Cineplex Inc. (CGX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. It gives me great pleasure to welcome you to the Annual General Meeting of Cineplex Inc. My name is Phyllis Yaffe, and I am the Chair of the Board of Directors of Cineplex. I'm pleased to be here today to preside over the meeting and to work so closely with the exceptional Cineplex management team. In light of the unfortunate ongoing public health concerns related to the spread of COVID-19 and in order to mitigate potential risks to the health and safety of our shareholders, employees and other stakeholders, we're hosting today's meeting virtually. We do have a few members of the management team present with me today at the Scotia Toronto theater, but all other directors, shareholders and guests are attending via live audio webcast. Before proceeding with the formal business of the meeting, I would like to introduce the Cineplex executives who are present with me today. Seated in the auditorium are Ellis Jacob, President and Chief Executive Officer; Gord Nelson, Chief Financial Officer; Dan McGrath, Chief Operating Officer; and Anne Fitzgerald, Chief Legal Officer and Corporate Secretary. Many other members of our management team are joining us virtually today. I thank each of you for your attendance at the meeting today as well as your ongoing commitment to Cineplex through the work that you do on a daily basis. All of our current Board members are standing for reelection today. Along with myself and Ellis Jacob, the current directors standing for reelection for the coming year are Jordan Banks, Robert Bruce, Joan Dea, Janice Fukakusa, Donna Hayes, Sabi Marwah and Nadir Mohamed. After concluding the formal business of the meeting, we will have presentations from each of Ellis Jacob, President and CEO; and Gord Nelson, Chief Financial Officer. Following their presentations, there will be a Q&A session. At that time, validated shareholders and duly appointed proxy holders attending the meeting may ask a question by submitting questions for the Q&A session by typing their question in the Ask a Question text box located at the lower left-hand side of your screen and clicking the same button to submit the question. Though we may not be able to answer every question during the Q&A session, we will do our best to respond to as many as possible. [Operator Instructions] Please note the following with respect to voting at the meeting. Any voting during the meeting today will be conducted by virtual or online ballot. If you previously sent in your proxies or voted via telephone or Internet and are not changing your vote, you do not need to vote again. Your prior votes will be counted. Guests may attend the meeting but will not be able to ask questions or to vote. Please also note that this meeting is being recorded. In the meantime, I want to move to the formal portion of this annual meeting, and I now call the meeting to order. With the consent of the meeting, I will act as Chair, and I will ask Anne Fitzgerald, Chief Legal Officer and Corporate Secretary of Cineplex, to act as secretary of the meeting. Broadridge Investor Communications Corporation will act as scrutineer through its representatives, Rosemary Colakic and Leanne Branston. I have been provided with a preliminary scrutineer's report indicating that a quorum is present and that due notice of the meeting has been given. As such, I declare that the meeting has been duly convened and constituted. When the formal report of the scrutineer is available, it will be made publicly available on SEDAR following the meeting and will be kept with the minutes of the meeting. Each share represented at the meeting is entitled to 1 vote. Shareholders who have previously sent in proxies or voted online or via telephone do not need to take any further action today. For shareholders attending the meeting virtually who have not previously voted, voting will be conducted by online ballot by following the instructions in the management information circular of the corporation dated April 8, 2021. The online voting polls are now open for all matters to be voted on. This will allow you to choose to vote on each item of business immediately or to wait until each motion has been made prior to casting your vote. Please note that registered shareholders and duly appointed proxy holders voting online have the ability to change their votes at any time before the polls close after all motions have been made. We will now proceed to the first item of business. Prior to the meeting, shareholders were presented with the December 31, 2020, annual financial statements of Cineplex Inc., together with reports from management and the auditors of the corporation. Those materials were either mailed or provided electronically to shareholders. These materials are also available online under the corporation's profile on SEDAR. Shareholders do not have to take any action regarding the financial statements. But if any shareholder has questions relating to the statements, I would ask that they be raised during the Q&A portion of the meeting. It is now time to proceed with the first formal item of business, the election of directors. I would invite a motion in this regard.

Madam Chair, I nominate Jordan Banks, Robert Bruce, Joan Dea, Janice Fukakusa, Donna Hayes, Ellis Jacob, Sabi Marwah, Nadir Mohamed and Phyllis Yaffe as Directors of Cineplex Inc. to hold office until the next Annual General Meeting of Shareholders or until their successors are elected or appointed.

I second the nominations.

As the corporation's bylaws require that any additional nominations for directors be submitted at least 30 days prior to the annual meeting and as no such nominations were received, I declare the nominations closed. Would someone please move and someone please second a resolution for the election of these persons as directors.

Madam Chair, I move a resolution as follows: be it resolved that Jordan Banks, Robert Bruce, Joan Dea, Janice Fukakusa, Donna Hayes, Ellis Jacob, Sabi Marwah, Nadir Mohamed and Phyllis Yaffe are hereby elected as Directors of Cineplex Inc. to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed.

I second the motion.

As previously mentioned, voting on all matters during the meeting today will be conducted by virtual or online ballot. If you have yet to vote, you may do so now. [Voting]

Thank you. We will now move on to the next matter to be voted on. The next item of business is the appointment of our auditors and the authority of the directors to fix their remuneration. Will someone please move and someone please second the resolution in that regard.

Madam Chair, I move the following resolution: be it resolved that PricewaterhouseCoopers LLP is hereby appointed as auditor of Cineplex Inc. to hold office until the next Annual Meeting of Shareholders at such remuneration as may be fixed by the directors.

Madam Chair, I second the motion.

Thank you. Those shareholders and proxy holders who have not yet voted may do so now. [Voting]

Thank you. We will now move on to the next matter to be voted on. The next item of business is a nonbinding advisory vote on the approach to executive compensation disclosed in the management information circular. This shareholder advisory vote forms an important part of the ongoing process of engagement between shareholders and the Board of Directors on executive compensation. Will someone please move and someone please second the resolution in that regard.

Madam Chair, I move the following resolution: be it resolved that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors, the shareholders accept the approach to executive compensation disclosed in the management information circular of Cineplex dated April 8, 2021.

Madam Chair, I second the motion.

Thank you. Those shareholders and proxy holders who have not yet voted may do so now. [Voting]

Ladies and gentlemen, the online voting polls will remain open for a brief moment. Any registered shareholder or duly appointed proxy holder who hasn't yet voted or wishes to change their vote may take the opportunity to do so now through the voting buttons on the web portal. As a reminder, shareholders who have sent in proxies or voted by telephone or Internet do not need to take any further action. We will pause a moment for any further voting. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls for the Cineplex Annual Meeting of Shareholders closed. We have been informed by the scrutineer that the preliminary vote report shows that each of the proposals presented for approval today have been duly passed. I declare that the nominees listed in the management information circular have been duly elected as directors of the corporation until the close of the next Annual Meeting of Shareholders or until they resign or their successors are elected or appointed, Pricewaterhouse Coopers LLP has been appointed as the corporation's auditors for the ensuing year and the advisory resolution on the corporation's approach to executive compensation has been passed. We will be reporting the final voting results in a press release and SEDAR filing following the meeting. We have now completed the formal part of the meeting. As there is no further business to be conducted, the meeting is hereby terminated. On behalf of management and the Board of Directors, I'd like to thank you for attending the meeting. It is now my pleasure to turn things over to Ellis Jacob, President and Chief Executive Officer of Cineplex Inc.

Thank you, Phyllis. Good morning, everyone, and thank you for joining Cineplex' Annual General Meeting. I hope that you and your families are all staying healthy. For today, I will take a brief look back on 2020 and 2021 to date, sharing the actions we initiated to manage through the COVID-19 pandemic and the groundwork we have laid for our success over the long term. Then I'll provide an outlook, including the upcoming film slate for the rest of 2021 and into 2022 and why we are so optimistic about our recovery. Following this, Gord Nelson, our Chief Financial Officer, will provide a financial update, and we will close the meeting with questions from shareholders who are participating online. Before I proceed, I would like to draw your attention to this slide and ask that we all be aware of its content. Here, I think we can all agree that it has been inconceivable, like something out of a Hollywood movie. The amount of drama, subplots, twists and turns and heroism would be enough for a multi-picture deal. Our company has certainly endured a lot during its 100-plus years of business, but the experience of COVID-19 has been an especially unique time for the exhibition industry. No one could have anticipated how long this virus would continue to impact us and all the challenges we would face not just as a company but also as an industry. With that in mind, I'm deeply proud of the way our team has come together and how well we have handled this unexpected situation. I would like to take a moment to thank our team across Canada for their hard work and unwavering commitment. With the mandated closures, capacity restrictions and shifts in the film release schedule, it should come as no surprise that our 2020 financial results were significantly impacted. Having said that, although our physical doors was shut for much of the last year, the team worked harder than ever to mitigate the negative impact and support the long-term stability of the company. While Gord will go into more detail shortly, I want to highlight the key actions we took this past year to immediately address the impacts of the pandemic. We significantly reduced capital expenditures and our 2 primary operating costs, which are payroll and rent. During the mandated closure period, we temporarily laid off our part-time field workforce, our full-time employees took voluntary temporary salary reductions and we realigned and consolidated our corporate teams, eliminating many roles across the Cineplex ecosystem. We also benefited from government wage subsidies, primarily through CEWS, and worked with our landlord partners to obtain abatements on rent payments through this period. Above all this, in an effort to further reduce our operating costs, we eliminated all discretionary spending and worked with our suppliers to renegotiate and revise contracts. After months of closure at the start of the pandemic, last August, we had a brief reprieve as we reopened all of our theaters and LBE venues across the country. And our guests were thrilled to be back, almost as thrilled as our teams were to reopen our doors and get back to doing what we do best, entertaining Canadians and offering exceptional experience that you cannot replicate at home. Although restrictions were reinstated in the fall, the commitment to stabilizing our business through the ups and downs of lockdowns during the past year has been a true testament of our incredible team. We seized the opportunity to implement creative and strategic solutions to the crisis we faced. When the country was forced to stay home for a large portion of the year, we switched gears and focused on our expanded food delivery service through Skip the Dishes and Uber Eats, bringing our much loved popcorn and other food offerings from our theaters and LBE locations right to our guests where they couldn't -- when they couldn't come to us. Our online platform, the Cineplex Store, which is a key differentiator for us from our peers, experienced significant growth as people consumed more content from home and reported a massive 39% increase in registered users in 2020. The Cineplex Store also benefited from a number of premium video-on-demand releases during the year, offering guests the chance to view new exclusive content. More importantly, it provided us with the opportunity to meaningfully engage with our guests while our theaters were closed. To drive additional revenue through our groups and events business, we also successfully introduced private movie nights, which offers movie lovers an easy and affordable way to reserve an entire auditorium for their group of up to 20 guests where permitted. With people looking for creative and safe ways to come together, private movie nights and private game time rentals at The Rec Room and Playdium are great options to share a social experience safely with family and friends. Looking at our balance sheet and available cash flow. We adapted with great agility and created the financial stability needed to see us through the pandemic. Key liquidity events included a raise of over $300 million in additional financing in the form of convertible debentures, and subsequent to year-end, we raised another $250 million in the form of second lien notes. This last offering was significantly oversubscribed by interested investors and a true testament to the market's faith in our business and our anticipated recovery once we are permitted to fully reopen. We also obtained additional relief under our credit facilities, which now extends to the fourth quarter of this year. Cineplex has a unique suite of assets like no other exhibitor in the world, allowing us to unlock value and strengthen our financial position. A key example of this was in the fourth quarter of 2020 when we entered into a $60 million agreement with Scotiabank to reorganize the SCENE loyalty program and reposition it for future growth. As I mentioned earlier, in addition to significantly reducing our operating costs, we also minimized all capital expenditures by deferring or canceling project spending during the crisis, which means we are only moving forward with projects that are already significantly underway, have binding legal commitments or where the need is critical to our business operations. We had a number of new builds that were near completion in 2020, including our Playdium in Dartmouth, Nova Scotia, which opened to very strong results in the first quarter of 2021. The overwhelmingly positive public and media response shows us that this venue will be very successful once it has reopened and able to return to full capacity. Other anticipated openings included locations of The Rec Room in Barrie and Burnaby, BC as well as VIP cinemas in Montreal and Burnaby, BC, which are ready to open as soon as we are permitted. As you are all aware, in addition to the challenges we face with COVID-19, Cineworld repudiated our arrangement agreement in June. Cineplex filed its statement of claim in the Ontario courts in July, and since then, the court has assigned a judge to our case and set a time line to get us to trial this September. We are currently in the process of document discovery, including oral discoveries, which took place earlier this year. Well, there's not much more to share at this time. We are moving through the legal process and seek to recover all damages as outlined in the claim. What has become abundantly clear to me through this process is the strength and commitment of our team and the deep faith and belief in the success of Cineplex by both our Board of Directors and our investors. Though we faced several unprecedented challenges last year, we remain steadfast and focused on navigating the storm. As the vaccines continue to roll out across the country, we are seeing the light on the other side stronger than ever. In fact, as of today, over 50% of eligible Canadians have received their first dose of a vaccine. Even more reassuring, the government recently announced that every eligible Canadian should have their first vaccine by the summer and be fully vaccinated by September. Coming out of the pandemic, we know our guests will be looking for safe out-of-home entertainment options, which is why we have diligently prepared for the safe reopening of our entire circuit, carefully reexamining our buildings and implementing an industry-leading health and safety program across all our theaters and LBE venues. Our top priority remains the health and safety of our employees and guests, and we take great pride in ensuring that we always deliver an environment that is above all, safe, comfortable and welcoming. As we look ahead to reopening theaters across the country, we continue building on the industry's impeccable track record of safety measures that have ensured 0 cases of COVID-19 transmission. That's not only our theaters but globally in any of the thousands of movie theaters across the world. When we consider the activity of moviegoing, we know that it doesn't pose the same risk as other indoor gatherings, and we continue to actively work with government regulators and public health experts to highlight the safety protocols within our venue. Our teams on the ground are vigilantly following the procedures and guidelines in place, and this focus on health and safety will continue even as the threat of COVID-19 subsides. Although the pandemic has lasted longer than anyone initially expected, we know that the exhibition, amusement and leisure industries will recover. In fact, we are already seeing this with the record-breaking box office results coming out of countries that have reopened. In accepting her Oscar for Best Picture for Nomadland, actor and producer McDormand told viewers, "Please watch our movies on the largest screen possible. And one day, very, very soon, take everyone you know into a theater, shoulder to shoulder in that dark space and watch every film that is represented here tonight." That sentiment is one we are hearing across the board from the industry and more importantly, from our guests. We all want to get back into theaters to escape and be delighted in the way only the big screen experience can provide. What we offer is not a transactional business. It is an emotional shared social experience, and we can't wait to bring it back in a very big way. Because of the theatrical release delays over the past year, movie lovers are in for an onslaught of amazing films from some of their favorite actors and directors. Films to look forward to include A Quiet Place Part II, Peter Rabbit 2: The Runaway, F9, Black Widow, The Suicide Squad, Free Guy, Shang-Chi and the Legend of the Ten Rings, The Boss Baby: Family Business, No Time To Die, Ghostbusters: Afterlife, Top Gun Maverick and Spider-Man: No Way Home. And that's just for 2021. When we look at next year, industry experts are already anticipating a stellar year at the box office as the industry makes a strong rebound with a series of blockbuster titles to look forward to. Just to name a few, we are excited to see films like Morbius , the Batman, Doctor Strange in the Multiverse of Madness, Thor: Love and Thunder, Mission: Impossible 7, Jurassic World: Dominion; Black Panther: Wakanda Forever, Minions: The Rise of Gru, Spider-Man: Into the Spider-Verse sequel, The Marvels, Avatar 2, Aquaman 2, all expected to hit the big screen in 2022. Even as studios experiment with their release strategies during the pandemic, they have recognized that the theatrical release window is critical to a film's success. The economics simply don't make sense for a big-budget film not to have an exclusive window for theatrical release. Pre pandemic, the movie exhibition industry was over $40 billion worldwide. Studios are not going to forego that large revenue source. And while windows may be changing, they are not disappearing and neither is moviegoing. Streaming doesn't compare to the theatrical experience the same way that ordering in doesn't compare to dining out. People are looking for an immersive shared social experience that you can't get at home. And that's exactly what we are going to focus on as we come out of this pandemic. As the vaccine rollout continues and the country begins to reopen in the coming months, the growing excitement around the return to social experiences is tangible. Our collective love of moviegoing and shared social experiences has been reaffirmed, and we have learned a great deal this past year. Here's what we know, Cineplex is capable of weathering any challenge laid before us. Our business and offerings are vital to our guests and the industry. People are craving the experiences we have to offer, and we are ready to capitalize on this pent-up demand. We are confident in our strategy and expect that our other businesses, including media, will also see an uptick in results as clients build their budgets for the recovery. Our P1AG business is already on the upswing in the U.S., which suggests a strong recovery within Canada, too, as we reopen. As we closely monitor the developments around COVID-19, we are confident that our efforts over the past 14 months have positioned us well for the long term. We have focused our time and energy on the things we can control. We put measures in place to bulletproof our company, prepared our teams to hit the ground running and are eager to deliver the exceptional experiences our guests have missed for so long. As restrictions lift, we will remain agile in our operations, pivot as needed and proudly offer a safe escape from the everyday for all Canadians. With that, I will turn things over to Gord Nelson for a financial update.

Thank you, Ellis, and good morning. As you heard Ellis mention earlier, since the beginning of the pandemic, our immediate focus was on cost control and liquidity measures. From a cost control perspective, we focused on minimizing our operating expenses and obtaining relief from our key suppliers. We worked with our landlords and real estate partners to abate and defer our lease costs. We initiated employee layoffs, took voluntary salary reductions and applied for government wage subsidy programs. We significantly reduced our near-term CapEx and continued the suspension of the dividend to conserve cash. Above all, we focused on minimizing the cash burn of the organization during the closure period. In addition to our focus on costs, we initiated a number of liquidity measures to ensure that the company had the financial resources and runway to weather the storm, including amending our credit facilities, executing on alternative financing sources, asset sales and other liquidity events. Over the last 12 months, we have delivered just over $900 million in liquidity measures, including successful convertible debenture and notes offerings. Other liquidity events included asset sales, tax refunds, landlord and supplier relief and government subsidies and rebates. As a result of the various measures taken to date, we have put ourselves in a strong financial position with approximately $317 million in pro forma liquidity as at March 31, 2021. This includes $58 million in tax refunds, of which $43 million was received on May 7. With our focus on cost control, we have managed to keep our average net monthly cash burn down to $21.5 million per month for the last 12 months and $26.9 million per month for Q1 2021. The marginal increase in cash burn for the first quarter is due to the end of the benefit of the tax losses during Q4 2020 as we hit our maximum carryback amounts. In summary, we have executed and delivered approximately $927 million in liquidity measures during the last 12 months. As at March 31, 2021, we had pro forma liquidity of approximately $317 million and during the last quarter, reported an average net monthly cash burn of approximately $26.9 million. As we look ahead and as Ellis mentioned, we see positive news on vaccine rollouts. We see pent-up consumer demand, and we see a backlog of film titles to supply the market on reopening. We know there may be still some unknowns and setbacks as we saw throughout the past 12 months, but we believe we have positioned the company well to handle any further uncertainty through the next 12 months. Our attention is focused on the safe reopening of our businesses and delivering the shared social experiences that our guests are craving. I will now turn the meeting back over to Ellis.

Thank you, Gord. We would like to open the meeting to shareholder questions. For those shareholders or duly appointed proxy holders online, you may submit a question by typing it in the Ask a Question text box located at the lower left-hand side of the screen. Melissa, do we have any questions?

We have no questions at this time, so I will turn the call back over to you for closing remarks.

Thanks, Melissa. Before we close the meeting, I would like to thank my fellow Cineplex colleagues and employees for their hard work and dedication. Thank you to the Board of Directors for their continued helpful advice and good governance. And finally, thank you to our shareholders, guests and partners for your ongoing support and belief in Cineplex. Cineplex has been entertaining Canadians for over 100 years. It's what we do best. And we know that millions across the country now have a new appreciation for the importance of friends and family and the power of shared social experiences. We have fortified the financial position of our company, secured the money we need to see us through and developed the gold standard in health and safety protocols to safely welcome our guests back. The bottom line is that Cineplex will make it through this tough time. We remain confident in our strategy, and we'll continue to take all necessary actions to ensure Cineplex not only survives the pandemic but thrives for many years to come. Thank you for joining us today and take care.

This now concludes the meeting. Thank you for joining, and have a pleasant day.