Good day, and thank you for standing by. Welcome to the Cineplex Q3 2026 earnings call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. I would now like to hand the conference over to your speaker today, Mahsa Rejali, Vice President of Corporate Development and Investor Relations.
Good morning, everyone. I would like to welcome you to Cineplex's third quarter 2026 earnings conference call. I'm Mahsa Rejali, Vice President, Corporate Development and Investor Relations at Cineplex. Joining me this morning for his first earnings call at Cineplex is our new CEO, Bill Walker, along with our CFO, Gord Nelson. I'll 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 may differ materially from those expressed in the forward-looking statements. Information regarding factors that could cause results to vary can be found in the company's most recently filed annual information form and management discussion and analysis. Following today's remarks, we will close the call with our customary question-and-answer period. I will now turn the call over to Bill.
Thank you, Mahsa, and good morning, everyone. It's certainly been an exciting time joining Cineplex as CEO, as we're coming off a record-breaking quarter, and the industry as a whole is strengthened. Before I begin, I'd like to recognize and thank Ellis for his leadership and contribution to both Cineplex and the industry over the past four decades. We're grateful to have him step into the role of Special Advisor to the Board during the strategic review process, and I look forward to working alongside him in that capacity. Turning to the task at hand, let's get into our third quarter, where Cineplex delivered exceptional results. While Gord will walk through the details shortly, a few highlights that stand out. Not only did we deliver our highest quarterly revenue of all time, but our adjusted EBITDA more than doubled year-over-year, generating significant free cash flow.
Just as importantly, we reduced our simple leverage ratio to within our target range, finishing the quarter at 2.9 times. Combined, these results demonstrate both the strength of our business model and our ability to translate industry momentum into profitable growth. While it's been an impressive quarter, three observations that have reinforced my excitement about Cineplex during my first few weeks as CEO: the quality of our people, the sophistication of the organization, and the unique ecosystem we've built around our core business. Cineplex is far more than a movie theater company. We're a data-driven entertainment and media company. The combination of our exhibition business, the location-based entertainment, together with consumer insights through Scene+, create a powerful advantage that is difficult to replicate. My focus and that of our management team remains on executing our strategy, delivering exceptional guest experiences, and creating value for shareholders.
This is aligned with our previously announced strategic review process, highlighting that any alternative will be assessed against the value we will create as a standalone company through the continued execution of our strategy. As a reminder, the review remains ongoing, and we do not intend to provide further updates until it is appropriate to do so. As we evaluate all paths, it is worth stepping back and recognizing the industry backdrop supporting this business. One of my first opportunities to represent Cineplex was at the Cinema United Fall Summit in Los Angeles, where I met with studio partners and leaders from across the exhibition industry. I came away from those conversations increasingly encouraged by the industry's trajectory. There is broad confidence in the future of the film slate, the strength of the moviegoing experience as a whole, and the critical role that exhibitors play within the entertainment ecosystem.
That optimism is supported by tangible developments across the industry. As part of the Paramount Warner Bros. merger, Skydance has committed to a minimum of 30 annual theatrical film releases, a minimum 45-day exclusive theatrical window, and no changes to film rental terms. This is a meaningful commitment, providing greater certainty around content supply and reinforcing the long-term growth prospects of theatrical exhibition. We are also seeing more commitment from non-traditional content providers. Netflix has become increasingly active in theatrical distribution, with a growing number of titles being released with extended windows, and that is highlighted by the upcoming release of "Narnia: The Magician's Nephew" in early 2027. At the same time, entirely new sources of content are emerging. Recent horror films like "Backrooms" and "Obsession" demonstrate that highly engaged digital audiences can translate into theatrical success.
Many of these audiences are younger consumers, particularly Gen Z moviegoers, reinforcing that when the content resonates, audiences of all generations will choose to experience it together on the big screen. We are seeing more content being produced for theatrical release, greater support for meaningful windows, and an increasingly diverse range of content. Beyond exhibition, we see compelling opportunities across our other lines of business. In our media business, cinema remains one of the few environments that consistently delivers engaged audiences at scale. Advertisers also value its ability to reach sought-after demographics, including Gen Z and newcomers to Canada. Together, these attributes make cinema a powerful platform for brands seeking to connect with consumers during critical moments that matter. As a high-margin, capital-light platform, we view media as a strategically important business that is well-positioned to benefit from a strengthened theatrical environment.
Our location-based entertainment business is another key component of our diversified strategy. Through The Rec Room and the Playdium, we have built a differentiated platform that extends Cineplex's leadership in out-of-home entertainment while leveraging our core strengths in hospitality, guest service, and food service. As consumers increasingly seek social experiences, we believe the business is well-positioned to benefit from these long-term trends. Underpinning all of this is our Scene+ loyalty program, which has now grown to over 16 million members, allowing us to connect with and reach consumers beyond Cineplex's customers while driving engagement across the broader loyalty ecosystem. As we enter this next phase with a healthier balance sheet and increased visibility into the future content, this will create a significant opportunity for Cineplex, and my focus is on ensuring that we can capitalize on it. That starts with operational excellence.
Across all of our businesses, we're focusing on executing at a high level, improving productivity, and ensuring we're maximizing the benefits of increased content supply. We will continue to invest in and optimize our assets while maintaining a disciplined approach to cost management and return-driven, efficient capital allocation. My focus is simple: listen, learn, assess, and then execute. While I'm still early in my tenure, everything I've seen so far reinforces my belief that Cineplex has exceptional people, assets, and growth potential. When we look ahead, we see encouraging signs across the industry, with forecasts currently calling for North American box office to exceed $10 billion in 2026, which would mark the first time the industry has reached that level since 2019. Momentum remained strong in October, with Cineplex box office revenue increasing 42% over the prior year.
Results were driven by the surprise success of the documentary "You Can See Everything," underscoring the importance of diversified content and our ability to attract audiences across a broad range of genres. Cineplex continues to outperform the domestic market, with year-to-date box office revenue through October increasing by 25% versus industry growth of 21%. In fact, year-to-date box office has already surpassed Cineplex's full-year 2025 results, with two full months remaining in the year. The balance of 2026 features a strong film slate, including "The Hunger Games: Sunrise on the Reaping," released in Canada by Cineplex Pictures, as well as "Avengers: Doomsday," "Dune: Part Three," and "Jumanji: Open World."
Early consumer interest and advance sales have been exceptionally strong, reinforcing our confidence in the momentum heading into the year-end and the strength of the film slate ahead. As our visibility into 2027 and 2028 film slate increases, it supports our view that the industry recovery has evolved into a sustainable growth story. With our market leadership, diversified businesses, and strong balance sheet, we believe Cineplex is uniquely positioned to capitalize on the opportunities ahead and create value for shareholders. With that, I'll turn it over to Gord to review the financials in more detail.
Thanks, Bill. I am pleased to present a condensed summary of Cineplex's record third-quarter results. For additional detail, our financial statements, MD&A, and earnings release are available on SEDAR+ and our investor relations website at corp.cineplex.com/investors. Those materials provide a comprehensive discussion of our operating results, so I will focus my remarks on key highlights, as well as liquidity, capital allocation, and outlook. Unless otherwise stated, all amounts discussed today relate to continuing operations. Our third-quarter results included record revenue and per-patron metrics, significant increases in adjusted EBITDAaL and free cash flow, and a substantial reduction in simple leverage ratio to 2.9 times. Since 2024, we have reduced leverage by roughly 2.6 turns, reflecting the significant progress we have made in strengthening our balance sheet. Total revenues were CAD 440.2 million, an increase of 26.2%, driven primarily by a 23.1% increase in theater attendance to 14.8 million guests.
This was the highest quarterly revenue in the company's history, reflecting strong content and higher per-guest spending. Consolidated adjusted EBITDAaL more than doubled to CAD 70.7 million from CAD 33.3 million in the prior year, demonstrating the significant operating leverage in our business. The quarter exceeded market expectations, with adjusted EBITDAaL coming in approximately 14% above consensus estimates. Adjusted free cash flow was CAD 52.9 million, more than tripling from the prior year, driven by improved operating performance and stronger profitability. Let's take a closer look at the segments. Film Entertainment and Content delivered a record quarter across nearly every key operating metric. Attendance increased by approximately 2.8 million guests, or 23.1%, driving all-time record box office revenue, record theater food service revenue, record per-patron metrics, and the highest quarterly adjusted EBITDAaL in this segment's history. BPP exceeded CAD 14 for the first time in the company's history.
Premium-priced offerings accounted for 51.4% of total box office revenues during the quarter, highlighted by exceptional demand for "The Odyssey," which regularly sold out across our 8 IMAX 70MM auditoriums. Record BPP combined with strong attendance growth contributed to box office revenues increasing 35.2%, outperforming the domestic industry by approximately 7%. Theater food service revenue increased 27%, driven by higher attendance and a record CPP, which increased 3.5% over the prior year. This was primarily due to strategic pricing initiatives and record merchandise sales. "Spider-Man: Brand New Day" highlights the success of our retail offering, reaching record levels and making it the most successful merchandise program in Cineplex's history. Other revenue increased 24% over the prior year, reflecting increased online booking fee revenues associated with stronger attendance, as well as contributions from Cineplex Pictures.
Theater payroll and theater operating expenses remained well-controlled, with cost increases significantly below attendance and revenue growth. Combined with the higher attendance and per-patron spending, this resulted in segment adjusted EBITDAaL increasing 115.6% to a record CAD 72.9 million. The quarter provides a clear illustration of the high operating leverage in our exhibition business. With CAD 39.1 million of incremental segment adjusted EBITDAaL on 2.8 million guests, that equates to approximately CAD 14 of incremental EBITDA per additional guest, which is roughly in line with the contribution per patron framework we have previously discussed. In the media segment, revenues remained relatively flat compared to the prior year. This performance reflects healthy advertiser demand despite a difficult comparison against elevated pharmaceutical advertising in the prior year.
Results were also impacted by the timing of client spending, as some advertisers shifted a greater portion of their annual budgets into the first half of the year around the Olympics and the FIFA World Cup. Adjusted EBITDA for the media segment was CAD 15.1 million, and adjusted EBITDAaL margin was 79.5%, remaining substantially consistent with the prior year period. Location-based entertainment revenues were CAD 34 million, a decrease of 1.7% compared to the prior year. The decline was generally consistent with broader industry trends as consumers continued to navigate macroeconomic pressures and a more cautious discretionary spending environment. Despite the modest revenue decline, adjusted store-level EBITDA improved as the business continued to benefit from operational efficiencies and disciplined expense management. At the segment level, adjusted EBITDAaL was CAD 4.8 million compared to CAD 4.6 million in the prior year period.
G&A expenses for the quarter were CAD 22 million, 8.8% higher than the prior year. The increase was primarily attributable to approximately CAD 0.9 million of incremental LTIP expense and a prior year benefit from lower incentive compensation accruals. Together, these items accounted for approximately CAD 1.5 million of the CAD 1.8 million year-over-year increase in G&A. Moving on to capital allocation and liquidity. We ended the quarter with CAD 137.3 million of cash on the balance sheet and no drawings under our CAD 100 million covenant-lite revolving credit facility. Improving operating results and stronger cash generation have increased our capacity to execute our capital allocation priorities. As a reminder, our capital allocation priorities are to maintain our assets, strengthen the balance sheet, provide shareholder returns through share repurchases and/or dividends when appropriate, and selectively invest in attractive growth opportunities.
For the quarter, net capital expenditures were CAD 12 million, with spending directed towards maintaining and enhancing our asset base and investing in premium formats. Our full-year capital expenditure guidance remains unchanged at CAD 50 million. We expect our financial position to continue improving through the fourth quarter. Holiday gift card and certificate sales historically provide a meaningful working capital benefit, which is expected to be supplemented this year by continued momentum at the box office.
As a result, we expect further deleveraging by year-end, increasing our builder basket capacity and providing greater capital allocation flexibility as we enter 2027. As we look ahead, we remain encouraged by the momentum in our business and the strength of the content environment. Supported by a stronger balance sheet and growing cash flow, we remain focused on capitalizing on opportunities across each of our operating segments and creating shareholder value. With that, I will turn it back to the operator for questions.
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for questions. Our first question comes from Joey Chan with Scotiabank. You may proceed.
Hi, good morning. This is Joey Chan calling in from Scotiabank. Thanks for taking my questions. First, on the strategic review, is there any update you can provide on where you are in the process? Can you help us understand the range of options being considered, whether that is potential transactions or asset changes versus broader operational changes to the business, or potentially both? Thank you.
Yeah. Hi, Joey. On that one, we are really not able to provide updates on the review process. It is focused on trying to maximize value overall for shareholders, and as you can imagine, that includes a really broad range of options. But we are not going to be able to provide an update on exactly where we are at in that process or a specific timeline for the process.
Okay. Given that your leverage is now within your target range, is implementation of a dividend or doing more buybacks during this strategic review period a possibility, or do you have to wait until after the process is completed?
Yeah, Joey, thanks. It is Gord Nelson. As I mentioned, hitting our target leverage ratio range is a key milestone for us. What it does is it creates additional flexibility as we look forward into the remainder of the year, and particularly into 2027 and beyond. It creates lots of options at this point in time, and we will continue to evaluate those and select what we think is the most appropriate path forward.
Okay. Then just one last one on the box office outlook heading into next year. How would you characterize the film slate in 2027 relative to 2026, and how should we think about this cadence of new releases throughout the year?
Yeah. Hi, it's Bill. I'll take that, Joey. We're pretty optimistic about what 2027 looks like. There's broad studio movies across every quarter distributed throughout the year, including what we know will be an incredibly strong carryover slate of films that release in 2026 Q4 December, that'll roll into Q1 of 2027. Listen, a part of the movie business is also the surprises, right? You never see some of these movies coming and the magnitude they're going to be able to go to.
For us, it's about operationally making sure we're maximizing every film that comes through our screens, and there's always going to be some surprises to the upside. There will be surprises to the downside in some of these films, and that is the nature of the business. The overall view, when I look at it from the quantity of movies being released, the consistency of windows, the studio commitment to market those movies as exclusive theatrical releases, I think it's really constructive as to how that's going to drive stability in 2027, and then looking even further into 2028 as well.
Okay, great. Thank you. I'll pass the line.
Thank you.
Thank you.
Thanks, Joey.
Our next question comes from Cheryl Zhang with TD Cowen. You may proceed.
Hi, good morning, Bill and Gord. Thanks for taking our question. I just have one on media. I am curious, based on your conversations thus far with clients, what is your sense for advertising demand for 2027?
On the media side, as we talked about some of the headwinds we experienced in 2026 in certain periods, but overall stability in the total volume of revenue we have been pleased with. We think the data that we have driven into that media business to understand the attention metrics and how that media channel drives value for advertisers, our team is doing an excellent job getting that data and that narrative in front of the advertisers to demonstrate the value of the platform.
We do not think there is any cyclical change in how people view our platform. We think there were nuances that happened this year between the Olympics and the FIFA World Cup that really drove a different cadence within the year. As we look to 2027 and just understanding the value of that asset, we are quite comfortable with how media is going to trend into next year.
Only to add to that is, as Cheryl, when you look at sort of the general economic environment and trade between Canada and the U.S., as potential restrictions or tariffs get adjusted going forward, that creates more potentially consumer confidence, as well as demand, which could also potentially open up some advertisers' budget, because it has been a challenging year for everyone.
Great. That is helpful color. Thank you. I will pass the line.
Thank you. As a reminder, to ask a question, please press star one one on your telephone. Our next question comes from Sarah McKeown with RBC. You may proceed.
Hi. Thank you, and good morning. This is Sarah on for Drew. Two quick questions for me. First, how should we think about the trajectory for Cineplex Media into Q4? Second, can you provide any additional color on the outlook for LBE in 2027 and the path for returning the segment to growth? Thank you.
Sure. With respect to Gord, I will take the first question then on media and the outlook for Q4. As Bill mentioned, what we are seeing this year is twofold. One is spending has been front-end loaded with respect to advertisers associating with sports-related content with FIFA and the World Cup. That has moved a lot of the budget spending and allocations in the front half of the year, so there is less coming in the back half. We are still in a world where, as I mentioned earlier, there is consumer uncertainty related to where tariffs sit.
Unfortunately, as we sit here today in November, with no real resolution on those, as the spending is not going to be opened up for the remainder of Q4, we see that as an opportunity going into 2027. The last thing that we called out too is we had pharma as a big category last year in Q4, as patents were looking to expire towards the end of the year. Q4 last year benefited from spending related to some of the weight loss drugs. That is the backdrop that we are facing with respect to media.
I will take on the LBE side and comment, because obviously for me, Sarah, it is a platform I am spending lots of time doing some discovery and working closely with the teams to try to better understand the LBE side of our business. I think some important developments on the LBE side, did open a new Playdium location in Vaughan this year, which is performing very well and generating some incremental revenue and profitability there on the LBE side. We are also having some great progress in the cost control side of that business, where as we mature our operating models, our forecasting, and the way the team engages there, we are finding ways to run those buildings more efficiently. I think you can see that in our Q3 results overall and the EBITDA margins that we are experiencing.
We are making some key investments in attractions to try to continue to create freshness and some new experiences within those spaces to give consumers incremental reasons to come back and visit us more frequently. I really do think about the LBE business as a platform that has a ton of potential. Out-of-home experiences, in real life experiences are what we specialize in overall. The LBE is a platform where, between Playdium and The Rec Room, we have a specialty in bringing people together to experience that something together in the out-of-home environment. Our team is always going to be tweaking and changing how we serve that up, but there is tons of potential in the LBE market overall that I am excited about.
Thank you.
Thank you. As a reminder, to ask a question, please press star one one on your telephone. One moment for questions. I am not showing any further questions at this time. I would now like to turn the call back over to Bill Walker for any closing remarks.
Thank you, everyone, for joining us. We appreciate the questions. We appreciate the interest. As we look forward to Q4, we are excited, and we encourage everyone to get out to the movies and get out to The Rec Room and Playdium and enjoy this Q4 and some of the great content we have and the great experiences we offer. Thanks, everyone.
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.