Cineplex Inc

TSX:CGX

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, everyone, and welcome to the Cineplex Inc. Q3 2022 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions]

I will now turn the call over to our host, Mahsa Rejali, Executive Director, Corporate Development and Investor Relations. Please go ahead.

[Mahsa Rejali, executive]

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 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 the 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.

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, executive]

Thank you, Mahsa. Good morning, and welcome to our Q3 2022 Conference Call. We are glad you could join us today. I am pleased to share that the third quarter marked another significant step in the resurgence of Cineplex and the theatrical exhibition industry.

The North American box office reached $1.9 billion during the quarter, which was 44% higher than Q3 2021. These results were achieved despite a widely expected, and thankfully temporary, limited supply of Hollywood content in the second half of the quarter.

Leading the box office was Minions: The Rise of Gru, which brought families and the highly sought after teen demographics back, generating over $360 million in North American box office. Then there was Marvel's Thor: Love and Thunder, which has earned over $340 million domestically to date. And the continued success of Top Gun: Maverick.

Top Gun, which has become 1 of only 6 films to ever exceed $700 million in North America. It is now the fifth-largest domestic film of all time. The sustained success of this title 23 weeks after its initial release is truly remarkable.

These results, along with many other examples from the past year, demonstrate that consumer enthusiasm for theatrical moviegoing is as strong as ever. Even more promising is that we continue to see significant growth in attendance for our premium offerings, which accounted for nearly 37% of our third quarter box office. We now offer 8 different types of experiences for movie lovers, and these investments are showing strong results as our theaters with premium amenities have been the fastest to recover. The bottom line is, when there is compelling content, guests are coming back to our theaters.

Leading up to the quarter, Cineplex and the industry as a whole anticipated limited Hollywood content in August and September as a result of pandemic-related production delays. In response, we undertook a series of targeted marketing initiatives to drive attendance and diversify our film slate by increasing focus on international products.

We consistently take an industry-leading position in international cinema, and we're very pleased with this quarter's results. In fact, we earned an impressive 80% of the North American box office for the Punjabi film, Chhalla Mud Ke Nahi Aaya. For Disney's Bollywood title, Brahmastra: Part 1 - Shiva, Cineplex took a notable 28% market share. These are strong numbers, especially for Cineplex, which generally accounts for 7% to 8% of the North American box office on Hollywood releases.

Years' worth of rich data above Canadian moviegoing habits has enabled us to match certain content to the right demographics in specific locations. As a result of our efforts, we achieved box office revenue of 70% compared to the same quarter in 2019.

From a recovery perspective, our June box office came in at 89% compared to the same month in 2019, followed by 85% in July. Due to the previously mentioned product supply issues, box office results declined in August and September, but Cineplex performed better than the industry as a result of the initiatives I noted earlier.

In August, we reached 64% of 2019 levels, exceeding the domestic industry by a notable 500 basic -- basis points. Similarly, in September, we reached 52% of 2019 levels, outpacing the North American box office recovery by 300 basis points. And in October, we continue to be impacted by content supply challenges for the first half of the month, but still our box office recovery reached 62% of 2019.

While Gord will speak to our financial highlights in more detail shortly, I did want to emphasize our commitment to growing our diversified businesses. We are particularly pleased with the results of our Amusement and Leisure segment, which included an all-time quarterly record adjusted EBITDA in both the P1AG and LBE business.

The momentum at the box office, combined with growth in our diversified businesses, fueled third quarter year-over-year revenue increase of 36% and adjusted EBITDA of $20.4 million, which is a 90% growth when compared to the same quarter last year.

And there's more to be optimistic about. The Fanfan successful opening of Black Adam last month has kickstarted the exhibition industry from a film slate perspective. This holiday season will be a busy one with 2 of the most highly anticipated releases in years: Black Panther: Wakanda Forever, and Avatar: The Way of Water.

Black Panther opens tonight for advance showing across Canada, and ticket sales thus far indicate that we are on track for a very strong weekend. Avatar: The Way of Water, which opens December 16, is the highly anticipated sequel to the highest-grossing film of all time. As you may know, the Canadian Academy Award winner, James Cameron directed the film and was also one of the writers.

Our team remains focused on reigniting theatrical exhibition and driving attendance. One key pillar of this marketing is marketing and loyalty. During the third quarter, through targeted Scene+ offers, promotional campaigns and one-to-one engagement offers, we outpaced the industry as noted above.

We also participated in the inaugural National Cinema Day campaign on September 3, where theaters across Canada, the United States and Europe celebrated moviegoing by opening their doors with $3 admissions. Welcoming over 0.5 million guests in 1 day, National Cinema Day was our busiest day thus far in 2022 and third-busiest day in the last 5 years.

During the quarter, in partnership with Scotiabank, we also officially welcomed Empire Company Limited to the Scene+ loyalty program as a co-owner as it initiated its phased retail rollout across Canada. This has resulted in substantial membership growth in recent months, which will continue as the program as rolled out across Canada. Following the launches in Atlantic and Western Canada, the rollout for Ontario occurred last week, and Quebec's rollout the schedule for early next year.

To further underscore the positive momentum for Scene+, Home Hardware Stores Limited would also be joining Scene+ as loyalty partners sometime next summer. Scene+ growth provides Cineplex the opportunity to engage and reach a wider range of consumers, including non-moviegoers.

From a subscription perspective, we are introducing 2 important innovations to our CineClub program leading up to the holidays, just in time for the upcoming busy box office and the holiday gifting season.

First, in September, we launched the ability for members to purchase annual memberships. And earlier this week, we also launched gifting. This means that this holiday season, Canadians will be able to give the gift of a year of movies to their loved ones. CineClub has been a great success since its launch, and we will continue to innovate and expand CineClub features as we focus on program growth.

In October, we hosted the exclusive Black Adam Rocks Canada fan event at The Rec Room Roundhouse, welcoming world-famous Dwayne Johnson into our venue. Over 900 fans and the media enjoyed exclusive photo opportunities, the chance to win various prices including annual CineClub memberships, and a special advanced screening of Black Adam at neighboring Scotiabank Theater Toronto.

The success of events like these certainly demonstrates our ability to leverage assets across our ecosystem, whether in a theater or an entertainment venue, to engage with customers while driving business across Cineplex's operations. I would like to thank Warner Bros. Pictures Canada for partnering with us, and we look forward to hosting similar events in the future.

In the quarter, we continued to diversify film content and increase our international offerings through our distribution business, Cineplex Pictures. The business continues to grow as we release the anime hit Dragon Ball Super: Super Hero, along with 3 international films this quarter, including titles from China, South Korea and Egypt. In fact, this past weekend, 2 of the top 10 films in Canada were distributed by Cineplex Pictures, One Piece Film: Red, and Prey for the Devil.

In addition, we continue to make progress with nontraditional suppliers as they are choosing to showcase their content on the big screen. In October, we reached an agreement with Netflix for the theatrical release of Glass Onion: A Knives Out Mystery, later this month.

It is becoming increasingly clear that the approach by streamers to collapse theatrical windows and squarely focus on growing a subscriber base does not deliver a sustainable or competitive return. Traditional and nontraditional studios are now forming a new and heightened appreciation for the role of a theatrical release and increasing awareness and value for content prior to its launch on streaming platforms.

That said, we believe this realization will lead to further content opportunities with exhibitors. As you've heard me say before, exhibition is the engine that drives the train for downstream revenues for any and all content producers.

Turning to our next strategic priority. Our diversified businesses continued their strong rebound and recovery. As mentioned earlier, our Amusement and Leisure segment continues to consistently deliver strong results. And this quarter, it generated all-time quarterly record revenues and adjusted EBITDA. In fact, revenues for comparable LBE locations reached 95% of 2019 levels, with many locations exceeding 2019 results.

Our P1AG business also performed exceptionally well, generating a record adjusted EBITDA and adjusted EBITDA margin of 19.8%. This is reflective of strong top line demand, where we saw third quarter revenues exceed Q3 2019 and our team's ability to effectively manage inflationary pressures and control costs.

On the media side, we remain encouraged by continued signs of recovery for Cineplex Media and Cineplex Digital Media, both seeing significant improvements in overall revenues for the quarter. With the promising film slate and holiday mall traffic to look forward to, we expect to see further momentum in these divisions moving forward.

Overall, we are pleased with the performance of all our businesses and the diversification strategy as a whole, which has been an important pillar for the continued growth of the company.

Looking ahead, we are particularly excited about opening the first location of our new entertainment concept, Junction, later this year in Winnipeg. Aptly named, as it leverages our capabilities in exhibition and location-based entertainment, Junction will provide our guests the ultimate destination for a complete night out. It features multiple entertainment options, including movies, amusement, gaming, live events and expanded food and beverage offerings, all in one great venue.

Though Junction is the first of its kind in Canada, the location itself was not new to our circuit. Located in Winnipeg, the new Junction location will replace an existing older theater, Famous Players Kildonan Place. Our second Junction is scheduled to open at Erin Mills Town Centre in Mississauga, Ontario in mid-2023.

Before I pass things to Gord, here is a brief update on the ongoing litigation with Cineworld. As we announced on September 7, Cineworld filed for Chapter 11 bankruptcy in the United States, which resulted in an automatic worldwide stay of all enforcement proceedings against it. We attempted to lift the stay with respect to the ongoing appeal in Ontario, but our request was denied, and the litigation is on hold for now.

On October 31, Cineworld received final Board approval with respect to its debtor and possession facility, which required agreement from its lenders and landlord. It is important to note that this is not a plan of reorganization. That said, Cineworld remains under Chapter 11 bankruptcy, and we continue to work closely with our advisers to monetize and maximize the judgment claim.

Looking ahead, it is clear that all of our businesses are gaining momentum. The global exhibition industry is rebounding as guests return to theaters in search of great movie moments, premium experiences and a magical escape. Our studio partners and nontraditional studios recognize the underlying importance of an exclusive theatrical window as evidenced by the desire to release their content on the big screen.

We're excited by the robust film slate of blockbuster titles for the remainder of the year and into 2023. We feel this lineup, combined with strong consumer enthusiasm for moviegoing, confirms that our business is back in a film slate, it is important to remember that the volume of films isn't the only indicator of success at the box office.

Oftentimes, fewer titles means that they can have an extended life in the theaters. At the end of the day, quality is the key driver to the success of the box office. As evidenced with the success of Top Gun, we look forward to much anticipated titles in 2023, including Ant-Man and The Wasp, John Wick: Chapter 4, Super Mario Brothers, Guardians of the Galaxy Volume 3, Fast X, The Little Mermaid, Spider-Man: Across the Spider-Verse, Indiana Jones 5, Mission Impossible 7, Barbie, Christopher Nolan's Oppenheimer, The Marvels and Dune Part 2.

In closing, we remain focused on maximizing value across all our businesses and driving shareholder returns. Our balance sheet is solid, and we remain confident in our ability to manage financial uncertainties. Cineplex is well-positioned to fully capitalize on surging demand as we head into an exciting holiday season and beyond. I'd like to thank our incredible team for all that they do to enhance our position as an industry leader.

With that, I will turn things over to Gord.

[Gord Nelson, executive]

Thanks, Ellis. I am pleased to present a condensed summary of the third quarter results for Cineplex Inc. For further reference, our financial statements and MD&A have been filed on SEDAR and are also available on our Investor Relations website at cineplex.com.

Our MD&A and earnings press release include 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 pleased with our Q3 operating results. We reported adjusted EBITDA of $20.4 million. And although the film exhibition segment faced some film release schedule challenges, our diversified business model continues to deliver with our Amusement and Leisure businesses reporting its strongest quarterly adjusted EBITDA ever.

Total revenues increased 36% to $339.8 million from $250.4 million in the prior year. Net income was positive $30.9 million as compared to a net loss of $33.6 million in the prior year. And adjusted EBITDA increased 90% to $20.4 million from $10.8 million in 2021.

In our Film Exhibition and Content segment, attendance increased 34% to $11.1 million -- sorry, 11.1 million people in the current quarter as compared to 8.3 million in the prior year. We reported second quarter BPP of $11.25 and CPP of $8.35. Both of these metrics were impacted by the industry-wide National Cinema Day with its discounted product offering.

As Ellis referenced earlier, National Cinema Day was a huge success, driving approximately 5% of our total quarter attendance. But it impacted BPP by approximately $0.43 and CPP by approximately $0.15.

In mid-June, we introduced an online booking fee, which is included in other revenues. And for the third quarter, this item contributed $5.2 million in revenues.

For the quarter, our box office revenues were approximately 70% of the pre-pandemic period, Q3 2019. And our total segment revenues were approximately 77% of this prepandemic period. Segment adjusted EBITDA of $10.7 million increased 21% from $8.8 million in the prior year.

On the Media side of the business, we are seeing our clients return and reported third quarter Media segment revenue of $25 million as compared to $13.9 million in the prior year. The increase was primarily due to Cinema Media revenue, which increased $15.1 million in Q3 2022, up from $6.6 million in the prior year. Our overall Media segment adjusted EBITDA increased to $12 million from $6 million in the prior year.

In comparison to the pre-pandemic period, our Media segment revenue was approximately 58% of our Q3 2019 levels, but this was impacted by strong hardware sales in our digital place -- based media business in Q3 2019. If we excluded hardware sales, our overall Media segment revenue is at approximately 66% of the Q3 2019 levels, with Cinema Media at 67% of Q3 2019 level and digital place-based media revenue at 63%.

The results in our Cinema Media business are encouraging as we generated 67% of Q3 2019's level with 63% of the attendance level. As we continue to see growing traffic patterns in our cinemas and in malls, we expect to see further recovery in our Media businesses.

Our Amusement and Leisure segment had another incredible record-breaking quarter. This business segment continues to outperform the pre-pandemic period on a top line and bottom line basis. Both P1AG and our LBE businesses had record quarters as each had strong top line results, margins and third quarter record adjusted EBITDA.

Segment revenue increased to $76.6 million as compared to $57.2 million in the prior year, and segment EBITDA increased to $18 million from $15 million in the prior year. Our Amusement and Leisure segment total revenues exceeded the prepandemic levels, coming in at 119% of the Q3 2019 levels.

G&A expenses increased 11.2% to $16.9 million from $15.2 million in the prior year, primarily due to increased payroll costs as a result of a decrease in wage subsidies and increased costs related to certain digital and technology initiatives, partially offset by reduced litigation and advisory costs. These items are described in more detail in our MD&A.

For the third quarter of 2022, we reported net CapEx of $11 million as compared to $3.6 million in the prior year. For 2022 and beyond, we will continue to be prudent with our growth initiatives. Our guidance for net CapEx for 2022 remains at $65 million to $70 million, and our guidance for 2023 is approximately $100 million.

Before discussing our liquidity position, I wanted to briefly touch on the following 5 items: Scene; Cineworld; taxes; impairments; and finally, Canadian digital cinema partnership.

First, I want to talk about Scene. During the third quarter, we recognized a gain related to the 2020 sale of 1/3 of our 50% interest in Scene LP as specified nonfinancial milestones were met. As such, we are reflecting a gain of $50.1 million in the Q3 financial statements.

Second, with respect to the Cineworld litigation and to build on Ellis' earlier comments, as in past quarters, no amount has been accrued as a receivable in our financial statements due to the uncertainties in timing and ability to recover.

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 8 of our year-end financial statements, we currently have noncapital losses totaling $314.6 million to utilize against future periods. And as such, you should expect minimal cash taxes over the next 2 years. We continue evaluating the recoverability of these 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.

Finally, in our subsequent events 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 record a gain of approximately $4.2 million on dissolution and receive a nominal cash amount. Historically, we have excluded the impacts of CDCP in our calculation of adjusted EBITDA as it was a limited life financing entity.

I'd be happy to answer further questions about these 5 items in the Q&A. However, I would like to now move on for the time being and speak to our balance sheet, in particular, our strong liquidity position.

In Q3 2022, we reported net borrowings of $38 million under our credit facilities, which left us with $332 million drawn and approximately $200 million available under our credit facilities as at September 30, 2022.

As Ellis spoke to earlier, the industry saw a void in the release schedule beginning in mid-August, which would impact our Q3 results. Anticipating this, we proactively approached our lending syndicate to ask for a suspension of covenant testing in Q3. With their ongoing support, they quickly agreed to the suspension of testing in Q3 with commencement again in Q4.

I would now like to address some macroeconomic concerns in today's environment, including recessionary concerns, inflation and interest rates.

With respect to any recessionary concerns in the economic outlook, it is important to note that the exhibition industry has fared extremely well during past recessionary cycles. As consumers trade down their out-of-home experiences, moviegoing becomes the affordable option. In fact, during 7 of the last 9 recessionary periods, box office revenues have increased.

As we see rates of inflation that we haven't seen in decades, it is important to understand the overall cost structure of an organization in understanding potential impacts. Cineplex, our top 4 cost categories make up approximately 75% of our overall cost. Film cost is approximately 25% of our overall costs and is a 100% variable cost based on the related box office revenues. Rents and occupancy-related costs represent approximately 20% of total costs, and are typically contractual and fixed in nature. Payroll-related costs are approximately 20% of total costs and are subject to wage markets and minimum wage impacts.

And lastly, food costs represent approximately 10% of our overall costs. And this is a cost category that is impacted by inflationary pressures. As you can see here, cost structure is one where we are not as significantly impacted by inflationary cost pressures. But to the extent that we do see cost pressures that we cannot offset through other means, we believe Cineplex can turn to pricing as others have done.

The last macroeconomic factor I want to discuss is the interest rate environment. We believe we are well-positioned in this regard. Cineplex is currently in an overhedged position under our bank credit facility. We have hedges totaling $450 million as compared to $332 million in borrowings as at September 30, 2022. These hedges are at fixed rates of between 2.83% and 2.95%, maturing between November 2023 and November 2025. In addition, our $250 million high-yield offering is fixed at 7.5%, and our convertible debenture is fixed at 5.75%.

As we look at our balance sheet, our capital allocation strategy is to remain focused on delevering and strengthening the balance sheet as we navigate towards our target leverage range of 2.5 to 3x. Over the past 6 months, since fully opening without restrictions in April 2022, we have generated positive free cash flow and adjusted free cash flow. We expect this trend to continue as business volumes increase. And during the next year or so, we will continue to define and move towards our optimal capital structure.

As Ellis mentioned, there's a lot for the exhibition industry to be excited about. We have a resilient business, great product coming, and we have a renewed focus from studios on the importance of theatrical exhibition. We remain focused on the recovery of our businesses while exploring opportunities for value creation.

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

[Operator]

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

[Adam Shine, analyst]

Ellis, you touched on the Cineworld litigation. I just want to go back to maybe some of the speculative headlines that we've seen over the last few weeks around the bankruptcy and possible discussions that you guys might have had with lenders. I'm going to presume that you can't say much, but obviously, there was a lot of speculative headlines around what could get resolved around Regal and your particular outreach, not just to Cineworld, but in particular, to the lenders. So anything there would be helpful. And then a couple for Gord, please.

[Ellis Jacob, executive]

Adam, it's a good question. And we, with our advisers, are looking at all options and opportunities to maximize the value of our claim and looking at what potential situations are moving forward. But there's not much I can disclose that we have discussed that would be, if any, meaningful to our team of analysts and groups.

[Adam Shine, analyst]

Can I ask you just as a follow-up, Ellis, just in terms of the obvious next steps. Do we need to get to a plan of arrangement ultimately being approved, force Cineworld as, I guess, next steps that you're either a part of potentially? And/or obviously moving towards a return of the appeals process sometime next year.

[Ellis Jacob, executive]

We really are in a position now where we have to wait and see when Cineworld comes out of the position they're in, and what the Texas judge says as it relates to the initial dip, which we just saw got processed through. So we are in the sidelines and waiting to seize, with our advisers, any opportunities that are available.

[Adam Shine, analyst]

Okay. That's it. I'll take it there. Gord, a couple for you. Obviously, a great rundown in terms of the additional color that you've provided. If we think about the Scene dynamic and the context of the gain of the third sale, we know that there's been some accounting adjustments that you've elaborated on in prior quarters regarding the reorg at Scene. Is there anything help us with in regards to either profitability or evolving losses at Scene and whether those, I presume losses improve as we move forward. Any color around that would be great as a starting point.

[Gord Nelson, executive]

Yes. So a number of things there, Adam. So obviously, the -- I referred to the gain amount which goes back to the proceeds that we received back in 2020. And as I mentioned during the call, certain non or nonfinancial covenants were met that are allowed us to record the gain.

During this quarter, we've talked about with our -- with the new arrangement under Scene and Scene+ and having 3 partners and now as Ellis mentioned, expanding to include Home Hardware in the future, we affected that sort of change in accounting where we were taking the Scene discount and charging the marketing expense, and we've been breaking that out for you in the MD&A each quarter. So that's change that we see and we disclose for you each quarter.

And then the last piece, which you referred to is sort of the overall economics of the Scene program. And you'll see in our other operating expenses, we do disclose -- the 2 items related to the Scene 1 is related to the issuance of points -- and then the other 1 is in effect, sort of a net position related to Scene. It's relatively in line where it has been in other quarters. And I would expect it, as we're going through the stage, where we're introducing large new participants in the program, that it will stay at that level at some point in time.

And then when we sort of normalize and more run rate is -- as Ellis alluded to, is bringing home hardware into 2023, is I would expect it would kind of neutralize itself down to potentially a more breakeven level after that.

[Adam Shine, analyst]

Okay. That's very helpful. And just lastly, I mean, you touched on a couple of elements in regards to the Scene reorg dynamic, obviously, has created a bit of a bump in the context of, obviously, revenue at the top, but also in terms of other OpEx. Q4 seems to be setting up as a more normalized, if we can use that word, quarter for the first time in nearly 3 years through COVID, which sort of sets us up with a line of sight towards other OpEx that, if we go back to Q4 '18, let alone number of the quarters in 2019, start to work its way up obviously into the $150 million-plus zone, specifically I'm talking to other OpEx.

So as we think about Q4 and puts and takes, should we think about a level moving back up above $150 million, but not necessarily above $160 million for Q4 this year?

[Gord Nelson, executive]

Look, I think there's a lot of things that we're looking to see going forward. We've talked a lot about of some of the improving margins in the amusement and leisure business. And some of the initiatives that we're seeing with respect to the exhibition business. It's all going to depend on the volume of the business during the fourth quarter, Adam.

[Operator]

Our next question comes from Maher Yaghi with Scotia Bank.

[Maher Yaghi, analyst]

Ellis, you mentioned in your prepared remarks about the discussion among streamers to backtrack a little bit from the drive to send everything online. And we did hear something like that coming from Warner Brothers as well on their call. So hopefully, we see this trend reverse soon -- but just specifically on the topic, your deal with Netflix on Knives Out, can you discuss what you are hoping to achieve on this project? And if success could lead to additional rollout of theatrical releases with Netflix.

Also, if you can also discuss the short window for that movie. What's your view on it? And can we see longer windows coming from Netflix going forward? I have a follow-up question after that.

[Ellis Jacob, executive]

Good question. And really what's important is as I've said publicly numerous times, and in my script was about we theatrically are still the engine that drives the train for future value. And even with Knives Out, Netflix has recognized that, look, we need to basically get this out there and get our subscribers aware of what we have in content. So it's a great marketing tool for them, and it's also a great opportunity for our guests to come to the theaters and see the movie on a big screen, which the original one was released on the big screen.

So there's a lot of opportunity with a number of these different groups, including the streamers like Apple and Amazon. And what you're going to see is the move towards a window. It may not be as long as some of the other windows. But again, it's basically -- it's a cost versus reward perspective that one has to look at. But it's very encouraging, and I'm quite confident that we are going to see more content on the big screen.

[Maher Yaghi, analyst]

Great. And in terms of margins for these, let's say, shorter release, shorter window movies, are we looking at similar margins in general as the longer release cycle?

[Ellis Jacob, executive]

Well, we can't discuss publicly what we've negotiated with each one of the streaming companies. But overall, it's a strong situation for both companies. And we feel that this is a great model for others to participate in, not specifically to Glass Onion, but to other ways of releasing these movies, when it comes to windows and the ability to get them out on the big screen.

[Maher Yaghi, analyst]

Okay. And my second question is more bigger question in terms of view. And as we look into 2023 with an improving slate of movies, can you provide some general view on how this improved slate would mean to your attendance and box office revenue levels? Are you hoping to get back to 2019 levels, for example, in next year? Is that the plan? Is that the goal?

[Ellis Jacob, executive]

Yes. We would like to see a strengthening. And as I've said in my remarks, there are a lot of big movies that are being released in 2023. And one of the things I look at Cineplex, is our average screen count is lower than our peers in the other North American cinema chains. And that in a way helps because you don't want an extremely large amount of product because what happens is, one product goes right into the other. So if you've got a reasonable amount of strong titles, we should do very well and perform well. And the benefit we also have as we've grown our international products business significantly. And then with Cineplex Pictures, we are also releasing now films.

So taking that all into account, I'm optimistic that 2023 will be a great year for us going forward. And this is all based on the fact that we don't end up with any COVID issues as we move into 2023. But what's really promising is, we've seen a strong resurgence in upscale clientele coming back. With the number of the movies that we have out there, like Thor, Ticket to Paradise, The Banshees, they have all done extremely well, and that's a much more upscale audience.

[Maher Yaghi, analyst]

Okay. Great. And maybe my last question. Are you seeing still any pushout in terms of releases of movies because of the pandemic, seeing the delays? Are we seeing an improvement in those delays? Or it's still the same as, let's say, last quarter?

[Ellis Jacob, executive]

There has been an improvement because a lot of the studios have opened up to continuing with the production. That's not to say there could be some slippage, but it may not be COVID-related, it may be an actor or actress that gets impacted on the filming, and has to delay the final production.

So -- but we feel pretty confident with the release schedules that we're looking at into 2023, that there are going to be some strong, meaningful releases all through the year.

[Operator]

Our next question comes from Derek Lessard with TD Securities.

[Unknown Analyst]

This is Cheryl calling for Derek. Congrats on the solid results. So my first question is, it looks like you've drawn about $38 million on your credit facility this quarter. I was just curious, what's driving that and if you expect this to continue.

[Gord Nelson, executive]

Yes. It's Gord here. So we were adjusted free cash flow positive. Really, the draws, if you looked at our statement of changes, is it's really timing of payments. So it's primarily the change in working capital is driving that increased borrowing amount.

[Unknown Analyst]

Okay. And so you're not expecting that to continue into Q4 or going forward?

[Gord Nelson, executive]

No. It was -- and so just to provide you, so it was about $26 million was a change in operating assets. And so no, that's typically a timing issue. Usually, over the course of the year, it will be relatively neutral.

[Unknown Analyst]

Okay. Okay. And my second question is, do you expect growth in your BPP and CPP going forward following the national cinema day, and if you anticipate this to be an annual promotional campaign.

[Ellis Jacob, executive]

Yes, we do expect our BPP and CPP to continue to grow as we move forward. And on the National Cinema Day, yes, we are in discussions with all of our peers around the world and looking to make it even bigger in 2023.

[Unknown Analyst]

Okay. That's great to hear. And last one for me, if I may. So it looks like your theater payroll is as a percentage of box of revenue and above the pre-pandemic level. And I'm curious what's driving that? And are you seeing increases in labor costs?

[Gord Nelson, executive]

Yes. So as compared to the prepandemic level, which is 2019, there's been obviously some minimum wage increases over that period. So -- and that's really driving it. And so there's 2 parts to it. One is that, and then two, is with respect to kind of just where the business volumes are, it creates -- I'm not going to call it inefficiencies, but the certain minimum levels of staffing that you need to have. So that's impacting the overall ratio.

[Operator]

Our next question comes from Aravinda Galappatthige with Canaccord.

[Aravinda Galappatthige, analyst]

I wanted to touch a little bit on Cinema Media. As you mentioned, Ellis, you kind of got back up close to that 90% of pre-pandemic levels at box office in that June, July level, I think, 85% and 89%. And as we kind of look at Q4, a stronger slate, I suspect you're kind of reengaging your advertisers, perhaps more vigorously. I wanted to get a sense of what those conversations were like.

Obviously, on one hand, there is the macro headwind. But on the other attendance is ramping. And there are, obviously, as we been discussed for years, I mean, there are benefits to incident and advertising. I wanted to get your thoughts on that to begin with.

[Ellis Jacob, executive]

There's a strong desire from our advertisers to get back on the big screen. And with the fourth quarter, we see some strong continuation of where we will see growth, both on the overall side of the business and the mall side of the business because there's strong momentum for advertisers in both those areas. And one of the benefits of our advertising, in a lot of ways, it's very focused and goes directly to the consumers that our advertisers want to approach. And fixed labor, sorry...

[Aravinda Galappatthige, analyst]

Okay. No, no, finish your thoughts. I Just had a second question, unrelated.

[Ellis Jacob, executive]

No, no, no. All I wanted to say is our labor costs on the media side is pretty well fixed. So any additional money, that's a higher return to the bottom line.

[Aravinda Galappatthige, analyst]

Okay. Great. And then my second and last question, perhaps for Gord on the online booking fees. I mean, it seems to be coming in nicely. How should we think about this line item going forward? It looks like it's close to $6 million a quarter. Could that kind of ramp -- are you seeing any kind of pushback on that? And maybe a little bit of color on how that can kind of seep into the bottom line as well.

[Gord Nelson, executive]

Yes. I mean, I guess, from your perspective in terms of how you may want to model going forward, is if you looked at that on a per patron basis, that may give you a good indication on how you want to model going forward.

Obviously, we have 3 different categories of booking fee. If you're a subscription member, there's no fee, if you're a Scene member at the dollar, and if you're neither of the $50. We do about somewhere between 50% and 60% of -- our purchases are online. So from a modeling perspective, I think you can use some of those reference points that I provided going forward.

With respect to the reaction, I guess, is look at it, I think the world has converged to transacting digitally, particularly during the pandemic. And I think what we're all seeing is introductions of various types of fees on top of any transaction that we're doing, whether we're ordering food or whether we're ordering a taxi, and so it's kind of commonplace. We saw a little bit of reaction in social media when it was first introduced, but since then, we haven't really seen much reaction.

[Operator]

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

[Drew McReynolds, analyst]

Yes. For you, Gord, on the $100 million in CapEx for 2023. In the past, you've done a good job of unpacking some of the moving parts. That's a little higher, I think, than certainly we were expecting or forecasting. So wondering kind of how that breaks down, but also looking beyond through the medium term, how you kind of see the puts and takes on CapEx?

[Gord Nelson, executive]

Sure. So with respect to the CapEx, I would break out the $100 million as follows. I would suggest that there's about $40 million in build, as I've mentioned to everyone historically, as sort of the average cost of a build is about $10 million. Some are less, some are more depending on the size. But on average, they're about $10 million.

And in terms of what we're looking to do is, I think you're going to see one theater, we're going to have one Junction, so Erin Mills Junction is going to come online next year, and 2 LBE. So I think that's a good way of looking at our capital going forward, is more towards diversified business models, being the Junction and the LBE as we go forward. So about $40 million in -- sorry, in builds, new construction.

About $30 million in maintenance CapEx, which has been sort of our pre-pandemic guidance number. Introducing premium experiences, additional premium experience across the circuit, somewhere between $10 and $20 million. And then in our Digital Media business, in our amusement solutions business, P1AG, to the extent that we're bringing on new customers and that we need to make additional investments in those, potentially somewhere between $10 million and $20 million.

So that would be the breakdown of the $100 million. And as we go forward, we would expect something on that level, probably plus or minus $10 million, depending on whether there's 3 builds in a year or 5 builds in a year.

[Drew McReynolds, analyst]

Okay. Okay. No, that's super. And maybe just extending the discussion, as we come out of the pandemic, and you've got a little bit more kind of flexibility here. How do you size up your footprint on the LBE side, but also on the theatrical exhibition side? If you can kind of give us, to the extent you can, just some granularity just to set expectations here.

[Gord Nelson, executive]

So -- and Drew, I kind of want to add also that the projects that I'm talking about that we have in capital for next year are really commitments that we had in place in 2019. There was obviously very little building being done during the pandemic, not only for us, but for others for very good reasons, including supply chain issues amongst others.

So these are commitments that we had in 2019. We've always disclosed that from the -- sorry, the LBE side of the business, as we're at 13 locations, we believe there's opportunity to get up to 30. So we will continue to look for opportunities in this potentially disruptive landscape, retail landscape, that are promising. So we'll continue to look for those.

We're very excited to introduce the Junction concept. And that, our first, will be open in Winnipeg in the next month or so. And then we have the Erin Mills coming out in 2023.

Both of these concepts are options that potentially could retrofit into either existing theaters or replace existing theaters. So as we look forward, as I discussed, premiums is a focus on kind of the core theater base. LBE concepts, Junction concepts, our potential for new and/or retrofits, and then we will always evaluate the circuit capacity and determine whether there's opportunities to either reduce or modify the uses in those theaters.

[Operator]

Our next question comes from Tim Casey with BMO.

[Tim Casey, analyst]

Just a couple for me. One, Gord, could you talk a little bit about expectations? Just following up on the working capital question. Quite often, in -- historically I guess, you would see a significant contribution there from gift cards in the fourth quarter, wondering if you're expecting that to kind of normalize. So if we should see a positive working capital swing a significant in the fourth quarter.

And then with respect to your comments on the outlook for junction and Rec Rooms and whatnot, and just -- so you mentioned that you've wanted to be opportunistic. What are you seeing out there? Is it -- are you seeing positive signs that you're willing to commit to? Or do you still think you've got to let potentially a recession hit or more of a washout in the property market or whatnot? Just any color you could provide there.

[Gord Nelson, executive]

Okay. Thanks, Tim. So yes, on the first question, yes, you're absolutely right. It's typically what we would see is we would see an inflow of working capital in the fourth quarter as corporate customers and individuals, we're buying gift cards and corporate tickets. We are launching digital gift cards this year. So over the past 2 years, we always are trying to look to make sure that we can make it easier to transact with us. And so yes, with a robust gift card market, you would expect working capital to be positive in the fourth quarter. That would be the typical state.

On the second question is, with respect to being opportunistic, is we will always kind of continue to be opportunistic. I believe, as we look at some changes going on right now, potentially that are attractive sites for us. Mall landlords want entertainment and food destinations to be anchors for their retail tenants. So to the extent that we see attractive opportunities today, that may not be there a couple of years from now, if it's a specific site, is we will take advantage of those.

So I would say, yes, we're in the period right now where we don't need to wait for a further recession. I think it's time that we can start looking and acting on it.

[Operator]

Those are all the questions we have time for today, so I will now hand the call back to Ellis Jacob for closing remarks.

[Ellis Jacob, executive]

Thank you very much, and thanks again for joining the call this morning. As you've heard today, our company is very well-positioned. We look forward to speaking with you again in February for our fourth quarter results. Until then, please take care, be well, and enjoy a movie at your local Cineplex theater. And thank you and have an awesome number of days for the weekend too.

[Operator]

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.