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Edited Transcript of CGX.TO earnings conference call or presentation 2-May-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Cineplex Inc Earnings Call

TORONTO May 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Cineplex Inc earnings conference call or presentation Tuesday, May 2, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ellis Jacob

Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation

* Gord Nelson

Cineplex Inc. - CFO

* Pat Marshall

Cineplex Inc. - VP of Communication & IR

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Conference Call Participants

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* Aravinda Suranimala Galappatthige

Canaccord Genuity Limited, Research Division - MD

* Derek J. Lessard

TD Securities Equity Research - Research Analyst

* Drew McReynolds

RBC Capital Markets, LLC, Research Division - Analyst

* Jeffrey Fan

Scotiabank Global Banking and Markets, Research Division - Director, Telecommunication Services and Canadian and U.S. Telecom and Cable Equity Research Analyst

* Kenric Saen Tyghe

Raymond James Ltd., Research Division - SVP

* Robert Goff

Echelon Wealth Partners Inc., Research Division - MD of Research, Head of Research, Telecom Services and New Media Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Cineplex Inc. First Quarter 2017 Analyst Call. Today's conference is being recorder, and at this time, I'd like to turn the floor over to Pat Marshall, Vice President of Communications and Investor Relations. Please go ahead.

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Pat Marshall, Cineplex Inc. - VP of Communication & IR [2]

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Good morning. Before beginning the call, we would like to 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 could differ materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, adverse factors generally encountered in the film exhibition industry, risks associated with national and world events, discovery of undisclosed material liabilities and general economic conditions.

I'd now like to turn the call over to President and CEO, Ellis Jacob.

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [3]

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Thank you, Pat. Good morning, and welcome to Cineplex Inc's. First Quarter 2017 Conference Call. We are glad you could join us today. I will begin by providing a brief overview of our top line results as well as the summary of our key accomplishments during the first quarter. I will also highlight some of the most anticipated films of the summer films slate. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide a more in-depth overview of our financials. As always, once Gord has concluded his remarks, we will hold a question-and-answer period.

Cineplex reported a record first quarter with total revenue of $394.2 million and adjusted EBITDA of $59.4 million, both up 4% versus the same period last year. Although the current period benefited from the strong performance of Beauty and the Beast, the prior year period was a tough comparator with strong results from Deadpool, which had the all-time highest grossing February opening weekend combined with the record breaking success of Star Wars: The Force Awakens, which continue to perform well into the first quarter of 2016. As a result, we saw our attendance for the first quarter of 2017 decrease by 4.8%. Attendance was also impacted by the underperformance of 3 films in Canada compared to the U.S., which included Hidden Figures, Get Out and Power Rangers as well as the timing of certain foreign language products.

However, guests continued to seek out our premium entertainment experiences, which represented 44.9% of our box office revenue and resulted in a first quarter record BPP of $9.97. Media revenue continued to grow, achieving a new first quarter record of $33.9 million, and amusement revenue increased 58.9% largely due to the acquisition of Tricorp Amusements Inc. and SAW, LLC completed in the fourth quarter of 2016. Gord will share the balance of our first quarter results with you in a few moments.

Now I would like to highlight our key accomplishments during the quarter. Beginning with theater exhibition. Top-performing films during the period included Beauty and the Beast, Logan, The Lego Batman Movie, Rogue One: A Star Wars Story, and Sing, of which, 4 out of 5 were available in premium movie-going experiences. We continue to rollout luxury recliners in select theaters across the country with great success. We anticipate having a total of 15 theaters completed by the end of the year. Alternative programming for the quarter included performances from the Bolshoi Ballet from Moscow, the National Theatre from London and also performances of the Metropolitan Opera live in HD. Theater productions were especially popular this quarter with strong results from the Disney's Newsies and National Theatre Live's No Man's Land.

Moving on to media, we continue to grow our cinema media business, which reported record first quarter results. This can largely be attributable to the sponsorships and other media associated with our eSports business. Digital place-based media experienced a 3% increase in revenue for the quarter as a result of an expanded client base which contributed to higher recurring revenue.

As reported earlier this year, Cineplex Digital Media was selected by Morguard Investments Limited to install, maintain and operate 175 digital displays across 21 retail properties throughout Canada. Situated in comp courses and high-traffic areas, these displays will deliver impactful interactive experiences for shoppers, including digital wayfinding and advertising that will support new store openings, retail promotions and upcoming events. The rollout is expected to be completed by the fall of 2017. With the additional of Morguard, along with our partnerships with Ivanhoé Cambridge, Oxford Properties and other mall developers, Cineplex now impacts approximately 50% of all mall traffic in Canada.

In amusement and leisure, during the quarter, Player One Amusement Group announced its acquisition of Dandy Amusements International, a leading amusement game machine operator in the Western United States. Strategic acquisitions like this one, which closed subsequent to quarter-end are an integral part of our diversification strategy. The additional of Dandy to Player One gives us coast-to-coast coverage and presence throughout the U.S., providing us a much broader and expanded market across the U.S. and Canada.

The Rec Room continued to perform well in the first quarter of 2017. With construction well underway, we look forward to opening 3 additional locations this year including in Toronto at the historical Roundhouse, a second location in Edmonton at the West Edmonton Mall, and in Calgary, at Deerfoot City. In March, Cineplex and WorldGaming hosted the Canadian Call of Duty: Infinite Warfare championships at Scotiabank Theatre, Toronto, where teams from across Canada competed for over $65,000 in cash and prizes as well as the championship title. Subsequent to the quarter-end, Cineplex acquired the remaining 20% of WorldGaming that it did not already own for $4 million.

Moving on to SCENE. Membership in the loyalty program increased by 0.2 million members in the period, reaching 8.3 million members as of March 31. Also during the quarter, SCENE launched a mobile app that allows members to instantly browse the many ways to earn and redeem points, access their digital card and plan their night out. Overall, even with the decline in attendance, we achieved record results in the quarter as we continue our diversification strategy. This positions Cineplex uniquely in its ability to deliver results from many different revenue resources.

Now let's take a look at some of the films for the summer. The second quarter is off to a good start as box office in Canada for the quarter-to-date, is up 16% year-over-year compared to North America which is up 4.4% as reported by Rentrak. Looking ahead to what's in store for the quarter, on Thursday, the sequel to the very successful Guardians of the Galaxy opens on May 4; then on May 12, we have the Guy Ritchie film, King Arthur: Legend of the Sword; the comedy, Snatched, starring Goldie Hawn and Amy Schumer; and the sequel, Bon Cop Bad Cop 2, the original is still the highest grossing Quebec-made film ever. Johnny Depp reprises his role as Captain Jack Sparrow in Pirates of the Caribbean: Dead Man Tell No Tales comes to theaters on May 26.

Looking at June, Wonder Woman makes her solo big screen debut on June 2. Lightning McQueen returns on June 16 with Cars 3, and the Autobots rollout again on June 23 in Transformers: The Last Knight. The summer wraps up when Baby Driver speeds into theaters, and everyone's favorite villain, Gru, returns with Despicable Me 3 both on June 30. Moving to the third quarter, we look forward to the return of one of our favorite superheroes in Spider-Man: Homecoming on July 7. Then we have War for the Planets of the Apes on July 14. Legendary film director Luc Besson brings us to space adventure, Valerian, on July 21 and both Atomic Blonde, which stars Charlize Theron and the animated film, The Emoji Movie, opens on July 28. That, with many more big titles to follow for the balance of the quarter. As you can see, the summer films slate look strong and offers something for everyone.

Before I turn the call over to Gord, we are pleased to announce a 3.7% dividend increase to $1.68 per share, on an annual basis, from the current $1.62 per share. This increase will be effective with the May 2017 dividend which will be paid in June 2017.

Now I will call -- turn the call over to Gord.

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Gord Nelson, Cineplex Inc. - CFO [4]

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Thanks, Ellis. I am pleased to present the first quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD&A have been filed on SEDAR this morning and are also available on our Investor Relations website at cineplex.com.

Before I begin, I would like to highlight a number of changes to the presentation of revenue in our financial statements. As a result of the recent acquisitions in our amusement solutions business, and as we continue to develop and grow our amusement and leisure business, we have created a new revenue line for amusement revenue. We have reclassified the amounts that were previously included in other revenue into this new revenue line. In addition, to enhance comparability with exhibition peers, certain revenue from Cineplex's enhanced guest service initiatives, which were previously included in other revenue, are now included with box office revenues. Prior period financial statement figures have been reclassified to conform to the current period presentation with details available in Note 11 of the financial statements and in Section 9 of the management discussion and analysis.

For the first quarter, total revenue increased by 4% to $394.2 million and adjusted EBITDA up [4% to $59.4 million], both first quarter records. The results for the quarter were positively impacted by higher amusement revenue, which increased 58.9% to a first quarter record of $41.4 million. Cineplex's first quarter box office revenue decreased 1.7% to $195.4 million compared to $198.6 million in the prior year, as a result of an attendance decrease of 4.8%, which was partially offset by a BPP increase of 3.3% to a first quarter record $9.97, up from $9.65 in 2016. The increase in BPP is due to an increase in the premium product percentage in the first quarter, increasing to 44.9% of box office revenue in 2017, from 42.2% in 2016. The impact of premium price product and the average ticket price was $1.42 for this quarter, as compared to $1.33 in the prior year. This was primarily due to the success of 3D products, with 4 of the top 5 films of 2017 being released in 3D, as compared to 3 films in the prior year.

Food service revenue increased 1.7% to $118.9 million (sic) [$111.8 million]. Included in the food service revenue is $2.1 million from The Rec Room. Excluding revenue from The Rec Room, theater food service revenue decreased by 0.2% from the prior year due to the decrease in attendance, partially offset by the 5% increase in concession revenue per patron to the first quarter record of $5.71. The CPP growth was primarily a result of increased visitation, basket size, and expanded food offerings, including those available at Cineplex's VIP Cinemas and Outtakes locations.

Total media revenue increased $0.8 million or 2.6% to $33.9 million for the quarter. Cineplex Cinema's media revenue, which is primarily theater-based, increased 2.3%. Digital place-based media revenue increased 3%, due to increased recurring revenue offset by lower project installation revenue compared to the prior year period, which included installation revenue from the Beer Store deployment.

Amusement revenue increased $15.4 million, or 58.9%, due primarily to 2 acquisitions in the United States made during the fourth quarter of 2016. In addition, amusement revenue includes $2 million of amusement gaming and other revenue earned at The Rec Room. During the quarter, Cineplex announced the acquisition of Dandy Amusements International Inc., a leading amusement gaming machine operator the U.S – in the Western U.S. This transaction was completed on April 1, 2017.

Turning briefly to our key expense line items. Film costs for the quarter came in at 52.9% of box office revenue as compared to 54.1% reported in the prior year. The decrease in film cost percentage is a result of the reduced concentration of box office revenue from a select number of titles during the quarter as compared to prior year period.

Cost of food service for Q1 2017, excluding the $0.7 million incurred at The Rec Room, led to 22.3% as compared to 22.6% in the prior year period. Other costs of $206.1 million increased $16.7 million, or 8.8%. Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses. Theater occupancy expenses were $52 million for the quarter versus a prior year actual of $52.7 million. Other operating expenses were $132 million for the quarter versus a prior year actual of $117.6 million, an increase of $14.4 million.

Major reasons for the increase included an increase of $10.9 million in amusement solutions expenses primarily related to the 2 acquisitions completed during the fourth quarter of/2016; an increase of $1 million due to the impact of new and acquired theaters net of disposed theaters; $2.9 million in unit level operating costs related to The Rec Room; and cost related to new business initiatives, including WorldGaming network and The Rec Room. These increases were offset by decreases in other costs, including a decrease in same-store theater payroll of $2.6 million due to decreased attendance levels and reduced marketing costs of $1.8 million due to the timing of expenditures.

G&A expenses were $22.1 million for the quarter, which is $3 million higher than the prior year, due to higher head office costs, including $1.6 million associated with a nonrecurring pass service charge adjustment related to a supplemental executive retirement plan and higher professional fees, partially offset by lower costs associated with long-term and short-term incentive program expenses.

Subsequent to the quarter-end, we acquired the remaining 20% of WorldGaming that we did not already own, for $4.4 million and recorded a $1 million gain on change in fair value of financial instruments during the quarter. Net CapEx for the first quarter was $25.1 million as compared to $28.7 million in the prior year. We continue to estimate that our net CapEx will be approximately $125 million for 2017, and this includes approximately $25 million related to our recliner program.

While box office results for the first quarter were down slightly from the prior year, we are pleased with the results from the amusement business and we are optimistic about the remainder of the 2017 film slate. We continue to remain comfortable to our Cineplex Inc. position today. Our strong balance sheet and low leverage ratio allows us to continue to invest for future growth opportunities for the company and benefit from future strong film product. As Ellis mentioned, we are pleased to announce a 3.7% increase in the annualized dividend to $1.68 effective with the May dividend to be paid in June 2017.

That concludes our remarks for this morning, and we'd now like to turn the call over to the conference operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will be from Drew McReynolds with RBC.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [2]

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I guess, Ellis, just out of the gate here, can you provide just an update on the premium VOD window and where kind of the industry stands to-date on that? And then, Gord, just on the CapEx side, the $125 million for this year, obviously includes that $25 million recliner retrofit. Just bigger picture, looking at longer term, do we assume that $25 million is one-time and you go down to more or less $100 million kind of recurring, just given all the ramp up and the diversification? Not looking for specific guidance, just more general kind of directional comments.

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [3]

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Okay, thanks. On the D-BOX, as you know, we continue to have discussions with our studio partners, but again, between the studio partners and the exhibitors, we have to do the right thing for the industry, and well, neither us nor them are looking to trade dimes for nickels. So this is something that we continue to discuss but there's nothing new to report at this present time. And Cineplex, as a company, is well-positioned with our store, where today, we have over 7,000 movies and we continue to see double-digit growth in that whole area.

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Gord Nelson, Cineplex Inc. - CFO [4]

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Yes. So Drew, on the CapEx question, yes, the guidance has been that there's an additional incremental $25 million additional spend in 2017 related to the recliner program. As we look at the potential success of that program, that amount could change and there could be additional spending in that. But as we look to future years, as we've mentioned, as we would expect that the CapEx related to exhibition, with the exception of my comment about the recliner program, could tail off. And then as we look to expand The Rec Room and build up The Rec Room, is it would replace that amount and we would to remain at that -- roughly that $100 million level in the near term. Now we are working on, as we mentioned, developing a model which could go into kind of a midmarket-sized town and so that could change that amount as we look forward.

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Drew McReynolds, RBC Capital Markets, LLC, Research Division - Analyst [5]

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Okay, that's helpful, Gord. And maybe if I can just squeeze in one last one. Obviously, again, some nice numbers, early (inaudible) the nice numbers on The Rec Room. Ellis or Gord, just can you provide update on kind of your observation to-date in Edmonton?

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [6]

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We are very pleased with the performance of Edmonton. The results to-date are much stronger than that we had projected and we've got 3 more opening in 2017, and we feel that we are well-positioned with The Rec Room and the benefits we see as far as the synergies and the interplay between our human capital and our infrastructure with The Rec Room.

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Operator [7]

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And our next question is from Rob Goff with Echelon Wealth Partners.

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Robert Goff, Echelon Wealth Partners Inc., Research Division - MD of Research, Head of Research, Telecom Services and New Media Analyst [8]

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I realize it's still early days but could you talk to what initial observations you've had with respect to the recliners and that we've to Regal in the States talk to where they have recliners, attendance was up by 9.5% versus 4.5%. So if you could just talk to that, it'd be appreciated.

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [9]

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Yes, so thanks, Rob. And so far, we've seen some strong results from recliners. We are getting the benefit of higher food sales in locations with recliners and we've been able to take some price increases. So overall, it's been successful. We just have to be careful in certain locations because of capacity utilization as to whether we move forward or not, but so far, it's been extremely positive.

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Operator [10]

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And our next question is from Kenric Tyghe with Raymond James.

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Kenric Saen Tyghe, Raymond James Ltd., Research Division - SVP [11]

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Gord, on the revenue reclassification, just with respect to the enhanced guest services, could you just remind us what specifically would be sort of reclassified into that bucket or what those services are? I mean, I have a -- I think I have a pretty good handle on it, but I don’t want to make any assumptions on that. And just further to that, could you also give us some indication, sort of over a longer period of time, how those have trended as a percent of actual box office just for modeling purposes?

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Gord Nelson, Cineplex Inc. - CFO [12]

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Yes, sure, Ken. Let me comment kind of the second part of the question, if you – we'll disclose the amounts by quarter to help you out in the modeling side of things. So if you want to -- we have a Section 9 in the MD&A, you'll find that detail for the last 8 quarters. So with regards to the category, there's certain kind of convenience-related fees that were in addition to the box office price. And so we've really just looked to include everything related to the admission and the entry into the theater and the convenience-related fees into one line item.

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Kenric Saen Tyghe, Raymond James Ltd., Research Division - SVP [13]

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Okay. And nothing more beyond that? So there's nothing else beyond that in terms of some of the other differentiators you have in your model that is being included into that other line item?

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Gord Nelson, Cineplex Inc. - CFO [14]

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No. And as you can see, look, as we expanded the amusement solutions business, that was also included in other revenue, so it really kind of left the other revenue line with items such as breakage and theater rentals and screening fees that was really kind of evaluated what we want to leave in that line item.

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Kenric Saen Tyghe, Raymond James Ltd., Research Division - SVP [15]

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Great. Appreciate it. And then just a follow-up with respect to the amusement business. Could you sort of also speak the expense leverage in the Player One Amusement Group? How that performance was in the quarter relative to expectations and perhaps how we should expect to see that evolve through the course of the year. Obviously, end quarter there were expenses rolled up there that we won't see recurring but perhaps how we should expect to see that scale through the year?

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Gord Nelson, Cineplex Inc. - CFO [16]

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Yes, look, in terms of the overarching strategy in the space, it's really been to execute and create a national footprint to extract some of the operating synergies and revenue synergies in the U.S. that we've also experienced in Canada. So we did 2 acquisitions in the fourth quarter. We've announced one that would close on April 1. So as we look to integrate these businesses and grow them, it'll take a number of quarters before you see, one, the extraction of those -- some of those revenue synergies and the operating synergies; and then also, just to kind of extract and produce sort of the one-time costs related to executing the transaction and fees and professional fees related to those transactions. As we've always said that amusement sort of typical solutions business, when you blend the distribution side and the rev side of the business, it's a mid-teen type margin business.

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Operator [17]

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And we'll take our next question from Aravinda Galappatthige with Canaccord Genuity.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [18]

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I just wanted to start with the digital play space media. Obviously, saw very good growth in 2016 and a good stream of new contracts, Morguard being the most recent one. I know that quarterly numbers are sort of hard to call because of sort of the project -- the installation -- the project installation revenues. Maybe you can perhaps talk sort of the full-year expectations, do you still see strong double-digit growth in that line item? And [it's just so] that we appreciate the quarterly movement, how meaningful are those installation revenues at this point in that line item?

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Gord Nelson, Cineplex Inc. - CFO [19]

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Yes, and during the call, I usually provide a little bit more color on the installation base. So at the end of last year, we had about 11,100 locations under deployment, the first quarter of last year. That number was -- so first quarter 2016, that number was about 9,900 locations, and we're at about 11,900 locations deployed at the end of the first quarter 2017. So about a 20% increase year-over-year, but 6% in the quarter. So as we've always said, we had a fairly significant installation with the Beer Store last year, but the installations were a bit later in the first quarter than they were in last year, but we're still looking at that overall level that's going to be in the range of where we were last year in terms of the overall revenues. So during the first quarter, and the last part of your question was, how significant our – in our hard goods sales in terms of the overall revenue in amounts. And so for the first quarter, they were kind of in the low double-digits, so between 10% and 15% of overall revenue.

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [20]

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Okay, that's helpful. And Gord, I just wanted to clarify what you said just before that, about the full-year number. Is your expectation to see similar type of growth in dollar terms in '17 as you did in '16? Or I wasn't clear on that?

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Gord Nelson, Cineplex Inc. - CFO [21]

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Right, that was an overall percentage (inaudible).

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Aravinda Suranimala Galappatthige, Canaccord Genuity Limited, Research Division - MD [22]

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(inaudible) Okay, great. And then just moving on to the exhibition side of things. You continue to see that underlying BPP growth, excluding that premium formats have continued to kind of tick up, I think it was about 1.8% last quarter, it's 2.8%. Can you just sort of remind us of what's happening on the underlying pricing front, just so that we appreciate that inflation there?

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [23]

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Yes, Aravinda, during 2016, in October, we took some selective price increases and you're seeing the benefit of that flowing through. And then as you talked about, it's the premium formats that are driving the balance of the increase that's taking us to the $9.97. If you look at things like our D-BOX installs last year, first quarter, we were at 44; at the end of this first quarter we were at 78. We have 4DX. We have lot of the premium formats and also our UltraAVX continues to outperform our peers and provide us with great opportunities with BPP growth. And then finally, the recliners are another addition where you'll see continued benefits from a BPP perspective.

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Operator [24]

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(Operator Instructions) We'll take our next question from Derek Lessard with TD Securities.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [25]

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You touched a bit on it in your prepared remarks, but I was just wondering if you can talk about the recent acquisitions of Tricorp and Dandy, and maybe just what your overall strategy here is, and some of the potential growth you see as well as other consolidation opportunities?

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Gord Nelson, Cineplex Inc. - CFO [26]

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Sure, Derek. Look, I think you guys are familiar with the strategy that we executed in Canada, where we acquired the 2 largest amusement solutions companies, consolidated them, extracted the operating synergies. And then we rolled out concepts internally, like XSCAPE, and now as we're rolling at The Rec Room, the amusement solutions business is now supplier to us. So it's a wholly owned supplier into the space as we look to grow that Rec Room business and the amusement revenue, they're related. As we look into the U.S., we had -- as a result of the [PFI] acquisition, a small footprint in the Southeastern U.S. The acquisitions that we've done to-date have really given us a national presence, so we've expanded from the Southeastern U.S. to the Northeastern U.S. and now Western U.S. in both the route-based, so that's supplying third-party customers, in essence, rev share models and as well as a distribution business, so accessing equipment at low cost and selling equipment to interested third parties. As you look and you see location-based entertainment concepts growing, both in Canada as we roll at The Rec Room, and in the U.S. as you see a number of concepts being built out and you hear about sort of the evolution of retail in the mall environment, we expect that amusement solutions will play a part in this going forward and there will be growth there. So what was really done in the U.S. is now we've created this national footprint. We can extract from the operating synergies and take advantage of what we see as growth in this space going forward.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [27]

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Okay, very helpful. And as well, on The Rec Room, I mean, there's been talk, one of the competitors said earlier in the year that they were interested in Canada. Just wondering about your thoughts here and what you think your competitive advantage is and does this change your plans in terms of the rollout in any way?

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [28]

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We feel comfortable with our position, given our brand in Canada, our loyalty program, the success of Edmonton and what we have done to make it a unique offering. And so far, from all of the feedback we are getting is, people are extremely pleased about what we have done to create this offering in Canada.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [29]

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Okay. Then maybe I'll just squeeze in one final one, Gord. Maybe -- could you add some color maybe on the decline in the media EBITDA margin year-over-year?

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Gord Nelson, Cineplex Inc. - CFO [30]

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The decline, sorry, in the overall media margin? I mean, really, Derek, it wasn't particularly significant. The media revenue was relatively flat in the segment. As you may be aware, we've allocated certain amounts of media revenue to the other segments, so to the amusement and leisure segment also, which has been growing. So with that sort of re-categorization or the segment offering, the media EBITDA would not look like it has gone down as it has in the financials. But it really didn't go down significantly. It was at 53.5% last year, the margin percentage, down to 49%, really related to kind of that core timing, the Cinema exhibition business, which was relatively flat year-over-year, and the Cinema media business was relatively flat year-over-year.

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Operator [31]

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We'll take our next question from Jeff Fan with Scotiabank.

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Jeffrey Fan, Scotiabank Global Banking and Markets, Research Division - Director, Telecommunication Services and Canadian and U.S. Telecom and Cable Equity Research Analyst [32]

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My first question is on the film cost as you look out through the rest of the year. I know it's hard to predict winners or losers. But as you look out in terms of the -- what you would expect on concentration around films and studios, wondering if you can kind of give us some comments on the film cost percentage as we look out to the rest of the year, especially compared to last year, which seems to be a really tough year on that front. And then the second question is related to the recliners. It sounds like the experience, so far, has been very positive. So I guess my question is, if that is the case, why are you thinking about not expanding that to more theaters as you look out to 2018 and beyond?

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [33]

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So on the film cost, as you mentioned, it has a lot to do with the concentration of successful movies. And the more movies provide us with doubles and triples instead of just home runs, you end up with lower film costs. But on the flip side, we do want those home runs because they increase our box office revenue, which drives attendance and also drives the bottom line. So it's very hard to predict, from quarter-to-quarter, what the success is going to be from an overall percentage basis. But needless to say, if the box office does go up substantially, you will see an increase in film rental and vice versa. And on the area of recliners, again, as I mentioned previously, we are looking at it in many locations across the country, but we have to also be careful based on the capacity utilization in some of these theaters because you do use a lot of capacity when you do put in the recliners. So we are being very opportunistic and have been quite successful in what we've done so far.

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Operator [34]

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It appears there are no further questions at this time. I would like to turn the call back to Ellis Jacob for any additional or closing remarks.

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Ellis Jacob, Cineplex Inc. - CEO, President, Director, CEO of Cineplex Entertainment Corporation and President of Cineplex Entertainment Corporation [35]

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Thank you for joining us this morning. We look forward to seeing you at our Annual General meeting at 10:30 a.m. on May 17, 2017, at our Cineplex Cinemas Yonge-Dundas and VIP. Please mark your calendars for that date. Thank you so much, and have a great day.

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Operator [36]

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That concludes today's call. Thank you for your participation. You may now disconnect.