is, we’re tend to be either lumped into a digital out of home bucket, which is a relatively small bucket. And we want to get media planners to either create a new category for cinema spend or take away share from the digital spend, which is significantly growing. So that's the third prong of our strategy, which provides us a lot of comfort going forward that we're going to drive great strength in our media business. So hopefully that helps.
Drew McReynolds: Yes. No, that does Gord on and then with respect to just the broader ad market, obviously the digital lens, is predominantly dominated by U.S. media companies now. But on the traditional side, where are you seeing kind of category pockets of strength and weakness. And are you kind of still broadening the category breadth of who would advertise, in cinema, just kind of more broadly the market dynamic would be helpful? Thank you.
Ellis Jacob: Yes, so we absolutely do that. And, two big areas where we see some great growth opportunities is auto. And if you remember, we're seeing them come back and you'll see them come back in the fourth quarter, during the pandemic, they had supply chain challenges. They're typically a big category for us. The other one that's out there is pharma. You see a lot about pharma. You see a lot of, pharma advertising on traditional linear stations. And they are very – that's another category where we're seeing lots of growth and opportunity for us.
Drew McReynolds: Okay, thanks very much.
Ellis Jacob: Thank you.
Operator: [Operator Instructions] We have no further questions. So I'll hand the call back to Ellis Jacob.
Ellis Jacob: Thank you again for joining the call this morning. We are excited about the strong film slate for the balance of 2024 and into 2025 and beyond. We look forward to sharing our fourth quarter results in February 2025. Have a great day. Thank you.
Operator: This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.
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Source: Investing.com
