Cineplex Inc

TSX:CGX

Q3-2025 Earnings Call

[Operator]

Ladies and gentlemen, thank you for joining us, and welcome to the Cineplex Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I will now hand the conference over to Rayhan Azmat. Please go ahead.

[Rayhan Azmat, executive]

Good morning, everyone, and thank you for joining us to discuss Cineplex's Third Quarter 2025 results. I'm Rayhan Azmat, Vice President, Investor Relations, Corporate Development and Financial Planning and Analysis. Joining me today are Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer.

I 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 discussion and analysis. Following today's remarks, we will close the call with our customary question-and-answer period. I will now turn the call over to Ellis Jacob.

[Ellis Jacob, executive]

Thank you, Rayhan, and good morning, everyone. I'm pleased to share our 2025 third quarter results with you today. After a softer start to the year, the second and third quarters delivered steady performances driven by a consistent supply of high-performing diverse titles with growing consumer demand for premium experiences. While there were strong contributions this quarter, attendance was down versus last year as last August had the record-breaking performance of Deadpool and Wolverine. We reported a third quarter box office per patron of $13.23, increasing by $0.04, supported by sustained demand for premium-priced products. Concession per patron was $9.65, down 2%, primarily due to the Labor Day weekend promotion, which included discounted offers on tickets and popcorn.

Taking a closer look at content in Q3, there were standout performances across a variety of genres, including action, horror and anime. Franchise titles like Superman, The Fantastic Four: First Steps and The Conjuring: Last Rites delivered record-breaking results, all becoming the highest grossing titles within their franchise. Beyond franchises and sequels, the third quarter had a nice blend of original content that performed exceptionally well. Standout original horror film, Weapons exceeded expectations and topped the box office for 4 consecutive weeks in 2025. And F1, The Movie, continued its strong theatrical run into Q3, making it the biggest Apple original film ever.

Our alternative content offering continues to demonstrate solid results, driving audience engagement and diversifying our programming slate in ways that resonate with evolving consumer preferences. Anime Call Classic Demon Slayer: Kimetsu no Yaiba Infinity Castle became the highest grossing foreign language film in history, both domestically and at Cineplex. Its massive fan following and deeply loyal global audience made it a strategic win for our alternative content portfolio, driven in large part by our ability to engage a varied and diverse audience. International cinema accounted for 13.6% of our box office in Q3, up from 9.3% last year, a testament to our growing ability to find and attract the right audiences for these films. Punjabi language comedy, Chal Mera Putt 4 delivered impressive results, becoming one of the highest grossing Punjabi films in Cineplex history with approximately 80% of its domestic box office attributable to our circuit.

This reflects our industry-leading approach to film scheduling and our success in attracting high-value audience segments. International cinema also draws key retail demographics sought by advertisers, which is becoming a growing and unique offering for our cinema media team. In addition to the variety of content drawing moviegoers to theaters, consumers are also choosing a more immersive experience. We're using predictive analytics in our marketing efforts to match a moviegoer to a premium experience while also leveraging our loyalty program to reward moviegoers who choose an enhanced experience for the first time. Nearly 45% of our third quarter box office came from premium experiences, highlighted by the fact that our 3 highest grossing films in the quarter generated over 60% of their respective box office performance from these formats.

We started the fourth quarter with Taylor Swift: The Official Release Party of a Showgirl, which energized the typically quieter period and reinforces the power of varied programming to bring audiences into theaters. Artists are increasingly turning to the theatrical experience as a way to unite fans and create shared cultural moments, positioning our theaters as dynamic venues for more than just movies. Our LBE business continues to play a part in our broader entertainment strategy, offering guests fun full social experiences in our venues nationwide. In Q3, LBE revenue reached a third quarter record of $34.6 million, up 11.3% year-over-year, driven by the addition of 3 new locations.

Macroeconomic headwinds impacted food and beverage spending, resulting in same-store revenue declining 3.3% and same-store location margins delivering 21%. These locations are demonstrating resiliency in a more challenging environment while new venues are continuing to ramp up. Despite Q3 results being below our expectations, we remain optimistic as we enter our typically busier fourth quarter. With the heightened demand for groups and events activity in Q4, we are focused on building momentum and driving performance across our Palladium and the Rec Room locations. As we look at our cinema media business in the quarter, despite a softer advertising market, it continues to perform well. Cinema Media Q3 revenues increased by 6.1% to $19.2 million despite the decrease in attendance. This growth was primarily driven by an increase in Showtime revenues, which continues to be a key driver of advertiser engagement.

Cinema media per patron reached $1.59, a 16.1% increase over the prior year, reflecting the diversity of the film slate during the quarter and strong sales despite a challenging media environment. Titles with broad appeal to key consumer demographics helped to track incremental advertising spend even in a relatively slower market. We also continue to leverage our expertise in data and analytics to optimize campaign performance and drive revenue growth. Last month, we announced we have entered into a definitive agreement to sell Cineplex Digital Media to Creative Realities, Inc. for gross cash proceeds of $70 million, subject to customary closing adjustments.

This strategic transaction unlocks meaningful value for shareholders and immediately strengthens our balance sheet, providing capital for opportunistic share buybacks, debt reduction and general corporate purposes. Importantly, Cineplex Media will continue as CDN's exclusive advertising sales agent for its digital out-of-home networks across Canada, ensuring continuity for our partners and clients. CDM has grown into an industry-leading digital solutions company over the past 16 years, and this transaction reflects our commitment to optimizing our portfolio and delivering long-term value.

Before I close, I'd like to provide a brief update on our appeal of the Competition Tribunal decision regarding our online booking fee. We filed our notice of appeal in 2023. At that time and with consent of the Competition Bureau, the Federal Court of Appeal granted us a stay of the administrative monetary penalty imposed against us. This stay will remain in effect until the Federal Court of Appeal has made a decision in our case. Our appeal was heard by the Federal Court of Appeal on October 8, 2025. We continue to believe that we complied with the letter and spirit of the law, and we anticipate a decision sometime in the first half of next year. Looking forward from April through September, box office revenues reached 110% of the same period in 2024.

While August faced a tough year-over-year comparison due to the exceptional performance of Deadpool and Wolverine, July 2025 emerged as the second highest box office month since the pandemic, trailing only the Barbenheimer phenomenon. This signals positive momentum as we enter the fourth quarter. Looking ahead, the remainder of 2025 looks promising. While October is typically a slower month in the theatrical calendar, November and December are shaping up to be strong with a robust slate of highly anticipated titles, including Predator: Badlands, The Running Man, Wicked: For Good, the sequel to last year's Austin-nominated Wicked, which is already generating early buzz and fan anticipation with very strong presales. Zootopia 2, Five Nights at Freddy's 2, Avatar, Fire and Ash, the third chapter in James Cameron Epic Saga and The SpongeBob Movie: Search for SquarePants.

We are also seeing increased interest in theatrical releases from streaming platforms with Netflix announcing that multiple titles will have an exclusive theatrical run before they hit their service. Some of these titles include K-pop Demon Hunters, Frankenstein, Jake Kelly and the latest from the Knives Out franchise Wake Up Dead Man and Knives Out Mystery. Cineplex Pictures is contributing to this momentum with the fourth quarter lineup that includes the Housemaid starring Sydney Sweeney and Amanda Seyfried and the third film in the Now You See Me franchise. Our diversified business model and commitment to delivering premium entertainment experiences and the strong film slate ahead positions us well for continued success into the fourth quarter.

Before I close, I'd like to announce that Kevin Johnson, CEO of WPP Media Canada and President of WPP Canada has been appointed to the Board of Directors. Mr. Johnson is a recognized leader in the Canadian media and advertising industry and has more than 2 decades of experience driving growth and innovation with his deep expertise in marketing strategy and new business development. I will now turn the call over to Gord Nelson, our Chief Financial Officer, to walk you through the financials in more detail.

[Gord Nelson, executive]

Thank you, Ellis. I am pleased to present a condensed summary of the third quarter results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR+ and are 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'll focus on select highlights as well as providing commentary on liquidity, capital allocation priorities and our outlook. Before commenting on the financial results, I want to remind you that with the announced sale of CDM last month, its results are presented retroactively as discontinued operations.

There is significant disclosure in our financial statements and MD&A related to this retroactive presentation and all amounts following will be from continuing operations unless otherwise stated. As Ellis mentioned, we were pleased to see continued consistency in box office performance during the third quarter, supported by a diverse mix of film content. This momentum reflects the enduring appeal of the theatrical experience and the strength of our premium offerings. Total revenue for the quarter was $348.9 million, an 8.7% decrease from the prior year. Adjusted EBITDA was $33.3 million compared to $47.9 million in Q3 2024. Our consolidated adjusted EBITDA margin was 9.6%, down from the 12.5% in the prior year. All of these metrics were impacted by the attendance decline as a result of the record-breaking performance of Deadpool and Wolverine in 2024.

So let's take a closer look at our segments. Box office revenue in the Film Entertainment and Content segment was $159.5 million, down 8.8% from the prior year. Attendance for the quarter reached 12.1 million guests, were $0.5 million or 5% higher than Q2 2025. This represented a decline of 9.1% compared to Q3 2024, again, primarily impacted by the highest grossing R-rated film of all time, Deadpool and Wolverine, which drove exceptional results last year. Box office per patron or BPP, reached $13.23, supported by sustained demand for premium-priced products, which accounted for 44.7% of total box office. Concession per patron or CPP was $9.65, down 2% -- both the BPP and CPP metrics were impacted by a $5 promotional pricing offer during the Labor Day weekend on tickets and popcorn. While these programs drove incremental attendance and a positive net contribution over a typically quiet Labor Day weekend, the impact on BPP and CPP was approximately negative $0.32 and negative $0.12, respectively, as we did not have this program in 2024.

So to reiterate, these programs drove incremental visitation and were a net positive contributor. The year-over-year BPP and CPP change for Q3 should not be read as an indicator of any future trends. During Q2, we saw our first quarter with CPP over $10, and we continue to see opportunity for growth in both these metrics. I also want to speak briefly about our other revenue line, which is comprised of many items attributable to our Film Entertainment and Content segment. During the quarter, other revenue was down approximately $7.9 million as compared to the prior year. The major contributors to this decrease include the following: at the end of 2024, we sold our online business, Cineplex Store. Other revenue included approximately $2.4 million related to this business in Q3 2024 and obviously, nil in 2025. Next, revenue related to our Cineplex Pictures business is based on their films released in any given quarter, and they typically have a limited number of films released in any given year.

This quarter, revenue from this business was $1.5 million below the prior year. But looking back to Q2, as an example, revenue from this business was $1.5 million above the prior year. And as Ellis mentioned, we have a number of films being released in Q4 and would expect the revenue to be above 2024's level in Q4. For both the Cineplex Store business and Cineplex Pictures, these revenue declines are also offset by other operating expense reductions. And finally, breakage on our gift card and certificate programs was down approximately $3 million as compared to the prior year, primarily related to true-ups reflected in the prior year comparatives. These 3 items account for $6.9 million of the decrease. Segment adjusted EBITDA was $33.8 million with a margin of 11.4% compared to 14.7% in the prior year. The decline reflects lower attendance compared to the prior year.

Importantly, through the end of Q3, Cineplex has exceeded prior year box office revenues of every month of 2025, except 2, reflecting a positive trend in both the consistency of film product and consumer demand for the theatrical experience. Cinema Media revenue for the quarter was $19.2 million, an increase of 6.1% compared to the prior year. Growth was driven primarily by increased demand for Showtime advertising. Our ability to deliver targeted impressions through premium content and audience analytics continues to differentiate our offerings in a competitive media landscape. Segment adjusted EBITDA was $15.2 million with a margin of 79.7%. As a reminder, the Media segment results now only include the results from the Cinema Media business and exclude the Cineplex Digital Media business.

While the broader advertising market has been challenged this year, we are encouraged by our growth this quarter alongside longer-term interest from brands seeking high-impact audience-driven placements. Revenue in our location-based entertainment segment was $34.6 million, an increase of 11.3% compared to the prior year, driven by the addition of 3 new venues that opened in late 2024. Same-store revenue declined 3.3%, consistent with our full year expectations of a 3% to 5% decline as previously communicated. Given this revenue decline, same-store level EBITDA margin came in at 21%. Total portfolio store level EBITDA for the quarter was $5.8 million with a margin of 16.7%, down from the 24.4% in the prior year. The decline reflects the lower same-store revenue levels due to macroeconomic headwinds, consistent with the broader LBE landscape, alongside muted operating results from the 3 new build locations, which continue to optimize their operations.

Looking ahead, we remain focused on optimizing performance across the portfolio and are encouraged by corporate event bookings heading into the traditionally strong fourth quarter. We have one remaining committed new location, which we expect to open in the first half of 2026. General and administrative expenses for the quarter were $20.2 million, representing a decline of approximately 2% from the prior year. Within this, LTIP costs totaled $2.7 million, reflecting a $1.4 million decrease from the prior year due to increased forfeitures associated with organizational changes. Subsequent to the quarter end, we announced the sale of Cineplex Digital Media for gross cash proceeds of $70 million, subject to customary closing adjustments.

As mentioned previously, this reflects an approximate 10x multiple on 2025 estimated earnings and was highly accretive for us. Importantly, Cineplex Media will remain the exclusive advertising sales agent for all CDM operated digital out-of-home networks across Canada, ensuring continuity and value in our media business. We ended the quarter with $38.7 million in cash, a modest decrease from $42.1 million in Q2, reflecting seasonal working capital movements and capital expenditures. We continue to maintain full availability under our $100 million covenant-like credit facility with no drawings as of quarter end. Net cash capital expenditures for the quarter were $4.3 million, primarily allocated to maintenance and premium format upgrades. We continue to expect full year net CapEx to be in the range of $40 million to $50 million, consistent with prior guidance.

Our capital allocation priorities remain disciplined and unchanged maintaining appropriate levels of maintenance capital expenditures, strengthening the balance sheet to achieve our target leverage range of 2.5 to 3x, making strategic investments to support long-term growth and providing shareholder returns over time. With respect to the CDM sales proceeds, we intend to allocate up to $18.5 million for opportunistic share repurchases under the recently extended NCIB, consistent with indenture limits and hold the remaining funds for potential debt repayment, pursuing additional buybacks or other corporate purposes. There was no activity under the NCIB during the quarter as we balanced our capital priorities and were restricted with the CDM transaction.

With the proceeds from the upcoming sale, we are well positioned to act opportunistically in the quarters ahead. The past several months have demonstrated continued momentum in theatrical exhibition with box office revenues exceeding prior year levels in nearly every month in 2025. This trend reflects not only the strength and diversity of film content, but also the continued enthusiasm of audiences for the theatrical experience. The sale of CDM provides us with additional financial flexibility and our continued role as exclusive advertising agent for CDM's out-of-home networks ensures continuity in our media business. With a strong foundation, a clear strategy and a disciplined approach to capital, we are well positioned to deliver long-term value for our shareholders. We're excited about the path ahead and remain focused on executing our strategy. And with that, I'll turn things over to the conference operator for questions.

[Operator]

[Operator Instructions]. Your first question comes from the line of Ryan Neal with TD Securities.

[Ryan Neal, analyst]

This is Ryan in for Derek. So first, I'm just curious how you guys are expecting the 2026 slate to evolve. Do you think it's going to be sort of similar chunkier to 2025 or more balanced throughout the year?

[Ellis Jacob, executive]

2026, we look upon it being a strong year, and there's a lot of distribution of product. We are excited because of Amazon who've committed to releasing close to a dozen movies. So overall, the big quarters are always the summer quarters and the December period. But I think you'll see it a bit more spread out than it was in 2025.

[Ryan Neal, analyst]

Okay. Great. And given the strong slate next year in '26, has that translated into any increased conversations you've had with advertisers maybe looking to increase their cinema media spend?

[Ellis Jacob, executive]

Yes. And as the attendance goes up and as we know, when it comes to the advertisers, they are very focused on the awareness and the attention matrix. And to me, it's one of the few places left where you can basically get total attention for the audiences. So it will continue to get stronger and continue to grow.

[Gord Nelson, executive]

Yes. And Ryan, as we see it and we look at the landscape, when you look at the total media spend in Canada and you exclude digital spend, so all the sort of more traditional forms of advertising spending, cinema was up. So we were up year-over-year, where basically all other forms of advertising, the more traditional spend was down. So it's sort of evident of the kind of the compelling nature and what we provide to advertisers for a very effective campaign.

[Operator]

[Operator Instructions]. There are no further -- apologies. We have a follow-up from Ryan Neal with TD.

[Ryan Neal, analyst]

Yes. Just in terms of modeling and for modeling purposes, how do you think we should sort of record or think about depreciation moving forward following the sale?

[Gord Nelson, executive]

Yes. So depreciation -- so depreciation, really, I would say the latest quarter is the best indicator for going forward. We have restated the financial statements to include CDM as a discontinued operations. So the fourth quarter number would be the best indicator on a go-forward basis.

[Operator]

[Operator Instructions]. There are no further questions at this time. I will now turn the call back to Ellis Jacob for closing remarks.

[Ellis Jacob, executive]

Thank you all again for joining us today. We look forward to sharing our fourth quarter results in early 2026 and hope to see you at the movies. Thank you.

[Operator]

This concludes today's call. Thank you for attending. You may now disconnect.