Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cineplex Inc (CPXGF, Financial) achieved box office revenues of $175 million in Q3 2024, representing 98% of 2019 levels, indicating a strong recovery post-pandemic.
- The company reported total revenue of $395 million, exceeding 2019 levels, showcasing robust financial performance.
- Cineplex's digital media segment achieved a 40.3% year-over-year revenue growth, driven by expanded digital out-of-home shopping networks and new clients.
- The company is opening three new LBE (Location-Based Entertainment) locations in key markets, which are expected to strengthen its position in the entertainment space.
- Cineplex's premium experiences accounted for 42.2% of the box office, up from 35% last year, highlighting the success of its premium offerings.
Negative Points
- Cineplex's total revenues were 4.6% lower than Q3 2023, which was the best quarter in the company's history due to the Barbenheimer phenomenon.
- The company underperformed the North American box office relative to 2023, although it outperformed relative to 2019 by nearly 3%.
- Cineplex faced a decline in attendance by 15.5% compared to the previous year, impacting overall revenue.
- The media segment's adjusted EBITDA decreased by $2.4 million due to a sales mix shift to the lower margin CDM business and ongoing conversion costs.
- Cineplex accrued a $39 million provision related to a competition tribunal's decision, impacting its financial results.
Q & A Highlights
Q: Can you discuss the consumer reaction to price changes given the current macroeconomic conditions and any observed changes in consumer behavior?
A: Ellis Jacob, President and CEO, explained that the increase in BPP (Box Office Per Patron) was largely driven by premium offerings and a slight price increase. The CPP (Concession Per Patron) also benefited from a larger basket size and more product offerings. The mobile app contributed to higher CPP as more guests ordered online. Gord Nelson, CFO, added that the absence of a cinema day this year, which had previously impacted BPP and CPP, also contributed to the growth. There was no negative consumer sentiment regarding the price changes.
Q: Could you provide some direction on your film costs going forward and discuss the SG&A line, particularly software and professional fees?
A: Ellis Jacob noted that film costs were higher due to the concentration of top movies doing significant business, which results in higher costs. Gord Nelson explained that SG&A costs increased due to transitioning to a cloud-based environment and the implementation of marketing automation platforms. Some of these costs will continue as subscription models, but upfront consulting fees will decrease over time.
Q: Is there a trend towards higher-cost films being produced, and could this lead to higher box office revenue costs?
A: Ellis Jacob acknowledged that studios focus on big titles, but other groups are releasing films that fill gaps and result in lower costs. The mix of films, including international content, will continue to improve, providing a balance between high-cost blockbusters and smaller films.
Q: Why are media margins lower compared to a similar revenue run rate in Q2 of last year?
A: Gord Nelson explained that the shift in revenue mix towards project revenue, particularly due to the rollout of new mall clients like Cadillac Fairview, impacted margins. Project revenue includes low-margin capital refreshes, which are expected to dissipate, allowing advertising strength to return in future quarters.
Q: Can you provide an update on the Cineplex Digital Media business, specifically regarding recurring versus transitional revenues?
A: Gord Nelson stated that recurring revenues include advertising, network management, and creative content fees, while project revenues are more variable and lower margin. The focus is on driving value and margin from recurring revenues, despite the inherent lumpiness of project revenues.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
