Cineplex Inc. (CGX) Q2 2022 Earnings Call Transcript

Cineplex Inc.  ( TSX : CGX) Q2 2022 earnings call dated Aug. 11, 2022

Corporate Participants:

Mahsa Rejali — Executive Director of Corporate Development & Investor Relations

Ellis Jacob — President and Chief Executive Officer

Gord Nelson — Chief Financial Officer

Analysts:

Adam Shine — National Bank Financial — Analyst

Derek Lessard — TD Securities — Analyst

Maher Yaghi — Scotiabank — Analyst

Drew McReynolds — RBC Capital Markets — Analyst

Tim Casey — BMO Capital Markets — Analyst

Presentation:

Operator

Hello, everyone, and thank you for joining the Cineplex Inc. Q2 2022 Earnings Conference Call. My name is Darius, and I’ll be moderating the call today. [Operator Instructions] I now have the pleasure of handing you over to your host, Mahsa Rejali, Executive Director, Corporate Development and Investor Relations. Please go ahead.

Mahsa Rejali — Executive Director of Corporate Development & Investor Relations

Good morning and welcome. With me today is Ellis Jacob, our President and Chief Executive Officer; and Gord Nelson, our Chief Financial Officer. Before I turn the call over to Ellis, let me 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 could differ materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, the negative impact of the COVID-19 pandemic, adverse factors generally encountered in the film exhibition industry, risks associated with other national world events, discovery of undisclosed material liabilities and general economic conditions. 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.

Ellis Jacob — President and Chief Executive Officer

Thank you, Mahsa. Good morning, and welcome to our Q2 2022 conference call. We are glad you could join us today. As I address our quarterly results, I am pleased to announce that our business generated a positive net income and highest adjusted EBITDA since the pandemic began. This milestone was driven by a strong film slate and record results from across our diversified businesses. These results benefited from our strong operational management and strategic marketing campaigns. Leading the box office was Doctor Strange In The Multiverse of Madness, which delivered 75% more domestic box office than the original release in 2016. Then there was Jurassic World Dominion and the highly successful Top Gun: Maverick, which has grossed over $1.3 billion at the global box office. It has become Paramount Pictures and Tom Cruise’s most successful film of all time.

Even today, 11 weeks after its release, it continues to perform well. We were also pleased to see great success with mid-tier titles, including Elvis and Everything Everywhere All at Once, which became A24’s highest all-time grossing motion picture. The success of these films and other blockbusters this year is a validation of the industry’s recovery. The North American industry box office exceeded $2.3 billion during the quarter, which is nearly a threefold increase from the same quarter last year. It is no longer a question of where the customers want. They are back from every cohort and for all genres of films. We saw this with Top Gun and Elvis that brought back adult guests to our theaters. And Sonic The Hedgehog two and Minions, The Rise of Gru has brought families in the highly sought-after 15 demographic back to films.

Also originally scripted films such as The Black Phone and Nope performed well for the horror and suspense genre. And last weekend, Brad Pitt’s highly anticipated Bullet Train was released with the domestic box office of CAD30 million. As you can see, like our industry peers globally, we are highly encouraged by the box office momentum reflected in our second quarter results. When comparing pre-pandemic periods in 2019 to 2022, April’s box office reached 56%, May reached 72% and the growth continued into June at an impressive 89%. July results were almost strong coming in at 85% of 2019. It is worth noting that April 2019 is a tough comparative period as the Avengers: Endgame was released that month and became the highest grossing film of all time.

These results fueled the second quarter year-over-year revenue growth of 439% and adjusted EBITDA of CAD35.8 million. We drove strong per patron spend with the second quarter record BPP of CAD12.29 and an all-time quarterly record CPP of CAD8.84. In fact, all of our reported segments generated positive adjusted EBITDA. We were particularly pleased with the results of our Amusement and Leisure segments, which included an all-time quarterly record adjusted EBITDA in P1AG and a record second quarter adjusted EBITDA in the LBE business. It is also important to remember that we are driving these strong results even as consumers contend with concerns of our inflation and speculation of a looming recession. The theatrical business has historically been resistant to recessionary pressures. Going to the movies is an affordable form out-of-home entertainment, certainly also that options such as sporting and live music events.

Case in point, the domestic box office has actually grown in the last seven out of nine recessionary periods. Overall, we are very pleased with our second quarter results and look forward to continued business growth. I will now provide an update on the strategic priorities that were outlined during our previous earnings call. As a reminder, these include reigniting theatrical exhibition, growing our diversified businesses, leveraging our ecosystem and continuing to apply financial discipline and operational excellence. First, we are reigniting theatrical exhibition and driving attendance through numerous strategic initiatives. If you can believe that one year ago today, we introduced CineClub to Canadians, and we are pleased with the strong demand and interest in the program already attracting approximately 75,000 members to-date ahead of our projections.

What is even more impressive is that despite the closures and restrictions we saw in the first three quarters of its launch, CineClub’s membership has shown strong growth each month since reopening. It is also delivering a very low churn rate, demonstrating the program’s values through our members. During the quarter, our Scene+ program expanded as we welcomed Empire Company Limited as co-owner along with Scotiabank. The addition of Empire’s over 1,500 stores to Scene will provide even more ways for customers to earn and redeem points on nearly all of their daily purchases. For us, the expanded partnership and increases program engagement and will grow the membership base, allowing our team to target and engage with a wider range of consumers, including non-movie goers. This quarter, we continued our effort in offering alternative content to attract new audiences. Programming from Cineplex events in the second quarter included the Anime feature Jujutsu Kaisen 0 and The Metropolitan Opera titles such as Turandot and Hamlet.

We continue to see momentum through our focus on international cinema. In fact, every month during the quarter, international films consistently accounted for five or six of the top 20 films on our film slate, and we continue to take a dominant share of the North American market in international cinema. For instance, the Bollywood film Bhool Bhulaiyaa two saw Cineplex achieve a North American market share of 32%. Also, we accounted for an impressive 66% of the domestic market for was sometime soon another Bollywood feature. This is an incredible feat, and it didn’t happen by accident. It was fueled by customer data that enables us to match specific content to the right demographics in specific locations. We also continue active discussions with nontraditional suppliers about showcasing their content on the big screen. Without question, nontraditional studios are forming a new and heightened appreciation for the role of a theatrical release and increasing awareness and value for content prior to launching on — platforms.

A key focus area of reigniting theatrical exhibition is to increase per patron spend. During the quarter, our box office per patron was up 10.4% compared to Q2 2019, mainly resulting from a favorable mix shift to premium offerings as well as strategic pricing actions. Our concession for patron reached an all-time high and was up 25.6% compared to the same quarter in 2019. The combination of a higher incidence rate, higher average basket size of concessions and alcohol and strategic pricing actions were key drivers to these exceptional results. In mid-June, we also followed in the footsteps of our industry peers and introduced an online booking fee. These ancillary revenues will fund the expansion and enhancement of our digital infrastructure and digital offerings to ultimately enhance guest experience. Speaking of guest experience; this quarter, we continued to benefit from investments we’ve made and continue to make in premium amenities in our theaters across Canada. We now offer eight different types of experiences for movie lovers and during the quarter added another ScreenX location, bringing our total to 11 auditoriums.

These investments are showing strong results as we have seen theaters with premium amenities experience the fastest recovery coming out of the pandemic. In fact, 42.4% of our total box office was driven by premium formats. Turning to our next strategic priority, we are pleased to see strong rebound and recovery in our diversified businesses. Our diversification strategy is an important pillar for the continued growth of the company. This quarter, we reported an all-time quarterly record in amusement revenues. Our LBE business generated all-time quarterly record results and saw a strong same-store growth in both top and bottom lines as compared to pre-pandemic results. In fact, the adjusted EBITDA for comparable operations reached 87% of pre-pandemic levels during the quarter and in Alberta, all of our locations exceeded 100% of 2019 levels.

Our P1AG business also performed exceptionally well, generating a record adjusted EBITDA and an adjusted EBITDA margin of 18%. This is reflective of strong top line demand and our team’s ability to effectively manage inflationary pressures and control costs. On the Media side, Cineplex Media and Cineplex Digital Media continued to demonstrate encouraging signs of recovery, and we saw significant improvement in our overall media revenues for the quarter. Going forward, we expect to see further momentum in both Media businesses as audiences and mall traffic return and advertisers increase their media spend. Cineplex Digital Media is gaining traction by winning new clients. Earlier this week, we announced the addition of Primaris REIT and their circuit of shopping centers to our digital out-of-home VoD networks. Our third strategic priority is to leverage the Cineplex ecosystem to unlock value by leveraging richer data available to us in the expanded Scene program and by applying digital tools to better mine opportunities within our existing moviegoing audience.

Our fourth and final strategic priority is focusing on optimizing our operations and assets. During the quarter, we exited one location in Windsor, Ontario, sold another location in Antigonish, Nova Scotia and received proceeds of CAD5.4 million on a restrictive lease rights transaction. We continue to apply financial discipline to manage capital allocation across our businesses and work towards achieving our target leverage ratio of 2.5 times to three times. The second quarter marked the first credit facility test of our covenants and we were pleased to report an annualized leverage of 3.24 times, which is well below the required total leverage ratio of 3.75 times. Before I pass things to Gord, here is a brief update on the ongoing litigation with Cineworld. As we announced in December 2021, the Ontario Superior Court of Justice issued a judgment for CAD1.24 billion in favor of Cineplex. While Cineplex — we believe that — we will take all steps to respond and advance Cineplex’s processes. We remain focused on the Ontario Court of Appeal hearing, which is scheduled for October 12 and 13 of this year.

As we announced during our AGM in May, we have engaged Moelis & Company as the financial adviser and Goodmans LLP as lead counsel to maximize the adjustment against Cineworld. Judgment and future steps are a key focus for Cineplex and its advisers. Looking ahead, it is clear the global film industry is rebounding as guests flock back to theaters in search of great movie moments, premium experiences and a guaranteed escape. The sustained quality and diversity of future releases will keep guests coming back to our theaters as consumer sentiment regarding the pandemic improves. While we are optimistic about the upcoming films placed for 2022 and beyond, we anticipate a short-term content supply chain disruption in late August and September, primarily due to pandemic-related production delays. We are well equipped, however, to pass this period and are now quite adept at navigating temporary blips. We have the full support and confidence of our lending group and have proactively amended our credit facility for the suspension of financial covenants in the third quarter of 2022.

We look forward to a strong course of the year with a host of much anticipated titles set for release, including Don’t Worry Darling, Bros, Halloween Ends, Black Adam, romantic comedy, Ticket to Paradise starring George Clooney and Julia Roberts; Prey for the Devil, the highly anticipated Black Panther: Wakanda Forever whose trailer yielded 172 million views in its first 24 hours; Puss in Boots: The Last Wish, Shazam! Fury of the Gods, the Whitney Houston Biopic, I Wanna Dance with Somebody and the most anticipated film of the year, Avatar: The Way of Water. We also remain highly encouraged as we look to 2023 with industry experts projecting another year with a strong film slate.

Just to name a few simple titles, we’re excited to see Ant-Man and the Wasp: Quantumania, Aquaman and the Lost Kingdom, John Wick: Chapter four, Super Mario Bros., Guardians of the Galaxy Vol three, Spider-Man: Across the Spider-Verse, Indiana Jones five, Mission Impossible seven, Barbie, Oppenheimer, The Marvels, plus two plus two. In closing, we are confident in our business and our efforts to manage financial uncertainties as we have done during past economic downturns. The second quarter results and recent film performance clearly demonstrates that with strong film products, guests want to come back to our theaters. We are poised to capitalize on the impressive film slate, and we will continue to reap benefit from the promising momentum we are seeing in our other businesses. Our balance sheet is solid. We are well-positioned for a sustained recovery. Finally, we will continue to advance growth initiatives and drive long-term value for our shareholders to maintain our position as an industry leader.

With that, I will turn things over to Gord.

Gord Nelson — Chief Financial Officer

Thanks, Ellis. I am pleased to present a condensed summary of the second quarter results. 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 includes a fulsome narrative on the operational results. So I will focus on highlighting and quantifying some of the key operating results and provide commentary on our liquidity and outlook. As Ellis mentioned, we were extremely pleased with the Q2 operating results. We reported positive net income for the first time since the pandemic. We reported our strongest adjusted EBITDA of CAD35.8 million since the pandemic, and we reported records in some of our key metrics, including BPP and CPP. In addition, our Amusement and Leisure business reported its strongest adjusted EBITDA ever. All of this despite certain operating restrictions being in place in early April. Total revenues increased 439% to CAD349.9 million from CAD64.9 million in the prior year.

Net income was positive CAD1.3 million as compared to a net loss of CAD103.7 million in the prior year. And adjusted EBITDA improved to CAD35.8 million from an EBITDA loss of CAD52.2 million in 2021. In our Film Exhibition and Content segment, attendance increased to 11.1 million in the current quarter as compared to 1.1 million in the prior year. We reported a record second quarter BPP of CAD12.29 and an all-time record quarterly BBP of CAD8.84. Our box office revenues were approximately 72% of the pre-pandemic period in Q2 2019, and our total segment revenues were approximately 78% of this pre-pandemic period. Segment adjusted EBITDA of CAD21.3 million increased significantly from our segment EBITDA loss of CAD37.4 million in the prior year. We are seeing our media clients come back once we reopened and reported second quarter media revenue of CAD26.2 million as compared to CAD9.4 million in the prior year.

The increase was primarily due to Cinema Media revenue, which increased CAD16.3 million in Q2 2022. Our overall Media segment adjusted EBITDA increased to CAD14.2 million from CAD1.4 million in the prior year. Comparison to the pre-pandemic period, our Media segment revenue was approximately 54% of our Q2 2019 levels. Media businesses were impacted by the operating restrictions in the early parts of April but also by the uncertainty that restrictions throughout the year created in our client strategies as they look to commit to cinema and our digital place-based network. As we continue to see strong traffic patterns in our cinemas and malls, we expect to see further recovery in our Media businesses. Our Amusement and Leisure segment had an incredible record-breaking quarter. Both P1AG and our LBE businesses had record quarters as each had strong top line results, margins and second quarter record adjusted EBITDA.

Segment revenue increased to CAD45.1 million as compared to CAD2.1 million in the prior year, and segment adjusted EBITDA increased to CAD8.1 million from CAD0.8 million in the prior year. In comparison to the pre-pandemic period, our Amusement and Leisure segment total revenues were actually flat coming in at 109% of the Q2 2019 levels. G&A expenses increased 7.8% to CAD15.3 million from CAD14.2 million in the prior year, primarily due to increased payroll costs as a result of a decrease in wage subsidies, partially offset by reduced litigation and advisory costs and the reduction in share-based compensation. These items are described in more detail in our MD&A. With the reopening of the businesses, our focus remains on cost control as our business volumes ramped up. It is important to note that as one would expect, our subsidy program reliefs has significantly reduced with the reopening of our locations without restrictions. For the second quarter, we reported government subsidies of approximately CAD1.6 million as compared to CAD28.5 million in the second quarter of 2021.

Although our landlord abatements also continued to decrease, we did receive proceeds of approximately CAD5.4 million related to a lease rights transaction. For the second quarter of 2022, we reported net capex of CAD12.5 million as compared to CAD3 million in the prior year. For 2022 and beyond, we will continue to be prudent with our growth initiatives and our guidance for net capex for 2022 has been decreased slightly to CAD65 million to CAD70 million. Before discussing our liquidity position, I wanted to discuss the following five items. First, I want to talk about Scene+. As mentioned during the first quarter call, Scene points are now treated as marketing expenses with gross ups to the related revenue and no net impact on EBITDA. The impact on the second quarter was to increase box office and concession revenue by approximately CAD5.1 million, impacting BPP by approximately CAD0.24 and CPP by approximately CAD0.22 and marketing expenses increased by approximately CAD5.1 million for a net nil impact on EBITDA.

In addition, with respect to Scene, we disclosed that subsequent to quarter end, Cineplex will recognize a gain of approximately CAD45 million related to the 2020 sale of one-third of our 50% interest in Scene LP as the economic and contractual obligations of the transfer will now have been met. Second, with respect to the Cineworld litigation, we were awarded damages of CAD1.24 billion and CAD5.5 million for transaction costs, exclusive interest. Cineworld has filed a notice of appeal and oral hearings are scheduled for October 12 and 13 of this year. Due to uncertainties — outcomes and the ability to recover the full amount, no amount has been accrued as a receivable on our financial statements. We have engaged Moelis & Company, Goodmans LLP as expert advisers with significant experience in these matters to assist in optimizing the value of this claim.

Third, I want to remind you of the benefit of the tax asset that was derecognized during 2020 as a result of uncertainties related to the pandemic. As described in Note eight of our year-end financial statements, we currently have noncapital losses totaling CAD314.6 million to utilize it in future periods. We continue to evaluate the recoverability of the deferred tax assets, and we’ll recognize such assets when and if appropriate. Fourth, in addition to the deferred tax assets as our business continues to recover and return to profitability, the reversal of a portion of previously recognized impairments may be appropriate. Fifth, in our subsequent event note, we discussed the planned end of the limited life financing entity, Canadian Digital Cinema Partnership, or CDCP. CDCP expects to distribute its remaining assets to its partners in 2022 and Cineplex expects to receive approximately CAD1.9 million of this distribution. Historically, we have excluded the impact of CDCP in our calculation of adjusted EBITDA as it was a limited life financing entity.

Now finally, I’d like to speak to our balance sheet and particularly our strong liquidity. For Q2 2022, we reported net repayments of CAD9 million under our credit facility, which left us with CAD294 million drawn and approximately CAD238 million available under our credit facilities as of June 30, 2022. Q2 was the first covenant test under the fourth amendment of our credit facility. We were pleased to report that we are in compliance with all tests with total leverage of 3.24 times as compared to a covenant of 3.75 times, senior leverage of 1.79 times as compared to a covenant of 2.75 times and a fixed charge coverage ratio of 1.44 times as compared to a minimum covenant requirement of 1.25 times. In addition, we maintained the minimum liquidity requirement of CAD100 million throughout the quarter. As Ellis mentioned, the recent film performance clearly demonstrates that with strong film products guests want to be back in our theatres.

And as we look forward into Q3, we realized that a number of titles originally scheduled for release in Q3 had COVID-related production issues and have their exclusive theatrical release dates delayed to a future period. We’re eagerly awaiting best of these titles in future periods. We saw a void in the release schedule beginning in mid-August, which would impact our Q3 results. Given the nature and impact of these delays, we proactively approached our lending syndicate to ask for a suspension of covenant testing in Q3 and commencement again in Q4. Their support continues to be strong, and they quickly agreed to the suspension of testing in Q3, and we are pleased to announce the fifth credit amendment — agreement today. Further details are included in our filings today. As Ellis mentioned, there is a lot for the exhibition industry to be excited about it. We have a resilient business, great product coming, and we have a renewed focus from studios on the importance of theatrical exhibition. We continue to focus on the return of our businesses while exploring opportunities for value creation. That concludes our remarks for this morning.

And we’d now like to turn the call over to the conference operator for questions.

Questions and Answers:

Operator

[Operator Instructions] So the first question comes from Adam Shine from National Bank Financial. Please go ahead. Adam, your line is now open.

Adam Shine — National Bank Financial — Analyst

Thanks a lot. Good BoardEx Maybe a couple of questions. Ellis, just starting off. Obviously, there is evolving recovery and momentum at the box office. I think as alluded to 72% level for box office revenue versus 2019, I think attendance looks like at the 65% level. And of course, that’s a key priority of the company to sort of stimulate attendance. Can you speak at all to some of the pockets of maybe where some of the shortfalls still exists, whether it’s demographic, frequency or just the nature of the product that isn’t necessarily bring in a wider grouping of attendees?

And obviously, this is maybe an item also for Gord in the context of questions that were asked on the Cinemark call last week regarding leverage. I think the response was, look, if attendance comes back, it drives other elements to the business and obviously help support the inherent operating leverage in the overall organization. So maybe you can touch to those points, attendance and margins? And then just one other point that was raised in the MD&A. I think there was a bit of a shortfall in staffing in the Q2 at the LBE level. Maybe you can just address if that was resolved as you work through the Q3.

Ellis Jacob — President and Chief Executive Officer

So Adam, on the question of attendance and where we see things moving forward. What we’ve seen is the big blockbuster movies are doing extremely well. The middle range product they have not — those releases, but when they are there, they also perform. And looking into the future, the gap was really with families and the old audiences, and they are starting to come back. And remember, April the comparator to 2019 was a tough one because of the movies in 2019. And we also weren’t fully gunned until that particularly period of time. But I got to be honest with you. I have seen and visited the theaters and see a lot of desire for guests to come back and especially in the movies like we saw at Top Gun, which did extremely well with diesel Elvis for the older audience. So I think over the next 18 months, you’re going to see a strong return to product, which will be diversified enough to appeal to all the different audiences. And to me that is something that we feel comfortable is going to happen in the future.

Gord Nelson — Chief Financial Officer

And then sorry, Adam, with respect to your question, the couple of questions you had for me. Look, we’re obviously pleased to report leverage of 3.24 times. And as you mentioned, roughly 72% of prepaid on the global box office allows us to generate that level. I would also make the comment that our Amusement and Leisure business been performing strongly. And we made the comment about the return of the audiences and the media buyers. So that’s a little bit of a lag between the return of audiences and where the media revenue will ramp up. So if you look at our second quarter in isolation is you would expect that at a run rate level of the media business was be ramping up higher than where it was in Q2 once they see the return of the audiences.

So look, we were pleased and my notes were that our target leverage ratio range of 2.5 times to three times. And so at 3.24 times as we’re getting very close to where we would like to be in a quarter that was impacted in the month of April by some operating restrictions. As we look forward, we see the media businesses ramping up. We see a little bit of a challenge and we characterize it as a supply chain disruption in terms of film content coming into Q3. But as I mentioned, there’s a strong product coming in Q4 and into 2023. And as I made comment in my notes is we have a very supportive lending group. And we were able to quickly and proactively address what may be a shortfall, a onetime shortfall in Q3.

Adam Shine — National Bank Financial — Analyst

I apologize. Just before you jump in to the other question, I was talking much more about operating leverage rather than financial leverage, which I think you were very clear on in your opening remarks. So I was just trying to push you maybe a little bit on inherent operating leverage in the business, which clearly as we get beyond Q3 and look to Q4 with greater strength in terms of attendance and the other parts of the business and moving into ’23 as well. I was talking about operating leverage and how margin potential can evolve — within the context of any other puts and takes and the inherent part of the business?

Gord Nelson — Chief Financial Officer

So with respect to that question, and thanks for the clarification. And I just — you gave me an opportunity to reiterate how confident I am. So with respect to the — look, just take a film, which is a 100% variable cost. When you look at our cost of food, yield cost and our payroll costs, those represent about 75% of our other costs. So the operating leverage is really strong in that each incremental customer contributes significantly to our bottom line. So as we ramp up the EBITDA increase we will reiterate what we said on past calls, which is we believe that despite — the consumer behavior is that our margin or EBITDA margin level should get back to our — likely at some point in time in 2022. And then on your LBE question is, first and foremost, we were extremely pleased with the results in our LBE business and our P1AG business. The challenges that we talked about labor challenges related to food service, primarily kitchen staff. Not unique to us that comment in the industry. And so when you look at our revenue mix split HMH that’s great revenue — if you look at our revenue mix, you can see us at a little bit more for the amusement –. So as the labor challenges, correct themselves for us and others in the space is we would expect to leave that with kind of return back on normal level. And we’re seeing that happen just the labor issues are not as good as they were Adam.

Adam Shine — National Bank Financial — Analyst

Okay. The labor issues or not, that we’re. Super. Okay, thank you very much.

Gord Nelson — Chief Financial Officer

Thank you.

Operator

The next question is from Derek Lessard from TD Securities. Derek, you may begin.

Derek Lessard — TD Securities — Analyst

Good morning everybody And glad to see the light to turn back on, so to speak. Obviously, I mean, I don’t want to necessarily harp on Q3, which you don’t have control on. But I was wondering if you had a sense of what the void and slate could mean in terms of attendance relative to 2019?

Ellis Jacob — President and Chief Executive Officer

Look, we gave — July was very strong at 85% of 2019 levels that was very strong. Derek, the challenge really is — we’re being proactive here. The sleeper hits, we don’t know whether they will be there or not be there. So that’s the big unknown. But when you’re looking at blockbuster levels for August and September, there exist potentially that they could be half of the — like less than half of the pre-pandemic levels.

Gord Nelson — Chief Financial Officer

But Derek, I mean, even the first 10 days of August have been much stronger than we’ve expected. And there is product. It’s a matter of how it delivers as we go through the balance of the quarter.

Derek Lessard — TD Securities — Analyst

Absolutely and I appreciate how tough it is to answer that question. Maybe just on the membership and Scene+, it was flat. Just curious about the dynamics there and sort of your expectation once Empire begins rolling it out more broadly?

Ellis Jacob — President and Chief Executive Officer

It’s a stronger program and it’s going to continue to grow, and it’s a new base of participants, and that will allow us to attract individuals who may not have been movie goers in the past. So it’s positive, and it’s a great program as we move forward.

Derek Lessard — TD Securities — Analyst

And then maybe just one last one for me on the LBE, obviously, very strong. And I know it’s only in August, but curious if you’ve seen any early bookings for year-end holiday parties and things like corporate gatherings?

Ellis Jacob — President and Chief Executive Officer

Yes, it continues to be strong and coming back. And we’ve basically — going back to levels where I think we will approach pre-pandemic and in some cases, exceed it because of the desire to be together and have their social experiences. So we’re quite comfortable as things are moving forward.

Derek Lessard — TD Securities — Analyst

Okay, thanks,

Ellis Jacob — President and Chief Executive Officer

Thanks for that better. But thank you

Operator

Our next question comes from Maher Yaghi from Scotiabank. Please go ahead, your line is now open.

Maher Yaghi — Scotiabank — Analyst

Yes. Thank you, guys and thank you for taking my question. I wanted to ask you first on CPP, nicely up from 2019 levels. How are you guys thinking about continuing to grow that number? And what are the action plans you’re putting in place to continue to grow that just taking into consideration maybe the ongoing uncertainties in the economy and inflation affecting consumers? And the second question I had is if you can maybe just let us know your views as to what is really behind the production delays that you’re referring to. And of course, as you mentioned, Q4 is expected to be very strong and also 2023. But in general, if we look bigger picture, how much of the production delays are due to — sorry, the lower movie theater production is due to production delays versus movies going directly to streaming.

Ellis Jacob — President and Chief Executive Officer

So let’s look at the CPP and the future benefits and increases. As we’ve seen the basket has changed, and we have offered many new products and with the introduction of alcohol and with our VIP theaters, the CPP has continued to move forward. And we see that level being sustainable and continuing to increase as we improve our guest experiences through technology with the ability to order the concession items prior to coming through the movie. We’ve already done it in the VIP, and we will look into the next few months and initiate it into all of our dealers across the country.

Gord Nelson — Chief Financial Officer

And Maher, just sorry, I can add one comment there is because you talked about the economy is typically — we’ve made some comments about the sort of the strength of the exhibition business through recessions. And the last recession that we went through in 2008 and 2009, our concession spending actually continues to increase throughout that period. The second question was on the production delays related to — COVID. So we characterize these things as our supply chain disruption in content. And it’s 100% related to COVID. The studios are not moving the big releases that were scheduled for August and September into over-the-top or in streaming services. They’re just going into either Q4 or into 2023.

Ellis Jacob — President and Chief Executive Officer

Yeah, we see some strong releases, as I talked about in 2023.

Maher Yaghi — Scotiabank — Analyst

And I just want to maybe just follow up on that. Do you still see — or are you seeing any changes in terms of attendance versus pre-COVID? When you break down the movies in terms of blockbuster versus mid to small, are you seeing any divergence in the terms of attendance to these movies now versus what they were pre-pandemic?

Ellis Jacob — President and Chief Executive Officer

Well, you have a lot more blockbuster attendance, but that’s also the breakdown of the number of movies and the mid-range movies that are coming out compared to the blockbusters. And I think what will happen is that’s going to change as we move forward with more of the midrange movies being released over the next number of months. But what we are seeing is when you have a blockbuster, you are actually outperforming pre-pandemic levels. So with less content, we are still getting some big returns on these future films. The significant percentage of the box office was generated from these big films.

Maher Yaghi — Scotiabank — Analyst

And as we look in — sorry, so as we look into 2023, what are your views in terms of the supply chain constraints? Are they going to materially improve and that hopefully will allow you to achieve your objectives and returning to pre-pandemic level attendance?

Ellis Jacob — President and Chief Executive Officer

From a broader perspective, we see a lot of the movies that were originally going to be released that got moved are going to be released in 2023. And there are some big movies — there are movies like Aquaman that was going to be released in December and got moved to the first quarter of 2023. So there’s a lot of good product that we are expecting in 2023. And as the studios are continuing to ramp up, we will see more movies that — they haven’t slotted in for the balance of 2023. So I’m pretty confident that given no hiccups from a COVID perspective, we should be in a strong position as we move forward.

Maher Yaghi — Scotiabank — Analyst

Great, thank you.

Ellis Jacob — President and Chief Executive Officer

Thank you very much.

Operator

The next question comes from Drew McReynolds from RBC Capital Markets. Please go ahead. Your line is now open.

Drew McReynolds — RBC Capital Markets — Analyst

Yeah. Thank you very much. Good morning. Three for me. Just on the location-based entertainment footprint. You have 10 Rec Rooms and three Playdiums. Can you just remind us what that future footprint looks like? And then the second question just on Cineplex Media. Obviously, a lot of focus here on the macro dynamics in the advertising market. But anecdotally, being in a number of your movies in your theaters in the past, automotive seems to be a pretty big category. And obviously, that’s been challenged through COVID supply chain. Just wondering what you’re seeing in that category? And then just lastly, on the amusement margins of 18%, awesome performance, obviously, in the quarter, certainly above the 12% to 15% that has been kind of the guided range in the past. Are we now looking at this kind of higher level of margin for the business?

Ellis Jacob — President and Chief Executive Officer

So in response to your question about the locations, we are committed to adding two locations which will open in the next 12 to 18 months. One is in BC and the other one is in the Province of Quebec, where we today do not have the location is a Province of Quebec. So that is going to be important as we move that forward. And as the business continues to grow, we will continue to evaluate the opportunities for that right across the country. And it really creates for us a great entertainment destination for our guests and our team members, and we continue to see improvement on that as we move forward. So we should be in a pretty good position as it relates to that.

Then you were — on the media side, there’s always been a bit of a lag between the media start to come back compared to the attendance that we see. And you did mention in the automotive side, we have seen that as a challenge and a lot of that has to do with the fact that the dealerships are not getting enough product. So it makes it harder for them to come to market and advertise as the cars that are available. But I see that coming back as we move forward because that supply chain will definitely change. But we are filling those gaps with alternatives, including tourism and other opportunities that we see moving forward in our portfolio. So yes, there are going to be ups and downs, but quite confident that there are enough consumer-related products that will be advertised on our screens and our digital infrastructure.

Gord Nelson — Chief Financial Officer

And then on the question on the P1AG business and then the margin is — I think in the — in the second quarter, it was primarily the higher margin was related to sales mix. I think the good news is we’ve given you the range of 13 to 50. So I’d expect that you’ll see that get towards the higher end of that range, but I would suggest that we said it’s not the new run rate.

Drew McReynolds — RBC Capital Markets — Analyst

Okay, got it. Thanks very much

Operator

The next question comes from Tim Casey from BMO Capital Markets. Please go ahead. Tim, your line is now open.

Tim Casey — BMO Capital Markets — Analyst

Yeah, thanks, good morning, A few for me. One, Ellis, could you talk a little bit more about one of your priorities related to leveraging the ecosystem. Just wondering if you can put some context in there on what that would mean for financial results or operating leverage or whatever the key way we should look at that? Second question would be related to the near-term box office. Would it — could you give us a little insight into how Q3 of 2019 played out? In other words, were July, August, September what was the relative mix there, just so we can think about how the comps will look? And last question, Ellis, just as there’s been a lot of retrenching of business models related to streaming, and we have Zaslav out there being very forceful on his commitment to exhibition and whatnot. Just wondering if your discussions or the outlook for film rentals changes at all, given the change in streaming windows and whatnot?

Ellis Jacob — President and Chief Executive Officer

So in response to your first question about the ecosystem? One of the key ingredients and the benefits we’ve seen through this past period of time is the situation as it relates to data. We have some of the best data that’s available in the movie acquisition business compared to any of our peers around the world. And we have the SCENE program for a considerable period of time. So we can pinpoint who’ve seen what movie when and where and have used that repeatedly, and we see that continuing to grow and then also using that data to drive incidents in our other assets like –. So that to me is really, really critical compared to where we are or where we were in the past. And that’s what we spent a lot of our time during COVID, improving and making sure it’s best-in-class moving forward.

Your next question about Q3 2019 compared to Q3 2022. In Q3 2019, we had a number of movies that carried over including movies like the Lion King, Spiderman and then we had IT Chapter 2, which is a movie that did extremely well in Canada because it was produced just outside in Hamilton and did very well. So we did have some big product and that continued into the latter half of the quarter. September usually is a month where it’s not as strong because kids are and families and adults are going back to schools and universities. So we continue to see that as not being the strongest. But in all honesty, July was a strong month. August so far we’ve been good. It’s just being careful and looking at with comparative spend as we move forward.

And when you ask about the different studios and where the heads are at, as you mentioned, David Zaslav Discovery basically is committed to the theatrical window, and we feel that it’s a great overall deliver of value and also building their brand as they continue to move forward. I feel that in discussions with all of the leaders of the studios and even some of the streamers, they still feel that theatrical is the engine that drives the train. So we feel comfortable that once this COVID impact is behind us and guests are comfortable returning, which just recently on the National Association of Theater Owners report from NATO, their level had reached its highest since COVID had first commenced. So we are confident that if nothing hiccups, business will be back and charging forward. Hope that answers your question.

Tim Casey — BMO Capital Markets — Analyst

Just a clarification on box office performance, Canadian box office performance in Q2 2019. Should we assume, given the way you characterize the film slate there that it was about a third, a third, a third, July, August, September, given that it would have had a quite strong performance in the month?

Ellis Jacob — President and Chief Executive Officer

No, you’re talking about this 2022 or 2019?

Tim Casey — BMO Capital Markets — Analyst

No, 2019.

Ellis Jacob — President and Chief Executive Officer

So 2019, it would have been higher in July and August as usual before the September releases came out. So I would say it was more weighted to July and August because that’s when all the big movies gets released. Because once the U.S. films get back they go with a small picture.

Operator

[Operator Instructions] It appears we have no questions at this moment. I’m going to hand back to Ellis Jacob for the final remarks.

Ellis Jacob — President and Chief Executive Officer

Thank you all for joining the call this morning and thank you for your questions. As you heard today, our company is very well-positioned. We look forward to speaking with you again in November for our third quarter results. Until then, please take care, be well, and enjoy movie at your local Cineplex. Thank you.

Operator

Thank you for joining today’s call. Have a lovely today. You may now disconnect.