Cineplex Inc. (CPXGF) CEO Ellis Jacob on Q1 2020 Results – Earnings Call Transcript

Start Time: 08:00 January 1, 0000 8:59 AM ET

Cineplex Inc. (OTCPK:CPXGF)

Q1 2020 Earnings Conference Call

June 30, 2020, 08:00 AM ET

Company Participants

Ellis Jacob – President and CEO

Gord Nelson – CFO

Melissa Pressacco – Senior Manager, Communications and IR

Conference Call Participants

Jeff Fan – Scotiabank

Derek Lessard – TD Securities

Aravinda Galappatthige – Canaccord Genuity

Adam Shine – National Bank Financial

Drew McReynolds – RBC Capital Markets

Operator

Good day and welcome to the Cineplex Inc. Q1 2020 Analyst Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Ms. Melissa Pressacco, Senior Manager of Investor Relations and Communication. Ma’am, please go ahead.

Melissa Pressacco

Thank you, Katie. Good morning and welcome. Before I begin, I would like to remind you that certain statements being made are forward-looking and subject to various risks and uncertainties. Such forward-looking statements are based on management’s beliefs and assumptions regarding the information currently available.

Actual results could differ materially from those expressed in the forward-looking statements. Factors that could cause results to vary include, among other things, the negative impact of COVID-19 pandemic, adverse factors generally encountered in the film exhibition industry, risks associated with other national and world events, discovery of undisclosed material liabilities and general economic conditions.

I will now turn the call over to our President and CEO, Ellis Jacob.

Ellis Jacob

Thank you, Melissa. Good morning and welcome to Cineplex Inc.’s first quarter 2020 conference call. We are glad you could join us. Let me start by saying on behalf of all of us, we hope that each of you and your families are safe and healthy.

On today’s call, we will take a brief look at the first quarter results and the impact of COVID-19, but we’ll focus much more on the actions we have taken to manage through the crisis as well as our reopening plans to safely welcome guests back to our theaters and entertainment venues and ramp up our other businesses. Then, we will look ahead and share how we plan to position the company for its continued success in the future.

We will briefly touch on the end of the transaction with the Cineworld Group and our proposed litigation. And after conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview of the financials specifically focusing on the ongoing impacts of COVID-19 on our Q1 financial statements and Cineworld’s repudiation of the arrangement agreement. Following that, we will hold a question-and-answer period.

The source from an economic effects of COVID-19 have been widespread and hard hitting like so many other businesses in Canada has a direct result of the global pandemic, we were acquired by provincial governments across Canada to temporarily close all of our theaters and location-based entertainment venues on March 16.

We had a strong start to the first quarter with our total revenue for January and February up approximately 6%, but with the capacity restrictions and mandated closes in March, our first quarter results were impacted by the COVID-19 pandemic which had a negative effect on our business resulting in decreases in revenue, operations and cash flows. Gord will go into more details shortly, but what I would like to emphasize is the swift action we took to mitigate the negative impact and support the long-term stability of the company.

We immediately moved our attention to cash and expense mitigation strategies to ensure that the benefits of minimizing cash burn would be realized through the full period of our closures as well as our reopening. This included temporary layoffs of all hourly employees and voluntary salary reductions by all remaining full-time employee.

We reduced all non-essential discretionary operational expenditures such as spending on marketing, travel and entertainment. We also reduced capital expenditures, implemented a strict review and approval process for all outgoing procurement and payment requests and continued the suspension of dividends.

We also focused on partner support. This included government programs, primarily through the federal government and service level reductions, cessations and abatements from our supplier partners. We also proactively negotiated with our landlord partners for rent relief, including abatements during our closer period and converting fixed rent to variable rent during our ramp up period until attendance returns to previous levels.

Finally, we continued to meet the conditions of the Cineworld arrangement agreement until it was repudiated by Cineworld. Since Cineworld’s repudiation we have focused on working with our financial partners to ensure that our long-term liquidity needs are met. While we were able to dramatically reduce our cash burn, we also remained committed to growing and supporting the areas of our businesses not as impacted by the COVID-19 shutdowns.

These include Cineplex Digital Media which has been working at full capacity with client work and proposals by expanded food delivery services through Uber Eats and Skip The Dishes and our online Cineplex store which experienced significant growth as people consumed more content from home.

We also felt it was important to support the community in such struggling times which is why beginning in mid-April, we committed to donating $1 to Food Banks Canada for every home delivery order that we fulfilled in our theaters and locations of The Rec Rooms across Canada. To date we have raised over $100,000 to improve access to food for Canadians facing social, economic and health impacts of the COVID-19 pandemic in the short term.

During this time of uncertainty, we are focusing on what we can control and are taking prudent action in a variety of areas. We are and we will continue to make difficult but necessary decisions to manage through this crisis and position Cineplex for continued success as we begin resuming operations.

Shifting gears, I would like to take a moment to speak about the Cineworld transaction. Believe me when I say we share the frustration and disappointment felt by our shareholders at the repudiation of the deal by Cineworld who purported to terminate the arrangement on June 12.

As was communicated in our press release issued later the same day, we believe that Cineworld had no legal basis to terminate the agreement. We believe that Cineworld is in fact in breach of the arrangement and attempting to waive their obligations under the arrangement agreement in light of the COVID-19 pandemic.

In terms of timing, we expect to file our statement of claim in the Ontario courts within the next week or so and will disclose publicly when the claim is filed. Unfortunately, we cannot provide much more information at this time but we are committed to working diligently to advance the legal process and seek to recover all damages available to us based on Cineworld’s breaches of its contractual obligations.

Moving to reopening, the day our doors closed over three months ago was the day our team began diligently preparing for their safe reopening. We used that time to carefully reexamine all our buildings and processes and as theaters and entertainment venues now begin to reopen.

We are implementing an industry-leading program with end-to-end health and safety protocols across the board. Our top priority has always been the health and safety of our employees and guests and ensuring that we can offer a safe, comfortable and welcoming environment. This is why we are diligently following and implementing all guidelines from the public health authorities as well as those put forth by municipal and provincial governments across Canada.

We are also working with leading public health and infectious disease experts. Detailed information about all the measures we are putting in place is available on Cineplex.com. At a high level, our strategy centers around three key components; enhanced cleaning, reducing capacity to ensure physical distancing and leveraging technology to ease operations and lessen touch points between our employees and guests.

First, we are enhancing cleaning practices by using the highest level of the products throughout our theaters with a particular focus on high contact surfaces, restrooms and seats. We’re also ensuring our team has the personal protective equipment they need to keep everyone safe.

Second, we are implementing physical distancing measures throughout our buildings including our lobbies, game floors and food service areas. We are reducing capacity in all auditoriums and launching reserved seating across the entire network, which means that seating options will be automatically blocked out to ensure proper physical distancing in every direction between guests.

Finally, we are encouraging our guests to purchase their tickets online at Cineplex.com or through the Cineplex app for contactless entry. In theaters, we will only be accepting debt and credit payments with the exception of exchanging cash for a Cineplex gift card, which you can do at our concessions counter. We will also be limiting our food offerings to Cineplex’s famous popcorn and other core concessions during our initial reopening.

Taking our cues from government, we are also taking a gradual and phased approach to reopening. Each phase will be driven by provincial regulations around public gathering sizes and safety guidelines. The availability of first run film product, social norms around physical distancing and attendance levels at theaters and other venues once they have reopened.

We are also implementing a number of pricing and marketing strategies to attract our guests and build consumer confidence as the impact of the COVID-19 pandemic subsides. As government restrictions continue to lift across individual provinces, we have already reviewed measured operations at The Rec Room in Winnipeg, Calgary, Edmonton and Toronto.

We were excited to reopen the doors of six theaters in Alberta last Friday and we’ll continue to resume operations at some of our locations in British Columbia, Saskatchewan, Québec, New Brunswick, Nova Scotia and Newfoundland on July 3. Of course, things are changing quickly. Late last week, we learned of shifts in the film release schedule with Christopher Nolan’s Tenet moving to August 12 and Disney’s release of Mulan moving to August 21.

At this moment, we know we must be flexible and cannot treat these new releases as we would traditional release pre-COVID-19. As such, we have already adjusted our phase reopening approach. We will limit the number of theaters reopening in certain provinces in July and we’ll continue to monitor our plans as necessary to comply with both provincial health authorities as well as the timing of major studio releases if need be.

As we know, July will be a ramp up period for the industry, so we are welcoming movie lovers back into our buildings with popular releases that missed their full theatrical run at a $5 price point. With travel restrictions still in place and summer vacation plans becoming staycations, we know that Canadians would be looking for affordable entertainment options that are close to home.

Looking ahead, theater closures for the past three months have created a strong backlog of titles for the third and fourth quarters, so we anticipate a greater slate later in the year and into 2021. Movie lovers still look forward to films such as A Quiet Place II, Wonder Woman 1984, Black Widow, No Time to Die and Top Gun: Maverick among other fitting the big screen.

I would like to take a moment to thank and congratulate our theater and location-based entertainment teams across Canada as well as our field and home office employees who helped with reopening preparations and activations. Entertaining Canadians is what we do best and we can’t wait to get back to doing just that.

While it is impossible to predict how long this crisis will last and how significant the impact will be on our business, we know that our guests miss the magic of the big screen and are looking forward to shared experiences with friends and family that cannot be replicated at home, and that’s where our theaters and location-based entertainment venues come in.

I strongly believe that we will emerge from this challenging time with the renewed sense of community and appreciation of social experiences, such as movie going that has proven to be an integral part of our culture and social fabric for well over a century.

Finally, we would like to thank Mr. Ed Sonshine would resigned from our Board of Directors in May for his dedication, valuable insight and support during his tenure with us. We would also like to announce the appointment and return of Ms. Phyllis Yaffe to the Board of Directors.

As many of you may remember, Ms. Yaffe previously served on our Board, including as a trustee of Cineplex Galaxy Income Fund from February 2008 through September 2016. Most recently, she served as Canada’s Consul General in New York from September 2016 through December 2019, and we are delighted to have her back.

With Ms. Yaffe’s reappointment to the Board, the Directors have elected that she return to the role of Chair and thank Mr. Ian Greenberg for his commitment and service as Chair. Mr. Greenberg will continue to serve on the Board as a director.

Throughout our history, Cineplex has demonstrated its agility and resiliency time and time again and this time is no different. We have a highly strategic and seasoned senior management team who remains committed to our employees, our shareholders, our partners and our guests through this time of change and transition.

We are taking the necessary steps to navigate these uncertain times and remain steadfast on driving our business forward, reopening our network of theaters and entertainment venues across Canada, driving growth in other businesses and building a strong well-positioned company for the future.

With that, I will pass the call over to Gord.

Gord Nelson

Thanks, Ellis. I am pleased to present a condensed summary of the first quarter results for Cineplex Inc. and to provide additional detail on the financial impacts of COVID-19 on our operations. For your further reference, our financial statements and MD&A have been filed on SEDAR and are also available on our Investor Relations Web site at Cineplex.com.

Our MD&A and earnings press release includes a fulsome narrative on the operation results, but I will just focus on highlighting and quantifying some of the more unusual items, including Cineworld’s repudiation of the arrangement transaction and the impact of the ongoing effects of COVID-19 on our Q1 financial statements.

The COVID-19 pandemic had a material negative impact on all aspects of Cineplex’s businesses resulting in material decreases in revenue, results of operations and cash flows for Q1 2020. As Ellis mentioned, we were off to a good start with our total revenues up approximately 6% for the first two months of 2020. But with capacity restrictions and mandated closures in our exhibition and LBE businesses in the month of March, our total revenue for Q1 ended up down 22.4% and this impacted all other financial metrics.

Although COVID-19 material impacted our exhibition and LBE businesses, we were pleased to report record Q1 results in our digital place-based media business and growth in our digital commerce and food delivery businesses demonstrating that our diversification strategy has continued to serve us well.

I’d now like to provide additional commentary on some of the unusual items in our Q1 financial statements. I would like to start with the $173.1 million impairment charge we recorded in Q1. This $173.1 million charge is broken down as follows. 88.5 million related to goodwill; 50.6 million related to right-of-use assets; and $33.9 million related to property, equipment and leaseholds. In addition of the asset, $34.4 million was set up related to this charge.

There are a number of nuances related to this charge that are important to understand and I will suggest that the magnitude and comparability of this charge against our peers and other issuers is subject to understanding these nuances.

The items I want to discuss are the timing of filing versus the date of the financials, U.S. GAAP versus IFRS, quarterly versus semiannual reporting, IFRS 16 impacts, market views including stock price and finally the potential reversal of impairment charges.

The triggering event to the impairment analysis was obviously COVID-19 and the effective date for the testing with the balance sheet date. Similar to others, the issuer is required to assess the impacts of COVID-19 on the recoverability of its net assets as compared to their carrying value.

The recoverable amount of the asset is determined by their fair value which Cineplex calculates using projected future cash flows beginning from the date of the balance sheet, in other words March 31, and using the best available information as of the filing date, which is in our case is June 29.

This is an important number [ph]. If you remember a month ago was that COVID-19 closures would be shorter and the return to normal would be quick, and that’s why we had to release the Q1 financial statements earlier may have underestimated the ultimate impact of COVID-19.

Given our current knowledge, we know that the impacts have been more severe and thus we are reflecting this knowledge in our Q1 results. Given the testing date as the balance sheet date of March 31, we need to include the no negative impacts in Q2 during the closure period and also through the reopening period in Q3 in our future cash flow analysis.

These negative impacts are included in our impairment analysis, despite the fact that they would theoretically reverse all other outlooks and assumptions equal by our next testing date. As a result of this, it is important to consider our charge versus other filers who filed financials earlier.

What are the key differences between U.S. GAAP and IFRS was that the initial test for impairment is an undiscounted cash flow analysis for U.S. GAAP as opposed to a discounted cash flow analysis for IFRS. As such, the near-term losses during the closure period have a much more significant effect under IFRS than U.S. GAAP. In this regard, it is difficult to compare our charge versus our U.S. peers.

As we look to our European peers reporting under IFRS, one must also consider the timing of reporting. Given our quarterly reporting and impairment testing trigger date of March 31, we were required to include the full impact of the Q2 losses during the closure period in our testing.

If you report on a semiannual basis and have a first half reporting period of June 30, then you would benefit by not having to include the near-term losses in your impairment calculation. Thus, it is difficult to compare our Q1 charge versus others that have got semiannual reporting.

Next, I would like to talk to some of the impacts of the recently adopted IFRS 16 and the fact that we are in a business with long-term leases. On adoption of IFRS 16 in 2019, the right-of-use assets we’re setting up using a weighted average discount rate of approximately 3.5%, the incremental cost of borrowing at that time.

At December 31, 2019, the net value of right-of-use assets was $1.2 billion. We are now testing impairment using discount rates between 9% and 11.9% and have an effective mismatch in discount rates between the assets and cash flows which is impacting the impairment analysis.

In addition to the above items we need to reconcile our overall analysis to market views which includes consideration of the current stock price and future stock price estimates. Given the market uncertainty and significant decline in our stock price, this has all negatively impacted our overall impairment analysis.

And my last comment is related to the potential reversal impairment charges under IFRS. We will continue to abide with our projections as more certainty regarding the impact of COVID-19 become known and we will refine our estimates. But we do know that once we reassess at year end, the near-term impacts of the Q2 mandated closure and estimated Q3 reopening period will be behind us, and this could lead to a reversal of these impacts assuming no other changes in estimates or assumptions.

My apologies for the long commentary on the nuances of the impairment charge standards, but I wanted to stress that the comparability and calculation of this item is based on a number of factors that need to be understood before coming to any conclusion on this matter, and in particular when comparing this to other filers.

My next comment is with respect to the going concern referenced in the financial statements. Cineplex continued to act within the terms of the arrangement agreement and it wasn’t until Cineworld repudiated the deal on June 12, 2020 that Cineplex could actually plan and discuss liquidity matters with third parties.

Since June 12, Cineplex has entered into a credit facility amendment which we announced yesterday after market close that provides for the immediate suspension of covenant testing which can be extended through Q2 and Q3 upon a mandatory permanent repayment of $100 million of our credit facility from the proceeds of a minimum $215 million financing by August 31.

Cineplex will explore financing options and potential asset sales, but as of the date of our filing yesterday there is no [indiscernible] event. And as such, there is no certainty and accordingly we have included the going concern language in our financial statements.

As our peers and others have had successful financing events, we are confident that we will be able to deliver on this requirement prior to August 31, and as such the going concern would no longer be required assuming no other changes to the future outlook.

My final comment on Q1 is with respect to the impact of the repudiation of the Cineworld transaction on our Q1 results. The Q4 2019 results were based on the assumption that the Cineworld transaction would close in 2020. Following the repudiation on June 12, we adjusted certain items in Q1 2020. The most significant item is that we have reversed the accelerated vesting rights on certain stock-based compensation items which would have occurred if the transaction closed.

This and the stock price decline were the key contributors to the approximate $14.8 million reduction in LTIP and option plan expenses during Q1. We continued to incur transaction costs of approximately $1.3 million. And lastly, we ceased hedge accounting in Q4 on the presumed early repayment of debt on the transaction close, and this has contributed to the increase of non-cash interest charges of $9.9 million in Q1 2020. All of the above items I’ve discussed have had a material impact of our Q1 financial statements.

Now let’s move forward and spend some time talking about the impacts of COVID-19 in Q2 and some of our remediation initiatives. First, I would like to talk about our debt balance. As of March 31, 2020, our total borrowing under the credit facility was $665 million and as of June 29, 2020 it was $664 million. So our net borrowing decreased during the closure period.

How did we do this? Ellis has provided some commentary on our key initiatives, but let me provide some additional color. First, not all of our businesses were impacted by the mandated closures. We’re able to continue to operate our digital place-based media business and our digital commerce and food delivery businesses.

From a payroll perspective, on closer we immediately initiated temporary layoffs and reduced full-time employee salaries across the board by agreement with the employees. These were voluntary permanent reductions and not deferrals. We reviewed and applied for government subsidy programs where available, including the Canada Emergency Wage Subsidy. As a result of these various initiatives, we were able to materially reduce our payroll costs during the second quarter.

We continue to maintain strong communication channels and work with our landlord partners in identifying opportunities for release during these unprecedented times. Our focus has been on working with them to identify opportunities for abatements during the closure period to convert the fixed components of rent to variable rent during the reopening period and to jointly look for other opportunities under our existing lease agreements.

We have been very successful in this regard to date and appreciate the strong relationships and support we have built and maintained with our landlords during our history. While we are still in the process of finalizing some of these initiatives and the accounting for any amendments is more complex under IFRS 16, I’m pleased to share that we expect to have material reductions in cash payments related to occupancy costs during the closure period.

With respect to other supplier partners and expense control, we put in place immediate expensing CapEx curtailment programs during the closure period and worked with our supplier partners to provide elements of relief, including cessation or reduced amounts of contractual services and payment deferrals. We expect that on a going-forward basis, our growth CapEx will be curtailed and I will detail more on this later.

In addition, we focused on managing our working capital to ensure that we were optimizing our cash position. As a result of the above and other key initiatives, we are able to remain in a relatively debt neutral position during the second quarter and also provide for benefits which will extend into the recovery period.

Although we were effectively debt neutral during the quarter, operationally we did have an effective cash burn rate of approximately $15 million to $20 million a month before the impact of working capital initiatives supported in particular by the focused strategies on the collection of outstanding receivable balances.

As we look ahead, we continue to focus on our reopening plans and continuing to explore opportunities for further cost reduction and value creation. As we consider liquidity, we had eliminated the monthly dividend as part of the arrangement agreement and do not expect to restart paying a dividend again in the near future.

In addition, we are looking to bring CapEx down to approximately $15 million for the next 12 months from our previously estimated run rate of approximately $150 million. These two initiatives alone will preserve approximately $200 million in cash. We will continue to explore appropriate financing and further opportunities to drive value.

We are disappointed as you are by Cineworld’s repudiation of the transaction, but are fully committed to preserve our legal rights under that deal and expect to file our statement of claim in the near term. In addition to all the above matters, we will continue to work on behalf of our shareholders to deliver value in the future.

That concludes our remarks for this morning. And we’d now like to turn the call over to the conference operator for any questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions]. Our first question will come from Jeff Fan with Scotiabank.

Jeff Fan

Thank you. Good morning. Good to hear from both of you and hope you both guys doing well. I’ve got a couple of kind of housekeeping clarification questions and one on the film release schedule. Just on the housekeeping clarifications, regarding the fourth quarter 2020 covenant with leverage at 3.75x, Gord, can you just clarify the mechanics of how that will be calculated because in the release you talk about annualized adjusted EBITDA, so I just want to understand the mechanics on how to calculate that?

The second one is just on your impairment test disclosure, and thanks Gord for all the clarifications on that, but just one final point. In your disclosure you talk about EBITDA growth estimate ranges and your assumptions of minus 4% to plus 40% between the second half 2020 to 2024. I guess I want to get your sense of how that range was arrived and whether that’s a quarterly or an annual EBITDA and just comment on the minus 4% because certainly is probably better than what many people are estimating?

And then just a final question bigger picture regarding the film release versus the U.S. Seeing that the U.S. cases are still going up and that might [indiscernible] clients in the states to more further film releases, is it possible and this question’s probably for Ellis to negotiate early release schedule for Canada out of the U.S.? I know this probably hasn’t been done in the past, but I think we all can agree that we’re in unprecedented times and lots of things have happened in the last three months that we’ve never seen before. So just wanted to hear if there is any possibility of that? Thanks.

Gord Nelson

So, Jeff, it’s Gord. I will take the first, the housekeeping questions and then Ellis will chat about the film release. So first of all with respect to the Q4 covenant calculation and how we will annualize it, in essence it will be as typically we will take the Q4 results, we’ll adjust out for any nonrecurring type items during that quarter and annualize the results based on that quarter’s activity. So we will no longer include the Q2 and Q3 results. It will be based on an annualized Q4 result.

With respect to the range of growth estimates and with respect to the impairment testing, obviously we looked at business by business and we drill down into the EBITDA range as we ran a number of sensitivity analyses under different scenarios. We probability weighted all those scenarios to come up with the overall impairment test. And so those were the ranges of EBITDA CAGRs that we’ve developed during that period, taking into account any mitigation strategies and any growth opportunities that we had in those businesses.

And now I’ll turn it over to Ellis to take the film question.

Ellis Jacob

Yes. Jeff, as you’ve seen, the slate continues to move depending on what is happening south of us and we are fortunate that both Tenet and Mulan are in the month of August and there are other movies like Unhinged that are also opening within that period. And then we’ve got a whole slew of films taking up through to the end of the year. But we have been talking to studios. That challenge is very, very difficult for them to release the movie in specific countries when they look at the box office for the whole world to deliver for their new movies.

So yes, we are very conscious and I know in the U.S. at this point in time and as part of the National Association of Theater Owners, we’ve got over 40 states that are now permitted movie theaters to open but there are key states like New York, New Jersey and certain parts of California that we are still working on, but it will all depend on what happens as it relates to the number of cases in these jurisdictions. So we have strong hope and we opened our first number of theaters in Alberta this past weekend, so we are slowly growing towards making sure that we have our theaters available for the reopening in August.

Jeff Fan

That’s great. Thank you both.

Ellis Jacob

Thanks, Jeff.

Operator

Thank you. Our next question comes from Derek Lessard with TD Securities.

Derek Lessard

Good morning, everyone.

Ellis Jacob

Good morning, Derek.

Gord Nelson

Good morning.

Operator

It seems we have lost Derek, so we will move on to our next question. Our next question comes from Aravinda Galappatthige with Canaccord Genuity.

Aravinda Galappatthige

Good morning. Thanks for taking my questions. Hope you guys are doing well. My first question relates to cash burn. Gord, I think you provided some really helpful color with respect to Q2, but obviously when we think of sort of the ramp up process it will take many months to sort of get back towards sort of more normalized levels, can you help us understand sort of the flexibility of the model given the changes that have been affected at an end level, I’m trying to get a sense of where that breakeven point would be in terms of attendance and in terms of occupancy. I realize that’s a tough number to provide, but any kind of color around how sort of the model would work as you kind of ramp up and what cash burn could look like?

And secondly, I was wondering if you could provide a little bit more insight as to sort of your financing options. I know the 250 million minimum that has been cited in the credit agreement.

Gord Nelson

Sure, Aravinda. With respect to your first question, I would say that as we discussed, we’ve taken great efforts and to look for opportunities to reduce and mitigate costs as we look forward. I would say that our two largest sort of relatively fixed costs or semi fixed costs, our rent cost and our payroll cost obviously food cost and film cost are totally variable.

With respect to those two items, I want to make some comments on those. The first is with respect to payroll is we’ve been able to materially reduce our payroll expense during the closure periods and we will during the reopening period as the Canadian Emergency Wage Subsidy becomes available. That subsidy is in place currently until the end of August, so we will benefit from that through the reopening period for the next two months. If that subsidy were to extend further, then that would provide us other opportunities going forward.

The other comment that I made during my prepared remarks was that we’ve continued to maintain strong relationships with our landlord partners and as we look to renegotiate and look at our terms going forward is during this period we have worked together and are looking to convert fixed rent to variable rents during our reopening phase. We’re still in the process of finalizing a number of those, but we’ve been very successful to date. So again, that would mitigate some of the cash burn. So what we would expect is that during the reopening period is we will be able to reduce the amount of cash burn rate that we had during the closure period obviously. Part of that will be based on continuation of any wage subsidy and finalization of agreements with landlords.

The other question was with respect to financing options and when we look at financing options, we want to – obviously we’re exploring everything that is available to us including potential asset sales and we’ll probably have more to report on that later.

Aravinda Galappatthige

Thank you. And just a follow up for Ellis. Going back to the film slate, obviously the performance of 2021 is very significant to the Cineplex story as it is for the other theatrical businesses. It looks on paper to be a very good slate particularly in the second half of the year. Ellis, do you have any insight as to sort of the principal photography on these movies, particularly the big ones coming up like Batman, Spiderman, Avatar, is that – do you know if that’s sort of on hold because of COVID-19 conditions particularly in the U.S. and would need to be sort of pushed out to 2022 or any kind of early news on that that you can share? And I’ll pass the line from there. Thank you.

Ellis Jacob

Yes, and a lot of movies in 2021 look extremely strong and a number of them have moved over from 2020, so those movies will definitely be there. We have Fast & Furious, then you’ve got Jurassic World, Minions. There are a full bunch of movies; Space Jam 2, the Suicide Squad, Batman as you mentioned. So I think 2021 given our revamp Mission Impossible, then Godzilla vs. Kong, Ghostbusters, then the strong, strong slate in 2021. And most of those movies are pretty far down the road from a production perspective and it all depends on how long the COVID-19 continues because some of the work is not being done in particular places as impacted as other filming locations. So I think 2021 will be a very strong year for us going forward.

Aravinda Galappatthige

Thank you.

Operator

Thank you. We have Derek Lessard with TD Securities back on the line. Sir, please go ahead.

Derek Lessard

Yes, thanks, guys, sorry about that. It seems like I go dropped and I apologize if it’s been answered. But I was wondering for the required $250 million waive, is there any limits on the new agreement on whether this could be equity or debt?

Gord Nelson

Yes, so as I said earlier, we’re going to explore kind of all options that are available to us including the asset sales as we go through this process. So in terms of liquidity, what we want to do is ensure that shareholders are comfortable that we’re going to have adequate resources in place to continue to execute our strategic plan throughout 2021.

Derek Lessard

Okay. And I guess on that plan, I think one of the conditions or requirements to the amended facility was limited growth CapEx. And number one, I guess I just want to – so did you say $50 million versus 150 or 15?

Gord Nelson

No, 5-0 and then we kind of fall back to say that, so we would typically run at around 150, so that’s $100 million reduction in the near term on growth CapEx – sorry, in total CapEx. Our maintenance CapEx is typically about 30 million. So we’ll look in the near term to invest about $50 million in total CapEx.

Derek Lessard

Got it. Thanks for that. And I was wondering if you could talk about how this pertains to some of the initiatives that you had going on before the Cineworld transaction and more specifically to The Rec Room and Topgolf?

Ellis Jacob

So, Derek, I would say obviously there’s a little bit of a slowdown but I think it’s prudent for us to actually – this is a triggering event in the retail landscape and this is not necessary about us as a company. This is about the retail destination of the future. And there’s going to be significant impact to landlords and how those destinations are going to be – how those destinations are going to exist in the future. So although we’re slowing it down, I think it’s prudent because I think there’s going to be more opportunities in the future and we’re going to be prepared to take advantage of those opportunities.

Derek Lessard

Okay. And I guess one final one from me before I re-queue just on the P1AG, I’m just wondering if the route locations have opened up or is this business essentially zero for Q2 as well?

Ellis Jacob

No, there’s obviously ongoing business there and The Rec businesses have – because there’s a large percentage of the business in the U.S. and so as we have reopened in the U.S., so yes. Look, the business was impacted but not as impacted as the mandated closures from a theater perspective.

Derek Lessard

Okay. Thanks, everyone.

Ellis Jacob

Thank you.

Operator

Thank you. Our next question comes from Adam Shine with National Bank Financial.

Adam Shine

Thanks a lot. Good morning. Hope all is well. Ellis, there’s a lot of flip flopping going on stateside or at least maybe one flip or one flop vis-à-vis mandating masks. You guys have chosen not to mandate masks. Any particular reason why?

Ellis Jacob

Adam, we are going to be handing out masks and we are encouraging people to wear them and we are following the local guidelines that the government is putting forward. And we feel when people are in places where they are in close proximity, they should be wearing their masks and that’s what we are going to be doing at the company all across the country. So to us it’s important that we keep physical distancing in place and we do all the things we need to keep the environment safe for our employees and our guests and that’s what our goal is. So when you are in the hallways, in the washrooms, we encourage you to wear your mask and that’s going to be what we are going to be asking people to do as they walk through the theater.

Adam Shine

I’ll ask this a bit carefully because I know obviously the ICA process was a very private one. But I think we could argue that they did not serve you well in regards with timing of what transpired here and COVID did not help of course, but can you speak at all to what exactly transpired on the file that seemed to lack much urgency during its first 75 days. And in theory, could have avoided what transpired I guess mid-March?

Ellis Jacob

Look, in honesty, I don’t want to get into a question of legal strategy. However, the applications for the ICA Approval was brought by Cineworld and it was up to them to direct process. We used all of our authority under the arrangement agreement to push that process forward and basically Cineworld did not move it forward in the speed that we anticipated would happen and would have resulted in the transaction closing earlier.

Adam Shine

Okay. And maybe one for you Gord. When we look to what transpired with the disclosures around the lenders and the provision of covenant relief, albeit with the conditions, is there something here that the lenders are particularly concerned about in the context obviously of what they see into Q2, which otherwise looks a bit more benign, right, in terms of how you have presented clearly very good controls that you put in place with respect to where the balance sheet actually sits at the end of June, but it looks as though they put the screws to you a little bit tighter than what we’ve necessarily seen amongst some of your peers. Some of that perhaps might be a bit of a timing factor where the other guys were able to move a little bit sooner and ahead of the recent delay in reopening and certainly the release slate being pushed. But can you speak Gord to the nature of some of those discussions because it does appear to be a bit more onerous than what we might have expected.

Gord Nelson

Yes. So, Adam, it’s not something that you can really do a peer comparison on. I would suggest that our credit facility is made up of Canadian financial institutions and that the appropriate comparison would be other Canadian retailers. So within the Canadian financial and the banking system, a number of industries have been designated as COVID impacted with uncertainties out there. And so it’s common practice and it’s very common under these credit facility waivers that as you said it that there’s tighter restrictions placed on the companies until that uncertainty becomes clear. So I would suggest that don’t compare that to peers and it’s nothing about views of our business versus another lender’s views to a U.S. company’s business. It’s about a Canadian lender’s view about Canadian businesses that are impacted by COVID-19.

Adam Shine

And then just going back to the earlier question in regards to growth initiatives, I guess the 50 million of CapEx over the course of the next 12 months with the context of maintenance being about 30 million does still suggest that there’s some room to maneuver in regards to any potential LBE location or maybe two to be pursued. Is that still a fair assessment of how you’re characterizing the CapEx within the constraints of this new agreement?

Gord Nelson

Absolutely, yes. So there’s some growth CapEx in those numbers. So we’ll look to continue to grow. But like I said, I think it’s a good opportunity to kind of review the landscape and see what new opportunities may become available for us too. And new opportunities from data signing to starting to build would be over a 12-month period.

Adam Shine

Okay. Thank you very much.

Gord Nelson

Thank you.

Operator

[Operator Instructions]. Our next question comes from Drew McReynolds with RBC.

Drew McReynolds

Thanks very much. Good morning. Maybe I’d start off with a clarification question on the cash burn, Gord, related to the 15 million to 20 million per month. Sorry, I missed under kind of what condition was that under kind of a closed condition with all the things you did on the cost side for Q2 or am I missing the context?

Gord Nelson

No, Drew, you’re absolutely correct. So that was my indication through Q2.

Drew McReynolds

Okay, perfect.

Gord Nelson

Before closure.

Drew McReynolds

Yes. On the business going forward you talk about a lot of measures that will be put in place. I think obviously Cineplex takes all of that incredibly serious. When you look about retooling and using technology, does the profitability here at the business change from a cost standpoint but also getting passed the early low price points in marketing expenses? Do you feel you can kind of have the same pricing power on the other end? So just more of a profitability or margin question overall for the business once it gets out of the hole here?

Ellis Jacob

Good question and really what we’re looking at is in the interim with the reduced prices just getting or get the habit of coming back to the theaters making them feel safe in the environment. And once the bigger films get back in all of this, we will be going back to our prices that we had pre-COVID and looking at opportunities there. There will be slight incremental costs on the cleaning side but we’re negotiating with our suppliers to keep the best efforts forward as it relates to making sure that the guests and the employees are protected as we move forward, and it’s important to have PPEs as all part of that process.

Gord Nelson

And Drew, one other comment I want to make because you referenced technology and look I think the important thing and this is a little bit different than some of our peers is that we had businesses, so our online business and our food service business, delivery business which allowed us to engage with our customers throughout the closure period. So we’ll maintain that ongoing engagement with our customers which perhaps some other exhibitors haven’t been able to do.

Drew McReynolds

And on that – Gord, thanks for that. When you look at the consumer behavior side of things and certainly I don’t think everyone has any crystal ball out there, but that seems to be the $1 billion question here in convincing folks to get out of the home and back to out-of-home entertainment venues. Are you able to or have you done any surveys using the theme program just to see where your patrons are at on this particular issue, maybe it’s too soon? And then last question for me on the theatrical window, Ellis, you seem to always be at the ground zero of that evolving debate on the window itself. Perhaps you can just provide us with an update there would be helpful? Thank you.

Ellis Jacob

Drew, on a customer survey perspective, actually we have been very active on survey in our customer base. Customer views have evolved over time obviously with the pandemic, but what I would say is that as we look at the customer base, the desire to go out and see movies is in one of the top three out-of-home experience – sorry, out-of-home events that consumers are looking to do. And I think – if I recall correctly, the top three were going out to restaurants again, vacations and then movie going. So significant interest in coming back out and watching a movie.

Gord Nelson

On an overall basis when we did the SCENE surveys of our guests, we saw numbers close to 80% of them wanting to come back and experience the movie theater in 2020.

Drew McReynolds

Okay.

Ellis Jacob

And to your second question about windows, this is kind of a different period that’s why we’ve seen a couple of movies that normally would have been in the theater going into the Disney Plus and some other situations of streamers. But in the long run from our discussions with the studios and our partners, we continue to see the window as an opportunity piece going forward. And as you can tell, this is a $40 billion business worldwide and I don’t think the studios want to be trading dimes for nickels. So it’s really, really important and all the big films will continue to have that window and even the smaller films will move forward with those particular windows. So I don’t see much of a change there other than some small films maybe falling out of the schedule. But then you’ve got opportunities with companies like Apple getting into the movie business which will help us over the long term.

Drew McReynolds

Okay. Thank you very much.

Operator

Thank you. Our next question comes from Derek Lessard with TD Securities.

Derek Lessard

Just a follow up for me. You said that you were exploring all options, including asset sales. Could you help me wrap my head around what constitute as asset sales given your business model?

Gord Nelson

Sure. An asset sale could include touch items as owned or real estate which would include a portfolio of all the real estate including our head office’s building on Yonge Street in Toronto. It could include some of the equity investments that we have accumulated over time as well as potentially it could be a business and we announced in our Q1 financial statements that we have filled our eSports business just the other day. So those will be the types of items. So owned, real estate, equity investments, business units.

Derek Lessard

Okay. Thank you.

Operator

Thank you. I’m showing no further questions at this time. I would now like to turn it back over to management for closing remarks.

Ellis Jacob

Thank you all for joining this call this morning. We look forward to providing additional updates as we continue to reopen our circuit of theaters and entertainment venues across the country and hope to see you in person. So thank you very, very much and have a great day and Happy Canada Day.

Operator

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may now disconnect.

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