Hello everyone, and thank you for joining the Cineplex Inc. Q2 2022 earnings conference call. My name is Darius, and I'll be moderating the call today. Before handing over to your host, Mahsa Rejali, I would like to remind you that if you would like to ask a question during the Q&A session, please press star followed by one on telephone keypad. I now have the pleasure of handing over to your host, Mahsa Rejali, Executive Director, Corporate Development and Investor Relations. Please go ahead.
Good morning and welcome. With me today is Ellis Jacob, our President and Chief Executive Officer, and Gord Nelson, our Chief Financial Officer. Before I turn the call over to Ellis, let me 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 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, the negative impact of the COVID-19 pandemic, adverse factors generally encountered in the film exhibition industry, risks associated with other national and world events, discovery of undisclosed material liabilities, and general economic conditions. 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.
Thank you, Mahsa. Good morning and welcome to our Q2 2022 conference call. We are glad you could join us today. As I address our quarterly results, I am pleased to announce that our business generated a positive net income and highest adjusted EBITDA since the pandemic began. This milestone was driven by a strong film slate and record results from across our diversified businesses. These results benefited from our strong operational management and strategic marketing campaigns. Leading the box office was Doctor Strange in the Multiverse of Madness, which delivered 75% more domestic box office than the original release in 2016. There was Jurassic World Dominion and the highly successful Top Gun: Maverick, which has grossed over $1.3 billion at the global box office. It has become Paramount Pictures and Tom Cruise's most successful film of all time.
Even today, 11 weeks after its release, it continues to perform well. We were also pleased to see great success with mid-year titles including Elvis and Everything Everywhere All at Once, which became A24's highest all-time grossing motion picture. The success of these films and other blockbusters this year is a validation of the industry's recovery. The North American industry box office exceeded $2.3 billion during the quarter, which is nearly a threefold increase from the same quarter last year. It is no longer a question of whether customers will return to theaters. They are back from every cohort and for all genres of films. We saw this with Top Gun and Elvis, films that brought back adult guests to our theaters. Sonic the Hedgehog 2 and Minions: The Rise of Gru, which brought families and the highly sought-after teen demographic back in droves.
Also, originally scripted films such as The Black Phone and Nope performed well for the horror and suspense genre. Last weekend, Brad Pitt's highly anticipated Bullet Train was released with a domestic box office of $30 million. As you can see, like our industry peers globally, we are highly encouraged by the box office momentum reflected in our second quarter results. When comparing pre-pandemic periods in 2019 to 2022, April's box office reached 56%, May reached 72%, and the growth continued into June at an impressive 89%. July results were almost as strong, coming in at 85% of 2019. It is worth noting that April of 2019 is a tough comparative period as Avengers: Endgame was released that month and became the highest grossing film of all time.
These results fueled a second quarter year-over-year revenue growth of 439% and adjusted EBITDA of CAD 35.8 million. We drove strong per-patron spend with a second quarter record BPP of CAD 12.29 and an all-time quarterly record CPP of CAD 8.84. In fact, all of our reported segments generated positive adjusted EBITDA. We were particularly pleased with the results of our Amusement and Leisure segment, which included an all-time quarterly record adjusted EBITDA in P1AG and a record second quarter adjusted EBITDA in the LBE business. It is also important to remember that we are driving these strong results even as consumers contend with concerns over inflation and speculation of a looming recession. The theatrical business has historically been resistant to recessionary pressures.
Going to the movies is an affordable form of out-of-home entertainment, certainly more so than options such as sporting and live music events. Case in point, the domestic box office has actually grown in the last seven out of nine recessionary periods. Overall, we are very pleased with our second quarter results and look forward to continued business growth. I will now provide an update on the strategic priorities that were outlined during our previous earnings call. As a reminder, these include reigniting theatrical exhibition, growing our diversified businesses, leveraging our ecosystem, and continuing to apply financial discipline and operational excellence. First, we are reigniting theatrical exhibition and driving attendance through numerous strategic initiatives.
If you can believe it, one year ago today, we introduced CineClub to Canadians, and we are pleased with the strong demand and interest in the program already attracting approximately 75,000 members to date ahead of our projections. What is even more impressive is that despite the closures and restrictions we saw in the first three quarters of its launch, CineClub's membership has shown strong growth each month since reopening. It's also delivering a very low churn rate, demonstrating the program's value to our members. During the quarter, our Scene+ program expanded as we welcomed Empire Company Limited as co-owners along with Scotiabank. The addition of Empire's over 1,500 stores to Scene+ will provide even more ways for customers to earn and redeem points on nearly all of their daily purchases.
For us, the expanded partnership increases program engagement and will grow the membership base, allowing our team to target and engage with a wider range of consumers, including non-moviegoers. This quarter, we continued our effort in offering alternative content to attract new audiences. Programming from Cineplex Events in the second quarter included the anime feature Jujutsu Kaisen 0 and the Metropolitan Opera titles such as Turandot and Hamlet. We continue to see momentum through our focus on international cinema. In fact, in every month during the quarter, international films consistently accounted for five or six of the top 20 films on our film slate, and we continue to take a dominant share of the North American market in international cinema. For instance, the Bollywood film Golmaal Again two saw Cineplex achieve a North American market share of 32%.
Also, we accounted for an impressive 66% of the domestic market for Bhool Bhulaiyaa , another Bollywood feature. This is an incredible feat, and it didn't happen by accident. It was fueled by customer data that enables us to match specific content to the right demographics in specific locations. We also continue active discussions with non-traditional suppliers about showcasing their content on the big screen. Without question, non-traditional studios are forming a new and heightened appreciation for the role of a theatrical release in increasing awareness and value for content prior to launching on streaming platforms. A key focus area in reigniting theatrical exhibition is to increase per patron spend. During the quarter, our box office per patron was up 10.4% compared to Q2 2019, mainly resulting from a favorable mixture to premium offerings as well as strategic pricing actions.
Our concession per patron reached an all-time high and was up 25.6% compared to the same quarter in 2019. A combination of a higher incidence rate, higher average basket size of concessions and alcohol, and strategic pricing actions were key drivers to these exceptional results. In mid-June, we also followed in the footsteps of our industry peers and introduced an online booking fee. These ancillary revenues will fund the expansion and enhancement of our digital infrastructure and digital offerings to ultimately enhance guest experience. Speaking of guest experience, this quarter we continued to benefit from investments we've made and continue to make in premium amenities in our theaters across Canada. We now offer eight different types of experiences for movie lovers and during the quarter added another ScreenX location, bringing our total to 11 auditoriums.
These investments are showing strong results as we are seeing theaters with premium amenities experience the fastest recovery coming out of the pandemic. In fact, 42.4% of our total box office was driven by premium formats. Turning to our next strategic priority, we are pleased to see strong rebound and recovery in our diversified businesses. Our diversification strategy is an important pillar for the continued growth of the company. This quarter, we reported an all-time quarterly record in amusement revenues. Our LBE business generated all-time quarterly record results and saw a strong same-store growth in both top and bottom lines as compared to pre-pandemic results. In fact, the adjusted EBITDA for comparable locations reached 87% of pre-pandemic levels during the quarter, and in Alberta, all of our locations exceeded 100% of 2019 levels.
Our P1AG business also performed exceptionally well, generating a record adjusted EBITDA and adjusted EBITDA margin of 18%. This is reflective of strong top-line demand and our team's availability to effectively manage inflationary pressures and control costs. On the media side, Cineplex Media and Cineplex Digital Media continue to demonstrate encouraging signs of recovery, and we saw significant improvement in our overall media revenues for the quarter. Going forward, we expect to see further momentum in both media businesses as audiences and mall traffic return and advertisers increase their media spend. Cineplex Digital Media is gaining traction by winning new clients.
Earlier this week, we announced the addition of Primaris REIT and their circuit of shopping centers to our digital out-of-home mall networks. Our third strategic priority is to leverage the Cineplex ecosystem to unlock value by leveraging richer data available to us in the expanded Scene+ program and by applying digital tools to better mine opportunities within our existing moviegoing audience. Our fourth and final strategic priority is focusing on optimizing our operations and assets. During the quarter, we exited one location in Windsor, Ontario, sold another location in Antigonish, Nova Scotia, and received proceeds of CAD 5.4 million on a restricted lease rights transaction. We continue to apply financial discipline to manage capital allocation across our businesses and work towards achieving our target leverage ratio of 2.5-3x .
The second quarter marked the first credit facility test of our covenants, and we were pleased to report an annualized leverage of 3.24x , which is well below the required total leverage ratio of 3.75x . Before I pass things to Gord, here is a brief update on the ongoing litigation with Cineworld. As we announced in December 2021, the Ontario Superior Court of Justice issued a judgment for CAD 1.24 billion in favor of Cineplex. While we believe that and we will take all steps to respond and advance Cineplex's processes. We remain focused on the Court of Appeal for Ontario hearing, which is scheduled for October 12th and 13th of this year.
As we announced during our AGM in May, we have engaged Moelis & Company as a financial advisor and Goodmans LLP as lead counsel to enforce and maximize the judgment against Cineworld. Enforcing the judgment and future steps are a key focus for Cineplex and its advisors. Looking ahead, it is clear the global film industry is rebounding as guests flock back to theaters in search of great movie moments, premium experiences, and a guaranteed escape. The sustained quality and diversity of future releases will keep guests coming back to our theaters as consumer sentiment regarding the pandemic improves. While we are optimistic about the upcoming film slate for 2022 and beyond, we anticipate a short-term content supply chain disruption in late August and September, primarily due to pandemic-related production delays. We are well-equipped, however, to pass this period and are now quite adept at navigating temporary dips.
We have the full support and confidence of our lending group and have proactively amended our credit facility for the suspension of financial covenants in the third quarter of 2022. We look forward to a strong close of the year with a host of much-anticipated titles set for release, including Don't Worry Darling, Bros, Halloween Ends, Black Adam, romantic comedy Ticket to Paradise starring George Clooney and Julia Roberts, Prey for the Devil, the highly anticipated Black Panther: Wakanda Forever, whose trailer yielded 172 million views in its first 24 hours, Puss in Boots: The Last Wish, Shazam! Fury of the Gods, the Whitney Houston biopic, I Wanna Dance with Somebody, and the most anticipated film of the year, Avatar: The Way of Water.
We also remain highly encouraged as we look to 2023, with industry experts projecting another year with a strong film slate. Just to name a few tentpole titles, we're excited to see Ant-Man and the Wasp: Quantumania, Aquaman and the Lost Kingdom, John Wick: Chapter 4, The Super Mario Bros. Movie, Guardians of the Galaxy Vol. 3, Spider-Man: Across the Spider-Verse, Indiana Jones and the Dial of Destiny, Mission: Impossible – Dead Reckoning Part One, Barbie, Oppenheimer, The Marvels, and Dune: Part Two. In closing, we are confident in our business and our efforts to manage financial uncertainties as we have done during past economic downturns.
The second quarter results and recent film performance clearly demonstrate that with strong film products, guests want to come back to our theaters. We are poised to capitalize on the impressive film slate, and we will continue to reap benefits from the promising momentum we are seeing in our other businesses.
Our balance sheet is solid. We are well positioned for a sustained recovery. Finally, we will continue to advance growth initiatives and drive long-term value for our shareholders to maintain our position as an industry leader. With that, I will turn things over to Gord.
Thanks, Ellis. I am pleased to present a condensed summary of the second quarter results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR and are also available on our investor relations website at cineplex.com. Our MD&A and earnings press release includes a full narrative on the operational results. I will focus on highlighting and quantifying some of the key operating results and provide commentary on our liquidity and outlook. As Ellis mentioned, we were extremely pleased with the Q2 operating results. We reported positive net income for the first time since the pandemic. We reported our strongest adjusted EBITDA of CAD 35.8 million since the pandemic. We reported records in some of our key metrics, including BPP and CPP. In addition, our amusement and leisure business reported its strongest adjusted EBITDA ever.
All of this despite certain operating restrictions being in place in early April. Total revenues increased 439% to CAD 349.9 million from CAD 64.9 million in the prior year. Net income was positive CAD 1.3 million as compared to a net loss of CAD 103.7 million in the prior year. Adjusted EBITDA improved to CAD 35.8 million from an EBITDA loss of CAD 52.2 million in 2021. In our Film Exhibition and Content segment, attendance increased to 11.1 million in the current quarter as compared to 1.1 million in the prior year. We reported a record second quarter BPP of CAD 12.29, and an all-time record quarterly CPP of CAD 8.84.
Our box office revenues were approximately 72% of the pre-pandemic period, Q2 2019, and our total segment revenues were approximately 78% of this pre-pandemic period. Segment adjusted EBITDA of CAD 21.3 million increased significantly from our segment EBITDA loss of CAD 37.4 million in the prior year. We have seen our media clients come back once we reopened and reported second quarter media revenue of CAD 26.2 million as compared to CAD 9.4 million in the prior year. The increase was primarily due to cinema media revenue which increased CAD 16.3 million in Q2 2022. Our overall media segment adjusted EBITDA increased to CAD 14.2 million from CAD 1.4 million in the prior year.
In comparison to the pre-pandemic period, our media segment revenue was approximately 54% of our Q2 2019 levels. Media businesses were impacted by the operating restrictions in the early parts of April, but also by the uncertainty that restrictions throughout the year created in our clients' strategies as they look to commit to cinema and our digital place-based networks. As we continue to see strong traffic patterns in our cinemas and malls, we expect to see further recovery in our media businesses. Our Amusement and Leisure segment had an incredible record-breaking quarter. Both P1AG and our LBE businesses had record quarters as each had strong top-line results, margins, and second quarter record adjusted EBITDA.
Segment revenue increased to CAD 45.1 million as compared to CAD 2.1 million in the prior year, and segment adjusted EBITDA increased to CAD 8.1 million from CAD 0.8 million in the prior year. In comparison to the pre-pandemic period, our Amusement and Leisure segment total revenues were actually higher coming in at 109% of the Q2 2019 levels. G&A expenses increased 7.8% to CAD 15.3 million from CAD 14.2 million in the prior year, primarily due to increased payroll costs as a result of a decrease in wage subsidies, partially offset by reduced litigation and advisory costs and a reduction in share-based compensation. These items are described in more detail in our MD&A. With the reopening of the businesses, our focus remained on cost control as our business volumes ramped up.
It is important to note that as one would expect, our subsidy program receipts had significantly reduced with the reopening of our locations without restrictions. For the second quarter, we reported government subsidies of approximately CAD 1.6 million as compared to CAD 28.5 million in the second quarter of 2021. Although our landlord abatements also continued to decrease, we did receive proceeds of approximately CAD 5.4 million related to a lease rights transaction. For the second quarter of 2022, we reported net CapEx of CAD 12.5 million as compared to CAD 3 million in the prior year. For 2022 and beyond, we will continue to be prudent with our growth initiatives, and our guidance for net CapEx for 2022 has been decreased slightly to CAD 65 million-CAD 70 million. Before discussing our liquidity position, I wanted to discuss the following five items.
First, I want to talk about Scene+. As mentioned during the first quarter call, Scene+ points are now treated as marketing expenses with gross ups to the related revenue and no net impact on EBITDA. The impact on the second quarter was to increase box office and concession revenue by approximately CAD 5.1 million, impacting BPP by approximately CAD 0.24, by approximately CAD 0.22. Marketing expenses increased by approximately CAD 5.1 million for a net nil impact on EBITDA. In addition, with respect to Scene+, we disclosed that subsequent to quarter end, Cineplex will recognize a gain of approximately CAD 45 million related to the 2020 sale of one-third of our 50% interest in Scene LP. As the economic and contractual obligations of the transfer will now have been met.
Second, with respect to the Cineworld litigation, we were awarded damages of CAD 1.24 billion and CAD 5.5 million for transaction costs exclusive of interest. Cineworld has filed a notice of appeal, and oral hearings are scheduled for October twelfth and thirteenth of this year. Due to uncertainty surrounding outcome and the ability to recover the full amount, no amount has been accrued as a receivable on our financial statements. We have engaged Moelis & Company and Goodmans LLP as expert advisors with significant experience in these matters to assist in optimizing the value of this claim. Third, I want to remind you of the benefit of the tax asset that would be recognized during 2020 as a result of uncertainties related to the pandemic.
As described in note eight of our year-end financial statements, we currently have non-capital losses totaling CAD 314.6 million to utilize against future periods. We continue to evaluate the recoverability of these deferred tax assets and will recognize such assets when and if appropriate. Fourth, in addition to the deferred tax assets, as our business continues to recover and return to profitability, the reversal of a portion of previously recognized impairments may be appropriate. Fifth, in our subsequent event note, we discussed the planned end of the limited life financing entity Canadian Digital Cinema Partnership or CDCP. CDCP expects to distribute its remaining assets to its partners in 2022, and Cineplex expects to receive approximately CAD 1.9 million of this distribution.
Historically, we have excluded the impacts of CDCP in our calculation of EBITDA as it was a limited life entity. Now finally, I'd like to speak to our balance sheet and particularly our strong liquidity position. For Q2 2022, we reported net repayments of CAD 9 million under our credit facility, which left us with CAD 294 million drawn and approximately CAD 238 million available under our credit facilities as of June 30, 2022. Q2 was the first covenant test under the fourth amendment of our credit facility. We were pleased to report that we were in compliance with all tests. A total leverage of 3.24x as compared to a covenant of 3.75x . Senior leverage of 1.79x as compared to a covenant of 2.75x .
A fixed charge coverage ratio of 1.44x as compared to a minimum covenant requirement of 1.25x . In addition, we maintained the minimum liquidity requirement of CAD 100 million throughout the quarter. As Ellis mentioned, the recent film performance clearly demonstrates that with strong film products, guests want to be back in our theaters. As we look forward into Q3, we realize that a number of titles originally scheduled for release in Q3 had COVID-19-related production issues and had their exclusive theatrical release date delayed to a future period. While we are eagerly awaiting the success of these titles in future periods, we saw a void in the release schedule beginning in mid-August, which would impact our Q3 results.
Given the nature and impact of these delays, we proactively approached our lending syndicate to ask for a suspension of covenant testing in Q3 and commencement again in Q4. Their support continues to be strong, and they quickly agreed to the suspension of testing in Q3, and we are pleased to announce the fifth credit amendment agreement today. Further details are included in our filings today. As Ellis mentioned, there is a lot for the exhibition industry to be excited about. We have a resilient business, great product coming, and we have a renewed focus from studios on the theatrical exhibition. We continue to focus on the return of our businesses while exploring opportunities for value creation. That concludes our remarks for this morning, and we'd now like to turn the call over to the conference operator for questions.
Thank you. If you would like to ask any question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone's unmuted locally. The first question comes from Adam Shine from National Bank Financial. Please go ahead, Adam. Your line is now open.
Thanks a lot. Good morning. Maybe a couple of questions. Ellis, just starting off, obviously, you know, there is evolving recovery and momentum at the box office. I think, as alluded to 72% level for box office revenue versus 2019. I think attendance looks like at the 65% level. Of course, you know, that's a key priority of the company to sort of stimulate attendance. Can you speak at all, you know, to some of the pockets of maybe where some of the shortfalls still exist, whether it's demographic frequency or just, you know, the nature of the product that isn't necessarily bringing in a wider grouping of attendees.
Obviously, you know, this is maybe an item also for Gord in the context of, you know, questions that were asked on the Cinemark call last week regarding leverage. I think the response was, look, you know, if attendance comes back, it drives other elements to the business, and obviously helps support the inherent operating leverage in the overall organization. Maybe you can touch on those points, attendance and margins. Then just one other point that was raised in the MD&A. I think there was a bit of a shortfall in staffing in the Q2 at the LBE level. Maybe you can just address if that was resolved as you work through the Q3. Thanks.
Adam, on the question of attendance and where we see things moving forward, what we've seen is the big blockbuster movies are doing extremely well. The middle range product, they have not been out of those releases, but when they are there, they also perform. Looking into the future, you know, the gap was really with families and the older audiences, and they are starting to come back. Remember April, the comparator to 2019 was a tough one because of the movie in 2019, and we also weren't fully gunned until that particular period of time.
I got to be honest with you, I have seen and visited the theaters and see a lot of desire for guests to come back, and especially in the movies like, you know, we saw with Top Gun, which did extremely well with, you know, Elvis for the older audience. I think over the next 18 months, you're going to see a strong return to product, which will be diversified enough to appeal to all the different audiences. To me, that is something that, you know, we feel comfortable is going to happen in the future.
Sorry, Adam, with respect to your question or the couple of questions you had for me, look, we're obviously pleased to report leverage of 3.24x . As you mentioned, you know, roughly 72% of, you know, pre-pandemic level box office, you know, allow us to generate there that level. I would also make the comment that, you know, our amusement and leisure businesses have been performing strongly. We made the comment about the return of the audiences and the media buyers. There's a little bit of a lag between the return of audiences and where the media revenue will ramp up.
You know, if you look at our second quarter in isolation, you know, you would expect that, you know, at a run rate levels of the media business would be ramping up higher than where it was in Q2, once they see the return of the audiences. Look, we were pleased, and my notes were that, you know, our target leverage ratio range is 2.5-3x . At 3.24x, we're getting very close, you know, to where we would like to be in a quarter that was impacted in the month of April by some operating restrictions. You know, as we look forward, you know, we see, you know, the media businesses ramping up.
We see a little bit of a challenge, you know, we characterize it as a supply chain disruption in terms of film content coming into Q3. You know, as I mentioned, there's strong product coming in Q4 and into 2023. As I made comment in my notes is, we have a very supportive lending group. You know, we were able to quickly, you know, and proactively address what may be, you know, a one-time shortfall in Q3.
Gord, I apologize.
Your other question.
Gord, I apologize. Just before you jump into the other question, I was talking much more about operating leverage rather than financial leverage, which I think you were very clear on in your opening remarks. I would just try to push you maybe a little bit on, you know, inherent operating leverage in the business, which clearly, as we get beyond Q3 and look to Q4 with greater strength in terms of attendance and the other parts to the business and moving into 2023 as well. I was talking about operating leverage and how margin potential can evolve, you know, within the context of any other puts and takes and-
Okay.
in the entire part of the business. Yeah.
With respect to that question, and thanks for the clarification. You know, you gave me an opportunity to reiterate how confident I am about
Loud and clear.
With respect to the operating leverage, you know, look, if you take out film cost, which is a 100% variable cost, and you look at our cost of food and our payroll costs, those represent about 75% of our other costs. The operating leverage is really strong in that each incremental customer contributes significantly to our bottom line.
As we ramp up the EBITDA increase, we will reiterate what we said on past calls, which is, you know, we believe that, you know, despite potential you know, changes in consumer behaviors, that our margins or EBITDA margin levels should get back to our pre-COVID levels likely in, you know, some point in time in 2020.
Okay.
Then on your LBE question is, first and foremost, we were extremely pleased with the results in our LBE business and our P1AG business. The challenge is that we talked about labor challenges primarily related to food service, primarily kitchen staff, not unique to us. That's common to the industry. When you look at our revenue mix despite hitting, you know, those great revenue numbers, if you look at our revenue mix, as you can see, it's weighted a little bit more towards the amusements revenue side of things than it is to the food and beverage. As the labor challenges, you know, correct themselves for us and others in the space, you would expect potentially that that would kind of return back to normal levels.
We're seeing that happen, just so you know. You know, the labor issues are not as severe as they were in our view.
Super. Okay. Thank you very much.
Thank you.
The next question is from Derek Lessard from TD Securities. Derek, you may begin.
Yeah, good morning, everybody, and glad to see the lights have turned back on, so to speak. Obviously, I mean, I don't wanna necessarily harp on Q3, which you don't have control on, but I was wondering if you had a sense of what the void in the slate could mean in terms of attendance relative to 2019.
Look it, you know, we gave, July was a very strong month. You know, at 85%, 2019 levels, that was very strong. Derek, the challenge really is, and again, we're being proactive here. The sleeper hits, we don't know whether they will be there or not be there. So that's the big unknown. But, you know, when you're looking at, you know, box office levels, for August and September, you know, there exists the potential that they could be half of the pre-pandemic levels, like less than half of the pre-pandemic levels.
Okay.
Derek, I mean, even the first 10 days of August have been much stronger than we've expected, and there is product. It's a matter of how it delivers as we go through the balance of the quarter.
Absolutely, I appreciate how tough it is to answer that question. Maybe just on the membership and Scene+, it was flat. Just curious about the dynamic there and sort of your expectation once Empire begins rolling it out more broadly.
It's a stronger program, and it's going to continue to grow. You know, it's a new base of participants, and it will allow us to attract individuals who may not have been moviegoers in the past. It's positive, and it's a great program as we move forward.
Okay. Maybe just one last one from me on the LBE. Obviously very strong, and I know it's only August, but curious if, you know, if you've seen any early bookings for year-end holiday parties and things like corporate gatherings.
Yeah, it continues to be strong and coming back, and, you know, we've basically going back to levels where I think we will approach pre-pandemic and in some cases exceed it because of the desire to be together and have those social experiences. We're quite comfortable as things are moving forward.
Okay. Thanks for that, everybody.
Thank you.
Our next question comes from Maher Yaghi from Scotiabank. Please go ahead. Your line is now open.
Yes. Thank you, guys, and thank you for taking my question. I wanted to ask you first on CPP, nicely up from 2019 levels. How are you guys thinking about continuing to grow that number, and what are the action plans you're in, you know, putting in place to continue to grow that, just taking into consideration maybe the ongoing uncertainties in the economy and inflation affecting consumers? The second question I had is if you can maybe just let us know your views as to what is really behind the production delays that you're referring to. Of course, as you mentioned, Q4 is expected to be very strong and also 2023. In general, if we look bigger picture, how much of the production delays are due to?
Sorry, the lower movie theater production is due to production delays versus movies going directly to streaming?
Let's look at the CPP and the future benefits and increases. As we've seen, the basket has changed, and we have offered many new products and, you know, with the introduction of alcohol and with our VIP theaters, the CPP has continued to move forward. We see that level being sustainable and continuing to increase as we improve our guest experiences through technology with the usability to order the concession items prior to coming to the movie. We've already done it in VIP, and we will look into the next few months and initiate it into all of our theaters across the country.
Maher Yaghi, sorry, I'm gonna have one comment there is because you talked about, you know, the economy is typically, you know, we've made some comments about the sort of the strength of the exhibition business through recessions. You know, the last recession that we went through in 2008 and 2009, our concession spending actually continued to increase throughout that period. The second question was on the way it's related to COVID. We characterize these things as our supply chain disruption in content. It's 100% related to COVID. The studios are not moving the big releases that were scheduled for August and September into over-the-top or any streaming services.
They're just going into either Q4 or into 2023.
Yeah. We see some strong releases as I talked about in 2023 and the balance of-
Okay.
of this year.
Okay. I just wanna maybe just follow up on that. Do you still see or are you seeing any changes in terms of attendance versus pre-COVID? When you break down the movies in terms of blockbuster versus mid- to small, are you seeing any divergences in terms of attendance to these movies now versus what they were pre-pandemic?
Well, you have a lot more blockbuster attendance, but that's also the breakdown of the number of movies and the mid-range movies that are coming out compared to the blockbusters. I think what will happen is that's going to change as we move forward with more of the mid-range movies being released over the next number of months. What we are seeing is when you have the blockbusters, you're actually outperforming pre-pandemic levels. With less content, we are still getting, you know, some big returns on these feature films.
Right.
Even if you look back to pre-pandemic, the significant percentage of the box office was generated from these big films.
Okay.
Sorry.
As we look into 2023, what are your views in terms of the supply chain constraints? Are they going to materially improve and that hopefully will allow you to achieve your objectives and returning to pre-pandemic level attendance?
From a product perspective, we see a lot of the movies that were originally going to be released that got moved are going to be released in 2023. You know, there are some big movies. There are movies like Aquaman that was gonna be released in December and got moved to the first quarter of 2023. There's a lot of, you know, good product that we're expecting in 2023. As the studios are continuing to ramp up, we will see more movies that, you know, they haven't slotted in for the balance of 2023. I'm pretty confident that, you know, given no hiccups from a COVID perspective, we should be in a strong position as we move forward.
Great. Thank you. Thank you very much.
Thank you for your questions.
The next question comes from Drew McReynolds from RBC Capital Markets. Please go ahead, Drew. Your line is now open.
Yeah, thank you very much. Good morning. Three for me. Just on the location-based entertainment footprint, you have 10 Rec Rooms and 3 Playdiums. Can you just remind us, what that future footprint looks like? And then the second question, just on Cineplex Media. Obviously a lot of focus here on the macro dynamics in the advertising market. Anecdotally, being in a number of your movies in your theaters in the past, automotive seemed to be a pretty big category, and obviously that's been challenged through COVID with supply chain. Just wondering what you're seeing in that category. Just lastly, on the amusement margins of 18%, awesome performance obviously in the quarter, certainly above the 12%-15%, that has been kind of the guided range in the past.
Are we now looking at this kind of higher level of margin for the business? Thank you.
In response to your question about the locations. We are committed to adding two locations, which will open in the next, you know, 12-18 months. You know, one is in BC and the other one is in the province of Quebec, where we today do not have a location in the province of Quebec. That is going to be important as we move that forward. As the business continues to grow, we'll continue to evaluate the opportunities for that right across the country. It really creates for us a great entertainment destination for our, you know, guests and our team members. We continue to see improvement on that as we move forward.
You know, we should be in a pretty good position as it relates to that. On the media side, you know, there's always been a bit of a lag between when the media start to come back compared to the attendance that we see. You did mention on the automotive side, we have seen that as a challenge. A lot of that has to do with the fact that the dealerships are not getting enough product, so it makes it harder for them to you know come to market and advertise, as you know, the cars that are available. I see that coming back as we move forward because that supply chain will definitely change.
We are filling those gaps with alternatives, including tourism and other opportunities that we see moving forward in our portfolio. Yes, there are going to be ups and downs, but we're quite confident that there are enough consumer-related products that will be advertised on our screens and our digital across the country. Then on the question on the P1AG business and then the margin is, you know, I think in the second quarter it was primarily the higher margin was related to sales mix. I think the good news is that, you know, we've given you the range of 13%-15%. I'd expect that you've seen us get towards the higher end of that range. I would suggest that 18% is not the new run rate.
Okay. Got it. Thanks very much.
The next question comes from Tim Casey from BMO Capital Markets. Please go ahead, Tim. Your line is now open.
Yeah. Thanks. Good morning. A few for me. One, Ellis, could you talk a little bit more about one of your priorities related to leveraging the ecosystem? Just wondering if you can put some context in there on what that would mean for financial results or operating leverage or whatever the key way we should look at that. A second question would be related to the near-term box office. Could you give us a little insight into how Q3 of 2019 played out? In other words, what was the relative mix there for July, August, September, just so we can think about how the comps will look. Last question, Ellis.
Just as, you know, there's been a lot of retrenching of business models related to streaming and, you know, we have Zaslav out there being, you know, very forceful on his commitment to exhibition and whatnot. Just wondering if your discussions or the outlook for film rentals changes at all given, you know, the change in streaming windows . Thanks.
In response to your first question about the ecosystem, one of the key ingredients and the benefits we've seen through this past period of time is the situation as it relates to data. We have some of the best data that's available in the movie exhibition business compared to any of our peers around the world. We have, you know, had the same program for a considerable period of time, so we can pinpoint who's seen what movie when and where, and have used that repeatedly, and we see that continuing to grow. Then also using that data to drive incentives in our other assets like, you know, The Rec Room. That to me is, you know, really, really critical compared to, you know, where we are or where we were in the past.
That's what we spent a lot of our time during COVID improving and making sure it's best in class moving forward. Your next question about Q3 2019 compared to Q3 2022. In Q3 2019, we had a number of movies that carried over, including movies like The Lion King, Spider-Man, and then we had It Chapter Two, which is a movie that did extremely well in Canada because it was produced just outside in Hamilton and did very well. We did have some, you know, big product and that continued into the latter half of the quarter. September usually is a month where, you know, it's not as strong because kids are and families and adults are going back to schools and universities. We continue to see that as not being the strongest.
In all honesty, July was a strong month. August so far we've been good. It's just, you know, being careful and looking at where the comparables stand as we move forward. When you ask about the different studios and where their heads are at, as you mentioned, David Zaslav from, you know, Warner Bros. Discovery basically is committed to the theatrical window, and he feels that it's a great overall deliverer of value and also of building their brand as they continue to move forward. I feel that, you know, in discussions with all of the leaders of the studios and, you know, even some of the streamers, they still feel that theatrical is the engine that drives the train.
You know, we feel comfortable that once you know this COVID impact is behind us and guests are comfortable returning, you know, which just recently on a National Association of Theatre Owners report from NATO, their level had reached its highest since COVID had first commenced. We are confident that if nothing hiccups business will be back and charging forward. Hope that answered your questions.
Yeah, thanks for that. Just a clarification on box office performance, Canadian box office performance in Q2 2019. Should we assume, given the way you characterize the film slate there, that it was about a third July, August, September, given that it would have had a quite strong performance in the month?
Nope. You're talking about this 2022 or 2019?
Nope, 2019.
2019, it would have been, you know, higher in July and August as usual before, you know, the September releases came out. I would say it was more weighted to July and August because that's when all the big movies get released.
Thank you.
Because once the U.S. students get back, they, you know, go with the smaller pictures. You okay?
Yep. Thank you.
Thank you.
If you would like to ask any further questions, please press star followed by one on telephone keypads. It appears we have no questions at this moment, so I'm gonna hand back to Ellis Jacob for the final remarks.
Thank you all for joining the call this morning, and thank you for your questions. As you heard today, our company is very well-positioned. We look forward to speaking with you again in November for our third quarter results. Until then, please take care, be well, and enjoy a movie at your local Cineplex. Thank you.
Thank you for joining today's call. Have a lovely day. You may now disconnect.