Mr. Ellis Jacob reports

CINEPLEX INC. REPORTS FIRST QUARTER AND ANNOUNCES DIVIDEND INCREASE

Cineplex Inc. has released its financial results for the three months ended March 31, 2019.

                                  FIRST QUARTER RESULTS
                                                           2019               2018

Total revenues                                   $364.9-million     $390.9-million
Theatre attendance                                 15.0 million       17.8 million
Net (loss) income                                 ($7.4-million)     $15.2-million
Box office revenues per patron (BPP)                     $10.44             $10.21
Concession revenues per patron (CPP)                      $6.35              $6.09
Adjusted EBITDA                                   $77.4-million      $53.5-million
Adjusted EBITDAaL                                 $34.3-million      $49.5-million
Adjusted EBITDAaL margin                                   9.4%              12.7%
Adjusted free cash flow                           $29.1-million      $38.6-million
Adjusted free cash flow per
common share of Cineplex                                 $0.460             $0.609
Earnings (loss) per share (EPS) -- basic                 $(0.12)             $0.24
EPS (loss) -- diluted                                    $(0.12)             $0.24

"Although the first quarter results were impacted by the anticipated soft box office product, we continued to execute upon our diversification strategy and are encouraged by the results from our new businesses which resulted in Q1 records for media revenue, amusement revenue and other revenue," said Ellis Jacob, president and chief executive officer, Cineplex.

"Total revenue for the first quarter of 2019 decreased 6.6 per cent due to a 13.7-per-cent decrease in box office and an 11.9-per-cent decrease in food service. These decreases can largely be attributed to the 15.6-per-cent decrease in theatre attendance, which was a result of the quarter's expected weaker film product and the tough comparator quarter with last year's record success of the film Black Panther. Partially offsetting the theatre attendance decline is a record first quarter box office per patron of $10.44, and record first quarter concession per patron of $6.35, which increased 23 cents and 26 cents, respectively, from the prior-year period. Although there was a decrease in box office revenue in Q1, this was expected given the January and February, 2019, release schedule. As we look to Q2 and beyond we are encouraged by the recent record-breaking performance of Avengers: Endgame, which had the largest global opening weekend ever, and are confident in the strong film product scheduled for the remainder of the year.

"As we continue to grow our diversified businesses, partially offsetting the exhibition business decreases was a 17.2-per-cent increase in amusement revenue to an all-time quarterly record of $58.5-million as a result of P1AG and The Rec Room; and a 7.7-per-cent increase in total media revenue to a Q1 record of $35.0-million, largely due to a 21.9-per-cent increase in digital place-based media revenue as a result of higher project installation revenue.

"The Q1 results are significantly impacted by the adoption of international financial reporting standards 16 -- Leases and we encourage you to refer to our financial statements and MD&A for further details. For the quarter, adjusted EBITDAaL (adjusted EBITDA after lease payments) decreased 30.6 per cent primarily as a result of the theatre attendance decline as a result of the soft box office. Net income was negatively impacted by approximately $3.3-million related to the adoption of IFRS 16 in the current period and approximately $6.4-million or 10 cents per share as compared to Q1 2018.

"Key accomplishments during the quarter included the opening of our sixth location of The Rec Room in Mississauga, Ont.; the expansion of alcohol beverage service to an additional 19 theatre locations, now totalling 54 locations; and our Scene loyalty program reached 9.7 million members.

"Although the first quarter film product was soft, the second quarter has been strong and we are encouraged by the outlook of the 2019 film slate. We remain confident in our strategic direction as we continue to build scale in our other businesses, prudently manage our costs and execute on Cineplex's diversification strategy for future growth. As such, we are pleased to announce a 3.4-per-cent dividend increase to $1.80 per share on an annual basis from the current $1.74 per share. This increase will be effective with the May, 2019, dividend, which will be paid in June, 2019."

Key developments in the first quarter of 2019

The following describes certain key business initiatives undertaken and results achieved during the first quarter of 2019 in each of Cineplex's core business areas:

Film entertainment and content

Theatre exhibition:

• The company reported first quarter box office revenues of $156.5-million, a decrease of $24.9-million (13.7 per cent) from $181.4-million reported in the prior-year period due to a 15.6-per-cent decrease in theatre attendance from 17.8 million in 2018 to 15.0 million in the first quarter of 2019 due to a weaker film slate.
• BPP was $10.44, a first quarter record for Cineplex, an increase of 23 cents (2.3 per cent) over the prior-year period BPP of $10.21.

Theatre food service:

• The company reported first quarter theatre food service revenues of $95.2-million, a decrease of $13.1-million (12.1 per cent) from $108.2-million reported in the prior-year period as a result of the decrease in theatre attendance.
• CPP was $6.35 for the period, a first quarter record for Cineplex, and 26 cents (4.3 per cent) higher than the prior-year period.
• During the quarter, Cineplex added alcohol beverage service to an additional 19 theatres, now totalling 54 (excluding VIP).

Alternative programming:

• Alternative programming (Cineplex events) in the first quarter of 2019 included the release of Dragon Ball Super: Broly, Carmen from The Metropolitan Opera and the concert event BTS World Tour: Love Yourself in Seoul.
• Cineplex international film for the first quarter of 2019 included strong performances from The Wandering Earth and Gully Boy.

Digital commerce:

• Total registered users for Cineplex Store increased by 42 per cent in the first quarter of 2019 as compared with the prior-year period.
• On-line and mobile ticketing represented 30 per cent of total admission during the first quarter, up from 26 per cent in the prior-year period.
• Cineplex Store registered a 107-per-cent increase in device activation over the prior-year period.
• Monthly active users of Cineplex Store increased by 57 per cent as compared with the prior-year period.

Media:

• The company reported a first quarter record for total media revenues of $35.0-million, an increase of $2.5-million, or 7.7 per cent, as compared with the prior-year period.

Cinema media:

• First quarter cinema media revenues of $21.4-million increased nominally from $21.3-million in the prior-year period despite the significant theatre attendance decline.

Digital place-based media:

• The company reported a first quarter record with revenues of $13.6-million, an increase of $2.4-million (21.9 per cent) compared with the prior-year period due to higher project installation revenues.

Amusement and leisure

Amusement solutions:

• The company reported an all-time quarterly record with revenues of $50.5-million ($2.8-million from Cineplex theatre gaming and $47.7-million from all other sources of revenues), an increase of $7.5-million (17.4 per cent) over the prior-year period. The increase was primarily due to an increase in distribution sales and increased route revenues in the United States.

Location-based entertainment:

• The Rec Room reported first quarter revenues of $16.4-million which included food service revenues of $7.9-million and amusement revenues of $8.0-million.
• On March 18, 2019, the company opened The Rec Room at Square One Shopping Centre in Mississauga, Ont., the sixth location of The Rec Room.
• During the quarter, Cineplex announced plans to open Atlantic Canada's first Playdium location in Dartmouth, N.S., at the Dartmouth Crossing Shopping Centre, scheduled to open in 2020.

E-sports:

• On March 24, 2019, WGN hosted the Madden 19 Canadian Challenge held at Live Nations' The Lounge in Toronto.
• During the first quarter, WGN hosted the Winnipeg Jets NHL 19 Tournament with the finals held at the Bell MTS Place in Winnipeg on Feb. 18, 2019.

Loyalty:

• Membership in the Scene loyalty program increased by 100,000 members in the period, reaching 9.7 million members at March 31, 2019.

Corporate:

• During the quarter, Cineplex was named by Waterstone Human Capital one of Canada's 10 most admired corporate cultures in the large enterprise category for 2018, the third time that Cineplex has won the award that celebrates best-in-class Canadian organizations.

Operating results for the three months ended March 31, 2019

Total revenues

Total revenues for the three months ended March 31, 2019, decreased $25.9-million (6.6 per cent) to $364.9-million as compared with the prior-year period. A discussion of the factors affecting the changes in box office, food service, media, amusement and other revenues for the period is provided below.

Box office revenues

Box office revenues decreased $24.9-million, or 13.7 per cent, to $156.5-million during the first quarter of 2019, compared with $181.4-million reported in the same period in 2018. The decrease was due to the 15.6-per-cent decrease in theatre attendance to 15.0 million guests, partially offset by higher BPP. The theatre attendance decrease was due to the weaker film slate in the first quarter of 2019 compared with the first quarter of 2018. The prior-year period is a tough comparator due to the success of Black Panther which became the third-highest-grossing film of all time in North America, and the carryover strength of Star Wars: The Last Jedi and Jumanji: Welcome To The Jungle from the fourth quarter of 2017.

BPP for the three months ended March 31, 2019, was $10.44, a 23-cent increase (2.3 per cent) from the prior-year period, and a first quarter record for Cineplex. The increase in BPP was due to price increases in selective markets as compared with the prior year.

Food service revenues

Food service revenues comprise primarily concession revenues, which include food service sales at theatre locations. Food service revenues also include food and beverage sales at The Rec Room. Food service revenues decreased $13.9-million, or 11.9 per cent, mainly as a result of the $13.1-million (12.1 per cent) decrease in theatre food service revenue. The decrease in theatre food service revenue resulted from the 15.6-per-cent decrease in theatre attendance, partially offset by the 4.3-per-cent (26 cents) increase in CPP to $6.35. Food service revenue from The Rec Room is not included in the CPP calculation.

Food services revenues from The Rec Room decreased $800,000 (9.5 per cent) compared with the prior-year period to $7.9-million as bad winter weather conditions in the first quarter reduced evening business at several locations resulting in the food service decline. In addition, locations which have been opened for 12 to 24 months begin to move past the honeymoon phase and begin to settle into their expected long-term run-rate levels. Newer locations of The Rec Room typically experience higher sales volumes in the first year of operations.

CPP of $6.35 is a first quarter record for Cineplex. Expanded offerings outside of core food service products, including offerings at Cineplex's VIP Cinemas and Outtakes locations, have contributed to increased visitation and higher average transaction values, resulting in the record CPP in the period.

Media revenues

Total media revenues increased $2.5-million (7.7 per cent) compared with the prior-year period to a first quarter record of $35.0-million. Cinema media revenues increased nominally (0.2 per cent) compared with the prior-year period despite the significant theatre attendance decline. This increase was due to a 21.9-per-cent or $2.4-million increase in digital place-based media revenues as a result of higher project installation revenues. During the quarter, digital place-based media added 345 new locations for a total of 13,847 locations (an increase of 5 per cent over the prior-year period).

Amusement revenues

Amusement revenues increased 17.2 per cent, or $8.6-million, to an all-time quarterly record of $58.5-million in the first quarter of 2019 compared with the prior-year period. The growth was due to an increase in distribution sales as well as in route revenues in the United States in part due to the Cinemark agreement signed in the second quarter of 2018. The additional location of The Rec Room in the current year contributed to an increase of $1.1-million to amusement revenues.

Film cost

Film cost varies primarily with box office revenues, and can vary from quarter to quarter based on the relative strength of the titles exhibited during the period. This is due to film cost terms varying by title and distributor. Film cost percentage during the first quarter of 2019 was 50.3 per cent, a 2.2-per-cent decrease from the prior-year period. The decrease in film cost percentage is attributable to the reduced concentration of box office revenues from a few titles, with the top five film in the current period accounting for only 39.9 per cent of box office revenues in the period (2018 -- 45.2 per cent). Top films tend to have higher settlement rates than the other films in the slate due to their strong performance.

Cost of food service

Cost of food service at the theatres varies primarily with theatre attendance as well as the quantity and mix of offerings sold. Cost of food service at The Rec Room varies primarily with the volume of guests who visit the locations as well as the quantity and mix of food and beverage items sold.

The decrease in the theatre cost of food service compared with the prior-year period was due to the lower theatre food service revenues which were partly offset by the increase in the theatre concession cost percentage from 20.7 per cent in the prior-year period to 22.4 per cent in 2019.

The theatre concession margin per patron increased 2.1 per cent from $4.83 in the first quarter of 2018 to $4.93 in the same period in 2019, reflecting the impact of the higher CPP during the period.

The decrease in The Rec Room cost of food service as compared with the prior-year period was due to the lower food service revenues.

Depreciation and amortization

The quarterly increase in depreciation of property, equipment and leaseholds of $1.6-million (5.9 per cent) is primarily due to investments in the amusement and leisure businesses, including the opening of The Rec Room at the Square One Shopping Centre.

The increase of $100,000 (1.6 per cent) in the amortization of intangible assets was primarily due to internally developed software for digital products including the Cineplex mobile app and website platform.

The quarterly increase in depreciation of right-of-use assets was as a result of the adoption of IFRS 16. The right-of-use assets are depreciated over the lease term. The current quarter expense represents the depreciation charge for the quarter.

Other costs

Other costs include three main subcategories of expenses: theatre occupancy expenses, which capture the rent and associated occupancy costs for Cineplex's theatre operations; other operating expenses, which includes the costs related to running Cineplex's film entertainment and content, media, as well as amusement and leisure; and general and administrative expenses, which includes costs related to managing Cineplex's operations, including head office expenses.

Theatre occupancy expenses

Theatre occupancy expenses as reported decreased $33.5-million (64.5 per cent) during the first quarter of 2019 compared with the prior-year period. This decrease was primarily due to the impact of the adoption of IFRS 16 partially offset by the impact of non-cash rent in the prior period.

Total theatre occupancy including cash lease payments increased $2.2-million (4.0 per cent) during the first quarter of 2019 compared with the prior-year period. This increase was primarily due to a $1.2-million increase in same-theatre rent and a $1.1-million decrease in one-time credits. The increase in same-theatre rent was due to the inclusion of the upfront payments of annual rent at one theatre location in the first quarter of 2019 in cash rent theatre. In comparison, the prior-year period includes one quarter of rent expense for the location.

Other operating expenses

Other operating expenses during the first quarter of 2019 increased $800,000 or 0.5 per cent compared with the prior-year period. The increase was primarily due to higher amusement and leisure costs related to P1AG due to higher distribution sales as well as the impact of new and acquired theatres. These were partially offset by the $2.7-million decrease in same-theatre payroll and the $1.4-million decrease in same theatre operating expenses as a result of the lower business volumes for theatre exhibition, a $1.6-million decrease in marketing due to the timing of campaigns, and $4.3-million of cash rent related to the lease obligations arising upon the adoption of IFRS 16.

General and administrative expenses

G&A expenses increased $700,000 (4.6 per cent) during the first quarter of 2019 compared with the prior-year period primarily due to a $1.8-million increase in LTIP expense. LTIP in the first quarter reflected continuing regular vesting and a relatively flat share price during the period, compared with a significant price decrease in the prior-year period resulting in an expense recovery. Professional fees increased by $800,000 due in part to an increase in consulting work including the software upgrade undertaken for IFRS 16.

Earnings before interest, income taxes, depreciation and amortization

Adjusted EBITDAaL for the first quarter of 2019 decreased $15.1-million, or 30.6 per cent, as compared with the prior-year period. The decrease compared with the prior-year period was primarily due to a decline in box office and theatre food service revenues as a result of reduced attendance. Adjusted EBITDAaL margin, calculated as adjusted EBITDAaL divided by total revenues, was 9.4 per cent, a decrease of 3.3 per cent from 12.7 per cent in the prior-year period due to lower theatre exhibition revenues and higher contributions from lower margin businesses including amusement and leisure.

Adjusted free cash flow

For the first quarter of 2019, adjusted free cash flow per common share of Cineplex was 46 cents as compared with 61 cents in the prior-year period. The declared dividends per common share of Cineplex were 44 cents in the first quarter of 2019 and 42 cents in the prior-year period. During the 12 months ended March 31, 2019, Cineplex generated adjusted free cash flow per share of $2.66, compared with $2.31 in the prior 12-month period. Cineplex declared dividends per share of $1.74 and $1.68, respectively, in each 12-month period. The payout ratios for these periods were 65.2 per cent and 72.6 per cent, respectively.

About Cineplex Inc.

Cineplex is a top-tier Canadian brand that operates in the film entertainment and content, amusement and leisure, and media sectors. A leading entertainment and media company, Cineplex welcomes over 70 million guests annually through its circuit of theatres and location-based entertainment venues across the country.

Proudly recognized as having one of the country's most admired corporate cultures, Cineplex employs approximately 13,000 people in its offices across Canada and the United States.

You are cordially invited to participate in a conference call with the management of Cineplex to review its first quarter. Mr. Jacob and Gord Nelson, chief financial officer, will host the call scheduled for: Thursday, May 9, 2019, at 10 a.m. Eastern Time.

In order to participate in the conference call please dial 647-484-0475, or from outside Toronto and from the United States, dial 1-888-394-8218 at least five to 10 minutes prior to 10 a.m. ET. Please quote the conference confirmation code 6219020 to access the call.

If you cannot participate in a live mode, a replay will be available. Please dial 647-436-0148, or from outside Toronto and from the U.S., dial 1-888-203-1112. The replay pass code is 6219020.

The replay will begin at 1 p.m. ET on Thursday, May 9, 2019, and end at 1 p.m. ET on Thursday, May 16, 2019.

Note that media will be participating in listen-only mode.

                  INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (expressed in thousands of dollars, except per-share amounts)
 
                                                                  Three months ended March 31,
                                                                        2019              2018
Revenues
Box office                                                          $156,496          $181,380
Food service                                                         103,058           116,948
Media                                                                 35,013            32,513
Amusement                                                             58,500            49,905
Other                                                                 11,871            10,126
                                                                     364,938           390,872
Expenses
Film cost                                                             78,721            95,204
Cost of food service                                                  23,436            24,776
Depreciation -- right-of-use assets                                   36,462                 -
Depreciation and amortization -- other assets                         32,855            31,194
Loss on disposal of assets                                               477               210
Other costs                                                          185,442           217,454
Share of income (loss) of joint ventures and associates                 (369)             (897)
Interest expense -- lease obligations                                 12,220               157
Interest expense -- other                                              5,417             6,327
Interest income (loss)                                                   (74)              (87)
Foreign exchange (loss)                                                  541              (765)
                                                                     375,128           373,573
(Loss) income before income taxes                                    (10,190)           17,299
Provision for income taxes
Current                                                                  408             2,035
Deferred (loss)                                                       (3,238)               38
                                                                      (2,830)            2,073
Net (loss) income                                                     (7,360)           15,226
(Loss) attributable to
owners of Cineplex                                                    (7,350)           15,226
(Loss) attributable to
non-controlling interests                                                (10)                -
Net (loss) income                                                     (7,360)           15,226
Basic net (loss) income per share
attributable to owners of Cineplex                                     (0.12)             0.24
Diluted net (loss) income per share
attributable to owners of Cineplex                                     (0.12)             0.24

We seek Safe Harbor.