Good day, and welcome to the Cineplex Inc. Second Quarter twenty eighteen Analyst Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melissa Prasacco, Manager Communications. Please go ahead.
Good morning. Before beginning the call, we would like to 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 could differ materially from those expressed in the forward looking statements. Factors that could cause results to vary include, among other things, adverse factors generally encountered in the film exhibition industry, risks associated with national and world events, discovery of undisclosed material liabilities and general economic conditions.
I will now turn the call over to our President and CEO, Alex Jacob.
Thank you, Melissa. Good morning and welcome to Cineplex Inc. Twenty eighteen second quarter conference call. We are pleased you could join us this morning. I will begin by providing a top line overview of our second quarter results and a summary of our key accomplishments during the period.
Then we will look at some of the most anticipated movies to complete the year's film slate, followed by a brief outlook of our businesses for the balance of the year. At the conclusion of my remarks, our Chief Financial Officer, Board Nelson, will provide an overview of our financials and then we will follow with a question and answer period. Cineplex reported a record second quarter with increases in revenue across all reportable segments, benefiting from the period strong film product, media results and additional locations with The Rec Room. Total revenue of $409,100,000 increased 12.4% and adjusted EBITDA of $67,800,000 increased 78.3% versus the same period last year. On a last twelve month basis, adjusted EBITDA is $259,700,000 reflecting the revenue growth as well as our continued focus on diversification.
Top performing films for the quarter included Infinity War, which had the highest grossing opening weekend ever in North America. Deadpool two: Incredibles two, which set the North American box office record for biggest opening weekend for an animated film, Fallen Kingdom and A Star Wars Story. The second quarter was strong for Cineplex with box office revenue up 9.7% and attendance up 5% versus the prior period. In addition to this, our ongoing focus on per patron metrics resulted in all time quarterly records for BPP of CAD10.82 and CPP of CAD6.59. As I have said before, when there's quality content available, guests will come out to see.
The movie business is healthy and thriving and the second quarter was a great example of this with the blockbuster records I just mentioned. Now I would like to highlight some of our key accomplishments during the second quarter. Beginning with film entertainment and content, during the quarter we were pleased to open Cineplex Cinemas East Hills in Calgary, which features seven auditoriums including an Ultra AVX auditorium with D BOX and the Clubhouse, a unique auditorium specifically designed for families with young children. Then in July, subsequent to quarter end, we opened two new theaters Cineplex Cinemas Pickering and VIP and the first phase of Cineplex Cinemas, Seton and VIP in Calgary. The second phase of Seton, which includes our VIP Cinemas experience will open to the public next week.
We also announced plans to add four VIP auditoriums and a licensed lounge to our existing Cineplex Audio North Edmonton cinemas this fall and plan to open a new theater at the Centre Mall in Saskatoon in 2019. Alternative programming included record results from international film programming due to strong performing Punjabi and Hindi films in select markets across the country. Additional performances included two live shows and multiple encores from the Metropolitan Opera as well as the classic Ballet Giselle broadcast live from the Bolshoi Ballet. Within theater food service, in addition to the record CPP mentioned earlier, we launched an expanded partnership with Uber Eats. Now you can order our famous popcorn and other popular concession items bundled with digital movie rentals right to your door.
The service is available through 66 Cineplex theaters in British Columbia, Alberta, Ontario and Quebec with plans to expand the offering to 25 additional locations in the coming months. The Cineplex store remains a strategic area of focus for us. During the second quarter, registered users of the store increased by 40% and we recorded an 88% increase in device activations compared to the prior year period. We continue to see this area of the business evolve and grow and it has become one of many initiatives that differentiates Cineplex from other film exhibitors worldwide. Adoption of our online offerings including ticket purchases continues to grow.
During the quarter, 32.3% of total admissions were purchased online or via mobile devices. Moving to Media. Our Media business reported a record second quarter. Cinema media revenues increased 12.3%, primarily due to an increase in showtime advertising and digital place based media revenue increased 9.9% due to an expanded client base, which contributed to increased project installation revenue and advertising revenue. The increased project installation revenue was in part due to our partnership with AT and T and seven Eleven to design, develop and implement various digital menu board solutions supporting seven Eleven's U.
S. Convenience store hot food program. To date, CDM has deployed their solutions in two forty stores across The U. S. We continue to pursue opportunities around the globe to expand our digital media footprint with some of the world's top brands.
Moving on to amusement, gaming and leisure. During the quarter, we opened our fifth location of The Rec Room in London, Ontario and have been pleased with its performance to date. The five locations reported second quarter revenue of CAD15.7 million and a store level margin of 13%. There is an element of seasonality in this business and weather can have an impact on results. During the second quarter, Alberta had an unseasonably warm May, which negatively impacted the results in this market, in particular Edmonton where we have two Edmonton locations, the store level margin of the remaining locations could have been 22%.
We also announced plans to open a new Palladium location in Brampton, Ontario by converting our existing Cineplex forty on Orion Gate Cinema. The redesigned space will include approximately two thirds games and attractions and one third fresh food and beverage options targeting teens, young adults and families. Both this location and our previously announced Palladium Whitby location are scheduled to open in 2019. We anticipate having a total of nine locations of The Rec Room and two Palladiums in operation by the 2019. Subsequent to the quarter end, we announced an expansion agreement with The VOID that will provide Cineplex with the exclusive rights to operate the VR experience in Canada.
With our first location already successfully operating at The Rec Room in Toronto, the plan is to open additional void experience centers over the coming years, both inside and outside of Cineplex operated properties. The next location is set to open at The Rec Room West Edmonton Mall next week. We believe we are well positioned to grow in this area and have identified a number of ways to leverage VR within our ecosystem, including our theaters, location based entertainment concept and as a product set for Player One Amusement Group. And speaking of P1AG, in June, we announced an exclusive agreement with Cinemark to install, operate and service amusement gaming equipment in over two seventy Cinemark locations across The U. S.
As part of the agreement, B1AG will also pilot three premium gaming locations featuring the latest interactive amusement and redemption games with a variety of great prizes. The expanded partnership leverages P1AG's national infrastructure and industry experience as one of North America's leading providers of amusement solutions. In esports, World Gaming announced its Rocket League Canadian Championship Tournament. The top eight teams from the regional finals will compete in Toronto at our Scotiabank Theatre later this month. Additionally, World Gaming was named the official tournament operator for The U.
S. And Canadian qualifiers of the twenty eighteen World Electronic Sports Games in partnership with Ali Sports. These Olympic style games will last over seven months and involve more than 65,000 players from over 190 countries competing for a $5,500,000 prize pool. World Gaming will host the national event via online qualifiers and live finals for both The U. S.
And Canada. Following this, winners from each country will meet in China to attend the grand finals. Our SCENE program continues to grow as we reach 9,200,000 members by the end of the quarter. We have gained tremendous insights into our customers and their behaviors with over ten years of data. We continue to focus on leveraging this data through marketing automation to drive customer behavior as well as accelerating our adoption on artificial intelligence and machine learning for more robust consumer insights.
Aside from our revenue initiatives, we continue to be diligent and focus on our costs. We are well on our way to achieving the $25,000,000 in annualized cost reductions that we had previously communicated by the end of this year. Now let's take a look at some of the films in store for the balance of the year. The third quarter got off to a strong start with movies like Ant Man and the Wasp, Hotel Transylvania three and Mission Impossible Fallout. Then opening next weekend, we have the highly anticipated film Crazy Rich Asians, a movie based on the bestselling book.
The Nun, an offshoot of The Conjuring series opens on September 7. And on September 28, the animated comedy Smallfoot starring the voice of Zendaya and Channing Tatum hits theaters. We have a number of films opening on October 5, including Venom starring Tom Hardy as the Marvel super villain and A Star Is Born with Bradley Cooper and Lady Gaga, which has already generated strong Oscar buzz. Next up is Jamie Lee Curtis' return to the big screen in the eleventh installment of the Halloween franchise, which opens on October 19. Moving into November, we have Bohemian Rhapsody, the Freddie Mercury Queen story opening November 2 and the animated Doctor.
Seuss the Grinch starring Benedict Cumberbatch opens on November 9. Also on November 9, have The Girl in the Spider's Web, the sequel to the popular crime thriller, The Girl with the Dragon Tattoo. On November 16, the Wizarding World franchise returns to theaters with fantastic beats, The Crimes of Grindelwald. Disney's Ralph Breaks the Internet opens on November 23 and on December 14, we have both Into the Spider Verse, an animated Spider Man movie and Mortal Engines, the post apocalyptic adventure film based on the novel. Right in time for the holidays, the highly anticipated Mary Poppins Returns opens on December 19 with a star studded cast including Emily Blunt, Meryl Streep and Dick Van Dyke.
Then we close out the year with four great films all opening on December 21, including the next film in the DC Comic Universe, Aquaman, the new Transformers film, Bumblebee, the James Cameron film, Alita Battle Angel and Holmes and Watson, which stars Will Ferrell and John C. Reilly. As you can see, the film slate looks strong for the remainder of the year with a lineup of films that includes Something for Everyone. We are also very encouraged by what's to come in 2019. Overall, Cineplex experienced a strong second quarter and accomplished a great deal.
We continue to pursue our diversification strategy, leveraging synergies within the Cineplex ecosystem and identifying new opportunities for revenue growth. As we move into 2018 and look ahead to 2019, we remain confident in our approach. With a strong film slate, our new theater openings, added VIP cinema locations and continued growth of The Rec Room, Cineplex Digital Media and Player One Amusement Group, we believe we are well positioned for long term success by investing in the future.
With that, I'll turn the call over to Gord. Thanks, Ellis. I am pleased to present the second quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD and A have been filed on SEDAR this morning and are also available on our Investor Relations website at cineplex.com. We continue to execute our diversification strategy.
And for the second quarter, revenue increased 12.4% to $409,100,000 a second quarter record with increases across all reportable segments contributing to the growth. Adjusted EBITDA increased by 78.3% to a second quarter record CAD67.8 million, primarily a result of this growth. Cineplex's second quarter box office revenue increased 9.7% to million compared to CAD170.7 million in the prior year. This was a result of the impact of the 5% increase in attendance, coupled with a BPP increase of 4.4, which established an all time quarterly record of CAD10.82, up from CAD10.36 in 2017. Foodservice revenue increased 20.6% to CAD122.3 million.
Included in foodservice revenue is $8,300,000 from The Rec Room. Excluding revenue from The Rec Room, theatre foodservice revenue increased by 14.6% from the prior year due to the previously mentioned increase in attendance, combined with the 9.3% increase in concession revenue per patron to an all time quarterly record of CAD6.59. The CPP growth was attributed in part to increased basket size and expanded food offerings, including those available at Cineplex's VIP cinemas, outtakes and additional licensed locations. Total media revenue increased CAD4.2 million or 11.5% to CAD40.8 million for the quarter. Cinema media, which is primarily theatre based, increased 12.3% due to higher cinema advertising with strong results from the automotive sector and a shift in spending this quarter due to the stronger film slate.
Digital place based media revenue increased 9.9% compared to the prior year, primarily due to higher project installation revenue related to seven Eleven. During the quarter, we increased our location count by 2.3% or three zero eight new locations to a total of 13,461 locations. Amusement revenue increased CAD 2,900,000.0 or 6.3% due to strong revenue growth from The Rec Room, which contributed CAD5.4 million of amusement gaming and other revenue. This was offset by a decrease in amusement gaming revenue from P1AG due in part to a decline in children's attendance mix in the exhibition sector, the impact of foreign exchange rates on U. S.
Source revenue and a non recurring item in the prior year. There were significantly fewer family friendly films in Q2, two thousand and eight versus Q1, twenty seventeen and using Cineplex as a proxy, although our overall attendance was up 5%, our children's attendance category was down 17.9%. With respect to The Rec Room, we opened the fifth location at CF Masonville Place in London, Ontario during the quarter. While revenue grew CAD12 million over the prior year with four locations opened for the full quarter and they fit for part of the quarter as compared to one in the prior year. Margins were down as compared to the first quarter due to unseasonably warm weather during May and in Alberta.
Ellis provided some more color earlier on this impact. Turning briefly to our key expense line items. Film costs for the quarter came in at 54.7% of box office revenue as compared to 53.6% reported in the prior year, reflecting the impact of the strong titles in the second quarter of this year. Cost of food service for Q2 twenty eighteen, excluding CAD2.3 million incurred at The Rec Room was 20% as compared to 22.7% in the prior year period and cost of food service at The Rec Room was 27.1% in line with expectations. Other costs of CAD213.8 million increased CAD2.3 million or 1.1%.
Other costs include theater occupancy expenses, other operating expenses and general and administrative expenses. Theater occupancy expenses were $52,800,000 for the quarter versus a prior year actual $52,600,000 Other operating expenses were $143,200,000 for the quarter versus a prior year actual of $138,900,000 an increase of $4,300,000 Increases included CAD 8,600,000.0 related to additional rec room locations and CAD 2,300,000.0 in same store theatre payroll due to increased business volumes and minimum wage changes in excess of labor efficiencies. These increases were offset by the initial impact of our business unit level cost reduction program and business interruption proceeds of CAD 3,700,000.0 as a result of the fire at Cineplex, Sweden and VIP reported as a credit to other costs. With respect to the $2,300,000 theater payroll increase, I would note that our focus on labor hour efficiencies resulted in a CAD 2,100,000.0 efficiency reduction impact, but this was offset by a CAD 3,200,000.0 wage rate increase impact, which includes the 21% increase in minimum wage in Ontario and a CAD1.2 million volume impact based on the higher attendance levels. G and A expenses were CAD17.8 million for the quarter, which was CAD2.1 million lower than the prior year due to a CAD3.6 million reduction in share based compensation expenses, mainly due to Cineplex's lower share price and a CAD1.3 million reduction in G and A expenses, primarily a result of our cost reduction program.
These savings were partially offset by restructuring costs in the amount of $2,800,000 related to this program. As we had said earlier, we expect that the annualized impact of the business unit and G and A cost reduction program to be approximately CAD25 million, and this will ramp up over the remainder of the year. Business unit level cost reductions will be reflected in the other operating expenses as detailed in our MD and A. Net CapEx for the second quarter was $23,100,000 as compared to $52,200,000 in the prior year. We continue to estimate that our net CapEx for 2018 will be approximately 125,000,000 and $150,000,000 for 2019, reflecting in part the CapEx for our anticipated Topgolf location in 2019.
As Ellis mentioned earlier, we have steadfastly focused on creating a diversified entertainment and media company for the future. We are prepared to prudently use both our operating cash flow and our credit facilities to invest in these new businesses. We continue to remain comfortable with where Cineplex Inc. Is positioned today. We are in the early execution phase of a number of our diversification initiatives and our balance sheet allows us to continue to invest in these growth initiatives to deliver future value for our shareholders.
That concludes our remarks for this morning. And we now like to turn the call over to the conference operator.
Thank And we'll go first to Tim Casey with BMO.
Thanks. Good morning. Three for me. Gord, could you talk about the concession margins? What drove that up so nicely in quarter to quarter there from almost 300 basis points there?
Is and is that sustainable back half of the year? Two, just a clarification on the fire insurance, the 3.7%. That's a I'm assuming that's a one off. There's no more carry through in subsequent quarters. And then thirdly, on Cineplex Media, a nice gain there.
Just could you talk a little bit about how dynamic advertiser demand is? And I guess where I'm going is if the movie slate is unexpectedly better or worse, Do you see a quick demand change by advertisers? Or is the inventory pre bought and so you kind of have a feel for it going into the quarter? If you could just flush out that for a bit, that would be helpful. Thanks.
Sure. So thanks, Damon. So on your first two questions on the concession margin, you've noticed the last three quarters, we have lifts anywhere between 69% on CPP. A component of that relates to some pricing changes that were have been reflected in both late twenty seventeen and into 2018 as well as some of the adjustments to the SCENE program where cash discounts were replaced with point rewards. In addition, we see continued basket size increases lifting the CPP.
But those first two elements that I mentioned, with them, you don't get necessarily the corresponding increase in the cost of food items. So that is, in essence, what is helping our margin side of things. Costs are relatively contained, and we've got these increases from the CPP side. On the business interruption question, the Seaton location has now opened in July. So the business interruption claim that we made would have been from the anticipated date of opening and from the fire date until the actual opening date.
And as I mentioned, it is in July. So there could be a small additional amount in the third quarter, but I would say substantially all of the estimated interruption claim amounts have been reflected in the second quarter results.
And Tim, just to follow-up on that, we also have with our restructuring costs, a onetime charge in our numbers. So yes, there are costs from extraordinary items, which kind of offset each other.
So on the media question, just in terms of anticipation, there's a as we digitize, obviously, there can be speed of execution based estimated performance of films. But usually people are there's a production period where the campaigns are being developed in advance to associate themselves with certain films. So I would say you probably don't see as much as you would expect in terms of people being a lot of reaction because of the preplanning process of the campaigns. Now we do have the ability to move some of the particularly in the digital pre some campaigns in and if there's highly anticipated product. But I would say there
is a lot
of pre planning on these campaigns and so not as much kind of movement at last minute. And I'm not sure whether your next question is on how if films don't perform, what that how that impacts us. And as we've mentioned before, we typically don't sell our advertising on a CPM model basis. Issues that you may see in the NCM results, such as make good type items aren't as prevalent in our business model.
Thanks for that. Just to follow-up, Gord, is do you think an 80% margin on concessions is sustainable or is it going to be somewhere between seventy seven percent and eighty on a go forward?
Yes. No, I would say, look at it in the near term, I would say that 80% margin is our sustainable level.
Thank you. Thanks, Tim.
We'll go next to Derek Lessard with TD Securities.
Yes, thanks and good morning everybody. You've talked about your initiatives over the next five years accounting for about two thirds of your profits. I was just wondering if there's any change to that timeline and whether or not you think you can accelerate it? And maybe in that timeline specifically, are you only talking about the initiatives you've announced? Or should we assume that there's other opportunities not discussed?
Yes, it's a great question. And for us, it's all about focusing on making smart decisions as we move forward and picking the right locations as we grow both The Rec Room, Topgolf and some of the other initiatives that we are focused on. So as we see strong results and opportunities, we are going to basically look at those opportunities within the CapEx that we've talked about and then making sure that we are always diligent as to our leverage ratio and where Cineplex stands from a balance sheet perspective. So really in response to your question is if we see opportunities for growth, we are basically going to look at moving forward with them. And there's basically things like VR, which we announced with The VOID and we look at opportunities in that area also as it is something that we think is important for the future growth of the business.
Okay. And maybe on the just switching gears to the digital media. Is the seven Eleven a new contract that you just announced? And just wondering how big of a rollout this would be?
Yes, Derek. Look at you know, as we've kind of provided commentary over the past number of calls is is we actively kind of pilot that customers, which can ultimately lead to lead to kind of contracts, you know, amongst, you know, the a full deployment scenario. I would characterize kind of seven Eleven one as as a customer that we've been piloting with over the past, you know, one to two years, and that we're happy to kind of name them today as one that, you know, we're we're continuing to grow with them. I think as we mentioned in our results today that we showed some significant growth in the first quarter due to that relationship. But I wouldn't characterize it necessarily as a contracted relationship at this point.
Okay. And maybe just one final one for me before I re queue. Just wondering, Gordon, maybe if you could quantify the higher operating cost for the London Rec Room and maybe just lay out the overhead costs for the amusement and leisure segment? And how should we be looking at those costs?
Sorry, London, what was the second part of that question?
Yes, the overhead costs for amusement and leisure segment.
Yes. So in the MD and A, which I think is maybe what you're referring to, is we break out the store level margins for the rec room locations, and we bring it and we break out the P1AG operating results. There's a component of overhead, obviously, for the amusement and leisure sector, which includes our LVE initiatives, includes our amusement solution initiatives, and includes our world gaming initiatives. So there is a component of overhead in that amount. In the second quarter itself, with the opening of the London location, you tend to see preopening costs of approximately $1,000,000 which also in kind of in those overhead and preopening numbers.
Okay. Thanks for that.
We'll go next to Kendrick Tighe with Raymond James.
Thank you and good morning. I wonder if we could just sort of speak to or revisit the Canadian industry performance versus The U. S. And what appears to be a fairly persistent tracking error. I know in the past you've spoken to sort of relative appeal of the mix, perhaps fewer titles released north of the border versus south or similar.
I mean as strong as the performance was in quarter, that gap was pretty noticeable. Could you perhaps just sort of walk us through some of that dynamic and how we should think about its evolution?
Yes, certainly, Henrik. And this quarter it looked like in Canada we were up close to 10% and in The U. S. They were up over 24%. And looking at the different components, last year in Canada, we had in Quebec a movie called Bokop, Bokop, Bokop, did a significant amount of business.
And this year, the Quebec feature we have Le Baldu did less than half of the business that that particular film did. We also had movies that opened in The U. S. That did not penetrate Canada, a movie like Overboard, which did close to $50,000,000 in The U. S.
And didn't have much of an impact in Canada. The other thing is with The U. S, we've seen the MoviePass and we feel from looking at the numbers in The U. S. That that's had an impact.
And the range I've seen publicly from anywhere from four percent to 8% as far as the impact on the difference between us and them. And that will change over time as the different proposals are out there. We also saw The U. S. Premium large formats.
We did a lot more before they had started and now they are catching up and that's resulted in them doing a higher box office than us because they followed our focus in that particular area. So those are all the different components, I would say, add up to where we are today. And there are certain movies when I look at it for the quarter to date in the third quarter, we are basically slightly ahead of The U. S, but things change depending on one or two movies that either under or overperform in Canada versus The U. S.
That's great color. Thanks very much, Ellis. And can we just switch quickly to The Rec Room? I know you called out some of the weather related challenges in Edmonton, where previously you also highlighted the dynamic of a mall based location. Could you sort of speak to us outside of weather how the Edmonton business is evolving with The Rec Room?
Yes, we continue to do well and it's a little tougher market than the other ones because we've got two locations in the market compared to our other markets within the rest of the country. And as we open these locations, there's great learning and we've been able to get synergies from what we've done on an overall basis. And we still have some softness in the West Edmonton Mall location and we are opening our void there next week and we will continue to work on improving those locations moving forward. But we are very pleased with the performances of the other locations and also Masonville without the university kids are still doing quite well from a startup perspective.
Great. Thank you. Just a final one for me. Gord, with respect to your 2019 CapEx commentary, if Topgolf were to be a big unexpected surprise or win, is there some flex in that CapEx number? Or is it simply a constraint from a real estate point of view that regardless of how well it does or doesn't do, 2019 would just be a single Topgolf planned location or launch?
Yes. I would say at this time, Luca, we're going to try and just get the first one up out of the box and then we'll kind of move on from there. But I would say, yes, there's not it would be extremely unlikely to have a second Topgolf location in that 2019 CapEx number.
But we will continue to pursue other locations. But again, I think in 2019, like Cord says, we will probably have one open.
Great. Thanks very much. I'll leave it there. Congrats. Thanks.
We'll go next to Jeff Fan with Scotiabank.
Thanks. Good morning. Got a few here. Maybe to start off on Digital Media, it looks like the installation ramped up a bit in the second quarter. Do you expect that to continue into the second half and therefore the revenue trajectory to continue that acceleration?
And then on T1AG, it looks like the revenue there was a little bit softer, I think, the second quarter in general, mid single digit. Wondering if you can talk about the that business in general and what caused that softness. And the Cinemark deal, perhaps talk about when that can kick in and how that would impact that trend. And then just on the rec room, understanding that there is this seasonality or weather impact, as you were, I guess, projecting the return of this business, I'm wondering how that factored into your 25% margin and cash return on that business. How much did the seasonality factor in?
Can we still expect that on a full year basis even with the seasonality that you'll get those types of returns? Thanks,
Jeff. So on the first question on CDM and the revenue trajectory, so we're obviously pleased with the 10% growth in the second quarter. And we kind of highlighted that we're rolling out with seven Eleven and see continued opportunity there. So we're comfortable that, yes, you're going to continue to see those growth levels over the foreseeable future. On p one a g, let me provide a little bit of color additional color on the results.
I tried to kinda highlight in my prepared comments the kind of disconnect between the attendance growth, yet the decline in children's attendance. Obviously, we have the data for our own circuit in Canada, but when you look at the top 15 films as an example in 2018, there's really only one film, which I would call kind of family friendly versus the seven in the prior year. So our children's attendance in our circuit was down almost 18%. And obviously, there are some of the kind of the key gamers from an amusement solutions perspective. So that definitely had an impact on our results and you see that Cineplex results from amusement gaming were down about 5% too.
In The U. S, about a quarter of our revenue comes from the exhibition sector. So I would say that you would assume similar level of declines in children's attendance, so impacting that sector. We had a foreign exchange impact, which was about 2%, just slightly over 2% of the variance versus the prior year. And we had a onetime adjustment related to some of the acquisitions or revenue related item in the prior year results that also impacted kind of the year over year change by about 2%.
So declined children's attendance in the exhibition side of the business, foreign exchange and a nonrecurring item in the prior year results. With respect to Cinemark, we were pleased to announce that relationship during the second quarter. I want to kind of make one kind of comment. When we built that strategy of creating the national footprint in The U. S, part of the reason for that was we believe that there's an ability to kind of take share away from competitors in a more kind of regional regionalized business model that existed in The U.
S. So I think this is a good example of that. And customers look into our expertise, obviously, delivering results in the exhibition space. So just early days on the Cinemark rollout. So we'll continue to see some of that, and then we're excited about that and potentially other opportunities in the future.
And Jeff, on your question on The Rec Room, as far as the Edmonton weather impact, I think what we should have focused on sooner was the better cost control as we saw the changing dynamic there. I don't think it's something that will continue to impact us on an annual basis.
Okay. Thanks guys.
We'll go next to Adam Shine with National Bank Financial.
Thanks a lot. Good morning. Ellis, you highlighted for ten years into the SEEM program, the only data we really tend to get is the number of members and 100,000 added basically every quarter. Is there any additional color you can share today or maybe in future just in regards how indeed incidents are being driven, degree of frequency of a SCENE member versus maybe non SCENE members? And anything else that might shed a bit more color in terms of the productivity you're getting out of the program?
Adam, we have a significant amount of information and stratifications of the data. We are now looking at artificial intelligence to better use the data to control costs and generate higher revenue. We've got the benefit of now having it introduced into The Rec Room and it will eventually be part of our other opportunities in amusement and leisure. So our focus is really about owning your entertainment time and entertainment dollar as we move forward. It's not just about movies, it's about all your experiences, including your experiences online.
So I mean, we could spend another hour talking Just to let you know, we feel that this is one asset that provides us with a huge advantage in being able to communicate with our guests and give them the best experience possible under all of those circumstances. We know
I'm sorry, go ahead.
So we know a significant amount of information. Now we have to be careful because we don't want to also overuse the information to turn the guests away, but it can provide us with great opportunities to continue to grow in different areas of the business. Sorry, you Yes. Went
I was just going to interject in terms of do you think there's ever a time where you're prepared to give, let's say, miles issuance and redemption? Or that's really something that remains proprietary and you don't want to give it out competitively?
I think it's something like the program was designed to increase the incidence of movie uptake and also now broadened it to all of the entertainment venues that we offer. And I think the redemption versus earn, it could be used in so many different areas including our concession stands, including our box office and also with the Kara Food Network that you can earn and redeem points.
Okay. Maybe one for Gord, just on a follow-up to Jeff's question regarding Cinemark. So I think your comment to him was basically stay tuned for a bit of a ramp there. So not necessarily something significant in terms of a material bump to necessarily revenues, let alone profitability heading into the back half of the year or maybe it does indeed ramp up into Q4 plus?
Yes. Look, I mean, it's fully deployed now. We're just so you're see the impact. But again, as I mentioned, the exhibition sector as a percentage of our total U. S.
Business is about 25%. So it will have an impact. It obviously will have an impact in the exhibition sector, but it's still only a quarter of the overall business.
Understood. Thanks a lot.
Thanks.
We'll go next to Rob Goff with Echelon.
Thank you very much and good morning.
Good morning.
Two questions,
if I might. The first one would be just to perhaps give us some insights into the experience you've had, the incremental contributions related to recliners and your thoughts on pushing them further out across your platform. And then the second, perhaps broader question would be that of esports, your thoughts there on monetization and your partnership with AliSports?
Yes, on the recliner side of things, we've got approximately 10 of our circuit circuit now with recliners. We've seen some good returns both at the box office and also increased CPP in these locations. All of our new locations that we are opening will have recliners. We've got, as we mentioned, Feeton, Pickering
have opened and Seton
in the last couple of months and they're all theaters with recliners. We're looking at other opportunities where we see a benefit in introducing them, but we have to be careful because it's also a capacity utilization issue that we need to focus on in certain of the locations before we convert them.
And then on the esports question, Rob, I know you're very well versed in the space. The primary revenue source in esports space is always advertising sponsorship. The relationship now with Ali Sports to host the World Outdoor Sports Games gives us two kind of premier events, then now global events. Our focus has primarily been Canadian based events. So those online events culminating in live events, which will take place in California and Toronto, are exciting opportunities for us.
We still see kind of non endemic brands kind of on the tipping point where they're looking to associate with the esport audience and should be kind of coming online fairly soon in the broader esports spectrum. So having this event, this premier event, is just another kind of element in enhancing the overall experience for the gamers on our world gaming platform. So we're excited about that opportunity. Thank you and congrats.
Thank you.
We'll go next to Drew McReynolds with RBC.
Thanks very much. Good morning. A couple from me. Just first, maybe on Topgolf, I think last quarter, Ellis, you just talked about potential announcement with respect to the first location. Just wondering how confident you are that you're still on track for a 2019 launch?
Yes, Drew. We are very close to an announcement in the Greater GTA area and we should be hearing about that shortly. And we are focusing to open our first location by the 2019.
Okay. Great. Gord, I may have missed this earlier. With respect to that $25,000,000 in targeted cost savings, what have you achieved, I guess, in the quarter kind of exiting the quarter?
Yes. So look, I think we're pleased with the results to date. I typically said we would ramp up to the $25,000,000 on an annualized basis at the end of the year. If you looked specifically at our results and then particularly in the MD and A where we identified the G and A and the other operating expense line items, I think and you would see that G and A was down about $1,200,000 year over year and some of the other operating expenses that we've identified were down about $2,800,000 So between those two, you're at about $4,000,000 in the quarter, which would be annualized $16,000,000 on an annualized basis. So I initially said when we announced the program, we would kind of ramp up a third, a third, a third to achieve the $25,000,000 So I think we're a little bit ahead of the game right now, and we're still confident in reaching that number at the end of the year.
That's very helpful. Two others. First, just on the BPP growth, a little stronger certainly than what I was looking for. And I'm looking at your premium mix, clearly driven by core price increases. Wondering if you could just shed some light on kind of that strategy kind of going forward, just what kind of pricing power you think still exists in your ability to raise core prices?
And then secondly, on the virtual reality initiatives, obviously early days, but wondering, I guess, the medium term, what kind of CapEx intensity those venues or those offerings, What kind of CapEx requirements would they require? Drew,
I'll take your first question on VPP and the part of the question. The one thing to also note is and as I provide a lot of commentary about kids attendance, how it kind of impacted the amusement solutions business, that 18% decline in children's attendance. Congress is a helpful to BPP perspective because fewer kids, which come in at a lower ticket price. So we've got the premium initiatives, a shift in mix away from child to the higher priced tickets that also helped contributed to the overall BPP increase, which sounds like it's a little higher than you were expecting. And then on pricing, I'll let Ellis make a comment on kind of future opportunities.
Yes. And on pricing, we have been really very focused on using efficiency and effectiveness to drive attendance. But when I look at pricing around the world, even specifically in The U. S. Compared to what we are charging, think there is opportunity.
But again, we view that as the last lever to drive our bottom line because it's important to get more people into the box and have those opportunities, but we continue to look at pricing from an overall perspective. And on VR Just
on VR. So typically, when we bucket out the categories of CapEx going forward, we talk about a premium of about $10,000,000 premium offering CapEx of about $10,000,000 a year, which could include VR concepts in that amount. When we talk about The Rec Room and then the cost of a Rec Room, typically, whatever the VR installation is, it would be included in kind of that rebuild cost of a Rec Room. So it would be bucketed within that kind of $10,000,000 of premium and other initiatives.
Okay. That's all very helpful. Thank you very
much. Thanks, Drew.
And it appears there are no further questions in queue. I'd like to turn the conference back over to Mr. Ellis Jacob for any additional or closing remarks.
Thank you everyone for joining us this morning. We hope you enjoy the rest of your summer and look forward to speaking with you again during our third quarter conference call in November. Have a great weekend.
And that concludes today's conference. Thank you for your participation. You may now disconnect.