Good day, and welcome to the Cineplex Inc. Q2 Analyst Conference 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 our President and CEO, Ellis Jacob.
Thank you, Pat. Good morning, and welcome to Cineplex Inc. Twenty seventeen second quarter conference call. We are pleased you could join us this morning. I will begin by providing a brief overview of our second quarter results and a summary of our key accomplishments during the period.
Then we will take a look at some of the most anticipated movies to complete this year's film slate. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview financials and then we will follow with a question and answer period. The results this quarter were mixed as attendance, shortfalls and declines in media, coupled with the startup costs associated with Cineplex's ongoing diversification strategy resulted in decreased adjusted EBITDA. Gord will speak to these results in more detail later in the call. A weaker performing film slate resulted in decreased attendance this quarter versus the same period last year.
However, BPP of $10.36 and CPP of $6.03 both represented all time quarterly records as we continue to improve premium experiences and expand offerings outside of co concession, including offerings at VIP cinemas and outtake locations. Soft performing films during the period included Guardians of the Galaxy, Volume two, Wonder Woman, The Fate of the Furious, Beauty and the Beast and Pirates of the Caribbean, Dead Men Tell No Tales. Although these films perform well, many films did not meet expectations. As I've said previously, box office revenue will fluctuate due to the film product release from quarter to quarter, which is outside our control. 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 announced plans to open two new VIP cinema locations in West Vancouver and Burnaby, British Columbia as well as a new theater in Calgary. This theater Cineplex Cinemas East Hills will feature an auditorium specifically designed for families with young children with its colorful interior, playful seating and curated family friendly films. We also continue to roll out luxury recliners in select theaters across the country with great success, converting 33 auditoriums during the second quarter. We now have 11 locations completed within our circuit.
Alternative programming for the 2017 included strong performances from international film programming, WWE WrestleMania thirty three Live National Theater and a special presentation of the Japanese anime film, Your Name. Cineplex.com registered a 30% increase in visits during the second quarter compared to the prior year period. We also continue to direct guests to utilize our online offering, including ticket purchases. In the quarter, twenty two point five percent of total admissions were purchased online and via mobile devices. The Cineplex store remains a strategic area of focus for us.
During the second quarter, the store registered a 30% increase in device activations and a 72% increase in monthly active users as we continue to develop and enhance the user interface and experience. We currently offer more than 8,100 titles ranging from classic films to the latest blockbusters available online via web and through a portfolio of devices. We continue to see this evolving business grow quarter by quarter and I would like to reiterate that the store is one of many initiatives that differentiates Cineplex from other film exhibitors worldwide. Looking at Media. Media was faced with a tough second quarter.
Cinema Media experienced declines of approximately $3,000,000 due to lower than anticipated on screen revenues. Cinema media was impacted by the NHL playoffs where five Canadian teams made the playoffs versus zero teams in the prior year period, shifting media spend from cinema to television. Cineplex Digital Media was also impacted by approximately $2,000,000 due to delays in the timing of a number of project installations in the quarter. Looking at amusement, gaming and leisure. In April, our Amusement Solutions Group acquired Dandy Amusements International, a Western United States based amusement game operator.
The addition of Dandy to our PlayerOne Group combined with our previous acquisitions in this space enhances our ability to provide amusement services to a much broader and expanded market from coast to coast across North America. Also during the quarter, we opened our second location of The Rec Room at the Historic Roundhouse in Toronto. Located just across from the CN Tower, Ripley's Aquarium and the Rogers Centre, The Rec Room could not be more perfectly located to capitalize on the numerous condo residents, office towers and tourists to this area of the city. After five weeks of operation, The Rec Room at The Roundhouse has far exceeded our expectations and generated over $2,500,000 in revenue. This Rec Room is also home to Canada's first location of The VOID, a virtual reality experience that combines interactive sets, real time effects and special gear to bring you right into the action.
This is one of only four locations in the world. In this instance, content for the experience was developed by Ghostbusters creator, Ivan Reitman, Paul Fieg and Sony Pictures in conjunction with The Voice. We see VR as a growth opportunity for us with a number initiatives underway to leverage this type of attraction in The Rec Room, our theaters and with clients of Player One Amusement Group. In addition to the previously announced new locations for Calgary and the West Edmonton Mall, which will open in Q3 and Q4 respectively, we also announced plans to open The Rec Room in Mississauga at Square 1 and in Burnaby, B. C.
At the amazing Brentwood development. In esports, Collegiate Star League, a subsidiary of WOL Gaming, posted the twenty seventeen North American Collegiate Grand Finals at the Scotiabank Theatre in Toronto. This was the first standalone Grand Finals we hosted in Canada and included 16 colleges and universities from The U. S. And Canada to participating in the championships with pricing totaling more than $100,000 in scholarships.
Also during the quarter, World Gaming launched the Northern Flights Canadian Championship Series, the first multi title Canadian Championship tournaments, which culminated in the national finals also held at our Scotiabank Theater Toronto. Due to its success, this promises to be an annual event in our overall Canadian Championship Series. World gaming tournaments are becoming increasingly recognized as a destination for top ranked gamers, not just within the local Canadian community, but also across North America. As previously disclosed, Cineplex acquired the remaining 20% of World Gaming that it did not already own for $4,000,000 and now owns and operates 100% of the business. Continuing in the location based entertainment area and subsequent to quarter end, we announced an exclusive partnership to bring global sports entertainment leader, Topgolf, to Canada.
Topgolf venues are sports entertainment complexes that are typically three stories high and 65,000 square feet located on approximately 12 acres of land. Perfect for individuals, families, corporate events and groups, Topgolf brings together people of all ages and skill levels, even non golfers to play in the comfort of a climate controlled environment that is open year round. There are currently 33 Topgolf locations operating within The U. S. And U.
K. With great success. These are high volume, high revenue entertainment destinations that draw traffic from within a 50 kilometer radius. Given the success of Topgolf in many cities across The U. S.
With varied climates, we expect these locations to be very successful in Canada as well. The joint venture will bring multiple locations to markets across Canada over the next several years with the first location expected to open in 2019. This initiative marks another milestone within our diversification strategy and expansion of the location based entertainment area of the business. Now let's take a look at the film slate and some of the films we have coming later this summer and for the balance of the year. The third quarter got off to a strong start with films such as Homecoming, War for the Planet of the Apes and Dunkirk.
Opening this weekend, we have The Dark Tower based on the Stephen King novel starring Idris Elba and Matthew McConaughey. On August 18, we follow two brothers as they attempt to pull off a NASCAR race heist in Lucky Logan. And on September 8, the Stephen King remake, It, comes back to theaters. This one was filmed here in the GTA. Next up is the LEGO Ninjago movie, which high kicks into theaters on September 22 as well as the highly anticipated sequel, The Golden Circle starring Colin Firth, which rounds out the third quarter.
Looking at the fourth quarter and kicking off the holiday season, we have the return of Blade Runner 2049 directed by Canadian Denise Villeneuve, which once again stars Harrison Ford, but this time is joined by Ryan Gosling. November begins with Marvel's Thor Ragnarok, which is the third film in the Thor standalone series. Then on November 17, DC Comic brings its heroes back together on the big screen with Justice League. On December 15, the saga continues as Rey carries on her epic journey in The Lost Jedi. Finally, just in time for the holidays, we have the third installment of Pitch Perfect and Jumanji Welcome to the Jungle starring Dwayne The Rock Johnson, Kevin Hart and Jack Black and The Greatest Showman starring Hugh Jackman.
As you can see, the film slate has something for everyone for the remainder of 2017 and we're encouraged by the film slate for 2018. In May, we were very pleased to open the Cineplex O. E. Smith Theatre at the IWK Health Center in Halifax. This charitable initiative offers patients and their families the ability to enjoy the escapism that movies provide while receiving treatment at the hospital.
The multipurpose theater auditorium also provides an updated meeting and presentation facility and is home to the annual IWK Telethon for Children. In June, the world's leading cinema operators created the Global Cinema Federation of which Cineplex is pleased to be one of the founding members. The group brings together 11 exhibitors from around the world as well as members of the National Association of Theater Owners and the International Union of Cinemas. The federation will focus on cinema issues and opportunities, including piracy, technology standards, accessibility and matters of common interest with our partners in film distribution. As you have just heard, the quarter had mixed results.
We may have some ups and downs in some quarters, but we remain focused on value creation and diversifying the business to build a stronger Cineplex for the future. With that, I'll turn the call over to Gord.
Thanks, Ellis. I'm 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. For the second quarter, total revenue increased by 7.7% to 3 and $64,100,000 a second quarter record, and adjusted EBITDA decreased by 11% to $38,100,000 While the results for the quarter were positively impacted by higher amusement revenue, which increased 85.9% to 45,700,000.0 primarily related to acquisitions, a 2.2% drop in attendance, declines in media revenue and costs associated with Cineplex's ongoing diversification strategy resulted in the decrease in adjusted EBITDA. Cineplex's second quarter box office revenue increased 2.4% to $170,700,000 compared to $166,700,000 in the prior year as a result of a BPP increase of 4.8% to an all time quarterly record of CAD10.36, up from CAD9.89 in 2016.
This was partially offset by an attendance decrease of 2.2%. The increase in BPP is due to price increases in selective markets as compared to 2016. Foodservice revenue increased 4.7% to CAD101.4 million. Included in foodservice revenue was CAD2 million from The Rec Room. Excluding Rec Room, the revenue from The Rec Room, theater foodservice revenue increased by 2.7% from the prior year due to the 5.1% increase in concession revenue per patron to an all time quarterly record of $6.3 partially offset by the decrease in attendance.
The CPP growth is primarily a result of increased visitation, basket size and expanded food offerings, including those available at Cineplex's VIP cinemas and Outtakes locations. Total media revenue decreased $3,600,000 or 9% to $36,600,000 for the quarter. Cinema media revenue, which is primarily theatre based, decreased 8.7% due to decline in cinema advertising, partially a result of the factors Ellis mentioned previously. Digital place based media revenue decreased 9.5 due to lower project installation revenue compared to the prior year period as the prior year included the impact of the beer store rollout. Amusement revenue increased CAD21.1 million or 85.9% due primarily to two acquisitions in The United States made during the 2016 and the acquisition on 04/01/2017 of Dandy Amusements International Inc.
In addition, amusement revenue includes $1,700,000 of amusement gaming and other revenue earned at The Rec Room. Turning briefly to our key expense line items. Film costs for the quarter came in at 53.6% of box office revenue as compared to 54.4% reported in the prior year. The decrease in the film cost percentage is a result of the reduced concentration of box office revenue from a select number of titles during the quarter as compared to the prior year period. Cost of food service for Q2 twenty seventeen, excluding the $600,000 incurred at The Rec Room was 22.7% as compared to 22.3% in the prior year period.
Other costs of $211,500,000 increased $28,200,000 or 15.3%. Other costs include theater occupancy expenses, operating expenses and general expenses. Theater occupancy expenses were $52,600,000 for the quarter versus a prior year actual of $50,600,000 primarily due to the inclusion of favorable onetime real estate tax credits in the prior year. Other operating expenses were $138,900,000 for the quarter versus a prior year actual of $114,400,000 an increase of $24,500,000 Major reasons for the increase include an increase of $17,000,000 in amusement solutions expenses, primarily due to the two acquisitions completed during the 2016 and the one in the 2017. An increase of CAD0.7 million due to the impact of new and acquired theatres net of disposed theatres, CAD2.8 million in unit level operating costs related to The Rec Room and costs related to new businesses including pre opening costs for The Rec Room and payments on certain third party digital place based media networks.
These increases were offset by decreases in other costs, including reduced marketing expenses of CAD1.5 million due to the timing of expenditures. G and A expenses were CAD119.9 million for the quarter, which was CAD1.6 million higher than the prior year due to higher head office costs, including payroll costs and costs arising from share based compensation. Net CapEx for the second quarter was CAD15.2 million as compared to CAD16.4 million in the prior year. Current year expenditures include amounts for ongoing construction of three new rec room locations and the continued rollout of our recliner program. We estimate that our net CapEx will be approximately $150,000,000.20 17 and this includes an incremental CAD15 million related to our recliner program based on the success of the initial program and CAD10 million related to new business initiatives and retail concepts in the Player One Amusement Group business.
Also during the quarter, we completed the acquisition of Danny Amusement International Inc. For approximately $13,700,000 We acquired the remaining 20% of the facility in Network LP, which we did not already own for CAD4 million and we substantially paid the deferred consideration on the EK3 acquisition, which amounts to CAD10 million. While the results for the second quarter were down from the prior year, we are pleased with the results from the amusement business and we're optimistic about the remainder of the 2017 film slate, in particular the fourth quarter. We continue to remain comfortable with where Cineplex Inc. Is positioned today.
Our strong balance sheet and lower leverage ratio allows us to continue to invest in future growth opportunities for the company and benefit from future strong film product. That concludes our remarks for this morning, and we'd now like to turn the call over to the conference operator
We will now take our first question from Derek Lessard from TD Securities. Please go ahead.
Yes. Thanks and good morning, everybody. You guys did identify a few areas where you believe the discrepancy between the actual results and consensus EBITDA lied. Just wondering if you could add some color in terms of where you think these costs would be onetime in nature versus ongoing?
Yes. Derek, it's Gord. I mean there's a couple of items which we identified, particularly related to The Rec Room, where we opened our Roundhouse location this year. We're So going to have the preopening costs related to those, the party, the marketing, the launch, training and payroll, etcetera. And in addition, as we're building out new locations, when we take control of the construction of the project, we typically start accruing noncash straight line rent at the point of time of taking over control of construction.
So during the quarter, there was about $1,900,000 related in costs related to the straight line noncash rent items. And then the remainder of the variance of the total sort of preopening costs line item was about $3,600,000 in the quarter. So primarily preopening rent and primarily straight line non cash rent and the remainder kind of marketing and launch costs. I identified some items related to realty tax appeals where we had a number of successful realty tax appeals in the prior quarter, which amounted to about $2,000,000 And those are the kind of more significant what I would kind of characterize as more one timers. And then we've got a number of timing related matters when we look at digital media installation schedules.
And we sort of modified some of those during analysis prepared scripts. So those were really the majority of kind of timing and more onetimers.
Gord, thanks for that. In terms of The Rec Room, I mean, is it really one time? Or do you think you have to spend as much on marketing and launch costs as you open more of these going forward?
Yes. I mean, like each location and sorry, that cost really relates to three locations ongoing. So I think what was typically said and what people typically modeled is the preopening costs related to single rec room is typically in that kind of $1,000,000 range.
Okay. Maybe just switching gears to the recliner program. Just wondering how much disruption you guys expect for the remaining retrofits? And of that 2.2% drop in traffic, how much of that was due to the 33 auditoriums going dark at one point?
And Derek, it's Ellis. Basically the recliner program as we get them started and take the screens off, they have an impact on us during the period that they are taken off service because we don't have as many auditoriums in those particular locations. The results so far have been extremely positive. We've completed 11 of them. We look to complete another four by the end of this year.
So we will continue to roll them out in specific locations as it continues. Now a reason for the difference between the industry and ourselves in Canada was also driven by the Quebec movie, which Bob Bakkoff, which did extremely well in the marketplace. And when you look across the country, Quebec is where there are more independent theaters and that's why we ended up with a lower percentage increase as a result of the performance of Quebec, which was one of the highest growth provinces in the second quarter.
Okay. I'll re queue. Thanks for that.
We will now take our next question from Jim McReynolds from RBC. Please go ahead.
Yes. Thank you very much. Just in the opening remarks, Ellis, I think you alluded to $2,500,000 in revenue. Is that from the Toronto Rec Room? Did I get that correctly?
Yes, that's correct. I said that during the first five weeks of operation, it grows $2,500,000 and we are quite pleased with the performance and we feel very comfortable with the location and the feedback we are getting from our guests.
Okay. No, that's definitely a good number. And then just two other ones. Just first on the outlook for Cineplex Media and then Digital Media. I guess for you, Gord, you've said in the last couple of quarters, you've thrown out a couple of kind of broad parameters on how you expect these businesses to grow.
When you look at the Q2 impacts that more or less look a little bit transitory to us, is there any change in that full year outlook for Media or the growth outlook for the underlying businesses altogether? And then secondly, just on the CapEx, I think you've alluded to kind of a normalized level of about 100,000,000 if you strip out some of the recliner related CapEx. Just wondering if that's kind of a longer term kind of targeted run rate that's still intact just based on your updated guidance for 2017? Thank you.
Yes. So look, we had previously guided to $125,000,000 and CapEx was increased up to $150,000,000 two incremental additions, additional CAD 15,000,000 related to recliners based on the success being to date and then CAD 10,000,000 related to some retail concepts and some new business growth related to Player One Amusement Group. So we now have a guided number of CAD150 million for 2017, of which CAD40 million is recliners and CAD10 million is the Player One Amusement Group. We continue to kind of to indicate that the CAD100 million is what we would have on our run rate going forward. But I would suggest with our announcement of Topgolf that as we look to roll that out is that as you look forward, it is 125,000,000 would be more of a run rate going forward than the 100,000,000 so including the introduction of this new concept.
Thanks.
And then to answer your second question on the first one, look at the as we've mentioned on the particularly on the digital media side, there are some timing issues related to installations. When we look at the QSR business, in particular with the franchise relationships, sometimes those can be a bit more challenging to get off the ground. So we're a bit we're behind where we initially thought we were in terms of installations. I would suggest that kind of the numbers that we've given previously now might be more challenging to reach for the full year 2017. But on a go forward basis, we're still comfortable with kind of that longer term outlook.
Thank you.
We will now take our next question from Tim Casey from BMO. Please go ahead.
Thanks. Could you talk a little bit about a little provide a little more color on what you saw in the cinema media advertising line on the quarter and what you're hearing about that business going forward from your key advertisers?
We got impacted, as I mentioned on the call, Tim, from the hockey, which people had reallocated dollars. But we are comfortable where we are going to end up on a full year basis, and we'll continue in that business to see single digit growth going forward. And we aren't getting any pushbacks from the advertisers themselves because the cinema is still a great location to get people's undivided attention when it comes to the advertising.
Okay. Thanks for that. And just on the recliner program, can you provide a little more color on what you're seeing in terms of throughput that's causing you to accelerate that program? And also on that, with the $40,000,000 full spend, is that sort of it? Or do you think that you may even go further?
And lastly, just what's the timing on it? Is that all going to be done this calendar? Or do you think that will or some of it will flow into next year?
Well, we basically are committed to completing 15 by the end of this year. But based on the results, we may continue to look at opportunities right across the country. And as we open the newer theaters, they will all be fully reclined. So I think you're going to see the returns start to flow in as the quarters move forward.
We will now take our next question from Aravinda Sungal Pattista from Carregoire Genuis. Please go ahead.
Good morning. Thanks for taking my question. Just I wanted to kind of follow-up quickly on the news release, the extra $10,000,000 in CapEx on the Player One segment there. Maybe Cord or Ellis, I was wondering if you can just expand on what the new retail concepts are that you're sort of experimenting with. And I just wanted to make sure this is this sounds like it's more of a onetime spend.
I was wondering if you can expand on that investment a little bit. Thanks.
Sure. As I mentioned, the business that we've created in The U. S. Has really created a consolidated national position. So we're serving multinational or certain national customers across The U.
S. We have introduced one concept in Mall Of America. So this would be one of our stand alone concept for us. Characterize I it as limited, more of a showcase location for us. And so there's been some capital spend in terms of both equipment and creating a location within the Mall Of America.
Okay. Thanks, Gord. And just staying within that segment, obviously, the quarterly numbers move around a bit given the acquisitions that you made. Just to help us with forecasting, I mean, how much seasonality do you get in this business? I'm trying to use Q2, which includes all three acquisitions.
I know Dandy was completed in April. How can we kind of think about the seasonality of the business as well as the margins? So this is just the Player One component excluding Rec Room and excluding Cineplex acquisition.
Yes. So with respect to the seasonality, I mean, lot of it follows the patterns of, you know, majority of the audience is is, you know, younger younger demos. So if you follow kind of the school and the holiday patterns more closely than you would say the from the movie attendance perspective. So a little bit heavier in the in the summer months as as, you know, people are off school, and then heavier kind of around those, Christmas vacation periods. But rather other than that, there's not, you know, as significant seasonality as there would be, you know, in the film industry as an example.
And typically kind of a lower end teen type margins there, right? It's sort of in the lower teens, let's call it. Is that sort of the reasonable?
Yes. So let me so again, just there's two elements to the business. So there's one, which is the distribution, which is the sales of equipment, which is a relatively low margin business. And then there's the route business, so the distribution business, where we're placing equipment in third party venues and operating under a rev share. So Dandy as an example of an acquisition was primarily a rev based business.
And so the margins under the revenue sorry, under the distribution business would be low single high single digit, sorry. And under the rev business, you're closer to that 20% range. So as we add more rev business, which we did through the acquisition of Dandy, you'll see the margin in that business increase.
Thanks for that, Paul. And just a big picture question perhaps for Ellis. Premium VOD is back, has been in sort of the headlines again. I know you've discussed in the past. We're seeing sort of contradicting comments coming from various parties.
I know that Bob Iger at Disney has said he's really not interested in the format, whereas others may be on the Time Warner side. And surprisingly, with AMC, it seems to sort of be more positive about it. I was just wondering if there were any updated thoughts around discussions that are being had or any updates you can provide on that front? Thanks.
We continue to have discussions with our distribution partners about the premium VOD. Nothing has been in place and I can't comment on different rumors that are out there. All that being said, we are positioned very differently than most of our exhibitor peers because we've been in the Cineplex store business for close to five years. We've got our own delivery mechanism. We have 8,100 titles.
We have super ticket. So for us, this is something that we will continue to discuss with our partners moving forward. But again, of the parties, either the studios or ourselves want to be in a position where we are trading dimes for nickels. So we are very focused on doing whatever happens, the right thing for both of us.
Okay. Thank you. I'll pass the line.
We will now take our next question from Rob Koss from Elchow. Please go ahead.
Good morning and thank you for taking my question. If I could, I'd like to go back to the recliners. And there, I appreciate you probably don't want to go as far as Regal, where they're suggesting that they're getting incremental $77,000,000 in EBITDA from an investment to date of $140,000,000 But could you give us perhaps some data points in terms of the initial traction of the recliners? Or perhaps is your threshold IRR 20%, 30% with respect to the initiative? Thank you.
Yes, we are seeing some great results, Rob, on the initial installs. But I think what we have to do is give it a bit of time to get an annualized run rate for all of the ones that we've completed. And where we are seeing a lift too is on the concession per person at the same time as the attendance and the penetration of the locations themselves. So we would be looking at definitely a 20% return on our investment. And in some cases, it may be higher or lower depending on the positioning.
Our big concern compared to The U. S. Is they have many screens per location. So in Canada, we run around 10 screens, they're at 14 to 16. So we have a capacity issue.
So we need to deal with that also when we look at individual sites as to whether they warrant having recliners.
Okay. If I might, could you perhaps provide any additional color on the box? I know Q2 started off well for you and then fell off. Could you talk to what you've seen in Q3?
Yes. Q3, again, it started off, as I said, quite strongly the first couple of weeks we were ahead. And then we ended up, I guess, this past week where we had Legally Blonde open and that was competing Atomic Blonde, sorry, that was competing against the Bourne franchise last year. And the coming week, we've got the movie this year, which is going to be Dark Tower and Lucky Logan the week after that, and that is competing against last year's Suicide Squad. So those are the two tough weeks.
But when I look at the balance of the quarter, we've got movies like Hitman, Bodyguard, Logan Lucky. We've got a number of movies like LEGO and Ninjago and Kingsman. That weekend, I'm sure we will definitely outgrow the prior year. And I did a week by week comparison from last year to this year. And really the big difference for the third quarter is really Suicide Squad and it will all depend on how LEGO and Kingsman do towards the end of the quarter to see where we end up.
But in the fourth quarter, we again look quite strong with Blade Runner, we've got GeoStorm, we've got Bad Moms, we've got Tor, which should be huge, we've got Justice League, we've got Coco. And then of course, this year, Star Wars, I expect to be significantly stronger than the prior year.
Okay. Thank you.
We will now take our next question from Adam Shine from National Bank Financial. Please go ahead.
Thanks a lot. Good morning. Maybe just to press a little bit on Cineplex Media and Cineplex Digital Media again. I don't think it was explicitly stated, but although we don't expect to see maybe the same degree of weakness, particularly on Cineplex Media heading into Q3, are we still working through a bit of a troughing dynamic ahead of, I guess, better traction reasserting itself in Cineplex Digital Media in the Q4 and then certainly on the back of the strong box office expectations that Ellis just alluded to, Cineplex Media coming back with some strength. Can we just talk to that in terms of Q3?
Yes, Adam. In terms of the digital media, as was said, kind of the installation revenue gets a little bit lumpy. There's a number of we're focused on three kind of key verticals, the QSR, retail and financial institutions. The retail and financial institution vertical tends to be very focused on wide scale installations occurring relatively quickly. QSR, when you're dealing with franchise situations, you get very lumpy installation programs in place.
As I mentioned last year, we had a retail customer in the first half of the year, the beer store, in essence fully deployed within the first half of last year. And then this year, we're rolling out some of those recently announced QSR customers. And as I mentioned, those are a little bit lumpy. So as we look forward, we're still comfortable with where we ultimately think the business is and we've historically communicated. We've just gotten some kind of quarter over quarter comparisons where the lumpiness is a little bit more intact or more evident to you guys.
And from a media perspective, I think the fourth quarter, given the movie slate, you're going to see a lot of advertisers wanting to be in front of those movies, like movies like Thor, Blade Runner, Justice League, Star Wars are all going to drive the cinema media business. Ellis, if I could ask
you one question, it's maybe a bit hard to address exactly and maybe a bit moot to a degree in the context of you're not likely to do acquisitions outside of Canada. But as much as Aravinda touched on Pvot, I guess another interesting issue that's been out there in the market, particularly talked about in recent weeks, is the idea that we've seen some degree of domestic weakness for a number of titles as you alluded to earlier. But then some of that is being mitigated by strength overseas. That net net for some of these studios who'd love to see strength on both sides, nevertheless, they come out somewhat pleased by some of the upside they're getting internationally. As it relates to Cineplex, which is more Canada focused, how do you look at that dynamic?
Maybe, again, this is just a specific quarterly issue and or specific titles that are simply not resonating, but it looks to be a bit of an interesting potential trend.
Yes. And Adam, that is the case. We do get impacted in Canada sometimes in a great way and sometimes in a not so good way, especially with the kinds of movies that are being released. Like we know things like the Potter franchise, Star Wars and all of those kinds of movies. Bond movies do extremely well in Canada.
Movies that are related to books also over indexed in Canada. One of the things though we've had, as you saw in the second quarter is a big Quebec feature, which helped us comparatively to how The U. S. Performed because the box office in Canada, both for Cineplex and the industry was up compared to The U. S.
In the second quarter. But you are correct, there are expansions taking place around the world and there are certain movies that have underperformed in North America, but have made up the difference internationally. But I don't see that as an ongoing trend. It's just the growth in the business outside North America is partially causing that increase in the rest of the world.
Okay. Thanks for that, Ellis. I appreciate the color.
No problem.
We'll now take a follow-up question from Derek Lazard from TD Securities. Please go ahead.
Yes, guess just on maybe on the minimum wage. There appears to be some dialogue going on with the government and industry. Was just wondering if you had any further insight into the negotiations or discussions.
Derek, we are not directly discussing or negotiating with the government. We are basically doing all of necessary measures that we need to from a technology perspective and other things to look at the different wage structures from what's taking place across the country. And we are part of
the
Retail Council of Canada, is representing us as part of the issue of the whole minimum wage and the speedy increase that they are looking at implementing.
And maybe your level of confidence in being able to offset any of those increases?
Well, we are looking at all of the different avenues from efficiencies, technology, pricing, whatever we need to kind of the buttons we need to and the levers we need to pull to get us to the right level, so it does not have a long term impact on Cineplex.
Okay. And maybe just a housekeeping question for Gord. Was wondering if you had the number of digital media installs that you have this quarter.
So last year, we were about 10,600. We're about 11,600 at the end of Q2. Okay. One thing I would just mention on location though is as we're branching out into kind of some of these mall networks in the past of purchases that Yorkdale is one location and QSR and small QSR in a single location is also one location. So not all locations are equal, but just remember that as you look forward.
We will now take our next question from Geoff Bann from Scotiabank. Please go ahead.
Thanks. Good morning and thanks for taking the questions. I've got a few. First on the recliners, if we can just do a quick clarification. How much in total CapEx are you spending in 2017 for the 15 locations?
And what's the plan for 2018?
Yes. So it's GBP 40,000,000. So we increased it from GBP 25,000,000 by an additional GBP 15,000,000. And as Ellis mentioned in his comments with respect to 2018 is to date we'll we have a plan and that's what we're looking to address in 2017 to the extent that we see future opportunities. We could potentially deploy additional, but at this point in time, we've identified the first, I would say, two phases of where we think we would go.
And there may be opportunities, but there may not be as many in 2018.
And the $40,000,000 is that for the same 15 locations? Like are you adding more screens?
Yes. That adds an incremental approximately six or so locations.
Six or so locations. Okay. On to the Topgolf, what's the plan here with respect to the size of the investment that you think Cineplex is going to have to make into this joint venture? Just want to get a sense as to the magnitude of this and then also the return profile that you expect to see from that JV?
Yes. Look, the size of the site needed to deploy Topgolf location is roughly 12 acres. The size of the box is about 65,000 square feet. Look, as we look and kind of benchmark against our other LBTE concepts, including The Rec Room, I would suggest that the cost of deploying Topgolf, cost will likely be like roughly twice the cost of a rec room in the major market rec room, and we'll likely deploy half as many as we would rec room deployments in major markets.
But Jeff, we are quite excited about this opportunity and the reason being it really is about we were a cinema company. Now we are an entertainment destination. And to me, that's really important for us. And with our SCENE loyalty program and all the different businesses that we have with our gaming business and our signage business, it fits well into our Topgolf facilities. And I don't know if you've gone to one of these in The U.
S, but today I got more e mails this morning about Topgolf than I did about our financials. So we are quite positive about this joint venture. And Jim, sorry,
just also in terms of the return profiles then, with our LVE concepts and the ones that we've announced today prior to Topgolf, our target returns are roughly 25% our cash on cash returns of 25% and EBITDA margins around 25%. And I would suggest that the expectation would be that we would be consistent with those as we look to roll out all our LBE concepts including Suncor.
Great. And just maybe one final question, more of a big picture. As we sit back, can you help us think to see that some of the investments in some of these growth initiatives are increasing, not only for this year, but it looks like for the next couple of years. Has there been as you sit back, is this because you're a little bit more concerned about the box office recovery this year not having as big a bounce, so far at least that do you think you have to spend a little bit more in order to drive some of these growth initiatives? I'm not questioning really what the whether these are great opportunities.
It sounds like they certainly are, but just wondering how you're thinking about sort of bridging the box office trends also from contribution from these growth initiatives?
That's a great question. And it's not that we started this quarter. We have been looking at diversifying as a company for the last five to ten years. And as we grow those different businesses, expect contributions to continue to basically minimize our risk when it comes to the Hollywood movies. The issue becomes is you're going to have situations where they're quarter to quarter variations on the box office, year to year variations.
But when you look at the overall movie business, it has been quite strong and significant even though there has been a lot of disruptions over the last twenty five years in the business because it still is a social experience, it still is a night out and it's all about giving that guest the best experience. Our diversification wasn't based on this quarter's results or the last number of quarters, it was a long term portal process that we wanted to continue to use our infrastructure and human capital to diversify our business. So we are less reliant on just one facet. And there's a lot of growth opportunities in Canada because of some of these entertainment complexes that have done well south of the border that we're able as a result of our infrastructure, our relationships to build. And given where things are theatrically in our market share, it's harder for us to grow in that space in Canada.
Thanks for the color.
There appears to be no further questions. So I would like to turn the call back to Ellis Jacob for any additional or closing remarks.
Thank you all for joining us this morning. We hope you have a great balance of the summer and enjoy The Rec Room at the Roundhouse, and we'll speak to you again during our third quarter conference call in early November. Thank you.
This concludes the call. Thank you for your participation. You may now disconnect.