Cineplex Inc Stock

[Operator Instructions] 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, Gordon 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's 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. 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 strengthening. 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 4 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 Gordon 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.

And just as importantly, we reduced our leverage ratio to within our target range, finishing the quarter at 2.9x. 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, 3 observations 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's 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's broad confidence in the future of the film slate, the strength of the movie-going 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 proposed Skydance 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're 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's 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're 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 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 future content, this will create a significant opportunity for Cineplex, and my focus is on ensuring that we can capitalize on it. It 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 2 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 the 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 an earnings release are available on SEDAR+ and our investor relations website at cineplex.com. 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 EBITDA and free cash flow, and a substantial reduction in simple leverage ratio to 2.9x. 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 $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 EBITDA more than doubled to $70.7 million from $33.3 million in the prior year, demonstrating the significant operating leverage in our business. The quarter exceeded market expectations with Adjusted EBITDA coming in approximately 14% above consensus estimates. Adjusted free cash flow was $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 EBITDA in this segment's history.

BPP exceeded $14 for the first time in the company's history. Premium price offerings accounted for 51.4% of total box office revenues during the quarter, highlighted by exceptional demand for Oppenheimer, 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%.

Theatre 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: No Way Home highlights the success of our retail offering, reaching record levels and making it the most successful merchandise program in Cineplex's history. Other revenues increased 24% over the prior year, reflecting an 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 EBITDA increasing 115.6% to a record $72.9 million. The quarter provides a clear illustration of the high operating leverage in our exhibition business. With $39.1 million of incremental segment Adjusted EBITDA on 2.8 million guests, that equates to approximately $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 $15.1 million, and Adjusted EBITDA margin was 79.5%, remaining substantially consistent with the prior year period.

Location-based entertainment revenues were $34 million, a decrease of 1.7% compared to the prior year. The decline was generally consistent with broader industry trends as consumers continue 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 EBITDA was $4.8 million compared to $4.6 million in the prior year period.

G&A expenses for the quarter were $22 million, 8.8% higher than the prior year. The increase was primarily attributable to approximately $9 million of incremental LTIP expense and a prior year benefit from lower incentive compensation accruals. Together, these items accounted for approximately $1.5 million of the $1.8 million year-over-year increase in G&A.

Moving on to capital allocation and liquidity, we ended the quarter with $137.3 million of cash on the balance sheet and no drawings under our $100 million covenant-light 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 $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 $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 borrowing 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.

[Operator Instructions] Our first question comes from Joey Chan with Scotiabank. You may proceed.

First, on the strategic review, is there any update you can provide on where you are in the process? And can you help us understand the range of options being considered, whether that's potential transactions or asset changes versus broader operational changes to the business or potentially both?

Yes. Hi, Joey. On that one, we're really not able to provide updates on the review process. It's focused on trying to maximize value overall for shareholders. And as you can imagine, that includes a really broad range of options. But we're not going to be able to provide an update on exactly where we're 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?

Yes, Joey, thanks for the question. And 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. And 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 the cadence of new releases throughout the year?

Sure. Yes, 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 4Q '26, December, that will roll to 1Q '27. And listen, a part of the movie business is also the surprises, right? You never see some of these movies coming in the magnitude that 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. But 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.

Okay, great. Thank you. I'll pass the line.

Thank you. Thanks, Joey.

Our next question comes from Cheryl Zhang with TD Cowen. You may proceed.

I just have one on media. I'm curious, based on your conversations thus far with clients, what is your sense for advertising demand for 2027?

Yes. So 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've been pleased with. We think the data that we've 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. So we don't think there's any cyclical change in how people view our platform. We think there were nuances that happened this year between the Olympics and the World Cup that really drove a different cadence within the year. But as we look to 2027 and just understanding the value of that asset, we're quite comfortable with how media is going to trend into the next year.

Yes, and only to add to that, 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 potentially more consumer confidence as well as demand, which would also potentially open up some advertisers' budgets because it's been a challenging year for everyone.

Great. That's helpful, Gord. Thank you. I'll pass the line.

[Operator Instructions] Our next question comes from Sarah McKeown with RBC Capital Markets. You may proceed.

This is Sarah on for Drew. Two quick questions for me. So first, how should we think about the trajectory for Cineplex Media into 4Q? And then second, can you provide any color on the outlook for LBE in 2027 and the path for returning the segment to growth? Thank you.

Sure. With respect to sports, I'll take the first question on media for 4Q. As Bill mentioned, what we're 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, and so that's moved a lot of the budget spending and allocations into the front half of the year, so there's less coming into the back half. We're still in a world where, as I mentioned earlier, there is consumer uncertainty related to where tariffs sit. And unfortunately, as we sit here today in November, with no real resolution on those, the spending is not going to be opened up for the remainder of 4Q.

We see that as an opportunity going into 2027. And then the last thing that we called out, too, is we had pharma as a big category last year in 4Q as patents were looking to expire towards the end of the year. And so 4Q last year benefited from spending related to some of the weight loss drugs. And so that's the backdrop that we're facing with respect to media.

And I'll take the LBE side and kind of comment because obviously for me, Sarah, it's a platform. I'm spending lots of time doing some discovery and working closely with teams to try to better understand the LBE side of our business. I think some important developments on the LBE side, we 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're also making some great progress on the cost control side of that business, where as we mature our operating models, our forecasting, and the way the team engages there, we're finding ways to run those buildings more efficiently. And I think you can see that in our 3Q results overall on the EBITDA margins that we're experiencing. And 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.

And I really do think about the LBE business as a platform that has a ton of potential. Out-of-home experiences and in-real-life experiences are what we specialize in overall. And LBE is a platform where between Playdium and The Rec Room, we have a specialty in bringing people together to experience something together in the out-of-home environment. And 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'm excited about. Thank you.

[Operator Instructions] 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, and as we look forward to 4Q, we're excited and we encourage everyone to get out to the movies and get out to The Rec Room and Playdium and enjoy this 4Q and some of the great content we have and the great experiences we offer. So thanks, everyone.

This concludes today's conference. Thank you for participating. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Mahsa Rejali. Please go ahead.

Good morning, everyone. I would like to welcome you to Cineplex's second quarter 2026 earnings release conference call. I'm Mahsa Rejali, Vice President, Corporate Development and Investor Relations at Cineplex. Joining me today are Ellis Jacob, our President and Chief Executive Officer, and Gord Nelson, our Chief Financial Officer. 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 information currently available.

Actual results may differ materially from those expressed in the forward-looking statement. Information regarding factors that could cause results to vary can be found in the following in the company's most recently filed annual information form and management's 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 Ellis Jacob.

Thank you, Mahsa, and good morning, everyone. I am extremely excited to be speaking with you today at a defining moment for Cineplex. We have just come off the highest grossing week in our company's history. Box office results were more than 20% ahead of our previous record set during the release of Star Wars: The Force Awakens in December 2015, which is the highest-grossing film of all time at the domestic box office. That achievement speaks to the exceptional strength of the current film slate and the positive momentum we are seeing in our business.

Against that backdrop, I'm pleased to share Cineplex's tremendous second quarter 2026 results, which demonstrates how we are effectively translating the current content environment into strong financial results. We deliver total revenue of $383.7 million, resulting in a new second quarter revenue record and growing nearly 10% year over year. We also delivered significant EBITDA growth of more than 20% and improved cash flow generation. This quarter's success was not dependent on a single blockbuster or a small number of tentpole releases. Instead, consumers embraced a broad range of compelling content across multiple genres and formats.

These trends reinforce what we have long believed. When audiences are provided with quality content on a consistent basis, moviegoing becomes part of the cultural conversation and a recurring entertainment choice. The steady flow of diverse, compelling content we are seeing today creates a healthy and more durable industry environment, giving us continued confidence in the long-term growth outlook for theatrical exhibition. What gives us further conviction is Cineplex's unique position within the industry.

We are Canada's market leader with more than 150 theaters nationwide, leading premium formats, a proprietary cinema media platform, a growing film distribution business through Cineplex Pictures, one of the country's strongest loyalty ecosystems through Scene+, and leading location-based entertainment brands with The Rec Room and Playdium. These assets create multiple earning streams, deepen our relationship with guests, create robust data opportunities, and provide competitive advantages that are difficult to replicate. Together, these assets position Cineplex to convert improving industry conditions into sustainable long-term growth, stronger profitability, and increasing cash flow generation.

Let's get into what drove our record performance in the quarter. The second quarter showcased one of the strongest and most diverse content slates we have seen in years. Family films were a significant driver of performance. The Super Mario Galaxy Movie became the first film of 2026 to surpass $1 billion globally. Toy Story 5 delivered a new franchise opening record and subsequently joined the year's billion-dollar releases. This demonstrates the appeal these beloved characters have across generations and shows how compelling stories can bring audiences to theaters at scale.

At the same time, audiences are also eager for original storytelling. Michael became the highest-grossing biopic of all time, whereas Obsession and Backrooms exceeded industry expectations, ultimately becoming two of the highest-grossing horror films in Cineplex history. Obsession has now generated more than $250 million at the domestic box office, a remarkable achievement for an independent horror film. Backrooms was equally notable, illustrating how content that originates on digital platforms can successfully transition to the exhibition when paired with the right audience.

One of the most encouraging trends we observed is the return of the Gen Z audience, a demographic many questioned would fully embrace moviegoing. That trend was certainly evident in the performance of Obsession and Backrooms. This demographic contributed meaningfully to our second quarter results and continues to demonstrate that moviegoing remains a highly relevant and valued social experience. Together, these films reflect the growing influence of a new generation of filmmakers who are connecting with audiences in new and exciting ways.

The Devil Wears Prada 2 outperformed the original film and delivered one of the strongest VIP performances in Cineplex history, while films such as Star Wars: The Mandalorian & Grogu further demonstrated continued demand for premium large format experiences. As the market leader in premium formats, Cineplex is well positioned to capture the growing demand behind this trend. Guests also choose to enhance their movie-going experience through our expanded food and beverage offerings and merchandise programs. During the quarter, we delivered record theater food service revenue and an all-time quarterly concession per patron record of $10.26.

Merchandise continued to be an important contributor with sales increasing 45% year over year and reaching a new quarterly record. Popular items tied to major releases included themed collectibles from The Super Mario Galaxy Movie and Star Wars: The Mandalorian & Grogu, as well as the iconic red popcorn purse inspired by The Devil Wears Prada 2. These offerings help drive incremental spending, deepen guest engagement, and further capitalize on the excitement surrounding major film releases. Overall, the quarter demonstrated healthy consumer demand across a wide range of content, genres, and audience segments.

As that demand continues to grow, we are increasingly well positioned not only as an exhibitor, but also as a distributor of content through Cineplex Pictures. Michael became the highest grossing film ever distributed by Cineplex Pictures and was the second highest grossing film at the box office during the quarter. Its performance reinforces the growing scale and relevance of our distribution business and demonstrates our ability to successfully connect quality content with Canadian audiences. Together with our upcoming slates, including Godzilla Minus Zero and The Hunger Games: Sunrise on the Reaping, we remain confident in the continuing growth opportunity for Cineplex Pictures.

Alternative programming and events. Beyond traditional films, we continue to give Canadians more reason to visit our theaters. Cineplex is a clear market leader in international content and continues to outperform the domestic market. We continue to view our theaters as premium destinations for shared entertainment experiences of all kinds. During the quarter, we proudly partnered with TSN to present select FIFA World Cup matches in theaters across Canada. Cineplex was the only exhibitor in Canada offering fans the opportunity to watch these matches on the big screen and one of only a handful of exhibitors across North America providing this type of premium viewing experience at scale.

The response was extremely encouraging and demonstrated the broader opportunity for Cineplex to be part of large cultural moments. Through major sporting events, concerts, live performances, or specialty content, we see the potential to attract new audiences, create incremental revenue streams, and further maximize the value of our theater network. Media, turning to cinema media, during the quarter we delivered year-over-year revenue growth despite a particularly strong prior year comparison. The prior year benefited from elevated spending from the pharmaceutical category ahead of patent expirations for certain products.

Our cinemas continue to provide advertisers with a premium high attention environment. Recent Canadian research conducted for Cineplex Media and launched at our recent media showcase further reinforced the effectiveness and value of cinema advertising. The findings demonstrated strong audience attention, advertising recall, and brand impact. Our media platform also provides meaningful access to Gen Z consumers, one of the most sought after yet increasingly difficult demographics to reach through traditional media channels. As young moviegoers continue to return to theaters, we are uniquely positioned to help brands connect with this audience. Combined with improving attendance, this positions our media business well for continued growth.

Location-based entertainment. In location-based entertainment, the industry continues to face macroeconomic headwinds impacting discretionary consumer spending. Our same-store performance has generally tracked in line with the results being experienced by our peers across the industry. We remain focused on driving visitation, optimizing operational execution, and driving productivity at our LBE locations. Despite these near-term challenges, we remain confident in the long-term fundamentals of the business. Consumers continue to demonstrate a strong desire for social and experiential forms of entertainment. And our Playdium and The Rec Room brands are well positioned to meet that demand.

In June, we expanded our LBE presence with the opening of Playdium at Vaughan Mills, one of Canada's most visited shopping destinations. The venue features four exciting attractions, including Gel Blasters, a team experience that combines the best of laser tag and paintball, alongside an extensive games floor and a wide variety of food and beverage offerings. The new venue is delivering strong results in its early days of operation, reinforcing our confidence in our offerings.

Guest engagement and loyalty. Our loyalty ecosystem remains an important competitive advantage and continues to strengthen our relationship with guests. During the quarter, Shell launched nationwide with the Scene+ program. With the ability to earn and redeem points across groceries, entertainment, dining, travel, and now fuel, Scene+ continues to increase its relevance and frequency of engagement for members. Cineplex Scene+ and its more than 15 million members remain a powerful tool to strengthen guest relationships, drive repeated incremental visitation, and deliver more personalized experiences.

Complementing Scene+ is CineClub, a movie subscription program which recently celebrated its fifth anniversary. With more than 270,000 members and visitation rates that are approximately 4 times higher than non-members, CineClub continues to strengthen loyalty, encourage more frequent moviegoing, and reinforce Cineplex's position as one of the most affordable and compelling out-of-home entertainment options available to Canadians.

As we look ahead into the back half of the year, industry momentum and optimism remain strong. Earlier this year, the domestic box office surpassed $5 billion faster than in any year since 2019. This milestone highlights the improving fundamentals of the industry and provides a solid foundation for the balance of 2026 and beyond. More recently, the opening of The Odyssey and Spider-Man: Brand New Day have further demonstrated the strength of premium event filmmaking and Cineplex's ability to bring these cultural moments to life through exceptional theatrical experiences across our circuit.

The Odyssey opened to $124 million domestically, with Cineplex over-indexing the market and operating 3 of the top 20 theaters in North America. Demand for premium experiences has been exceptional, including sold-out IMAX 70mm presentations throughout the film's run. Cineplex operates 8 of the world's 41 IMAX 70mm screens, reinforcing the strategic value of our premium format footprints and our ability to attract moviegoers seeking the highest quality theatrical experience.

Released on July 31st, Spider-Man: Brand New Day delivered a record-breaking $360 million domestic opening and has already surpassed $1 billion at the global box office. Together with the sustained performance of The Odyssey, these films helped drive outstanding results across our circuit. We've also generated record-breaking results across our industry-leading premium formats, including UltraAVX, 4DX, ScreenX, and VIP, further highlighting consumer demand for premium theatrical experiences and Cineplex's unique ability to meet that demand at scale.

Looking further into the second half of the year, the slate remains exceptionally strong and highly diversified. Family audiences will be well served by anticipated releases, including The Cat in the Hat, Hex, and Jumanji: Open World. Comedy fans can look forward to [ Digger and Forka and Law ], while horror remains one of the industry's most resilient genres with Clayface and Werewolf. Science fiction is particularly compelling with the much-awaited Doomsday in December with the opening of both Avengers: Doomsday and Dune: Part Three. Both films are generating significant consumer anticipation and should represent one of the biggest opening weekends of the year.

Beyond these categories, highly anticipated titles such as The Hunger Games: Sunrise on the Reaping, and Godzilla Minus Zero, both distributed by Cineplex Pictures, and The Social Reckoning, further contribute to one of the deepest and most diversified release schedules we have seen in years. We are also encouraged by the growing commitment from non-traditional studios. Amazon MGM continues to expand its theatrical ambitions with upcoming releases, including Verity, [ Outer of a Bank ], and I Play Rocky. At the same time, Netflix continues to increase its engagement with the theatrical window for Narnia in 2027.

Non-traditional studios increasingly recognize the value theaters create in building awareness, cultural relevance, and long-term audience demand. These developments reinforce a trend we have discussed for several quarters. Theatrical exhibition continues to be the engine that drives the train and remains the most important distribution channel for content, helping maximize its success across all platforms and windows. With the industry's continued resurgence, we believe Cineplex is entering this next phase with a solid foundation for growth.

The momentum we are seeing in the business is translating into stronger profitability, cash flow generation, and balance sheet flexibility. We believe the strength of our business and the opportunities ahead are not yet fully reflected in how Cineplex is currently valued. I will now turn the call over to Gord Nelson, our Chief Financial Officer, to walk through the financial results in more detail.

Thanks, Ellis. I am pleased to present a condensed summary of Cineplex's record second quarter 2026 results. As Ellis mentioned, we're coming off the highest box office week in the company's history, making this an especially exciting time for our industry and our business. For further reference on our second quarter results, our financial statements and MD&A have been filed on SEDAR+ and are also available on our investor relations website at cineplex.com. Our MD&A and earnings press release include a complete narrative on the operational results, so I will focus on highlighting select items in addition to providing commentary on liquidity, capital allocation priorities, and our outlook.

For my comments on operations, all amounts following will be from continuing operations unless otherwise stated. The second quarter reflected continued momentum in our exhibition business, supported by a stronger film slate that drove higher attendance and meaningful growth in revenue per patron metrics, adjusted EBITDA, and cash flow. Total revenues for the quarter were $383.7 million, an increase of 9.8%, driven primarily by a 9.3% increase in theater attendance to 12.7 million guests. Notably, our revenue represented the highest second quarter revenue in the company's history, underscoring both the strength of the content environment and Cineplex's ability to translate attendance growth into profitable revenue generation.

Our consolidated adjusted EBITDA for the quarter was $40.8 million, up 20.4% from $33.9 million in the prior year. The disproportionate growth in adjusted EBITDA relative to revenue reflects the operating leverage in our business and demonstrates the significant earnings and cash flow potential associated with incremental attendance. Let's take a closer look at the segments. In the film entertainment and content segment, attendance increased by approximately 1.1 million guests. The increase in attendance contributed to box office revenues increasing 11.2% to $176.2 million, representing our second highest quarter box office revenues since 2019.

Performance was supported by a balanced mix of successful franchise releases and compelling original content. The breadth and consistency of film supply remain key drivers of exhibition performance as a diversified film slate encourages repeat moviegoing and helps offset the natural variability in performance across individual titles. Box office revenue per patron reached an all-time quarterly record of $13.91, up 1.7% from the prior year. The increase reflects inflationary and strategic pricing initiatives, partially offset by fewer promotions and a lower premium format mix as the film slate skewed toward 2D releases.

Theater food service revenue increased 11.8% to an all-time quarterly record of $130 million. These results demonstrate our continued ability to drive guest engagement and monetize attendance through premium food, beverage, and merchandise offerings. Concession revenue per patron reached an all-time quarterly record of $10.26, an increase of 2.2% year over year. The increase reflects strategic pricing initiatives, higher purchase incidents, and strong growth in merchandise sales. Merchandise contributed roughly one-third of the CPP growth and achieved a new quarterly revenue record, highlighting the significant growth potential of this category.

Other revenue increased 20.9% year over year, reflecting increased online booking fee revenues associated with stronger attendance, as well as higher distribution revenues from Cineplex Pictures. During the quarter, Michael was our second highest grossing film and became the highest grossing film ever distributed by Cineplex Pictures. Cash rent paid or payable was slightly lower than the prior year due to portfolio optimization initiatives and ongoing lease management efforts. Other occupancy costs remain generally consistent with the prior year. While theater payroll and theater operating expenses increased compared to the prior year, growth in those costs remained below attendance and revenue growth, reflecting effective expense management by our team.

Segment adjusted EBITDA for film and entertainment and content increased 32.8% to $48.2 million. This result marks our highest second quarter segment adjusted EBITDA since 2019, driven by higher attendance, record per patron metrics, and strong operating execution. In the media segment, revenues increased 4.4% year-over-year to $20.2 million. This performance reflects higher demand for advertising placements with strength across several key customer categories, despite a difficult comparison against elevated pharmaceutical advertising spend previously in the prior year.

Cinema media per patron was $1.59 compared to $1.67 in the prior year. Despite the modest decline, improving attendance and greater consistency in film supply continue to support advertiser demand and position the business for future growth. Adjusted EBITDA for the media segment was $15 million, remaining flat relative to the prior year. [indiscernible] dollars, a decrease of 3.7% compared to the prior year, reflecting the broader economic headwinds and discretionary spending pressures experienced across the industry.

Adjusted store level EBITDA was $3.9 million compared with $5.8 million in the prior year. Adjusted store level margin was 12.2% down from 17.5% in the prior year. And excluding the 2024 new builds, same store adjusted store level EBITDA margin was 15.3%. At the segment level, adjusted EBITDA was $1.7 million compared to $4.4 million in the prior year. Despite the softer revenue environment, we are focused on operational discipline and improving profitability within our LBE business. We remain confident in its long-term potential.

During the quarter, we opened Playdium Vaughan, marking the 17th location in our LBE portfolio, and the location has delivered strong results since opening. G&A expenses for the quarter were $24.2 million compared to $21.9 million in the prior year period. The increase was primarily due to the timing of recognition of LTIP and the increased LTIP costs associated with changes in Cineplex's common share price. This was partially offset by reduced restructuring costs relative to the prior year.

We ended the quarter with $116.8 million of cash on the balance sheet and no drawings under our $100 million covenant light revolving credit facility. In addition, approximately $92.5 million remained available under the facility after letters of credit. With improved operating results, our strong cash position provides us with additional capacity to execute on our capital allocation priorities. Our capital allocation priorities remain unchanged and include maintaining our assets, strengthening the balance sheet, and achieving our target leverage ratios, providing shareholder returns through share repurchases and or dividends when appropriate, and selectively investing in attractive growth opportunities.

Net capital expenditures for the quarter was $7 million and included investment related to the opening of Playdium Vaughan. Full year capital expenditure guidance remains at approximately $50 million. Over the last several years, we have taken deliberate actions to strengthen the balance sheet and improve our financial flexibility. These actions have included the sale of non-core assets, the refinancing and extension of our debt maturities, and a continued focus on operational execution during a period of attendance volatility and profitability.

With sustained momentum in attendance and profitability, leverage has declined 1.5 turns over the past year and a half. As a result, we have improved visibility toward achieving our long-term target leverage ratio of 2.5 to 3 times, which we believe is achievable in the near term. As our leverage profile continues to improve and the earnings continue to grow, our financial flexibility increases. Higher earnings generation expands our builder basket capacity, together with continued deleveraging, enhances our ability to return capital to shareholders. This includes opportunistic share repurchases under our normal course issuer bid, and upon achieving our target leverage ratio, the reintroduction of a dividend.

We remain encouraged by the performance and outlook of both the industry and our business. Recent releases have continued to drive strong attendance, record guest spending, and improving profitability across our circuit, reinforcing the positive momentum we are seeing in the business. Looking ahead, we remain encouraged by the balance of the 2026 release calendar and the continued commitment to theatrical exhibition from both traditional and non-traditional content creators. As attendance and profitability continue to improve, we see a clear path toward our target leverage range while also unlocking growth opportunities across each of our business segments. We remain focused on executing against these opportunities and creating long-term shareholder value. With that, I will turn it back to the operator for questions.

[Operator Instructions] Our first question comes from Adam Shine with National Bank of Canada.

Ellis, it's been, I think, 13.5 months since the press release saying that you were going to be leaving at the end of this year, and obviously, you'd be highlighting on recent calls that the board continues with the effort in regards to the succession planning. But just curious. Any updates in regards to what's going on? No details in anything we've seen today in that regard. And curious if there's a potential extension out to the first half of next year, potentially in the cards.

For you, Gord, notwithstanding all the positive elements at the top line that were referenced, your EBITDA was a bit light. Maybe it's on us on the street for having pushed a bit too high. But when we go back to some of the calculations you addressed in a question on the Q1 call, you were still comfortable with that $13.50 per patron exhibition, $1.50 per patron media. In theory, that would have been $60 million up on EBITDA. I think your exhibition business came in +12%, which was actually very strong.

But my question to you really is the three parter in regards to, you know, we saw the lower margin in LBE. We saw the JV loss related to marketing spend for the new Shell Canada partnership. I think there was some higher G&A, which surprised a little bit, and some of that maybe was referenced to LTIP timing. So really just curious if some of these things improve, going into the back half, the JV loss, whether the marketing spend continues at or below that level and whether G&A steps down, you know, going into the Q3. And I'll leave it there. Thank you.

Thank you, Adam, for your question about my retirement. I'm preparing to retire by the end of the year, and the board is managing the process, and it's well underway. But our focus continues to remain on strengthening and growing the business, and I'm proud of what we've accomplished, and I think the year is going to be quite strong for us at Cineplex.

Okay, thank you for that, Ellis. Adam, let me take you through a couple of the items, and you called out a number of them, so let's sort of focus. You know, the exhibition business was the strong performer of the quarter. What we saw really in sort of the other businesses and sort of one-time costs, which I will kind of elaborate a little bit on. But with respect to the LBE business, typically the second quarter is the lowest traffic quarter of the year. And if you look at the results in the quarter, you know, obviously we called out FIFA a little bit, so there was some success related to kind of FIFA viewership in the theaters.

When you look at the sort of the revenue mix in that business, you know, we did see food and beverage increases in the quarter. And as you would expect as people kind of coming out and enjoying and watching some of those events, but amusement was down. And again, so focus on the events. Amusement is the highest margin revenue category in that business. So, you know, we got a little bit of a mix shift with respect to the revenue side, which impacted sort of the overall margin of where you saw it. So EBITDA, same story, was down about $2 million, which as we look forward, you expect that to reverse a little bit.

Now you called out a couple of one-timers, so let me go through those. The Scene+ JV costs. So Scene+ would typically operate on a relatively close to break even level. In quarters where we're doing something like a national launch of Shell as an example, there would be some additional costs, sort of implementation costs, as well as marketing costs to launch new members. So that would be, I'm calling that as a more of a one-time quarterly expense that you would not expect to see sort of on a go-forward basis.

In the G&A category, I'm going to call out a couple things here then. So if you look at, as we disclose it in our MD&A, sort of the base category, you're going to see just a little bit of timing, and that's in some of our technology initiatives, to be honest. If you look at our year-to-date number for what we would call based G&A as in our MD&A, it's only up 1.9% on a year-to-date basis. So, roughly $700,000. Whereas in the quarter, it's up $2 million, it's up 10%. So it's fairly timing. This quarter was impacted more than other quarters.

And then I'm going to just go at LTIP too. So LTIP, the accelerated share price. And as we call it out in the MD&A, there's a little bit of a sort of change, which is impact the 2026 results related to what I can call retirement eligible employees where there's an acceleration of the expense related to them but not the vesting so that there's no change to the vesting but retirement eligible employees have the ability to have the full grant available to them over the appropriate vesting period. That is about a $6 million hit for 2026 which will be really sort of a one-time event for this year.

Of the $6 million in 2026, how much have we already seen in the first half?

So it's roughly, that'll be roughly $3 million, half of it.

Okay. One last follow-up, if you don't mind, and that is there seems to have been some resolution, a finality to some of the AMC tax litigation, and curious because you called out in the MD&A some of that was already refunded. Curious how much is still left to go of the call it $26 million plus and whether any intention to use any of that beyond just deleveraging. Would you do any buyback related to that or not at all? Thank you.

Yes, so first of all, so that relates to a tax litigation matter related to the losses that were acquired on the acquisition of AMC back in the mid 2013 or so. So we were successful in that litigation. And so the $26 million is the quantum of the losses that were at dispute. So not the tax impact. And our effective tax rate is roughly 26%. So we did get roughly, I'm going to say 26% of $26 million back as a refund because we had put that on account. And there was sort of a deferred payout to AMC of roughly $3 million related to the final resolution of all tax matters related to that acquisition. So there was a net inflow, Adam, but it's not of the magnitude that you described there.

Got it. I appreciate it. Thank you very much.

Our next question comes from Drew McReynolds with RBC Capital Markets.

On the film cost percentage, it just feels, certainly from our perspective, it continues to creep up and clearly a diversified slate that didn't appear to be a lot of concentration. So just any thoughts on whether anything is structurally changed there underneath the hood? And then on the LBE outlook, again, appreciate the detail there. In the MD&A, you talk about competition. Wondering if that was any transitory comment just with respect to obviously all the sporting events that were ongoing or ongoing, or is there kind of something new that you're flagging there?

So on the film rental at Cineplex, the bottom line is as the box office improves and the movies do better, there is an adjustment in the film rent. But overall, there hasn't been a change in the film rent moving forward.

And then on the LBE question then is, yes, look, we did highlight competition. There are certain locations in our portfolio that have been extremely successful. And we're seeing alternative concepts in select locations come up, which, you know, which does impact our business to a certain degree in those locations. It's not widespread, but we are seeing where we have successful locations, there have been some entries.

Okay, thanks, Gordon, for that. Just additionally, I mean, we can go back and scrub this, but you typically have a good line of sight on this. Clearly, August is going to be very strong at the box office. Is there anything from last year, whether that's in August or September, that you'd call out as either particularly easy or tough comps from a slate perspective? And then maybe the bigger picture question here is as the industry comes back, and as you're seeing kind of Q2 and Q3 play out, I know it's never a perfect visibility here, but can you update us on just what your working assumptions would be in terms of how you hope attendance will track, you know, somewhat on an annualized basis going forward here into 2026? Just as a percentage of 2019 levels, just trying to tie in whether there's been any kind of change in the broader working assumption of what you can get back to, again, on an annualized, normalized basis, just notwithstanding kind of quarterly volatility. Thank you.

Hey Drew, that's a good question and just looking at the year-to-date, we've already had five movies that have crossed a billion dollars. You've got The Odyssey, Spider-Man, The Super Mario Galaxy Movie, Michael, and Toy Story 5. And the good news is we are close to covering the month of August in the first 10 days compared to last year. And that's a result of both The Odyssey and Spider-Man. And we expect that to continue for the next number of weeks. And we've got PAW Patrol also opening this week, and that should help us.

The industry is tracking at the $10 billion of box office that we were discussing and getting to that number. And there's a lot of good films, you know, for the balance of the year, which is exciting and should continue to do well for us. And one of the things that I should say is when I look at the second quarter and you look at some of the differences, in the month of June, we end up with schools closing much later than the U.S., but in the month of August, we start later and they already have started to go back to school, so that should help us on the numbers comparison.

Got it. Thank you. I appreciate it.

Our next question comes from [ Cheryl Zhang ] with TD Cowen.

I'd like to double click on CPP. I think you called out its record number from strategic pricing and also higher purchase incidents. I wonder if you can elaborate on that and what you're seeing in terms of consumer purchasing decisions considering the film content.

Yes, so Cheryl, we also called out sort of a category of merchandise, which, and Ellis called out the red purse from The Devil Wears Prada 2, which was like a sellout immediately. So we're seeing a really strong demand for sort of movie-related merchandise as part of the concession purchase. So, you know, we call it as being a record with growth and representing roughly, you know, a significant portion of the overall CPP growth. We generated just around $4 million of sales from merchandise in the second quarter.

So for us, as we've always described, is we look at pricing in this business, is we typically look to pass on food cost inflation in through price. So CPI kind of growth in pricing, but it's about broadening the basket. And so merchandise sales is a great example of kind of broadening that product basket and then increasing the incidents. So the frequency of purchasing. So I would say in the second quarter, broadening of the basket is what generated roughly one-third of the CPP growth during the quarter.

That's great. Thank you.

And sorry, just to add on to that, because of the demand for merchandise in the theaters, we've also added an online platform so consumers can buy the merchandise content if it is sold out at the theater.

That's great. And just to follow up on that, what are you seeing in terms of concession related sales as related to The Odyssey and Spider-Man performance thus far?

It continues to be strong and there's good demand as we're going through with those two films.

Thank you, Ellis. And maybe just one more on media, I think you called out there's still strong demand from advertising, but I'm wondering like, based on your conversation with the advertisers, are there any changes in their thinking of the spending budgets in light of the softer macro backdrop?

Yes, Cheryl, I mean, that's a good point. And look at this, we looked at the second quarter as an example, you know, our media revenue went up. When you look at the overall media market, you know, we definitely saw sort of a shift in category spending. So the out-of-home market had tremendous success in the second quarter. You know, that includes billboards, stadiums, and sort of street furniture. You would expect that people were putting their money into, you know, FIFA related campaigns, so wanted to be all over the cities, particularly where those events were held.

But as we look forward, I mean, you're bang on, is there is a challenging kind of macro environment which is impacting advertising spend. And that's in part why we did two things during the quarter and it impacted our OpEx to a certain degree in our media businesses. One is we held an upfront event to really showcase the content that's coming out over the next 12 months. And then in addition to that is, you know, we launched our research study into sort of the intention statistics through Amplify. And so those are two costs that we incurred in the quarter. But again, looking to kind of gain traction in a tougher media environment over the short or the shorter near term.

That's very helpful. Thank you so much.

[Operator Instructions] Our next question comes from Maher Yaghi with Scotiabank.

It seems The Odyssey is generating a lot of demand for premium seatings. How should we think about that contribution specifically to Q3 from that movie? Will it have an impact on the cost, the film cost? Is there a different metric that we should think about when, you know, forecasting the movie costs in Q3 that would be different in any way compared to previous quarters?

No, the film cost basically is based on the performance of the film. So if the film does, you know, get stronger and does better, the film cost is slightly higher. But overall, there shouldn't be a significant impact from the movie delivering the box office.

Okay, so sometimes, you know, specific films do have a higher marginal cost related to the tickets themselves, to the studios. Is there anything specific to The Odyssey on that that we should be aware of, no?

No, there's no change, so there's nothing that you should be concerned about.

Okay, so it's, you know, it seems like we have a good momentum going into Q3. As you mentioned, August has so far been very strong. Are there any, you know, what would you flag in terms of the cash generation that we should think about when forecasting Q3 and Q4 that would allow you to reach your target leverage target at an earlier possible time to allow you to re-engage and start buybacks?

Yes, so look at we're very encouraged by the results for the back half of the year where things are going, particularly with the momentum that's coming out of the month of August as Ellis described. You know, there's a technical calculation of how these builder baskets work, which I will at a extremely high level provide the test, but I encourage you to, you'd have to go down and do the calculations in detail, but roughly if you go back to January 1 of 2024 and look at the cumulative EBITDA from that point in time, it needs to cover, the basket opens up to the extent that it covers more than 1.75 times sort of the fixed interest charges.

And the fixed interest charges, a rough calc is about $60 million a year. So that's the interest charge on our high yield debt and our convertible debenture. So part one of your question is is that calc opens up the basket at some point in time. The second part of your question is on leverage is and then my comments as I said that we're confident and comfortable that and because we look at the near term that that target of you know 2.5 to 3 times is well within our reach now.

Okay, so can you maybe help us or give us some reference as to when you think you'd be in those target leverage ranges?

Look at where most industry participants are forecasting or projecting a domestic box office of about $10 billion for this year. If that's the case and the industry delivers on that amount, then you'd expect that we would be in that range, in our target range, with the reporting of the Q4 results.

Okay, great. And so just to continue that, you know, that discussion. So you mentioned earlier, the dividend optionality, you have the buyback optionality, right? Given where the stock is and long-term projections that you have, which way you're leaning more on going forward to be your preferred method to return in cash to shareholders?

Yes, look, we always, I would say we describe the NCIB program as sort of being what I would call opportunistic and looking for opportunities to drive value. And so as we just approach and as we cross that kind of target leverage ratio range is we will then make a more efficient, focus discussion on where our priorities are with respect to those two items. I would say both of them are on the table. Then as we look forward and create more significant free cash flow generation in 2027, things could open up more in one of those options. But at this point in time, I'm just going to say that both of those are on the table and a focus, but we're not going to provide sort of the levels between the two of them at this point.

Okay, that's fair. Maybe one just, you know, question on IMAX screens. And, you know, it's, I'm sure it's a good problem to have when you have such a high demand for a movie on IMAX. But it seems like the capacity in many of the big cities in Canada are slightly supply constraint for that typical format, would you consider in the future to add more IMAX screens or is it possible? At this point, the movie slates are not necessarily requiring a big change in how you have your design set up?

It's a good question, but you have to remember, as I mentioned in the commentary, we have 8 of the top 41 locations in the world, and we will continue to evaluate as things move forward. So, you know, when you look at it and we have, you know, 20% of the total number in the world, that's pretty significant.

I agree. But for now, we should not think about CapEx. How should we think about CapEx for the rest of 2026 and maybe 2027 on CapEx that would be helpful. Thank you.

Yes, so I provided comments that our guidance for 2026 is about $50 million. And then as we look into next year, we have the one, obviously, LBE location that opened in 2027. We have no further commitment at this point in time, but our guidance for 2027 would be roughly $60 million.

Great. Thank you for taking my questions.

Thank you. That concludes today's question and answer session. I'd like to turn the call back to Ellis Jacob for closing remarks.

Just want to thank you again for joining us this morning. We remain quite excited about the future of Cineplex and confident in the long-term opportunities ahead. Have a wonderful day. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Cineplex First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Rayhan Azmat, Vice President, Investor Relations. Please go ahead.

Good morning, everyone. I would like to welcome you to Cineplex's First Quarter 2026 Earnings Release Conference Call. I'm Rayhan Azmat, Vice President, Investor Relations, Corporate Development and Financial Planning and Analysis at Cineplex. Joining me today are Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer.

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 information currently available. Actual results may differ materially from those expressed in 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 Ellis Jacob.

Thank you, Rayhan, and good morning, everyone. I'm pleased to join you today to discuss Cineplex's first quarter 2026 results. The first quarter of 2026 built on the momentum we've been seeing across the industry and our business with attendance and box office increasing meaningfully year-over-year. We delivered our highest first quarter revenue since 2019, and our Q1 box office reached 125% of the prior year with record Q1 results across several key operating metrics.

More importantly, the performance we saw in Q1 reinforces what we have long known to be true. When there is quality, consistency and breadth in the film slate, theatrical doesn't just perform well, it creates unforgettable moments that bring Canadians together.

Before I speak to our strong first quarter results, I'd like to talk about the tremendous energy coming out of CinemaCon. This year's event reinforced the strength of what's ahead with strong early reactions for several high-profile upcoming releases, including Toy Story 5, Christopher Nolan's, the Odyssey, Spider-Man: Brand New Day, Dune: Part 3 and Avengers: Doomsday. I haven't experienced this level of buzz coming out of CinemaCon in years.

The presentations this year amplified the excitement surrounding these highly anticipated releases and the breadth and quality of the content for 2026 and beyond. Just as importantly, CinemaCon reinforced the industry's long-term commitment to the theatrical business. Amazon MGM reaffirmed its plans to theatrically release at least 15 films per year, making it clear that theatrical is not just an experiment, but a core part of its strategy.

We also saw continued support for meaningful exclusive theatrical windows with studios such as Universal and Paramount reaffirming windows of at least 45 days, joining Sony and Disney whose films already extend beyond that threshold. Amazon MGM further demonstrated its commitment to longer windows by delaying the streaming release of Project Hail Mary.

In addition, David Ellison outlined plans for up to 30 theatrical releases per year should the proposed Warner Bros. and Paramount transaction receive regulatory approval. While that process remains ongoing, the emphasis on theatrical output reflects the broader recognition of its importance in the life cycle of the film.

Taken together, these developments reinforce the confidence studios have in the theatrical release being foundational to a film's success designed to create scale, impact and cultural relevance. That positioning aligns well with Cineplex's strength from our focus on hospitality and community building that brings audiences together to our extensive premium format offerings that elevate the theatrical experience.

And recently, Netflix announced that the upcoming Narnia film will now receive a wide release with a 49-day exclusive theatrical window in 2027 instead of only a limited release in IMAX screens. Non-traditional studios continue to expand their theatrical involvement as they increasingly recognize the benefits the theatrical release can have in elevating awareness and long-term performance.

Finally, new agreements with both the Writers Guild and the Screen Actors Guild have resolved any uncertainty around labor negotiations. While the industry was not anticipating further disruptions, these agreements provide greater clarity and stability into the production pipeline as we look forward.

The first quarter of 2026 featured a diverse slate with strength across original, franchise and international programming. 5 films generated more than $100 million in domestic box office during the quarter compared to 2 films in the first quarter of the prior year. This performance reflects the breadth of the slate with films resonating across genres and demographics and the importance a steady theatrical pipeline plays in solidifying moviegoing as a recurring entertainment choice.

Original films played a particularly important role in Q1. Project Hail Mary delivered an outstanding performance and has become the highest grossing Amazon MGM release of all time and the studio's first film to surpass $300 million in domestic box office, a notable achievement for a non-traditional studio. The film resonated strongly with our guests with approximately 2/3 of its Q1 box office generated from premium experiences and Cineplex over-indexing significantly versus the U.S., capturing almost 10% of total domestic revenue.

Pixar's Hoppers achieved the studio's biggest opening for original titles since 2017 and along with Goat, highlighted strong audience appetite for fresh storytelling in animated family films on the big screen. The strength in original storytelling was complemented by continuing demand for franchise films. Scream 7 set new records for the franchise, becoming both the largest opening and highest grossing film in the series, underscoring the appeal of established intellectual property.

30% of our first quarter box office was generated from films released in 2025, including franchise titles such as Avatar: Fire and Ash and Zootopia 2, highlighting the value of extended theatrical runs. International programming continues to be a distinct strength for Cineplex, representing approximately 13% of our first quarter box office, more than double the domestic average.

Dhurandhar: The Revenge became the highest grossing Hindi language film in North American history and the first to surpass $25 million domestically with Cineplex capturing more than 30% of the film's total box office. While Dhurandhar: The Revenge was a standout film, it represents less than half of our international box office in the first quarter. That outcome reflects both the breadth of international content we curate and our ability to use data and analytics to understand where films will perform best and how to connect them with the right audiences. These capabilities allow us to consistently over-index on international releases.

Guest demand for premium experiences remains a critical differentiator for Cineplex, and we saw that demand strengthened year-over-year in the first quarter. By offering a broad range of premium formats that align with how guests want to experience films, we translated those preferences into record financial performance. Box office per patron reached a first quarter record of $12.94, while concession per patron also delivered a Q1 record of $9.54.

Turning to our media. Our first quarter results reflected the expected impact of the Olympics, which temporarily diverted advertising spend towards live sporting events. The tough year-over-year comparison also reflects particularly strong pharmaceutical spending in the prior year. Despite that dynamic, our cinemas remain a high attention premium environment for advertisers. As we look ahead to the remainder of 2026, a strong film slate provides a backdrop for advertiser demand, and we are encouraged by the opportunities we see in the balance of the year.

Our location-based entertainment delivered store-level margins at our targeted 25% despite the broader macroeconomic pressures facing the industry that have contributed to a year-over-year decline in revenues. This performance emphasizes our focus on optimizing operations. Looking ahead, we see a number of opportunities to drive increased traffic and engagement. The FIFA World Cup is expected to bring meaningful demand into our locations in the summer.

In June of 2026, we'll be opening a new Palladium location at Vaughan Mills, one of Canada's most highly visited retail destinations. We are also continuing to enhance the guest experience through increased convenience and digital engagement. Alongside our mobile ordering capabilities, we recently expanded our offerings with the launch of our online merchandise shop, giving guests more ways to buy exclusive merchandise for the films they love.

Our CineClub membership surpassed 230,000 members at the end of March with members showing higher visit frequency, stronger premium adoption and increased spending per visit. We also continue to evolve the guest experience through initiatives such as Monday Surprise Premieres, which continue to be well received and helps create moments of exclusivity and discovery.

Alongside programs such as $5 Tuesdays, these initiatives play an important role in driving attendance and frequency and are particularly effective at reengaging lapsed moviegoers. By bringing guests back into the theatrical environment, we help restart the moviegoing cycle from experiencing trailers and upcoming films on the big screen to ongoing communication that builds awareness and supports increased visitation.

Within our broader loyalty ecosystem, Tangerine and Shell joined the Scene+ program in Q1, expanding the program's everyday relevance to now more than 15 million members. Following a successful launch in Alberta during the first quarter, the Shell partnership will roll out nationwide in May. Tangerine has also recently launched a new credit card that allows customers to earn and redeem Scene+ points, further extending the program into everyday financial services. With the ability to earn and redeem points across groceries, entertainment, dining, travel and now fuel, Scene+ continues to create more touch points in the day-to-day lives of Canadians.

I'd also like to provide a brief update on the online booking fee. The Federal Court of Appeal upheld the Competition Tribunal's decision regarding the presentation of our online booking fee. We respectfully disagree with that decision and continue to believe the fee has always been presented clearly. We have filed an application for leave to appeal to the Supreme Court of Canada and have been granted an interim stay regarding a payment of the administrative penalty and costs, pending the Supreme Court of Canada's decision on Cineplex's application seeking leave to appeal.

Looking forward, as we look ahead, momentum from the first quarter has clearly carried into the second quarter. The Super Mario Galaxy movie delivered the largest opening of the year so far and the highest grossing Easter weekend in Cineplex history, reinforcing the power of theatrical plays in creating cultural moments. From March 1 through the end of the Easter weekend, Cineplex operated 9 of the top 20 grossing theaters domestically, reflecting the appeal of our premium formats, the quality of our circuit and our strong operational execution.

The second quarter has also benefited from the release of Michael, which has achieved the biggest opening for a biopic and Lionsgate's biggest opening since 2015. marking another important chapter for Cineplex Pictures, which is distributing the film in Canada. More broadly, 2026 is shaping out to be a strong year for our distribution business with momentum building from the continued performance of The Housemaid, a late 2025 release that generated meaningful box office in the first quarter, the release of Michael in Q2 and looking ahead to the Hunger Games Sunrise on the reaping later this year. Together, these films reflect the growing scale of Cineplex Pictures and our ability to consistently connect titles with Canadian audiences.

Capitalizing on the success of the Super Mario Galaxy movie and Michael, our April box office increased 17% over the prior year, driven by the strength of the slate alongside our ability to create compelling premium environments in which audiences choose to experience these films. More recently, the Devil Wears Prada 2 delivered a record-breaking opening weekend, well ahead of the original film, reinforcing the strength of adult screen event-driven content. This momentum carried through to this past weekend, one of the strongest domestic box office periods in recent years. Notably, it marked just the third weekend since 2019, where 3 films each generated over $30 million of box office with Mortal Kombat 2 opening strongly with Michael and the Devil Wears Prada 2 continuing to perform.

Driven by the strength of the slate alongside our ability to create compelling premium environments in which audiences choose to experience these films, our second quarter box office to date is up 23% over the prior year. The remainder of 2026 continues to shape up as one of the most compelling film slate we've seen in years, defined by depth and diversity across multiple categories.

Family audiences will be well served with a strong lineup that includes Toy Story 5, Minions & Monsters, a live-action Moana and Jumanji: Open World. The Super Hero Universe is also featured prominently with highly anticipated releases, including Supergirl, Spider-Man: Brand New Day, already the most watched trailer of all time, Clayface and Avengers: Doomsday. Original storytelling remains an important driver with titles such as Steven Spielberg's Disclosure Day; Christopher Nolan's epic, The Odyssey; Digger starring Tom Cruise and Pixar's [indiscernible] offering fresh content.

Beyond that, a wide range of established IP round out the slate from Sci-Fi film, Star Wars, the Mandalorian and Grogu and Dune: Part 3 to the comedy Focker-in-Law. With this breadth across genres and our continued focus on the guest experience, we believe Cineplex is well positioned to capture the full value of a strengthening theatrical landscape.

I will now turn the call over to Gord Nelson, our Chief Financial Officer, to walk through the financials in more detail.

Thanks, Ellis. I am pleased to present a condensed summary of the first quarter 2026 results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR+ and are also available on our Investor Relations website at cineplex.com. Our MD&A and earnings press release include a complete narrative on the operational results, so I will focus on highlighting select items in addition to providing commentary on liquidity, capital allocation priorities and our outlook. For my comments on operations, all amounts following will be from continuing operations unless otherwise stated.

The first quarter reflected a meaningful improvement in performance compared to the prior year, driven by a stronger film slate and higher attendance, partially offset by continued macroeconomic pressure in certain nontheatrical businesses. Total revenues for the quarter were $291 million, an increase of 15.6% from $251.7 million in Q1 2025, primarily driven by a 17.3% increase in theater attendance to 9.8 million guests.

Our consolidated adjusted EBITDA for the quarter was $4.1 million compared to a loss of $10.7 million in the prior year. This improvement reflects higher attendance and strength in per patron metrics. So let's take a closer look at the segments.

In the Film Entertainment and Content segment, box office revenue increased 25% year-over-year to $127.4 million, supported by the 17.3% increase in attendance and a higher mix of premium products. Attendance increased by 1.5 million guests, reflecting improved content breadth versus prior year with strong contributions from titles such as Project Hail Mary, Hoppers, Dhurandhar: The Revenge and Goat as well as extended theatrical runs from 2025 films, Avatar: Fire & Ash and Zootopia 2.

March, in particular, represented a material step-up in performance, culminating in our strongest first quarter box office since 2019. Box office revenue per patron increased to a first quarter record of $12.94, up 6.6% from the prior year, driven by strategic pricing initiatives, film mix and an increase in revenue from premium formats, which accounted for 38.2% of box office revenue, up from 35.6% last year.

Theater foodservice increased 22.5% to $93.9 million, reflecting the increase in attendance and purchase incidence. Concession revenue per patron reached a first quarter record of $9.54, an increase of 4.5% year-over-year. Other revenue increased 22.2% year-over-year, reflecting increased attendance as well as a stronger quarter from our distribution business. Results from Cineplex Pictures benefited from the continued performance of the Housemaid, which was released late in 2025 and contributed meaningfully during the first quarter.

The increase in attendance over the prior year highlights our operating leverage. While theater payroll and theater operating expenses increased year-over-year, growth in these costs remained well below the rate of growth in attendance and revenue, reflecting the largely fixed nature of our costs and the benefit each incremental attendee brings to our exhibition business.

Cash rent paid and payable is lower relative to the prior year due to closed locations and the renegotiation of leases upon renewal. Other occupancy costs increased by approximately $0.8 million over the prior year, primarily due to increased common area maintenance and real estate tax expenses.

Segment adjusted EBITDA for Film Entertainment and Content was $8.9 million, representing a significant improvement compared to a loss of $12.4 million in the prior year, driven by attendance recovery and per patron growth. In the Media segment, revenues declined 18.9% year-over-year to $13.9 million. This performance reflects lower demand for in-theater advertising driven by the diversion of spend toward the 2026 Winter Olympics and a tougher year-over-year comparison following significantly higher pharmaceutical advertising spend in the prior year.

Cinema media per patron declined to $1.41 compared to $2.04 in the prior year, reflecting the decreased demand despite higher attendance during the period. Adjusted EBITDA for the Media segment was $9.6 million compared to $12.9 million in the prior year, reflecting lower revenues during the quarter. Location-based entertainment revenues for the quarter were $35 million, a decrease of 8.1% year-over-year. Same-store revenues, excluding the 2024 new builds were down 5.6%, which aligns closer to the declines we are seeing in the industry as a result of the broader economic headwinds.

Despite this, adjusted store level EBITDA margin declined modestly and remained at our targeted 25%, supported by labor optimization and operating efficiencies. Notably, our same-store, excluding 2024 new builds, the adjusted store level EBITDA margin was 27.8%. Adjusted store level EBITDA decreased to $8.8 million compared to $9.8 million in the prior year, primarily due to lower revenues, partially offset by cost controls.

At the segment level, despite the revenue decline, adjusted EBITDA was only down slightly at $7.2 million versus $7.7 million in the prior year, and the segment adjusted EBITDA margin increased modestly to 20.7% from 20.2% in the prior year, highlighting the operational efficiencies we implemented at the segment overhead level.

G&A expenses for the quarter were $21.6 million, an increase from $18.9 million in the prior year. The increase is primarily due to timing of recognition of LTIP expenses for retirement eligible employees and increased LTIP costs from an increase in Cineplex's common share price, partially offset by lower costs and other G&A expense categories.

We ended the first quarter with $77.9 million of cash on the balance sheet and no drawings under our $100 million covenant-light revolving credit facility. During the quarter, we completed an amendment to extend the maturity of our bank credit agreement to September 2028 or March 2029, depending on the status of our secured notes.

The extension preserves the covenant-light structure but does not contain financial maintenance covenants. The amendment provides flexibility with respect to permitted distributions and debt repayments, strengthening our liquidity profile and financial flexibility.

Net capital expenditures for the quarter were $6.7 million, reflecting a spend of approximately $3 million related to our Palladium location opening at Vaughan Mills in December. The decline in capital expenditures relative to the prior year is primarily due to the timing of cash payments with Q1 of the prior year being elevated due to the 3 LBE locations that opened in the fourth quarter of 2024. Our guidance for the year continues at approximately $50 million.

Our capital allocation priorities remain unchanged and include maintenance capital expenditures, strengthening the balance sheet to achieve our target leverage ratios, providing shareholder returns in the form of share buybacks and/or dividends and selective investment in growth opportunities.

During the first quarter, we repurchased approximately $5 million in common shares for cancellation under our normal course issuer bid. We continue to view share repurchases as a flexible tool within our capital allocation framework, subject to liquidity and restrictions under our debt agreements and market conditions.

In light of ongoing global and economic uncertainty, we continue to monitor potential impacts to our business. We do not expect these conditions to have a material effect on Cineplex's operations. Our business is not meaningfully exposed to fuel-related costs and the majority of goods sold across our circuit are sourced from North America, limiting exposure to supply chain disruption. As a result, we do not anticipate any material impact to operating performance or liquidity.

Before concluding, I would like to take a moment to recognize Ellis Jacob. At CinemaCon last month, Ellis was named the recipient of the Legend of Cinema Award, one of the highest honors in the global exhibition industry. This recognition speaks not only to his decades of leadership at Cineplex, but also to his lasting impact on theatrical exhibition worldwide. On behalf of the entire Cineplex team, congratulations, Ellis, on this very well-deserved honor.

Building on the momentum from the first quarter, industry excitement following CinemaCon is the highest we have seen in years. This sentiment reflects recent successes and the breadth and consistency of the 2026 film slate and positions us well for the remainder of the year. We expect this increased depth of content to support continued attendance momentum throughout 2026. At the same time, we remain focused on disciplined capital management, strengthening our financial flexibility and executing against our long-term strategic priorities.

With that, I will turn it back to the operator for questions.

[Operator Instructions] Our first question comes from Adam Shine with National Bank.

So a couple of questions. One for you, Ellis. Just coming out of CinemaCon, a lot of positives. You had highlighted, I think, going into it that you had hoped to see the studios maybe step up some of their marketing going forward. Maybe you could just talk to whether there were any commitments related to that.

And then for Gord, and you Ellis as well, just in the context of media, very clear as to what transpired in the Q1. Maybe talk about how things are going so far in the Q2 and any particular concerns heading into the World Cup month and whether we might see a repeat of the Olympics dynamic or perhaps not?

Yes. In response regarding CinemaCon and the area of promotion and media, we are really working very hard and well with the studios in using the data and basically being able to attract our guests in a big way back to the movies that they are releasing across the next 4 quarters and into 2027. So I think that's been a real positive.

And given the window making it longer also is beneficial overall because you're getting a longer period of time for these films to play through. And you look at a movie like Devil Wears Prada and how well it's done, and it was pretty tough to get a movie ticket on the weekend to see that movie. So those are all positives for us going forward. And we are excited about both the slate and the ability to push the movies in a big way.

And on the second question then on media then, Adam. So a couple of call-outs on media. So last year was an incredibly strong year for the media business. If you actually look back to 2024, we had -- we actually had the same attendance levels in the first quarter of 2024, and our media revenue was up 12% versus that quarter. We were down $3.2 million versus last year, as we noted. Roughly $2.2 million of that was related to kind of reduced spend from pharma.

And so the extra color on pharma for your interest is that a number of the weight loss drugs had their patents expiring at the end of 2025. And so there was significant spending throughout 2025 and particularly in the first quarter to get the brand awareness out there. So yes, the Olympics had a little bit of an impact. We do not foresee that the FIFA will have the same level of impact in our business as the Olympics had as we will look to take advantage of FIFA in our LBE locations and then kind of just general excitement around it occurring in Canada.

Gord, can you just elaborate a little bit further as to how the early trend is so far for media in the Q2?

Yes. So look, we continue to see strength. I would say if you look at sort of the remainder of the year, Ellis has highlighted strength of the product. And Adam, I think you're aware of some of the domestic box office predictions out there. General economic conditions are obviously tougher. Overall, advertising spend was down in Q1 in Canada, so not just for Cineplex. So as we see attendance growth in the remainder of the year, we would expect that our media business should grow in relation to that attendance growth.

[Operator Instructions] Our next question comes from Cheryl Zhang with TD Cowen.

Congratulations, Ellis, on the well-deserved recognition. So first question is on CPP. So you called out higher purchase incidence as the main driver of growth. Can you provide some color around what's driving that and what you're seeing in terms of consumer purchasing behavior?

Yes. So Cheryl, the one thing that we've always found is theatrical exhibition is very resilient to general economic conditions. And when customers come out, they want an indulgence and they want to spend both in buying a ticket and also at the concession stand. So when I look at the CPP being up roughly 4.5% in the first quarter, approximately 3.25% of that is pricing and the remainder is sort of the basket size and the incidence of purchase at the concession stand. So guests feel they want to come out and they want to spend and they want to buy and have their total experience when they come out.

And as economic conditions get tougher, they stay closer to home and the movie theater becomes a great entertainment option. And it's very, very important that we provide them with the choices.

Absolutely. And that's great color. So on LBE, were there any changes in consumer behavior in Q1 versus Q4? I guess how has it trended so far in Q2? And then maybe just to follow up on that. You mentioned that there were initiatives that helped improve operating efficiency there. I wonder if you could provide some color around that.

Sure. So I mean the trends that we were seeing in Q1 are just really a continuation of some of the consumer trends that we've seen throughout 2025, particularly the one that's most noticeable across not only our business, but the restaurant sector and just general, the spirits beverage in general is reduced consumption of alcoholic beverages across Canada and the U.S. So we're continuing to see spend in alcohol decrease. And that's one trend that we can continue to see. Obviously, with economic conditions, too, and the cost of fuels, we're seeing a little bit of a spend. It's a bit more of a discretionary spend in the LBE business.

In terms of efficiencies then and operating costs, so obviously, we've looked at kind of where spending is going, and we've managed and looked at the tools that we have in place and the systems in place to better optimize the way we're scheduling in our boxes. So we've been able to kind of optimize our scheduling in relation to the business levels that we're seeing through and what that means is the business levels at the bar versus the business levels at the amusement side of things.

That concludes today's question-and-answer session. I'd like to turn the call back to Ellis Jacob for closing remarks.

Thank you all again for joining us this morning. We are excited for the remainder of 2026 and beyond and look forward to seeing you at our venues. Have a great day and a wonderful week.

Have we got any other questions? So you're going to double check and confirm that there are no further questions.

We do have a follow-up from Cheryl Zhang with TD Cowen.

Okay. Great. I wasn't sure I was still connected. Yes. And just quickly, maybe recently, there was a media report on you exploring a potential sale. Curious if you have any thoughts on that and any thoughts on the potential strategic review?

There's a lot of discussions out there, but we don't really comment on rumors. Our focus now is to strengthen the company, the balance sheet and enjoy the product as we move forward through the 2026 and 2027 year.

[Operator Instructions] I'm showing no further questions in queue. [Operator Instructions] We have a question from the line of Maher Yaghi with Scotiabank.

Trying to get on the call. Perfect. I wanted to ask you, I've been hearing industry discussions suggesting theatrical windows may be stabilizing or lengthening. Are you seeing any tangible benefit in -- are you seeing -- can you confirm that? And maybe some discussion about the premium mix that you're seeing in your theaters?

Yes. Great question. And definitely, we are seeing the benefits of the lengthening window. You look at a movie like Project Hail Mary with Amazon extending the time frame before it goes to streaming, and it's doing extremely well in the theater. And it also helps us reduce consumer confusion because now you know you're not going to be able to just turn your TV on and see the movie. And that really helps, and it's getting stronger as we move forward. And as we've always said, we are really the engine that drives the train for the theatrical and the future of the title and its benefits through the other different portfolios.

Ellis, are you seeing it across the board, these kind of moves? Because in the past, that was a worry for investors, I guess. But are you seeing that lengthening happening across different studios? Or it's still specific to certain...

At CinemaCon, we got some definitive lengthening of the windows. Universal talked about it publicly and so did Paramount, which was extremely beneficial and Sony and Disney already beyond those dates. So overall, you don't have too many companies not following that policy. And with Netflix and Narnia, they are even coming forward, which is very positive overall when you have the biggest streamer moving forward with the lengthening distribution. So to me, it's all very positive, and it continues to justify the fact for studios that the theatrical release is very important for the future of the product.

That's great to hear. Okay. My second question, it's on the premium mix again, like just going back. So with yields rising, can you talk a little bit about the premium mix? What are you seeing in terms of price elasticity? Any evidence of trade downs in Canada yet or demand is still resilient?

No, demand is very strong with the premium experiences. And what is -- what we see in a lot of cases is guests are seeing the movie more than once and they are going to different premium experiences to watch the films. And to me, that continues to be beneficial. And they don't push back on the pricing because they feel that it's a special experience that they cannot replicate. And to me, we in North America have one of the highest percentages of premium experiences. And it's a much bigger differentiator from sitting home and watching it on your TV with your kids crying or your cell phone ringing. So those are all very positive.

Perfect. Okay. I wanted to ask you, we've been talking about the recovery phase post the pandemic, and it feels like we're getting there, especially with the second half slate coming up. Maybe this is more like a big picture question for you. What markers should we be looking for to quite confidently say that the recovery is in full force and kind of declaring going back pre-pandemic. What are the markers in terms of attendance, in terms of revenue run rate that gives us confidence that we're back to normal?

Look, looking ahead, we are encouraged by the strength and depth of the balance of 2026's slate, which includes many marquee titles we just talked about in the call about Star Wars, Toy Story, Minions & Monsters and others as we go through. And all the demos are coming back, which is very positive, and we will see that continue to improve. The frequency was down. But as content is there, we feel that our guests will come back in a big way. And when we look at our loyalty program, we are seeing that having a positive impact of people starting to return to the movie theaters.

Is there like a number of releases that you'd like to see in a typical year running above $100 million per title that you think the industry needs to achieve to give us confidence that it's back to where it was before the pandemic. Are you still looking at it from that kind of a lens? Or it's more specific to Cineplex?

No, I feel that we need a good mix of titles. You need the big titles and you also need the titles that will bring in the right demographics and the audiences to our theaters. And I think we're in a good position now with a lot of movies with some great directors and producers. So we feel pretty comfortable in the second half of 2026 looks really, really strong. And in the fourth quarter, there are so many strong movies that we're really excited about them.

Okay. And maybe one last question on the CEO search. Any update you can provide us on that? We hate to see you leave, Ellis, but you did put a date in the calendar. And can you maybe just give us anything new to report on that?

Yes. The process is underway, and the Board is considering candidates, both internally and externally. And I am sure they will get through the process and make the best choice for the company. And as we've said before, our focus is continuing to strengthen and grow the business and have the right person to take over the position.

Okay. So nothing yet, but something in -- when would you say that should be announced sometime in the fall, not too close to your departure date?

We have to wait for the Board and the committees to go through the process before we can say a specific date.

We have a question from the line of Drew McReynolds with RBC Capital Markets.

Just had some tough time getting on, but we're here. So 3 for me. First, maybe just a follow-up to Maher's question in and around box office. Historically, I seem to recall 80%, 85% of kind of box office revenues on major films being realized in the first 3 weeks. Just wondering if you've seen any evolution of that kind of behavior.

And then second question, just back to Cineplex Media, Gord. With respect to the tough comp, again, just kind of well spelled out what happened here in Q1. As we go through the remainder of the year, do you see any particularly tough category comp for Cineplex Media?

And then lastly, a little bit more kind of restructuring, I think, in the numbers this quarter. Just wondering kind of what we should expect for the rest of the year. And I assume -- in terms of the operating leverage dynamic that you have been talking about for 2 or 3 years, I assume is that largely intact just given all the moving parts?

Thank you, Drew. On the first question regarding the product and moving forward, we feel very strong and comfortable about the films out there and their delivery. When you talk about the first 3 weeks and the bigger numbers, certain movies are in that category where guests want to see it as soon as possible. But now with the longer windows and things changing, I feel that there will be more guests coming back either to see the movie more than once or to see the movie for the first time because the movie length has increased as far as its theatrical release. So I hope that answers your question on that.

Yes, that does.

And then on the other 3 questions, so on the media side of things, I tried to call out where we thought things were going to come in for the remainder of the year, which is relatively in line with where we see attendance growth. Just as sort of a reminder to a number of you, domestic box office projections range anywhere -- the industry projections anywhere from $9.5 billion to $10 billion for North American box office, which is roughly a 10% to 15% box office growth, which part of that would be pricing. So that gives you some indication of sort of where the year might fall out.

You asked about specific kind of verticals and categories. And I called out pharma as a category, which we're going to be impacted in year-over-year, but our team is comfortable that we've done work to build out the other categories that will either return or increase versus prior year to kind of soften the impact of the pharma category.

In terms of restructuring, we're always kind of looking to optimize our operations and particularly kind of post pandemic and into '25, 2026, that is at a little bit more elevated levels than it has been historically. And then I think your last question was on operating leverage. And so we continue to use roughly the same metrics that the incremental EBITDA contribution for each guest is about $13.50 from an exhibition perspective and $1.50 or so for -- from a media perspective. So the numbers that we've previously communicated still hold.

Okay. That's great. And Ellis, congrats on the recognition. Obviously, no surprise to all of us that have followed you over the years, but congratulations on that.

Thank you very much.

[Operator Instructions] I'm showing no further questions in queue at this point.

Thank you very much, and I appreciate you joining us this morning. Sorry for difficulties in getting your questions through. As I said before, we're excited for the remainder of 2026 and beyond and look forward to seeing you at one of our venues, having a great time. Have a great day and a wonderful week. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Cineplex Fourth Quarter Year-End 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Rayhan Azmat. Sir, please begin.

Good morning, everyone. I would like to welcome you to Cineplex's Fourth Quarter 2025 Earnings Release Conference Call. I'm Rayhan Azmat, Vice President, Investor Relations, Corporate Development and Financial Planning and Analysis at Cineplex.

Joining me today are Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer.

I'll remind you that certain statements made today 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 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 Ellis Jacob.

Thank you, Rayhan, and good morning, everyone. I'm pleased to present our fourth quarter and full year 2025 results with you today. We will start with a look at the fourth quarter, which featured a broad and compelling film slate that appeal to audiences across a wide range of genres. The quarter's performance was led by James Cameron's third installment in the Avatar franchise, Avatar: Fire and Ash, which delivered a strong performance and over-indexed at Cineplex powered by audience demand for our premium experiences.

Following close behind was family titled Zootopia 2, which provided incredible results and has become the highest grossing Disney animation release of all time globally. The musical Wicked: For Good enchanted audiences and contributed meaningfully to the quarter's performance.

In addition, Five Nights at Freddy's 2 delivered the largest December opening ever for a horror film. Together, these results reinforce the familiar truth, when compelling content is available, guests choose to experience it at our theaters.

While the quarter included several standout films and strong performances in our premium formats, Q4 results were down compared to last year, driven primarily by the weakest October since 2020. After the slow start to the quarter, the slate strengthened significantly through November, December, supported by the wide range of high-performing titles and leading to our strongest December since 2019.

In fact, our fourth quarter box office performance exceeded the domestic market by 218 basis points, marking the third consecutive quarter where we outpaced the North American industry performance. Our premium formats remain one of Cineplex's competitive advantages with guests overwhelmingly choosing to view films in one of the many enhanced formats we offer.

In Q4, 43% of our box office came from premium experiences versus 41% in 2024. Our premium formats continue to play a major role in the performance of 2025's biggest titles with our top 5 films averaging 62% of our box office from premium formats. The strong demand for premium experiences, combined with strategic pricing and a continued focus on the guest experience contributed to new all-time records.

In Q4, we delivered the highest quarterly box office per patron in our history at $13.87 and a Q4 record for concession per patron at $9.92.

Our distribution business, Cineplex Pictures, also had a strong fourth quarter. The Housemaid opened in Q4 and has delivered impressive holding power into January. And Now You See Me: Now You Don't, performed exceptionally well in Canada.

Our distribution team continues to demonstrate that we can drive better results as a distributor because of our deep understanding of the Canadian moviegoer allowing us to effectively position and market titles to maximize their potential in this market.

The success of our distribution business in the fourth quarter was also highlighted by Jujutsu Kaisen, the anime title performed well and as part of our broader resurgence in the genre.

Earlier in 2025, Demon Slayer: Infinity Castle, became the highest-grossing foreign-language film of all time at the domestic box office. Its performance reinforce how anime tentpoles can drive exceptional results when they tap into large, passionate fan bases built over years of televised storytelling.

This dynamic extends beyond anime with the Stranger Things series finale, which sold out at 97% of our locations during the year-end. These events reinforce that audiences are choosing to come to our theaters for moments they could easily watch at home, drawn to share and immersive cultural experiences that resonate more deeply in our cinemas.

The fourth quarter once again showcased the value of our data-driven audience targeting and localized market expertise. International content represented more than 11% of our Q4 box office nearly double the North American average further demonstrating our ability to identify titles that resonate with specific demographic groups.

One of the standout performance this quarter was Dhurandhar, which became the highest grossing Hindi language film in North America where Cineplex delivered an impressive 31% market share and ranked among our top 5 films for the quarter. This underscores how alternative an international content remain key differentiators for Cineplex and positions us well for 2026, which includes a number of highly anticipated international releases including Blades of the Guardians, and Scare Out, both of which they do at the start of Lunar New Year, as well as the sequel to Dhurandhar in March and Ramayana Part 1 later this year during the Indian Festival, Diwali.

Our programming strength form an important competitive advantage, reflecting the power of our analytical capabilities and reinforcing the essential role this content plays in the future of theatrical.

Turning to our media business, Cinema Media continued to perform well despite a softer advertising market. Q4 revenues increased 12.5% over the prior year despite a decrease in attendance. As a result, our Cinema Media per patron reached a Q4 record of $3.33.

Advertisers remain attractive to the high attention environment that only theatrical can offer. Our team continues to leverage data and analytics to optimize campaign performance and demonstrate clear value to our agency partners and clients. We successfully closed the sale of Cineplex Digital Media to Creative Realities, Inc. on November 7, 2025. The transaction unlocks meaningful value for shareholders while strengthening our balance sheet.

The initial cash proceeds of approximately $60 million provides flexibility for share buybacks, debt reduction and general corporate purposes. Importantly, Cineplex Media will continue as CDN's exclusive advertising sales agent for its digital out-of-home networks across Canada ensuring continuity for clients and maintaining a strong presence in this market.

Turning to our location-based entertainment business, revenue increased 6.8% to $35.9 million in the fourth quarter, driven by the contribution of new locations opened in the prior year. This performance comes against the backdrop of broader industry trends where many operators seeing same-store revenue decline in the same range we are.

Despite the softer top line results, we continue to demonstrate strong operational discipline, which helped us maintain flat same-store margins. This reflects the expertise of our teams and our ongoing efforts to optimize the operations of our locations.

During the quarter, we announced that construction of a new Playdium is underway at Vaughan Mills, one of Canada's most visited shopping and entertainment destination. This location will further strengthen our position in the GTA and expand our ability to offer guests a dynamic social entertainment experience, anchored in gaming, attractions and food and beverage.

Our Cineplex Club program remains a powerful driver of engagement and frequency. Membership has now surpassed 225,000 members and we continue to see strong adoption of the annual plan, which helps reduce churn and support small consistent visitation throughout the year.

CineClub members visit more often chose premium formats at a higher rate and spend more on concessions. All signs the program is delivering meaningful value both for our guests and our business. Our new Monday surprise premieres have also been extremely well received, offering moviegoers early access to select titles and creating a sense of exclusivity that strengthens loyalty and deepens engagement.

Our broader loyalty ecosystem has also taken an important step forward with the expansion of Scene+ to include Shell as a national partner. This addition enhances the everyday utility of Scene+ by connecting entertainment, groceries, travel, dining and now gas into a holistic value proposition. The ability for guests to own and redeem points across such a wide range of touch points in their daily lives, strengthened Scene+ as one of Canada's leading loyalty programs.

I'd like to provide a brief update on our appeal of the Competition Tribunal's decision regarding our online booking fee. The Federal Court of Appeal has upheld the Competition Tribune on September 2024 decision related to Cineplex' presentation of its online booking fee including the $39 million administrative monetary penalty. We respectfully disagree with the Federal Court of Appeals' decision, and we continue to believe that our online booking fee has always been presented in a clear and permanent manner that fully complies with the spirit and letter of the law. We have reviewed the Federal Court of Appeals' decision and will seek leave to appeal to the Supreme Court of Canada and seek the state of this penalty.

As we look back on the full year, we started with the soft first quarter, but Q2 to Q4 benefited from a relatively consistent release schedule and a diverse slate of quality films contributing to a solid and steady performance through the balance of the year. From April through December, we delivered box office revenues of 105% of the prior year and outperformed the domestic market over the same period, reflecting the unique strength of our programming strategy and the engagement we continue to see from Canadian moviegoers.

Our investment in premium experiences continue to resonate with 44.8% of our box office from Q2 through Q4 generated from premium experiences the highest proportion since the same time frame in 2018.

Audiences embraced a wide range of genres and formats. Superman and The Fantastic Four: First Steps, both became the highest grossing films in their franchise.

Live action firms, remakes of Lilo & Stitch and How to Train Your Dragon, both outperformed their original films.

A Minecraft movie delivered the biggest opening ever for video game adaptation.

Best Picture nominee, F1, the movie became Apple's highest grossing film of all time, driven by exceptional performance in our premium formats.

Horror film, The Conjuring: Last Rites became the highest grossing in its time chart and the original title Sinners and Weapons will both standout performances and exceeded expectations.

Despite this breadth of success, no film surpassed $500 million at the domestic box office. The first time this has occurred since 2016. We do not expect this anomaly to occur again.

What gives us more confidence is that the 2026 film slate is shaping up to be significantly stronger than 2025 with both mega blockbusters and depth. Audience engagement to trailers and teasers is suggesting that consumers are meaningfully more interested in 2026 titles than they were in 2025.

The 2026 lineup features a remarkable collection of strong intellectual property with incredible brand recognition, including: The Super Mario Galaxy Movie, Toy Story 5, a live-action remake of Moana, Spider-Man: Brand New Day, Dune: Part 3, and Avengers: Doomsday.

The slate also includes compelling original titles such as Pixar's Hoppers, Steven Spielberg's Disclosure Day and Chris Nolan's epic The Odyssey.

Cineplex Pictures will be distributing the highly anticipated film, Michael, which is the most watched biopic trailer ever. It is also acting as a distributor for the new installment from the Hunger Games franchise, Sunrise on the Reaping. These releases position 2026 as a year with significant strength and greater depth than 2025.

With our focus on premium experiences, innovative programming, loyalty engagement and increasing diverse slate, Cineplex is well positioned to capture demand as it develops over the course of the year.

Before I close, I'm pleased to announce the appointment of Sean McGuckin to our Board of Directors. As the former Group Head and CFO at Scotiabank, Sean brings intensive leadership experience in finance, governance and executive management and his strategic insight will be a huge asset. We look forward to the valuable perspective he will bring to the board.

I would also like to extend our sincere thanks to Rob Bruce for his many years of dedicated service and meaningful contributions to Cineplex. His leadership, counsel and support have played an important role in guiding the company, and we are deeply appreciative of his commitment throughout his tenure.

I will now turn the call over to Gord Nelson, our Chief Financial Officer, to walk you through the financials in more detail. Thank you.

Thanks, Ellis. I am pleased to present a condensed summary of the fourth quarter and full year 2025 results for Cineplex Inc.

For further reference, our financial statements and MD&A have been filed on SEDAR+ and are also available on our Investor Relations website at cineplex.com. Our MD&A and earnings press release include a complete narrative on the operational results. So I will focus on highlighting select items in addition to providing commentary on liquidity, capital allocation priorities and our outlook.

For my comments on operations, all amounts following will be from continuing operations unless otherwise stated. As Ellis mentioned, the fourth quarter was supported by several highly anticipated releases. Our EBITDA remained relatively flat to the prior year despite lower attendance.

Total revenue for the quarter was $334.8 million, a decrease of 1.8% from Q4 2024, driven primarily by lower attendance. Adjusted EBITDAaL was $35.1 million, just below the $35.8 million reported in the prior year, reflecting the impact of the lower theater volumes related to a weak start to the quarter, partially offset by strong per patron performance and continued cost discipline. Our consolidated EBITDAaL margin remained steady at 10.5%, consistent with the prior year.

So, now let's take a closer look at the segments. In the Film Entertainment and Content segment, box office revenue for the quarter was $140.7 million, down 4.7% and reflecting the 8.9% decrease in attendance to 10.1 million guests. October results were impacted by a softer film slate and competing live events, such as the MLB Playoffs and World Series, which featured our Toronto Blue Jays and generated record-breaking viewership across Canada.

As a result, the Canadian market underperformed the North American market by 480 basis points in October. These softer results were partially offset by a strong rebound in the latter half of November and through December led by Wicked: For Good, Zootopia 2 and Avatar: Fire and Ash.

The strength in the latter half of the period contributed to Cineplex outperforming the North American box office by 218 basis points for the fourth quarter.

Our Q4 BPP of $13.87 was the highest delivered in any quarter on record and represents an increase of 4.6% from last year. This was supported by strategic pricing initiatives and a strong mix of premium products.

Similarly, concession per patron reached a Q4 record of $9.92 and our second highest quarterly result ever, up 5.4% driven by continued enhancements in menu offerings, purchase incidents and service execution. While our cash rent paid and payable is lower due to closed locations and the renegotiation of leases upon renewal, theater occupancy increased approximately $3 million over the prior year primarily due to tax and insurance recoveries reflected in the prior year.

Segment adjusted EBITDAaL for Film Entertainment and Content was $14.9 million compared to $26.6 million last year reflecting the attendance decline and higher film settlement rates on this quarter's top-performing titles.

In our Media segment, Cinema Media revenue increased 12.5% to $33.8 million, driven primarily by higher demand for showtime advertising with strong contributions from pharmaceutical, retail and fragrance and cosmetic clients.

The launch of programmatic cinema in the fourth quarter also unlocked incremental demand from connected TV budgets, bringing new advertisers into the cinema environment, particularly within the consumer packaged goods category.

Cinema Media per patron increased 23.3% to a Q4 record of $3.33, reflecting strong advertising engagement, especially during an uneven attendance quarter. As a result of the revenue increase, segment adjusted EBITDAaL was $28.3 million, up from $24.9 million in the prior year.

On a full year basis, EBITDAaL margin in this segment increased to 80.5% from 79.2% in the prior year. Location-based entertainment revenue for the quarter was $35.9 million, an increase of 6.8% from the prior year, driven primarily by the three new locations that opened in late 2024 and contributed a full quarter results this year versus only partial contribution last year.

Same-store revenue declined 4.1% consistent with trends observed across the broader LBE industry. Despite these revenue declines, same-store adjusted EBITDAaL margin of 23.1% remained stable year-over-year, demonstrating the operational improvements and cost discipline we've executed on. These efficiencies helped to mitigate the impact of minimum wage increases.

Overall, adjusted store level EBITDAaL for the quarter was $7.6 million compared to $7.9 million last year with an overall margin of 21.1%. At the segment level, adjusted EBITDAaL margin improved to 16.4%, up from 10.2% due to fewer preopening costs in 2025.

G&A expenses for the quarter were $14 million, down $5.2 million from the prior year. This decrease was primarily driven by lower LTIP expenses due to increased forfeitures associated with the cost restructuring program and a lower share price.

In November, we completed the sale of Cineplex Digital Media and received $60 million in initial cash proceeds. We recognized a gain of $3.3 million and have presented the gain in net income from discontinued operations.

Importantly, Cineplex will continue as the exclusive advertising sales agent for CDMs, digital out-of-home networks nationwide under a long-term agreement, preserving continuity and value in our media business.

We ended the quarter with $134 million in cash on the balance sheet and no drawings under our $100 million covenant-light credit facility. The December cash balance is higher than prior period due to the $60 million in initial cash proceeds received on the sale of CDM in addition to working capital, NCIB and operating results impacting this balance sheet.

With respect to CapEx, net cash capital expenditures for the fourth quarter were $8.1 million, reflecting lower gross spending following the completion of our major LBE openings in late 2024. For the full year, net CapEx was $32.7 million, lower than the $65.9 million in the prior year, which included the three new LBE locations, in Vaughan, [ single. ] Our guidance for 2026 is $50 million.

Our capital allocation priorities remain unchanged and include maintenance capital expenditures, strengthening the balance sheet to achieve our target leverage ratios, providing shareholder returns in the form of share buybacks and/or dividends and selective investment and growth opportunities.

During the fourth quarter, we purchased -- we repurchased approximately $7 million in common shares for cancellation under the NCIB, and we repurchased an additional $5 million in shares in January 2026. We expect the remaining funds from the sale of CDM to be allocated towards a contribution -- combination of debt reduction, opportunistic buybacks or other corporate purposes consistent with our capital priorities.

As Ellis mentioned, with respect to the Federal Court of Appeal, upholding the Competition Bureau of September 2024 decision related to the presentation of our online booking fee, we had previously accrued for the $39 million administrative monetary penalty during the third quarter of 2024. There's no impact to our financial statements as a result of this decision, and we will seek leave to appeal to the Supreme Court of Canada and seek a stay of this penalty.

Full year results reflect consistent performance across our business. For 2025, total revenues increased 0.8% to $1.2 billion, supported by record per patron metric, strong media performance and stabilized margins in the LBE segment despite macroeconomic impacts.

Adjusted EBITDAaL increased to $91.6 million, up from $90 million in the prior year reflecting continued operational discipline and the strength of our teams despite slightly lower attendance. While our consolidated results in 2025 showed modest growth relative to 2024, a notably weak film slate in the first quarter and the start to Q4 hindered our results.

We have said that quality content and the consistency brings guests to our theaters and looking ahead to 2026, we expect to benefit from year-over-year improvements in the strength and depth of the film slate.

So in summary, we have a strong pipeline of product coming in 2026, particularly in Q2 through Q4. We remain focused on creating long-term value for shareholders and our long history of disciplined operations and capital management will lead us there.

With that, I would like to turn things over to the conference operator for questions.

[Operator Instructions] Our first question or comment comes from the line of Derek Lessard from TD Cowen.

Ellis and Gord, hope you're doing well. I just wanted to maybe hit down on the media business. Obviously, it was a pretty good quarter. But you did talk about the launch of programmatic cinema. Could you maybe just add some color around this business and then further around the comments of how it's unlocking new advertisers for you?

Sure. So we had adopted programmatic slowly ramping it up over the past year or so. It's been very effective, particularly in the out-of-home networks. And we've launched it in Q4 as it relates to kind of opportunities in the cinema market. And so, although we've had programmatic and our learnings in the out-of-home market, we're really seeing value we can move budgets away from connected TVs into our programmatic markets, and we saw some great insights in that first quarter of deployment in 2025 -- in the fourth quarter of 2025.

Okay. That's helpful. And then on the BPP, CPP, both records. So how should we be thinking about, I guess, your ability to further pricing and/or mix optimization going forward?

Yes. So our comments on, sort of, Q3 as we -- in Q3 results, we launched some additional $5 discount days, which went through the Labor Day weekend in 2025, which did not happen in 2024. So, in Q3, when you look at our full year results, really look at Q3 is a bit of an anomaly, and we mentioned that during the call. So you see the rebound of the growth in both BPP and CPP in the fourth quarter of 2024.

And so as we look forward, we have always said we look to pass on kind of CPI increases in terms of BPP and CPP growth. And then as premium mix shifts, we also benefit from that perspective.

Now in any given quarter, the film slate and the type of audience that it tracks whether it's kids or whether it's seniors or whether it's people looking to see in the big screens like UltraAVX and IMAX, that impacts the overall BPP. But on a long-term basis is we would look to continue to take price through CPI increases as we have done historically and balancing out the value offerings that we have, which is our Tuesday offerings and our CineClub program and the other offerings that are at.

Our next question or comment comes from the line of Charles Zhang from Canaccord Genuity.

Just regarding the court decision. So as you mentioned, Gord, the provision was already made in last Q3, right? Just to confirm.

Correct. Yes.

Yes. And maybe on OpEx and some costs tied to the online tickets maybe taper off in the future. I mean, do you see any room for like further cost reductions going forward on that aspect?

Sorry, I missed the first part of the question related to which aspect?

Related to the online booking fees.

So look, I'm not sure that there are costs related to the online operating OpEx kind of matters related into the online booking fee matter. We always strive for -- from an OpEx perspective is looking for automation and AI to help us drive efficiencies and opportunities for savings. And so, we would continue to do that.

Our online ticketing offering is one of our kind of guest service initiatives that we have out there. And as we look to create digital connections with customers, it's just another element of those connections.

Maybe on media, I mean, Cinema Media definitely delivered strong Q4 results. And also, we're looking at a pretty strong film slate coming this year in '26, including like Super Mario, Spider-Man, Avengers. And I'm wondering how are you thinking about the outlook there for the Cinema Media?

Yes. We are pretty confident on the media side of the business as a result of, like you mentioned, there is some extremely good content that we have in 2026. So we should be able to continue to move forward strongly. And also on the Digital Media side, we are still providing that selling for those particular locations across the country.

Our next question or comment comes from the line of Maher Yaghi from Scotiabank.

I noticed that your theater occupancy expenses were up 20% year-on-year in Q4, but also 6% on the year, mostly from a line, other occupancy cost line. Can you provide some insight on what is driving this even though you are down four theaters year-on-year? And how do you expect that cost line to behave next year?

Yes, sure, Maher, it's Gord here. I called out a couple of items. So in that cost category, so this is typically non-contractual rent. So it would include -- related -- sorry, occupancy, which does not include contractual rent obligations. So it would include common area maintenance costs, it would include property taxes, it would include insurance on the facilities. And those will be the kind of the core main categories in that line item.

I called out a few things in that last year, during the quarter, we had some insurance recoveries as well as some property tax recoveries that caused Q4 to be -- last year to be lower than typical run rate. If you look at the quarters -- each of the quarters, that line item for -- or that category for each of the quarters of the year, you'll see that it's a relatively consistent number. So it will go up and down with where property tax assessments go typically.

Okay. And it could increase a bit, I guess, for next year if it's linked a lot to property taxes?

Yes. I mean, you would expect -- I mean, we're seeing a couple of things out there. One is we -- you're seeing ongoing increases in property taxes. We are seeing some level of reduction in insurance costs as we look forward. So -- but the big increase will be related to property taxes. But again, when you look at roughly $240 million in total overall occupancy costs, which includes the rent, the rent component is continued to go down.

Yes. Okay. And just a follow-up on that. In terms of theater count for 2026, how should we think about your year-end getting to from a starting base here in Q1? Is it going to continue to decline like we saw in '24 and '25?

No, we don't expect in 2026 that it continues to decline. We will have a number of closures. I'm sure you heard about The Beaches, which was announced. And -- but we feel that the overall box office will be much stronger in 2026 compared to 2025 because of the content that we have and the great product for the balance of the year.

Okay. But the theater count will be roughly the same as you ended in 2025?

No, we'll be down two to three theaters.

Okay. Okay. That was what I was trying to get down to. So in terms of -- just final question here for me. Looking at the last 2 years, you've been holding steady at around $92 million, $94 million of EBITDAaL. And is this -- I assume this is a good starting base for us to use it for '26, but I'm sure you're expecting growth, as you mentioned from your expectations of better movie theater deployments and shows. So -- but roughly speaking, how should we think about 2026 in terms of EBITDAaL cash generation?

Well, the industry is predicting box office increases from 8% to 15% over 2025. And with our international content and our distribution business, we should be well engaged in getting reasonably strong numbers for 2026. And that will result in stronger EBITDAaL as we look forward.

Our next question or comment comes from the line of Drew McReynolds from RBCCM.

This is Sarah on for Drew. I just had a quick question on expectations for same-store revenue growth for 2026 for LBE? And additionally, when LBE begins to lap the changes in discretionary spending and consumer behavior?

We are confident that our continued focus on marketing expansion, special offers and growth in groups and event sales will positively impact our performance across both same-store and newer locations for LBE. And as we mentioned earlier that we are going to be opening a location in Vaughan, and that will also assist us in continuing to build the business going forward.

Our next question or comment comes from the line of Drew Reichert from BMO Capital Markets.

This is Drew Reichert on for Tim Casey. The film cost as a percentage of box office has trended up slightly year-over-year and has risen steadily over the past few years. How do you see film cost percent playing out in 2026 given film supply and premium mix?

Film cost is really driven by the performance of the films. And one of the challenges we run into is when you have a lot of bigger producing films, the film cost does go up. But I always say I'd rather have higher box office and pay film costs, because you've got more attendance and more guests coming through the theaters. And that's something that we'll continue to focus and pursue. And what helps too for us in certain cases is the increased film cost from Hollywood is basically helped by our international content where we have better film settlements in certain cases.

Okay. And just as a follow-up regarding CapEx trends. CapEx was down pretty significantly in 2025, given the three location expansions in Q4, '24. Could we expect further LBE expansions to return post summer 2026?

So we have one location which we announced, the Playdium in Vaughan, which is going to open in the first half of this year. And we -- at this point in time, we have described that we have what we -- we described as a prudent pause, we see the disruption in the retail landscape. We think there are going to be -- what we see retailers leaving that there's going to be some great opportunities in great locations that potentially great economics. So we have no further commitments at this time, but we continue to be monitoring opportunities that may exist out there.

We have a follow-up question from Mr. Derek Lessard from TD Cowen.

Just a follow-up for me. Now with the three LBEs done and cash in the bank from the Digital Media sales, just curious how you are prioritizing capital between the buyback leverage and sort of other growth initiatives?

Yes. So -- and those are really our priorities. So in terms of, obviously, the maintenance CapEx is first, our leverage is -- we're not where we are, where we want to be in our comfort zone. So that is, I would say, that priority too. And then, as I believe, I described on the call last time, where we exist today is there's a maximum of about $17.5 million that can be allocated to share buybacks. And so we're at $12 million. So when you think of the overall scheme of things, those are some of the factors that are behind our minds as we evaluate how we allocate capital going forward.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

Thank you again for joining the call this morning. We are excited about the outlook for 2026. And even the coming weekend, we're looking forward to three movies that are opening: Wuthering Heights, GOAT, and Crime 101. So make sure you are at the movie theater, and we look forward to sharing our first quarter results in May 2026. Have a wonderful day. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

Ladies and gentlemen, thank you for joining us, and welcome to the Cineplex Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. I will now hand the conference over to Rayhan Azmat. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss Cineplex's Third Quarter 2025 results. I'm Rayhan Azmat, Vice President, Investor Relations, Corporate Development and Financial Planning and Analysis. Joining me today are Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer.

I 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 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 Ellis Jacob.

Thank you, Rayhan, and good morning, everyone. I'm pleased to share our 2025 third quarter results with you today. After a softer start to the year, the second and third quarters delivered steady performances driven by a consistent supply of high-performing diverse titles with growing consumer demand for premium experiences. While there were strong contributions this quarter, attendance was down versus last year as last August had the record-breaking performance of Deadpool and Wolverine. We reported a third quarter box office per patron of $13.23, increasing by $0.04, supported by sustained demand for premium-priced products. Concession per patron was $9.65, down 2%, primarily due to the Labor Day weekend promotion, which included discounted offers on tickets and popcorn.

Taking a closer look at content in Q3, there were standout performances across a variety of genres, including action, horror and anime. Franchise titles like Superman, The Fantastic Four: First Steps and The Conjuring: Last Rites delivered record-breaking results, all becoming the highest grossing titles within their franchise. Beyond franchises and sequels, the third quarter had a nice blend of original content that performed exceptionally well. Standout original horror film, Weapons exceeded expectations and topped the box office for 4 consecutive weeks in 2025. And F1, The Movie, continued its strong theatrical run into Q3, making it the biggest Apple original film ever.

Our alternative content offering continues to demonstrate solid results, driving audience engagement and diversifying our programming slate in ways that resonate with evolving consumer preferences. Anime Call Classic Demon Slayer: Kimetsu no Yaiba Infinity Castle became the highest grossing foreign language film in history, both domestically and at Cineplex. Its massive fan following and deeply loyal global audience made it a strategic win for our alternative content portfolio, driven in large part by our ability to engage a varied and diverse audience. International cinema accounted for 13.6% of our box office in Q3, up from 9.3% last year, a testament to our growing ability to find and attract the right audiences for these films. Punjabi language comedy, Chal Mera Putt 4 delivered impressive results, becoming one of the highest grossing Punjabi films in Cineplex history with approximately 80% of its domestic box office attributable to our circuit.

This reflects our industry-leading approach to film scheduling and our success in attracting high-value audience segments. International cinema also draws key retail demographics sought by advertisers, which is becoming a growing and unique offering for our cinema media team. In addition to the variety of content drawing moviegoers to theaters, consumers are also choosing a more immersive experience. We're using predictive analytics in our marketing efforts to match a moviegoer to a premium experience while also leveraging our loyalty program to reward moviegoers who choose an enhanced experience for the first time. Nearly 45% of our third quarter box office came from premium experiences, highlighted by the fact that our 3 highest grossing films in the quarter generated over 60% of their respective box office performance from these formats.

We started the fourth quarter with Taylor Swift: The Official Release Party of a Showgirl, which energized the typically quieter period and reinforces the power of varied programming to bring audiences into theaters. Artists are increasingly turning to the theatrical experience as a way to unite fans and create shared cultural moments, positioning our theaters as dynamic venues for more than just movies. Our LBE business continues to play a part in our broader entertainment strategy, offering guests fun full social experiences in our venues nationwide. In Q3, LBE revenue reached a third quarter record of $34.6 million, up 11.3% year-over-year, driven by the addition of 3 new locations.

Macroeconomic headwinds impacted food and beverage spending, resulting in same-store revenue declining 3.3% and same-store location margins delivering 21%. These locations are demonstrating resiliency in a more challenging environment while new venues are continuing to ramp up. Despite Q3 results being below our expectations, we remain optimistic as we enter our typically busier fourth quarter. With the heightened demand for groups and events activity in Q4, we are focused on building momentum and driving performance across our Palladium and the Rec Room locations. As we look at our cinema media business in the quarter, despite a softer advertising market, it continues to perform well. Cinema Media Q3 revenues increased by 6.1% to $19.2 million despite the decrease in attendance. This growth was primarily driven by an increase in Showtime revenues, which continues to be a key driver of advertiser engagement.

Cinema media per patron reached $1.59, a 16.1% increase over the prior year, reflecting the diversity of the film slate during the quarter and strong sales despite a challenging media environment. Titles with broad appeal to key consumer demographics helped to track incremental advertising spend even in a relatively slower market. We also continue to leverage our expertise in data and analytics to optimize campaign performance and drive revenue growth. Last month, we announced we have entered into a definitive agreement to sell Cineplex Digital Media to Creative Realities, Inc. for gross cash proceeds of $70 million, subject to customary closing adjustments.

This strategic transaction unlocks meaningful value for shareholders and immediately strengthens our balance sheet, providing capital for opportunistic share buybacks, debt reduction and general corporate purposes. Importantly, Cineplex Media will continue as CDN's exclusive advertising sales agent for its digital out-of-home networks across Canada, ensuring continuity for our partners and clients. CDM has grown into an industry-leading digital solutions company over the past 16 years, and this transaction reflects our commitment to optimizing our portfolio and delivering long-term value.

Before I close, I'd like to provide a brief update on our appeal of the Competition Tribunal decision regarding our online booking fee. We filed our notice of appeal in 2023. At that time and with consent of the Competition Bureau, the Federal Court of Appeal granted us a stay of the administrative monetary penalty imposed against us. This stay will remain in effect until the Federal Court of Appeal has made a decision in our case. Our appeal was heard by the Federal Court of Appeal on October 8, 2025. We continue to believe that we complied with the letter and spirit of the law, and we anticipate a decision sometime in the first half of next year. Looking forward from April through September, box office revenues reached 110% of the same period in 2024.

While August faced a tough year-over-year comparison due to the exceptional performance of Deadpool and Wolverine, July 2025 emerged as the second highest box office month since the pandemic, trailing only the Barbenheimer phenomenon. This signals positive momentum as we enter the fourth quarter. Looking ahead, the remainder of 2025 looks promising. While October is typically a slower month in the theatrical calendar, November and December are shaping up to be strong with a robust slate of highly anticipated titles, including Predator: Badlands, The Running Man, Wicked: For Good, the sequel to last year's Austin-nominated Wicked, which is already generating early buzz and fan anticipation with very strong presales. Zootopia 2, Five Nights at Freddy's 2, Avatar, Fire and Ash, the third chapter in James Cameron Epic Saga and The SpongeBob Movie: Search for SquarePants.

We are also seeing increased interest in theatrical releases from streaming platforms with Netflix announcing that multiple titles will have an exclusive theatrical run before they hit their service. Some of these titles include K-pop Demon Hunters, Frankenstein, Jake Kelly and the latest from the Knives Out franchise Wake Up Dead Man and Knives Out Mystery. Cineplex Pictures is contributing to this momentum with the fourth quarter lineup that includes the Housemaid starring Sydney Sweeney and Amanda Seyfried and the third film in the Now You See Me franchise. Our diversified business model and commitment to delivering premium entertainment experiences and the strong film slate ahead positions us well for continued success into the fourth quarter.

Before I close, I'd like to announce that Kevin Johnson, CEO of WPP Media Canada and President of WPP Canada has been appointed to the Board of Directors. Mr. Johnson is a recognized leader in the Canadian media and advertising industry and has more than 2 decades of experience driving growth and innovation with his deep expertise in marketing strategy and new business development. I will now turn the call over to Gord Nelson, our Chief Financial Officer, to walk you through the financials in more detail.

Thank you, Ellis. I am pleased to present a condensed summary of the third quarter results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR+ and are available on our Investor Relations website at cineplex.com. Our MD&A and earnings press release include a complete narrative on the operational results. So I'll focus on select highlights as well as providing commentary on liquidity, capital allocation priorities and our outlook. Before commenting on the financial results, I want to remind you that with the announced sale of CDM last month, its results are presented retroactively as discontinued operations.

There is significant disclosure in our financial statements and MD&A related to this retroactive presentation and all amounts following will be from continuing operations unless otherwise stated. As Ellis mentioned, we were pleased to see continued consistency in box office performance during the third quarter, supported by a diverse mix of film content. This momentum reflects the enduring appeal of the theatrical experience and the strength of our premium offerings. Total revenue for the quarter was $348.9 million, an 8.7% decrease from the prior year. Adjusted EBITDA was $33.3 million compared to $47.9 million in Q3 2024. Our consolidated adjusted EBITDA margin was 9.6%, down from the 12.5% in the prior year. All of these metrics were impacted by the attendance decline as a result of the record-breaking performance of Deadpool and Wolverine in 2024.

So let's take a closer look at our segments. Box office revenue in the Film Entertainment and Content segment was $159.5 million, down 8.8% from the prior year. Attendance for the quarter reached 12.1 million guests, were $0.5 million or 5% higher than Q2 2025. This represented a decline of 9.1% compared to Q3 2024, again, primarily impacted by the highest grossing R-rated film of all time, Deadpool and Wolverine, which drove exceptional results last year. Box office per patron or BPP, reached $13.23, supported by sustained demand for premium-priced products, which accounted for 44.7% of total box office. Concession per patron or CPP was $9.65, down 2% -- both the BPP and CPP metrics were impacted by a $5 promotional pricing offer during the Labor Day weekend on tickets and popcorn. While these programs drove incremental attendance and a positive net contribution over a typically quiet Labor Day weekend, the impact on BPP and CPP was approximately negative $0.32 and negative $0.12, respectively, as we did not have this program in 2024.

So to reiterate, these programs drove incremental visitation and were a net positive contributor. The year-over-year BPP and CPP change for Q3 should not be read as an indicator of any future trends. During Q2, we saw our first quarter with CPP over $10, and we continue to see opportunity for growth in both these metrics. I also want to speak briefly about our other revenue line, which is comprised of many items attributable to our Film Entertainment and Content segment. During the quarter, other revenue was down approximately $7.9 million as compared to the prior year. The major contributors to this decrease include the following: at the end of 2024, we sold our online business, Cineplex Store. Other revenue included approximately $2.4 million related to this business in Q3 2024 and obviously, nil in 2025. Next, revenue related to our Cineplex Pictures business is based on their films released in any given quarter, and they typically have a limited number of films released in any given year.

This quarter, revenue from this business was $1.5 million below the prior year. But looking back to Q2, as an example, revenue from this business was $1.5 million above the prior year. And as Ellis mentioned, we have a number of films being released in Q4 and would expect the revenue to be above 2024's level in Q4. For both the Cineplex Store business and Cineplex Pictures, these revenue declines are also offset by other operating expense reductions. And finally, breakage on our gift card and certificate programs was down approximately $3 million as compared to the prior year, primarily related to true-ups reflected in the prior year comparatives. These 3 items account for $6.9 million of the decrease. Segment adjusted EBITDA was $33.8 million with a margin of 11.4% compared to 14.7% in the prior year. The decline reflects lower attendance compared to the prior year.

Importantly, through the end of Q3, Cineplex has exceeded prior year box office revenues of every month of 2025, except 2, reflecting a positive trend in both the consistency of film product and consumer demand for the theatrical experience. Cinema Media revenue for the quarter was $19.2 million, an increase of 6.1% compared to the prior year. Growth was driven primarily by increased demand for Showtime advertising. Our ability to deliver targeted impressions through premium content and audience analytics continues to differentiate our offerings in a competitive media landscape. Segment adjusted EBITDA was $15.2 million with a margin of 79.7%. As a reminder, the Media segment results now only include the results from the Cinema Media business and exclude the Cineplex Digital Media business.

While the broader advertising market has been challenged this year, we are encouraged by our growth this quarter alongside longer-term interest from brands seeking high-impact audience-driven placements. Revenue in our location-based entertainment segment was $34.6 million, an increase of 11.3% compared to the prior year, driven by the addition of 3 new venues that opened in late 2024. Same-store revenue declined 3.3%, consistent with our full year expectations of a 3% to 5% decline as previously communicated. Given this revenue decline, same-store level EBITDA margin came in at 21%. Total portfolio store level EBITDA for the quarter was $5.8 million with a margin of 16.7%, down from the 24.4% in the prior year. The decline reflects the lower same-store revenue levels due to macroeconomic headwinds, consistent with the broader LBE landscape, alongside muted operating results from the 3 new build locations, which continue to optimize their operations.

Looking ahead, we remain focused on optimizing performance across the portfolio and are encouraged by corporate event bookings heading into the traditionally strong fourth quarter. We have one remaining committed new location, which we expect to open in the first half of 2026. General and administrative expenses for the quarter were $20.2 million, representing a decline of approximately 2% from the prior year. Within this, LTIP costs totaled $2.7 million, reflecting a $1.4 million decrease from the prior year due to increased forfeitures associated with organizational changes. Subsequent to the quarter end, we announced the sale of Cineplex Digital Media for gross cash proceeds of $70 million, subject to customary closing adjustments.

As mentioned previously, this reflects an approximate 10x multiple on 2025 estimated earnings and was highly accretive for us. Importantly, Cineplex Media will remain the exclusive advertising sales agent for all CDM operated digital out-of-home networks across Canada, ensuring continuity and value in our media business. We ended the quarter with $38.7 million in cash, a modest decrease from $42.1 million in Q2, reflecting seasonal working capital movements and capital expenditures. We continue to maintain full availability under our $100 million covenant-like credit facility with no drawings as of quarter end. Net cash capital expenditures for the quarter were $4.3 million, primarily allocated to maintenance and premium format upgrades. We continue to expect full year net CapEx to be in the range of $40 million to $50 million, consistent with prior guidance.

Our capital allocation priorities remain disciplined and unchanged maintaining appropriate levels of maintenance capital expenditures, strengthening the balance sheet to achieve our target leverage range of 2.5 to 3x, making strategic investments to support long-term growth and providing shareholder returns over time. With respect to the CDM sales proceeds, we intend to allocate up to $18.5 million for opportunistic share repurchases under the recently extended NCIB, consistent with indenture limits and hold the remaining funds for potential debt repayment, pursuing additional buybacks or other corporate purposes. There was no activity under the NCIB during the quarter as we balanced our capital priorities and were restricted with the CDM transaction.

With the proceeds from the upcoming sale, we are well positioned to act opportunistically in the quarters ahead. The past several months have demonstrated continued momentum in theatrical exhibition with box office revenues exceeding prior year levels in nearly every month in 2025. This trend reflects not only the strength and diversity of film content, but also the continued enthusiasm of audiences for the theatrical experience. The sale of CDM provides us with additional financial flexibility and our continued role as exclusive advertising agent for CDM's out-of-home networks ensures continuity in our media business. With a strong foundation, a clear strategy and a disciplined approach to capital, we are well positioned to deliver long-term value for our shareholders. We're excited about the path ahead and remain focused on executing our strategy. And with that, I'll turn things over to the conference operator for questions.

[Operator Instructions]. Your first question comes from the line of Ryan Neal with TD Securities.

This is Ryan in for Derek. So first, I'm just curious how you guys are expecting the 2026 slate to evolve. Do you think it's going to be sort of similar chunkier to 2025 or more balanced throughout the year?

2026, we look upon it being a strong year, and there's a lot of distribution of product. We are excited because of Amazon who've committed to releasing close to a dozen movies. So overall, the big quarters are always the summer quarters and the December period. But I think you'll see it a bit more spread out than it was in 2025.

Okay. Great. And given the strong slate next year in '26, has that translated into any increased conversations you've had with advertisers maybe looking to increase their cinema media spend?

Yes. And as the attendance goes up and as we know, when it comes to the advertisers, they are very focused on the awareness and the attention matrix. And to me, it's one of the few places left where you can basically get total attention for the audiences. So it will continue to get stronger and continue to grow.

Yes. And Ryan, as we see it and we look at the landscape, when you look at the total media spend in Canada and you exclude digital spend, so all the sort of more traditional forms of advertising spending, cinema was up. So we were up year-over-year, where basically all other forms of advertising, the more traditional spend was down. So it's sort of evident of the kind of the compelling nature and what we provide to advertisers for a very effective campaign.

[Operator Instructions]. There are no further -- apologies. We have a follow-up from Ryan Neal with TD.

Yes. Just in terms of modeling and for modeling purposes, how do you think we should sort of record or think about depreciation moving forward following the sale?

Yes. So depreciation -- so depreciation, really, I would say the latest quarter is the best indicator for going forward. We have restated the financial statements to include CDM as a discontinued operations. So the fourth quarter number would be the best indicator on a go-forward basis.

[Operator Instructions]. There are no further questions at this time. I will now turn the call back to Ellis Jacob for closing remarks.

Thank you all again for joining us today. We look forward to sharing our fourth quarter results in early 2026 and hope to see you at the movies. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning or good afternoon, all, and welcome to today's Cineplex Investor call. My name is Adam, and I'll be your operator today. [Operator Instructions]

I will now hand the floor to Rayhan Azmat to begin. So please go ahead when you're ready.

Good morning, everyone, and thank you for joining us this morning. I'm Rayhan Azmat, Vice President, Investor Relations, Corporate Development and Financial Planning and Analysis. Joining me today are Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer.

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 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 Ellis Jacob.

Thank you, Rayhan. Good morning, everyone, and thank you for joining us today. We want to share with you today that we have entered into a definitive agreement to sell our digital place-based media business, Cineplex Digital Media, to Creative Realities, Inc., a U.S.-based digital solutions business for a total cash purchase price of $70 million, subject to customary adjustments.

This transaction unlocks meaningful value for our shareholders. It strengthens our balance sheet and provides capital flexibility for share buybacks, debt reduction and other corporate priorities. Importantly, Cineplex Media will continue as the exclusive advertising sales agent for all CDM-operated digital out-of-home networks across Canada, ensuring continuity and value in our Media business.

The mall network is comprised of over 750 screens in over 95 shopping destinations, including 9 out of the 10 busiest malls in Canada. This transaction also ensures the existing CDM client base will be supported by an organization with the scale and infrastructure necessary to provide continued innovation and growth.

Over the past 16 years, we have proudly grown CDM into an industry-leading and award-winning digital solutions company. CDM built a powerful, scalable technology platform, robust data tracking and targeting capabilities as well as award-winning creative services and content solutions for its clients across a variety of industries, including malls, real estate, retail, financial services and quick service restaurants.

I also want to acknowledge and thank the CDM team for their efforts in building this business into what it has become today. We said we would remain open to a strategic opportunity to sell and with the strength of CRI's offer, we knew it was the right time to take advantage of this opportunity. We expect the transaction to close in the coming weeks, pending regulatory approvals and we will announce when the transaction is closed.

I will now pass the call over to Gord.

Thanks, Ellis. I'll provide a brief financial perspective on the sale of CDM, focusing on transaction economics, accounting matters and use of proceeds.

With respect to the transaction economics, the gross purchase price reflects an approximate 10x multiple on 2025 estimated earnings. And as such, we view this as extremely accretive. In our Q3 filing, the current and historic results of CDM will be classified as discontinued operations and its balance sheet will be summarized and grouped under the held-for-sale caption. You should also expect the customary schedules and reconciliations within our operating segment notes to support clean period-over-period modeling.

As a reminder, Cineplex Media will remain the exclusive advertising sales agent for CDM-operated digital out-of-home networks across Canada. Prior to this transaction, the Cinema Media revenue line included an internal commission on Media sales to the CDM business. This will continue post transaction at the same commission rates.

Our capital allocation priorities remain disciplined. We are focused on achieving our target leverage ratio range of 2.5 to 3x, but also being opportunistic with respect to shareholder returns under the recently extended NCIB. As we think of these priorities, we also need to turn to the constructs within our debt agreements as it relates to permitted use of funds and the call provisions of our debt. As I speak today, we need to consider that from a debt repayment perspective, we are not yet at our first call date of January 31, 2026.

In addition, we need to consider that as of today, under various indenture basket tests, we currently have limits of approximately $18.5 million for other distributions, which would include share buybacks. As such, when we think about the use of these net proceeds, our plan would be to allocate up to $18.5 million for opportunistic share repurchases and the remainder to be held until we hit the call date of January 31, 2026, at which time we will consider calling a component of the debt, reducing our converts, pursuing additional share buybacks, subject to indenture limits, and/or using funds for general corporate purposes.

As always, today's comments include forward-looking information and are subject to customary risks and assumptions. We'll keep you updated as we execute and move towards our closing date.

With that, we'll now open up the floor to questions.

[Operator Instructions] Our first question comes from Adam Shine at National Bank Financial.

Congratulations on the transaction. So just to confirm, Gord, $7 million of adjusted EBITDA for the 10x...

Yes, 2025 forecast.

Just take us a step back, Ellis, and maybe you can elaborate on when you initiated the process, how the process ultimately unfolded?

As we said in the past, Adam, we've always been looking at opportunities, and in this case it was a situation where it's a B2B business. And we decided, given the offer, that it was a good opportunity to get the cash and look at other ways to invest the money.

And Adam, these things obviously don't happen overnight. So it's been months of planning and the process, yes.

Okay. But just to be clear, did the buyer approach you? Or this was part of a process that you had initiated? Okay. Okay. Sorry -- just on the call date, the call -- the first call date, just to clarify, is January 31 next year, right?

Correct. Correct.

Okay. Okay. Lastly, just very quickly, are there any operating leases related to this business, anything else we should be thinking about?

And you're talking about from an accounting perspective, like the modeling?

Yes.

So yes, the only thing I would say to you is that in my comment on the balance sheet and that we will group everything into the kind of the properties held-for-sale basket, is there are certain right-of-use assets and a corresponding right-of-use liability, which will obviously -- are part of the CDM entity, which will go with that entity. But not significant, Adam, in the whole scheme of things.

Congrats again.

The next question comes from Derek Lessard from TD Cowen.

Echo the congratulations. The 10x multiple is a pleasant surprise, I think, for most. That said, I guess there are some other media businesses out there that have transacted a little bit higher and are trading higher on a public basis. Just curious, any line of sight as to why you would have not commanded a higher multiple? Again, just in the context that 10x was higher than I was modeling anyways.

Yes. So Derek, first of all, there's no real kind of public company comp for the businesses that CDM operates in. It's a twofold business. There's an advertising sales component, so when you think about media advertising revenue. Some of the comps that you just kind of mentioned are more in that peer set, so higher multiples typically because they're low CapEx deployed. Then roughly 1/3 of our business comes from sort of hardware sales. And so when you're kind of into a hardware, low-margin type of business, there's typically a lower multiple associated with that type of business.

So when you look at it on a blend basis, you're getting sort of the higher multiple related to the media side of it and the lower multiple related to the -- more of the hardware and service side of that thing, which kind of blends in and gets us to what we believe is a very accretive multiple of 10x.

Okay, Gord. That makes sense and it is fair. And my last one is just curious if this was part of any larger strategic review?

It -- basically, as we said previously, which I mentioned to Adam, is when there are opportunities like this, we are looking at the overall balance sheet, and where the company stands, and this was our last B2B business. So it made sense at the current multiples to look at taking the cash and strengthening the balance sheet.

Okay. And then maybe just one last one for me. And I think you did answer part of it with Adam's question, but I was curious on the process. I know you guys are a very disciplined team. But curious if you were -- if you were feeling any outside pressure?

We've always been engaged in discussion. And I think if you've heard our commentary for probably the last year or 2 years, we've made specific commentaries about this business. And so you'd expect that we would be engaged in some form of discussions with participants in the space.

And as Ellis said, we were looking to be opportunistic where we could drive value, where we could build the business to a position where we thought there's a real opportunity and value creation for shareholders, and that's the point that we got to today.

Congrats again.

The next question comes from Maher Yaghi from Scotiabank.

Yes. Great. I'm not surprised by the transaction in and of itself, as you mentioned, Gord. And Ellis, you've been dropping hints that this is something you might entertain. I guess the market surprised a little bit by the multiple you were able to get.

I guess the following question after that is, where do you think the capital markets -- the public capital market might be mispricing other assets that you own that could be -- that could deliver higher multiples in a private transaction?

So Maher, that's a little bit forward and kind of speculative thinking. I think we would probably shy away from commenting on that. We did have discussed this business and particularly. And so that's really the only one we'd be prepared to make any comment on today.

Okay. Maybe I'll ask it in a different way. I guess -- I know you have your balance sheet that you have to consider when it comes to leverage and payments and upcoming payments on your debt. But you -- how much do you see the stock here as enough undervalued in your view that you would be more opportunistic in buying back stock today than you did maybe a year or 2 ago. Are you...

Yes so -- sorry. So Maher, I -- look, we're committed to delivering value to our shareholders, of which we extended the NCIB because we believe that there's opportunity to provide value to our shareholders through share buybacks.

I provided some commentary today about some of the kind of constraints or the restrictions within the existing debt facilities, which we need to be mindful of as we execute forward. So we gave the amount of about $18.5 million, which is -- as of today, is the constraints within the existing agreement about how much we can do for share buybacks. We did say in our commentary that we would look to be opportunistic up to that full amount as we look forward.

And we feel the transaction is strong.

Sorry, can you say that again, Ellis, sorry?

No, I said we feel this transaction is strong for us in improving our balance sheet and our position as we move forward.

Right. Yes. I guess -- so maybe if we look at 2026 and a bit over the horizon here, what is the constraint that is -- that's going to hold you back the most in your view when it comes to buying back more of your stock? Is it just these upcoming decisions that you will be making on debt prepayment? Or it's more strategic in nature depending on what the Board wants to do with the whole business over time?

So Maher, look at what -- and I cautiously use the words as of today in making a lot of my commentary. And so my commentary as of today is that there are constraints and restrictions within our indenture notes as to the maximum amount that we can use towards buying back shares. That's as of today. If we were to do anything and renegotiate anything or do anything else at a future date, then that could potentially open up more opportunity. But as of today, that is the restriction that we have.

[Operator Instructions] The next question comes from Aravinda Galappatthige from Canaccord Genuity.

Congrats. Gord, I was on -- I had a question on the -- trying to remember the terms of the convert. After -- as of January 31, 2026, can you just remind us how much of the convert you could pay down or redeem? What's sort of the limit there? I wasn't able to pull that up quickly.

Sorry, so as of -- so just a reminder to everyone, the converts are convertible at 10/29 and they're not redeemable prior to March 1, 2027.

Okay. Okay. Understood. Sorry, I thought there was a small component between January 31 and the March date, but perhaps I misunderstood that.

And then maybe just, Go, to help me with the sort of the quarterly modeling, was there any sort of -- can you just talk to the seasonality of the profitability of -- yes.

Yes, absolutely there. So help all out then. So obviously, the business we morphed over the years into more of a digital place-based advertising business. So with that said, the majority of the profitability occurs in the fourth quarter of the year.

And so you'll see it operate -- so the majority of EBITDA and the target amount that I gave you, the majority of that will fall into the fourth quarter. The other 3 quarters will be relatively sort of in the breakeven-ish kind of level.

Okay. Understood. And then the last question, just a clarification on your -- the $18.5 million number that you gave, that's basically the buybacks that you can do on January 31. And beyond that, you have the freedom to basically go up to the full limit of the NCIB. Is that -- did I hear that correctly?

So sorry in that I must again be conscious to state as of today, is there's various sort of cumulative basket tests within the note indentures, which are on kind of a go-forward calculation basis, which potentially opens up more room to do share buybacks as you move along. But as of today, the calculation, the test is that date. So it's a calculation that's going to be performed every quarter, and it may open up more opportunity at a future date.

Nothing further in the queue at present. [Operator Instructions] We have no further questions, so I'll hand the call back to the management team for any closing comments.

Yes. I just want to thank you very much for joining us today, and we look forward to talking to you in November and enjoy the movies, and I hope to see you.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.