Good day, welcome to the Cineplex Inc. first quarter analyst call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Pat Marshall, Vice President of Communications and Investor Relations. Please go ahead, Ms. Marshall.
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'll now turn the call over to Ellis Jacob, our President and CEO.
Thank you, Pat. Good morning, welcome to Cineplex Inc.'s first quarter 2018 conference call. We are glad you could join us today. I will begin by providing a brief overview of our top-line results, as well as a summary of our key accomplishments during the first quarter. I will also highlight some of the most anticipated films for the summer. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide a more in-depth overview of our financials. As always, once Gord has concluded his remarks, we will hold a question-and-answer period. Throughout the quarter, we continued to execute our diversification strategy to reduce our reliance on the cyclicality of the quarterly box office.
Total revenue for the first quarter of 2018 decreased slightly by 0.9% to CAD 390.9 million compared to the prior year period, as the revenue strength from our new businesses was offset by the decline in the exhibition business due to a 9.3% attendance decrease as a result of the softer film slate. However, this was partially offset by record first quarter box office per patron of CAD 10.21 and record first quarter concession per patrons of CAD 6.09, which increased CAD 0.24 and CAD 0.38 respectively from prior year periods. Amusement revenue increased 20.5%, or CAD 8.5 million, largely due to increased revenue associated with the Dandy Amusements acquisition in 2017 and contributions from The Rec Room. The Rec Room performed well, we continued with proactive cost control measures. However, the attendance decline resulted in a 10% decrease in adjusted EBITDA to CAD 53.5 million.
Now I would like to highlight our key accomplishments during the quarter. Beginning with film entertainment and content. The top five performing films for the quarter included "Black Panther," "Jumanji: Welcome to the Jungle," "Star Wars: The Last Jedi," "Peter Rabbit," and "Fifty Shades Freed." The strong performance of "Black Panther," which is now the third highest domestic grossing movie of all time, was a very positive contributor. Although one film does not make a quarter, and unfortunately, the remainder of the period's film product did not perform as well as expected compared to the prior year. "Black Panther" represented 22% of box office revenue during the quarter, and "Jumanji: Welcome to the Jungle" represented 10%. However, the remainder of the top five films for the first quarter represented significantly less than the prior year.
In alternative programming, the first quarter of 2018 included international feature films, five live performances of the Met Opera, and performances from the Bolshoi Ballet and National Theatre Live. Our international film programming reported an all-time record quarter with the Hindi film "Padmaavat," which became the highest grossing international title in Cineplex history. Within theater food service, in addition to the record CPP discussed earlier, as a result of changes to provincial liquor laws in Ontario and Alberta, we can now offer alcoholic beverages to our guests outside of VIP cinema auditoriums and licensed lounges. We began rolling out beer and wine sales in theaters in Ontario late last year, and during the first quarter added five more theaters, bringing our total to 15. The plan is to continue to add this service to select theaters within Ontario and Alberta in 2018.
In addition, we continue to work with other provinces to revise legislation so that we can provide this offering across the country. We see upside for continued CPP growth as we expand the number of locations with alcohol sales and continue to enhance our VIP cinema offerings. Subsequent to quarter end, we were pleased to open our newest theater, Cineplex Cinemas East Hills in Calgary on April 20th. Located at the southwest end of the East Hills Shopping Center, this seven-screen theater features luxurious recliner seating and offers a variety of entertainment options for guests of all ages. These include an UltraAVX auditorium with D-BOX motion seats, an Xscape entertainment center, and a variety of food service options beyond traditional concessions. The theater will also feature an auditorium designed specifically for families with young children.
Looking at our online initiatives, the Cineplex Store registered a 52% increase in device activations and a 54% increase in monthly active users compared to the prior year period. This business continues to grow as consumers continue to expand their adoption of transactional digital movie consumption. Moving on to media. Overall, the 4.1% decrease in total media revenue was due to a 1.2% decrease in advertising from cinema media and a 9.2% decrease in revenue from our digital place-based media. However, we do expect a strong second quarter ahead for both of these areas of the business. As reported earlier this year, Cineplex Digital Media was selected by Arcos Dorados, the largest independent McDonald's franchisee in the world, to deploy, maintain, operate, and support a network of digital menu boards at locations in Argentina, Brazil, and Uruguay.
The rollout has begun and will continue through the balance of the year and into 2019. In amusement and leisure, we were very pleased with the performance of The Rec Room in the first quarter of 2018, with our four locations generating total revenue of CAD 16.1 million and a store-level margin of 20.5%. During the quarter, we announced plans to open two new locations at The Rec Room, the first on the East Coast at Avalon Mall in St. John's, Newfoundland, and the second in Winnipeg at Seasons of Tuxedo. Both are scheduled to open in 2019. On Monday, we opened our newest location of The Rec Room at Masonville Place in London, Ontario. Response from the community has been very positive as we continue to enhance the offerings with each new opening.
Subsequent to quarter end, we announced plans to open a new Playdium location in Brampton, Ontario, converting and reimagining our current Cineplex Odeon Orion Gate Cinemas. The new entertainment space will be specifically designed for teens, their friends, and family who are looking for an affordable entertainment choice for everyday play, casual dining, or to celebrate special occasions. We expect this location to open its doors in mid-2019. This will be the first conversion of an existing theater, and we will continue to evaluate other opportunities on a market-by-market basis. In March, Cineplex and WorldGaming hosted the Canadian Call of Duty World War II Championship Series Finals at Scotiabank Theatre Toronto, where teams from across Canada competed for CAD 60,000 in cash and prizes, as well as the championship title.
A variety of gamers from underdogs and the unknown to the world's highest-ranking talent competed in this action-packed live national finals event, which was also live-streamed globally with approximately 500,000 views. During the quarter, as part of a partnership with the Ed Snider Foundation, WorldGaming hosted the first-ever North American competitive hockey video gaming tournament played on an Esports NHL 18. The finals were held in Philadelphia, and proceeds from the tournament benefited the Ed Snider Youth Hockey Foundation, which was created by the late Philadelphia Flyers owner. This past weekend, our Collegiate StarLeague held the CSL finals in Huntington Beach, California, with the top-ranked college teams across North America competing for prizes and scholarships in this exciting event. Moving on to Scene. During the quarter, we reached another milestone, surpassing the nine million member mark and adding 200,000 members during the period.
As of March 31st, our Scene loyalty program reached 9.1 million members. Subsequent to quarter end, we implemented a program to extract cost savings and synergies across our organization. This included headcount reductions as well as the ongoing integration and optimization of the cost structures of our business. As a result, on April 9th, a restructuring occurred within the company. Overall, we expect an annualized cost savings of approximately CAD 25 million to be realized by year-end. Let's take a look at some of the films for the summer. This past weekend, "Avengers: Infinity War" delivered the highest opening weekend ever with a total of CAD 257 million in North American box office revenue. It was also Cineplex's largest opening weekend ever. This illustrates the power and draw of quality film product. Audiences will come to the cinema when we have films that they want to see.
We spent last week at CinemaCon, where over 3,000 movie exhibitors from around the world gathered with distributors, suppliers, celebrities, and journalists. After viewing upcoming content from a record 11 studios, we were all very encouraged by the film slate for the year, and especially so for the next seven weeks, which includes "Deadpool 2," "Solo: A Star Wars Story," "Ocean's 8," "The Incredibles 2," and "Jurassic World: Fallen Kingdom." The conference also reaffirmed the very strong relationships between distributors and exhibitors. Moving to the third quarter, we look forward to Marvel's "Ant-Man and the Wasp" opening on July 6th, and the ever-popular cartoon monster family returns with "Hotel Transylvania 3: Summer Vacation," which opens on July 13th. Also opening on July 13th is the action-adventure film "Skyscraper" starring Dwayne Johnson. The original "Mamma Mia!" cast returns for "Mamma Mia!
Here We Go Again." On July 27th, Tom Cruise returns to the big screen as Ethan Hunt in another action-packed "Mission: Impossible – Fallout." As you can see, the summer film slate looks very strong and offers something for everyone. As we have been saying for some time, we feel the recent box office performance has been cyclical in nature and the result of weaker film product. We are confident that the second quarter film slate signals a positive turnaround in box office performance. We also remain committed to our business diversification strategy, which positions Cineplex uniquely in its ability to deliver results from many different revenue sources. Before I turn the call over to Gord, I'm pleased to announce that the Cineplex board has approved a 3.6% dividend increase to CAD 1.74 per share on an annual basis, up from the current CAD 1.68 per share.
This increase will be effective with the May 2018 dividend, which will be paid in June 2018. I will turn the call over to Gord.
Thanks, Ellis. I am pleased to present the first quarter financial results for Cineplex Inc. For your further reference, our financial statements and MD&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 first quarter, total revenue was relatively flat, decreasing 0.9% to CAD 390.9 million as the revenue strength from the new businesses was offset by the decline in exhibition revenue as a result of the 9.3% attendance decline. Adjusted EBITDA decreased by 10% to CAD 53.5 million, primarily a result of the attendance decline as a result of the weaker film slate and a CAD 1 million restructuring charge related to the cost savings and synergy program. Cineplex's first-quarter box office revenue decreased 7.2% to CAD 181.4 million compared to CAD 195.4 million in the prior year.
This was a result of the impact of the 9.3% decrease in attendance, more than offsetting a TPP increase of 2.4%, which established a first-quarter record of CAD 10.21, up from CAD 9.97 in 2017. The increase in BPP is primarily due to price increases in selective markets as compared to 2017. Food service revenue increased 2.6% to CAD 116.9 million. Included in food service revenue is CAD 8.7 million from The Rec Room. Excluding revenue from The Rec Room, theater food service revenue decreased by 3.2% from the prior year due to the attendance decline, partially offset by the 6.7% increase in concession revenue per patron to a first-quarter record of CAD 6.09. The CPP growth was primarily a result of increased basket size and expanded food offerings, including those available at Cineplex's VIP Cinemas and Outtakes locations, and CPP was also positively impacted by the continued rollout of additional licensed locations in Ontario.
Total media revenue decreased CAD 1.4 million or 4.1% to CAD 32.5 million for the quarter. Cinema media revenue, which is primarily theater-based, decreased 1.2% due to lower cinema advertising as we saw some shift in spending to Q2 with the stronger film slate. Digital place-based media revenue decreased 9.2%, primarily due to lower project installation revenues compared to the prior year period. During the quarter, we increased our location account by 11% or 227 new locations to a total of 13,153 locations. Amusement revenue increased CAD 8.5 million or 20.5% due to the acquisition on April 1st, 2017 of Dandy Amusements International Inc. and strong revenue growth from The Rec Room, which contributed CAD 6.9 million of amusement gaming and other revenue.
With respect to The Rec Room, we were pleased with the results for the quarter, reporting total revenue of CAD 16.1 million and store-level cash flow of CAD 3.3 million, representing a store-level margin of 20.5%, with only one of the four locations reaching its first full year of operations. Turning briefly to our key expense line items, film cost for the quarter came in at 52.5% of box office revenue as compared to 52.9% reported in the prior year. Cost of food service for Q1 2018, excluding the CAD 2.3 million incurred at The Rec Room, was 20.7% as compared to 22.3% in the prior year. Cost of food service at The Rec Room was 26.8%, in line with expectations. Other costs of CAD 217.5 million increased CAD 11.4 million or 5.5%. Other costs include theater occupancy expenses, other operating expenses, and general and administrative expenses.
Theater occupancy expenses were CAD 51.9 million for the quarter versus a prior year actual of CAD 52 million. Other operating expenses were at CAD 147.4 million for the quarter versus a prior year actual of CAD 132 million, an increase of CAD 15.4 million. Major reasons for the increase include an increase of CAD 4.7 million in Amusement Solutions expenses, primarily due to the acquisition completed during the first quarter of 2017. An increase of CAD 7.6 million in unit-level operating costs related to additional Rec Room locations, and an increase of CAD 2.2 million in costs related to same-store theater payroll as a result of the minimum wage increases in Ontario, Quebec, and Alberta, which more than offset labor efficiencies achieved during the quarter. G&A expenses were CAD 18.1 million for the quarter, which was CAD 4 million lower than the prior year due to reduced costs arising from share-based compensation, mainly due to Cineplex's lower share price.
Throughout 2018, we have implemented a program to extract synergies across our organization, including the ongoing integration and optimization of the cost structures of our businesses and technology opportunities. Certain one-time costs in the amount of CAD 1 million related to this program were incurred during the first quarter and included in G&A expenses. We expect an additional CAD 4 million to be incurred during the remainder of the year. Once fully implemented, we expect the annualized savings from these initiatives to be approximately CAD 25 million. With respect to the timing of the realization of these savings, we expect to ramp up to the full annualized run rate over the next three quarters in equal increments. Net CapEx for the first quarter was CAD 23.6 million as compared to CAD 25.1 million in the prior year.
We continue to estimate that our net CapEx for 2018 will be approximately CAD 125 million and CAD 150 million for 2019, reflecting in part the CapEx for our first anticipated Topgolf location in 2019. As Ellis mentioned earlier, we have steadfastly focused on creating a diversified entertainment and media company for the future. Our short-term results may be impacted by non-recurring start-up or integration costs, but the benefits of these investments will be born in future periods as these emerging businesses grow, similarly to the way we are seeing The Rec Room margins improve as we gain operating history. We are prepared to diligently take these short-term expenses in anticipation of creating future value. We are also prudently prepared to use both our operating cash flow and our credit facility to invest in these new businesses.
While theater exhibition results for the quarter were weaker than the prior year due to the relative film slate, we are encouraged by the early Q2 box office successes and the outlook for the remainder of the quarter, in addition to the positive results from the other areas of the business and our ongoing focus on cost management. We continue to remain comfortable with where Cineplex Inc. is positioned today. We are pleased to announce the dividend increase to CAD 1.74 on an annualized basis. 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'd now like to turn the call over to the conference operator for questions.
Thank you. If you would like to ask a question, please think about pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signals to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. Press star one. We'll take our first question from Jeff Fan with Scotiabank.
Thanks. Good morning, everyone. A couple of quick ones. The premium percentage this quarter was about 41%. It's down from last year. I'm wondering if you could just comment about what's happened in the quarter and if you have any outlook for the rest of the year as to how that percentage may trend. The second one is just more housekeeping with respect to the working capital on the free cash flow number. What's the outlook with respect to your working capital for the rest of the year, just so that we can get the free cash flow number right? Thanks.
Sure. On the first question, the contributions of 3D product really impact kind of the overall premium percentage. In the first quarter, the 3D product was a little bit weaker in terms of the overall mix, compared to the prior year. The outlook for the remainder of the year is quite positive if you look at the, particularly in Q2 and the type of product that's been released into. I think, Jeff, what you're just seeing is kind of a quarter-over-quarter, 3D impact. Definitely nothing to do. We've seen a continued strength in UltraAVX and VIP concepts.
On the second part of your question, the working capital, as we've mentioned, kind of historically, the pattern of working capital inflows and outflows in the exhibition space is fairly relatively consistent year in and year out, in that during Q4, there tends to be a significant inflow of working capital, primarily as we're selling gift cards and corporate coupons in the holiday period, that then are utilized in the first quarter. This year was a little bit of an anomaly in that the first quarter period-over-period working capital changes, there was a significant improvement, and it really just related to kind of the timing of some of the receipts and payments from an AR side and an AP side.
I usually say that over the course of the year, one should expect that there'll be significant kind of quarterly swings in Q1 and Q4, relatively flat in Q2 and Q3, and on a full year basis, there should be a small source of working capital in a typical annualized basis.
Jeff, going back to your question on the 3D, if you looked at 2018, there were only three of the top-five movies that were in 3D compared to four in the prior year, which resulted in the 41%.
Okay. If I can just squeeze in one quick one for Ellis. We talked about Scene+ in the past. I'm wondering if you can talk a little bit about the opportunities around using that data to help monetize for potentially incremental revenue opportunities and where we stand in some of those discussions. Thanks.
We continue to use Scene+ in a beneficial way as far as our internal opportunities go, and we're also looking at external opportunities with Scotiabank as to how we can better utilize the data. We feel after 11 years, we've got considerable history and great data where one out of four Canadians are part of the program, and 45% of the households have a Scene+ card. It's a work in progress, and we continue to evaluate it. For us, one of the main pushes is to use it to basically increase our movie visitation and also to help us as it relates to staffing and some other areas of our internal business.
Okay, thank you.
For our next question, we'll go to Derek Lessard with TD Securities.
Yeah. Good morning, everybody. Congratulations, Pat, on the retirement. No doubt well deserved. I was wondering, Ellis or Gord, on your synergies program, if maybe you could help or elaborate further and break down the CAD 25 million into buckets for us, whether by segment or whether it was for headcount or technology. You already answered my question on when you expect to get there. Sorry.
Yeah. Let me just give you a little bit more color around the numbers. Roughly two-thirds of the amount will come from at the business unit level in OpEx, and one-third will come from G&A. That's bucketing in terms of geography on the financial statements. Bucketing in terms of nature of whether it's headcount versus OpEx operating cost savings. That same relationship holds relatively true. Roughly two-thirds of that amount is coming from payroll and payroll-related initiatives, including technology and automation, and one-third is coming from direct cost reductions.
Okay. Thanks for that. Maybe just two quick questions on digital media. In Q4, you had a nice revenue bump from the 1,000 or so from Citizens Bank project. Just wondering if you can explain why there wasn't a similar bump in this quarter. Secondly, I was just wondering if you're able to tell us a bit more on the Arcos Dorados rollout, how many anticipated installs and when you expect a timeline on the project.
Yeah. With respect to the first part of your question, yeah, we did the Citizens Bank install substantially all in Q4 last year. You had 1,000 locations being deployed, which contributed to that spike that you saw in Q4. As we look into Q1, and again, as I said, Citizens Bank was substantially fully deployed in Q4. We announced Arcos Dorados. We haven't really started the deployment, as Ellis mentioned on his commentary. We expect it to occur throughout 2018 and into 2019. Ellis' comment further was that we expect to see some decent growth in this business in the back three quarters of the year as a result of the backlog of that and some other opportunities that we feel that we're optimistic on some outcomes out of some other opportunities we're pursuing.
Yep. Thanks for that, guys.
We'll go next to Kenric Tyghe with Raymond James.
Thank you and good morning. Ellis, if we could touch on the magnitude of the relative box office underperformance, a little surprising. Clearly, "Black Panther" didn't resonate as well north of the border as it did south. Could you help us better understand why, and perhaps more importantly, looking to the second quarter, why it's not a risk given a superhero-heavy slate? Just a follow-up there as well. Could you also speak to Canadian box office performance quarter to date relative to U.S. quarter to date?
Yeah. On the Canadian side, I think for quarter to date, there are a couple of movies in the month of April that didn't perform as well for us. There were some faith-based movies and other movies that didn't work. With "Avengers: Infinity War", we are seeing a roaring back position for Canada. When I looked at the numbers this morning in North America, we're already at CAD 306 million for the movie as of last night. In Canada, by the end of this week, I think over two and a half million people will walk through our theater doors. This is a really strong movie, and it looks like it continues to have legs. You've got great opportunities, and these movies did well in Canada in the first versions with "Deadpool 2", which was extremely strong when it was released originally. You've got the "Star Wars" story.
You've got "Ocean's 8". You've got "Incredibles 2" and "Jurassic World: Fallen Kingdom", all movies that performed extremely well in their original releases. We're pretty comfortable with the bigger movies and where they are positioned for the second quarter and our overall performance. Great.
Thank you, Ellis. Just one for Gord. Gord, you provided the breakdown on the other operating expense increase, including that CAD 7.6 million in The Rec Room. How much of The Rec Room-related expense was pre-opening? Apologies if I missed that. A follow-up for you as well, just on your theater payroll, was that just the minimum wage impact or were you perhaps a little people-heavy in theaters given that "Black Panther" didn't play quite as well in Canada in the quarter?
Yeah. On the second question, look at the minimum wage, I would say there's a theater hours reduction that was more than offset by the minimum wage increase. The hours reduction was significant, as was mentioned, that we're looking to technology to a certain extent to kind of make the whole process more efficient and better from a customer journey perspective. That's taking labor out of the system. As I mentioned, kind of over a ramp-up period as we're ramping up that throughout the year. The minimum wage more than offset that increase. Sorry, Kenric, just remind me your first question.
Sorry, Gord, just on The Rec Room, you called out the CAD 7.6 million. How much of that was perhaps pre-opening versus run rate on existing?
Yeah. There were no new openings in the quarter. We have opened our location in London this week, there is a little bit of pre-opening, but not kind of significant as compared to other quarters, prior quarters when we've actually had locations opening in the quarter.
Great. I'll leave it there. Thank you.
We'll take our next question from Aravinda Galappatthige with Canaccord Genuity.
Good morning. Thanks for taking my question. I just want to start with the recliner, the rollout there. I was wondering, Ellis or Gord, we can maybe give us an update as to where you stand and if there's a little bit more that you want to sort of roll out there in terms of the recliners. The extent to which it's still affecting the delta between the industry box office number and Cineplex's, and whether we should see that gap kind of close as we get to it the second half of the year.
Yeah, Aravinda. We've done as of now, 149 screens, 15 locations, about 10% of our circuit. The problem with the recliners is sadly on the process of doing them, you basically have to take down those auditoriums, and it affects the overall box office. That was one of the reasons that we under-indexed. The second reason is a couple of new theaters were opened by independents in Canada, in 2017, we did not open any new theaters. We did open East Hills, which is in Calgary. We will be opening Seaton and following that Pickering, and those will all be recliner theaters. That will be something that we will continue to monitor, but we should be seeing better positioning as far as our percentages going forward.
Again, Quebec does hurt us if there are movies that perform higher in Quebec because our share there is lower than the rest of the country.
Great. Thank you. That's very helpful. Just my second question, with respect to the Player One, the amusement gaming business, I just wondered if you could touch on the margins. I know that earlier last year there was some integration spend and there was the obvious expectation that there would be some margin expansion. Obviously in Q1, the margins sort of contracted a little bit. I was wondering, Gord, if you can kind of give us some color on that and whether some of the restructuring would be occurring in that area as well.
No, absolutely. I think we've mentioned previously that we expected some ongoing costs and additional costs in that business occurring for 12 months post-acquisition of Dandy, which would take us into the first quarter here. Definitely some additional costs related to that. The margin was compressed a little bit in the first quarter. Also when we look at the timing of some of the expenses, that plays a role in it. We're still comfortable that 15% margin that we've discussed with you, with the investment community previously is the mark that we're comfortable that we're going to get to fairly quickly.
Great. Thank you. I'll pass the line.
We'll go next to Drew McReynolds with RBC.
Thanks very much. Gord, on the CAD 25 million in cost savings, appreciate the detail in terms of how that all feeds through. Is that in addition to what you've been doing over the past few years in terms of putting through or getting ready with some cost efficiencies to offset the minimum wage? Is that incremental to that, or is everything just kind of all included in that CAD 25 million?
It's incremental. There's been some initiatives, but I think you'll see that throughout 2018, we'll be fully rolling out some of the initiatives related to technology automation. These are real hard cost reductions across all our businesses across North America.
On the CAD 4 million in remaining one-time costs, will those, like this quarter, just be thrown in to wherever in the cost structure, or will you strip those out for adjusted EBITDA?
Similar to what we did with the CAD 1 million in Q1 here. We'll include it and disclose it similarly to the way we did that.
Okay.
As I mentioned, we expect an additional CAD 4 million.
No, great. Shifting gears here.
The majority of that in Q2. Sorry.
Okay, thank you. Shifting gears on The Rec Room, remind us, I know only four locations, now five, but just remind us on seasonality with respect to Q1, percentage-wise, relative to the rest of the year.
Yeah. You know what? Seasonality is an interesting thing because with the limited number of locations out there, they each have their uniqueness. I would say, typically, you would expect sort of in the more winter months, and particularly the holiday period in Q4, having a stronger quarterly allocation. If you think of a location like the Roundhouse, where tourism and the Blue Jays are playing, getting heavy foot traffic from those related activities, that sort of distorts the overall trend. Drew, if I was to give you something, I would say that between Q1, Q2, and Q3, slightly more strength than Q1. We're talking about ranges between probably 22% and 25% of the overall business volume, with Q4 somewhere between, say, 25% and 30%.
Yeah, perfect. Okay. Yeah, that's perfect.
Not a lot of seasonality, but some.
Okay. Two others from me, bigger picture. On Topgolf, you reiterated 2019, expect to obviously invest and open a location. Maybe just talk to confidence on securing a location, when we could hear an announcement along those lines. Secondly, maybe for you, Ellis, just big picture on virtual reality. Just update us on where you see Cineplex's role with virtual reality. I know, or we all know you have that installed in a theater, you have that installed in The Rec Room. If you can just update us on how you see VR unfolding as we go forward. Thank you.
In response to your first question on Topgolf, we do have a few locations that we are pursuing at this stage, and we should be making an announcement in the short while ahead for a location which we will commence construction. That process is ongoing and we should be there and get the best location for the long term and open it in 2019. On your question on virtual reality, as you know, we were one of the first to put in The VOID, which only had four locations in the world when we installed ours at the Roundhouse in Toronto. We continue to look at opportunities and options as we move forward because there are so many different technologies out there, and we continue to study the marketplace.
As you know, we've got the IMAX virtual reality in our Scotiabank Theatre, and we've also got our D-BOX in location in Ottawa. We're looking at all of the choices, and we definitely feel it's a really important part of the ongoing entertainment experience for Canadians.
Yeah. Drew, as Ellis mentioned, we think it's a product set that will work in The Rec Room. There may be a different product that would work in a theater. In addition, some product sets that our P1AG business could distribute and supply to other third-party customers.
We are looking, Drew, also tell us again, that we would install additional VOIDs as we move forward with hopefully one in Q2 and then looking to the balance of the year. I'm sure you've tried the one at the Roundhouse, and the lineups and the engagement is just fantastic.
That's great. That's very helpful. Thank you.
We'll take our next question from Tim Casey with BMO.
Yeah, good morning. Thanks. It's two from me. Can we just go back to the restructuring initiative? A CAD 25 million annual saving on a CAD 5 million outlay is a pretty impressive ratio. It's outstanding, actually. Can you help us understand how that is? I guess the implication is there's less severance charges related to the headcount reductions. I'm assuming that's because they're part-time employees. Can you offer us some more help on understanding that? Is that CAD 25 million savings, is that based on a particular box office assumption, or I guess what degree of variability or confidence do you have you'll hit the 25 by the end of the year?
Yeah, I would say a low percentage of that amount would be dependent on a box office impact. As I kind of alluded to previously, we're taking a significant amount of cost out of the system, and that when you look at that labor allocation, there is a smaller component which is related to taking hours out of the system. We're operating kind of throughout North America, the severance amounts and the positions that are comprising that amount, some of it is related to, if there's been resignations and positions that just have not been filled, there's no severance related. We're trying to be prudent in the way we're kind of managing the entire process. I'd say there's a fine balance between some longer-term employees, which were unfortunately, difficult decisions for us to make, and some more current employees.
Tim, this is more focused on the overhead side of the business, not the people who are part-timers working at the theater level, which we've also looked at from an hours perspective and using technology. You have to remember, we just, in Ontario, got hit with a 21% minimum wage increase. It's a fine balance that we've got to work through as far as how we deal with that, and I think in the first quarter, you saw indications of how we've worked towards that. What Gord is talking about with the CAD 25 million is more on the overhead side and the different businesses that we operate under.
Yeah. With that said, we have a high confidence in achieving that number.
Okay, great. Thanks for that color. A couple more. Could you provide some idea of relative scale of the Latin American McDonald's rollout program versus maybe McDonald's Canada or Dairy Queen? Is it about the same size as those? Is it much bigger? Much smaller?
Yeah. They operate about just over 2,000 locations in South America, which puts them kind of in relative size to McDonald's in Canada.
Do you think I don't know if you mentioned it, but what timeframe do you think you'll complete that deployment in?
Into 2019. Throughout 2018 into 2019.
Okay. How should we assess the rollout of the extra, or the more flexibility you have with respect to alcohol in Alberta, Ontario, and concessions? Do you expect a meaningful impact in concession revenue growth there?
I think what was said with respect to that is, when you look at the overall growth in CPP and the history that we've achieved in the last two quarters, with 9% in the fourth quarter and over 6% in the first quarter, is that we feel very comfortable that it will contribute, but it'll be one of a few contributing factors that we're going to exceed kind of our historic growth rates in CPP in 2018. Historically, we've been at 4%-5%, so we should be above the 5% in 2016. Sorry, 2018.
Is that any margin implications we should think about?
I would say in terms of the overall scheme of all the initiatives that are in play, you've seen some overall margin growth in the last two quarters. I would say that the alcohol won't have a significant impact on the overall portfolio of our offerings, but it will help in terms of overall margin CPP growth. As I always say to everyone, the further we move away from pop and popcorn, our margins are not going to be at those same levels.
Understood. Last one, a lot of noise around movie subscription services, mostly south of the border. Ellis, any thoughts on incorporating that into Scene+ or some variation thereof? Thanks.
You're referring to MoviePass, which has been in the U.S., I guess, for about four to five months now. As you probably read, their offering keeps changing. As a consumer, I don't know how they will continue to deliver because they started off with one program, then they changed to another program, and now their latest program won't allow you to see a movie more than once and multiple other opportunities that have been taken away from the customer. For us, we will evaluate the subscription model that works for both Cineplex and the studios. Their whole focus was on data. We started data 11 years ago, and we've got some great information that they will never be able to replicate. We are always working with our studio partners on how to use the data best and also with third parties.
For us, it's basically something that we will continue to evaluate, but we're not rushing into doing something that will not provide meaningful benefits both sides.
Thank you.
As a reminder, if you'd like to ask a question on today's conference, please press star one on your telephone keypad. We'll go next to Rob Goff with Echelon.
Good morning, and thank you for taking my question. My first question would be on the outlook for the box office. Ellis, there you've been very helpful with respect to Q2. Might I ask with respect to Q3, in particular, looking at the number of titles perhaps coming out, because I do recall that August was terrible with something like nine new titles versus 11 year-over-year
To me, it's not the number of titles, it's the quality of the title and the amount of box office it's going to deliver. When you look at Q3, you're basically looking at the start of Q3 with "Ant-Man and the Wasp", which is a Marvel sequel. You've got "Hotel Transylvania", you've got "Skyscraper", which I talked about, "Mamma Mia," "Mission Impossible 6", "Equalizer 2". Disney's got another movie, the Christopher Robin movie, which is the "Winnie the Pooh" story. Then there's some other really titles running into September. The only month where year-over-year, I would say, is going to be a little interesting in September, because last year we had the movie, "It", which did extremely well during the quarter. July and August look extremely strong in 2018. Then looking at the balance of the year, you've got "Dr.
The Grinch", which is a title that I think will do extremely well. "The Girl in the Spider's Web", "Fantastic Beasts", the Harry Potter, "Ralph Breaks the Internet", "Wreck-It Ralph 2", an animated "Spider-Man" feature, "Aquaman", "Holmes & Watson". I think the big surprise is going to be "Mary Poppins" based on what we saw and heard last week.
Okay, thank you. If perhaps, a bit more of a broader question, could you talk to where you're at with respect to the esports monetization roadmap?
Sure. Ellis mentioned a number of events that we had during the first quarter. The CSL finals just happened this past weekend, calling it the third annual Canadian Championship. As we've mentioned, I think there's a little bit of an inflection point going on right now in terms of the endemic versus the non-endemic sponsors. I characterize the huge interest from the non-endemics to date but still in a learning state before they develop their media and their sponsorship strategies. The endemics have been there for a while, and we've had a number of them as sponsors for our events. The real opportunity is when the non-endemics convert and invest in the space. We're doing lots of educating out there and lots of meetings. I think that's when the opportunity will really ramp up in the entire space particularly across North America.
That will likely take place within the next year, I would say, maybe a year and a half or so.
Thank you. One last one, if I may. Tim did ask about the subscription model at the theater. Could you convey your thoughts with respect to the potential for the subscription model, perhaps online?
We basically, as I mentioned before, we will continue to look at all of the opportunities that are out there, and with our distribution partners, decide what is in the best interest, both from Cineplex perspective, the distributor's perspective, and the consumer. We will continue to review the situation. Our Scene+ loyalty program provides great enough business for the guests to enjoy. We have to be careful because some of those programs end up being a very low-margin business. As we've seen with MoviePass in the U.S., they've been able to sign up subscribers, but they're at 2 million people in a country of 330 million people, and we are here with 9.1 million people in our Scene+ program in a population of 36.5 million.
I feel that we have to be really careful as to what we introduce, we have a lot of offerings today for our guests that provide them with significant value.
Great. Thank you very much.
We'll take our next question from Derek Lessard of TD Securities.
Is that me? Sorry.
Yes, Derek.
Oh, yeah. Sorry. Okay. Yeah, guys, just one last one for me, actually. You had an interesting bullet on the pilot program with Uber Eats. Just wondering if you can expand on that.
It's a program that we initiated, and we are using it in test locations in Canada. We continue to see interesting uptake on the program. For example, we've had certain locations with great success, and we are looking at other locations that we continue to evolve the program. We find in university towns, what's interesting is a lot of the university students love to order from us and are willing to take a chance with the product and with the drinks and everything while they're at home. It's a pilot that we continue to look at, and it also provides us with incremental dollars as part of our overall offerings.
What kind of products are you offering? Is it popcorn, or where is it coming from?
Anything you want pretty much from the concession stand. It would include popcorn, drinks, and many of the wider items that we have on the menu, and you can digitally download it and basically have the ability to watch a movie also at the same time for our Cineplex Store.
Okay. Thanks for that.
That concludes today's question and answer session. At this time, I'll turn the conference back to Mr. Ellis Jacob for closing remarks.
Thank you very much, all, for joining us this morning. Before we end the call, I'd like to take a moment to advise about Pat Marshall, who will be retiring from Cineplex effective June 1st. Pat's been with us for 15 years, leading investor relations and corporate communications. Pat has been a meaningful contributor to our success, and we will miss her greatly. As we all know, she's won just about every IR award out there and was an integral part of the team when we went public in 2003 and throughout our many strategic acquisitions. She has steered us well during both good times and those that were more challenging. We wish her great enjoyment and good health as she embarks on this new stage in her life and travels the world. Finally, we look forward to seeing you all at our annual general meeting at 10:30 A.M.
on May 25th, 2018, at our Cineplex Cinemas, Yonge- Dundas, and VIP. Please mark that in your calendar and look forward to seeing you. Thank you. Bye-bye.
This does conclude today's conference. Thank you for your participation. You may now disconnect.