Pat Marshall - VP of Communications and IR Ellis Jacob - President and CEO Gord Nelson - CFO

Drew McReynolds - RBC Capital Markets Adam Shine - National Bank Financial Paul Steep - Scotia Capital Derek Lessard - TD Securities Rob Goff - Echelon Wealth Partners Tim Casey - BMO Capital Market Robert Peters - Credit Suisse Aravinda Galappatthige - Canaccord Genuity Ben Mogil - Stifel Nicolaus

Good morning. Before beginning the call, we’d 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, adverse factors, generally encountered in the film exhibition industry, risks associated with national and world events, discovery of undisclosed material liabilities, and general economic conditions. I’ll now turn the call over to President and CEO, Ellis Jacob.

Thank you, Pat. Good morning and welcome to Cineplex Inc’s 2016 conference call.

We are pleased you could join us this morning. I will begin by providing a brief overview of our third quarter results, as well as a summary of our key accomplishments during the period.

I will also highlight a few of the most anticipated films for the balance of the year. At the conclusion of my remarks, our Chief Financial Officer, Gord Nelson, will provide an overview of our financials, and then we will follow with a question-and-answer period.

I’m very pleased to report that Cineplex experienced a strong quarter setting third quarter records for total revenue which increased 14.5% to $376 million, and adjusted EBITDA, which increased 13.8% to $67.3 million. Third quarter records were also established for all revenue sources, including box office, food service, media, and other revenue, the latter benefiting from the consolidation of Cineplex Starburst Inc.

following our acquisition of the remaining 50% interest last October. CPP increased $0.48 to $9.37 and CPP increased $0.26 to $5.69 both were third quarter records.

Top performing films during the period included, Suicide Squad, The Secret Life of Pets, Star Trek Beyond, Jason Bourne and Finding Dory. All of the top five firms were available in 3D, which resulted in premium formats accounting for 46.5% of box office revenue this period, up from 34.5% in the prior year period.

Gord will share the balance of the quarter’s results with you in a few moments. Now, I'd like to highlight some of our key accomplishments during the third quarter.

We opened two new theatres in Ontario, Cineplex Cinema’s North Barrie, which is north of Torino, features eight screens, including the city’s first UltraAVS auditorium. We also opened Cineplex Cinemas Kitchen and VIP, where guests can enjoy our newest state of the art offering, including 4 VIP auditoriums, as well as an UltraAVS auditorium.

During the quarter, we announced plans to further expand our D-BOX footprint with D-BOX motion seats being added to 10 Cineplex auditoriums across Canada by year end. To-date, we’ve already completed three of the 10 installations with the remaining seven to be installed in December.

This past Friday, we opened Canada’s first 4DX auditorium at our Yonge-Dundas location with the movie Dr. Strange to sold-out performances.

As part of our ongoing strategy to improve the guest experience, we’re moving forward with a recliner seat program for all new theatres and select existing theatres across Canada. Based on the great results that generated from our test locations, plans are currently underway to retrofit theatres in Victoria, Seri and Nanaimo, British Colombia, as well as in Kingston and at Cineplex Cinemas Ottawa and Ontario.

Alternative programming for the quarter included strong performances from international film programming and concert presentations. We also partnered with the CBC to offer complementary screenings of the tragically hit by national celebration live from Kingston, Ontario.

Our digital commerce offerings maintain their momentum this quarter, traffic to Cineplex.com increased 5% year-over-year -- and the Cineplex mobile app has been downloaded over 15 million times as of September 30, 2015, recording over 843 million app sessions and making it one of Canada’s most popular mobile brand. We also launched a fully transactional Cineplex store app for android users, allowing guest to rent, buy, and watch movies directly from their tablet or mobile phone.

Moving to media, this area of the business comprised of Cineplex Media and Cineplex Digital Media continued to experience record growth during the quarter. Cineplex Media reported record third quarter revenue of $29.1 million, up 16.2% versus the same period last year, primarily due to increases in show-time and pre-show advertising, as well as growth in new media offerings.

Cineplex Digital Media revenue grew by 69.8% to a record $15.7 million compared to the prior year. This was largely due an expanded client base, which contributed to increased project installation revenue and advertising revenue growth in the period.

We continue to make stride and growing our digital media business across numerous verticals, and see this as a significant growth driver for the future. Yesterday, we announced the partnership between Cineplex Digital Media and Ivanhoé Cambridge to install, maintain, and operate digital display networks at 21 shopping centers across Canada.

After an extensive audit and request for proposal process, CDM was selected because of its experience in the strategic management of large complex digital networks, as well as its ability to offer premium media sourcing, content creation, and advertising sales through Cineplex Media. Moving on to the amusement, gaming, and leisure area.

We were proud to open our very first location of The Rec Room in South Edmonton, Alberta. Thanks to a number of you who joined us for the opening.

The Red Room brings together incredible dining experiences with exciting live entertainment and amusement gaming, all under one roof. This is an important milestone for Cineplex as we begin our expansion of this new line of business.

We’re extremely pleased with the early results, and we’ll start to see more meaningful revenue contributions beginning in the fourth quarter Construction is moving ahead at our Toronto location at the historic John Street Roundhouse and our Calgary location at Deerfoot crossing, both of which are expected to open in the first half of 2017. In eSports, WorldGaming hosted its third championship tournament and featured the first multiplayer team based game Uncharted 4: A Thief's End.

The tournament included online qualifying rounds followed by regional tournaments culminating in a national championship event at our Scotiabank Theatre Toronto. During the quarter, we also announced the acquisition of Tricorp amusement, a leading provider of interactive video, redemption, and amusement gaming services in the United States.

Tricorp will enable us to further build our CSI presence in the U.S. The transaction closed subsequent to quarter end on October 1.

Our SCENE loyalty program continued to grow its membership during the quarter, reaching 7.9 million members as of September 30th. Before moving on to the new film slate, I would like to reiterate our continued focus on executing our diversification strategy.

Investing-in and identifying new businesses are key initiatives designed to build new avenues of growth with Cineplex now and into the future. Businesses, such as Cineplex Digital Media, continue to evolve and we seek new opportunities and partnership, such as the announcement made yesterday with Ivanhoe Cambridge.

Furthermore, our amusement gaming and leisure businesses continued to expand through key acquisitions in the United State, the launch of our first location of The Rec Room, and the continued growth in our eSport start-up WorldGaming. In addition to the locations already announced, there’re several other locations at The Rec Room in various stages of development, and we anticipate announcing these in the weeks and months ahead.

We believe that investing in these businesses now will bear tremendous fruit in the years ahead. And even though we are the recognized market leader in the exhibition business, we will continue to innovate and focus on providing our guests with the best entertainment experience available.

We do this through a number of initiatives, including our premium offerings, such as 3D, UltraAVX, VIP Cinemas, IMAX, Barco Escape, D-Box, 0DX, as well as our new recliner seating program. Now, let's take a look at some of the films we have coming out for the balance of the year.

We opened the fourth quarter with films such as the Girl On The Train, The Accountant, Jack Reacher: Never Go Back, and Inferno. Marvel’s Doctor Strange starring Benedict Cumberbatch and the animated comedy, Trolls, both opened strong results this past weekend.

Looking ahead to the holiday season, a number of highly anticipated films are opening, including on November 18th, Harry Potter fans will delight in the release of Fantastic Beasts and Where to Find Them, the prequel to the popular franchise. Later in the month we have Moana, the Disney animated fairytale, featuring a head strong young heroine and is based on an ancient Polynesian legend.

On December 16th, we have Rougue One: A Star Wars Story. And mark your calendars for December 21st as that’s the day we bring your tree highly anticipated movies, including the adventure sci-fi film Passengers, starring Jennifer Lawrence and Chris Pratt; then Assassins' Creed with Michael Fassbender and Marion Cotillard; along with the animated family films seeing Just In Time for the holiday.

As you can see, the film slate looks promising for the remainder of 2016 and we are very encourage by the films slate for 2017. We are well positioned to amplify on the strength of the slate through our premium experiences.

Overall, it was a successful quarter and I am excited about the strategic opportunities ahead that will help us to continue to grow the business and create shareholder value. Before I turn the call over Gord, we would like to extend our thanks and best wishes to Phyllis Yaffe, who stepped down from the Cineplex Board as she has taken on her new role as Consul General in New York.

We’re also pleased to advice that Ian Greenburg, Former President, CEO and Co-Founder of Astral Media, is the new Chairman of the Cineplex Board of Directors. We also welcome Donna Hayes, the retired publisher and CEO of Harlequin, who joined our Board of Directors today.

With that, I'll turn the call over to Gord.

Thanks Ellis. I am pleased to report the third quarter financial results for Cineplex Inc.

For your further reference, our financial statements and MD&A have been filed on SEDAR this morning, and are also available on our Investor Relations Web site at Cineplex.com. For the third quarter, total revenues increased by 14.5% to $376 million, and adjusted EBITDA increased by 13.8% to $67.3 million.

The results were positively impacted by third quarter record results reported for all revenue categories and adjusted EBITDA. Also included in our top-line results it this consolidation of Cineplex Starburst Inc, which was equity accounted for in the prior year.

Cineplex’s ultimately first location of The Rec Room in mid-September in Edmonton, Alberta, and we are very pleased with the results to-date. Cineplex presents its income statement line items by nature, and as such, revenues and operating expense for The Rec Room are included in existing income statement line items of a similar nature.

We provide additional detail with respect to the breakout of The Rec Room’s results in our MD&A. Cineplex’s third quarter box office revenue increased 4.4% to $180.1 million compared to $172.6 million in the prior year, as a result of a BPP increase of 5.4% to $9.37 from $8.89 in 2015.

This is partially offset by an attendance decrease of 1%. The increase in BPP is due to an increase in the premium product percentage in the third quarter, increasing to 46.5% of box office revenue in 2016 from 34.5% in 2015.

The impact of premium priced product on the average ticket price was $1.17 for this quarter as compared to $0.79 in the prior year, primarily due to the success of 3D product. The top three films in 2016 were released in 3D, as compared to only two of the top three films in the prior year.

Food service revenue increased 3.9% to $109.6 million as a result of 4.8% increase in concession revenue per patron to $5.69, a third quarter record. Included in food service revenue is $0.3 million from The Rec Room.

The CPP growth was primarily result of higher average transaction values as a result of expanded offerings, targeted premium core concession offerings, merchandise programs, and increased penetration and visitation to Outtakes and VIP Cinemas. Total media revenue increased $10.5 million, or 30.7%, to $44.8 million for the quarter.

Cineplex Media revenue, which is primarily theatre-based, increased 16.2%. Cineplex Digital Media revenue increased 69.8% due to increased project revenue for new clients, including A&W and American Dairy Queen, and growth in existing and new business opportunities, including advertising revenue from the TimsTV network deployments and the Oxford Properties Group digital installations.

With the acquisition of the remaining 50% of the equity of CSI on October 1, 2015, we began consolidating the results during the fourth quarter of 2015. Other revenue includes $24 million of gaming revenue arising as a result of the consolidation of CSI’s results.

In addition, other revenue includes $0.2 million of amusement and gaming revenue earned by The Rec Room since its mid-September opening. Turning briefly to our key expense line items, film costs for the quarter came in at 53% of box office revenue, as compared to 53.1% reported in the prior year.

Cost of food service for Q3 2016 excluding $0.1 million incurred at The Rec Room was 22.2% as compared to 21.2% in the prior year as a result of the mix of food offerings, including VIP offerings. Other costs of $189.1 million increased $32.4 million or 20.7%.

Other costs include theatre occupancy expenses, other operating expenses, and general and administrative expenses. Theatre occupancy expenses were $51.7 million for the quarter versus a prior year actual of $51.2 million.

Other operating expenses were $120.4 million for the quarter versus a prior year actual of $89.8 million, an increase of $30.6 million. Major reasons for the increase include; an increase of $20.4 million due to the consolidation of CSI; an increase of $1 million due to the impact of new and acquired theatres, net of disposed theatres, higher media and digital media expenses of $5.1 million due to higher business volumes; $0.4 million in unit level operating costs related to The Rec Room; and costs related to the growth and development of new businesses, including the WorldGaming network and The Rec Room.

G&A expenses were $17 million for the quarter, which were $1.3 million higher than the prior year due in part to higher head-office payroll expenses. Interest expense of $4.6 million was $1.3 million lower than the prior year amount of $5.9 million.

Contributing to the decrease was a $1.2 million decrease in non-cash interest, mainly as a result of the full accretion of the EK3 earn-out amount in 2015, and by lower cash interest of $0.01 million due to lower average interest rates. The Company recorded tax expense of $10.2 million during the third quarter of 2016, comprised substantially of current tax expense.

Our blended federal and provincial statutory tax rate currently is 26.8%. Net CapEx for the third quarter was $27.5 million as compared to $25.6 million in the prior year.

We continue to estimate that net CapEx will be approximately $100 million for 2016. As Ellis mentioned earlier, we have been testing a recliner program, which has been successful to- date, and are looking roll-out two additional sites.

We expect to deploy approximately $25 million in lounge and retrofits in 2017, and our projected net CapEx for 2017 is now approximately $125 million. Record third quarter revenue contributed to our strong Q3 results.

We continue to remain comfortable with where Cineplex Inc. is positioned today.

Our strong balance sheet and low leverage ratios allowed us to continue to invest in future growth opportunities for the Company and benefit from future strong film product. That concludes our remarks for this morning.

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

I guess, just Gord, on the digital media side. Obviously, in the nice ramp-up mode here with some of those contracts coming on-board.

Just from a modeling standpoint, can you help us relative to Q3 kind of going forward, how far along you are on the Dairy Queen and A&W deployments, and what kind of impact Ivanhoe Cambridge contract could have?

So with respect to Dairy Queen and A&W, both of those entities are looking to roll-out over a number of quarters. Let me give you some of the stats that we have today that is -- and as I’ve mentioned to you guys earlier, at the end of last year, we were just under 10,000 locations deployed in fact we were at 97,00 locations.

At the end of third quarter, we’re just over 11,000. So, we’ve had about 14% increase in locations deployed throughout this period, and so we’ll look to kind of expand our projection over the next number of quarters.

With respect to your question on Ivanhoe Cambridge, as we described to you, historically, we operate under really three business model that is sort of that service based model, which is the Dairy Queen and the A&W model, where it's the brands capital and we’re providing technology and network management and creative services. Then there is more of a pure advertising based model where we’re in essence selling advertising and sharing the revenue stream with the landlord of the facility.

And then there is a hybrid model, which we’ve been introducing across Canada, which include elements of both. And as we’ve noted in our press release, we’re looking to create a better customer experience within the mall interactivity gamification, as well as selling some advertising.

This one falls into that hybrid model. I would say that as we have disclosed when we look at our CapEx spending, we’ve been spending about $10 million a year in digital installations under these hybrid models and advertising base model scenarios.

I would suggest that, Ivanhoe Cambridge will be roughly half of that total amount, so we will look to co-invest about $5 million in that. And as we’ve also always said, we tend to look for approximately 30% returns on some digital installations at about 30% EBITDA margin.

So you can kind of back into some of those numbers that may help you in your modeling.

Gord, thanks for all of that. Just two other quick ones for me, just on Rec Room, I know it's been not a long time since Edmonton has been open, but obviously, you are pleased.

Just wondering if you can let us know to what extent it's validated the concept. Does this convince you to move more aggressively versus previous plans in terms of expansion?

And then my last question, maybe for you, Ellis, just in terms of the box office attendance, just overall North American trends. I'm just wondering from your observation just relative to the slate of movies that come in and out, quarter-in quarter-out.

Are you seeing any real changes to behavior, to demographics, relative to the slate that are surprising you, or is it just business as usual?

So, on The Rec Room at south, we are extremely pleased with the performance and we had six weeks into it, and the numbers have been ahead of what we had anticipated. And as mentioned, we will be opening two additional locations in the first half of 2017.

The Roundhouse, which is the historical site in Toronto right across from the Rogers and the Aquarium and also at Deerfoot Trail in Calgary; so, those would be two. And then we are in the process of getting closer on a number of other deals across the country, which we will be announcing over the next couple of months.

On the box office change and behavior, I think one of the things we are seeing is the fact that the highs are higher and the lows are getting lower, as far as the types of films that are performing. And it's getting to be very much driven by blockbusters, but that’s not to say there are not other firms that people are interested in seeing, and we have a lot of those coming out as a result of the Oscar nominations, like movies, like La La Land, Lion, Manchester by the Sea, these are smaller movies, but they are still movies that we expect will perform well, not to the same degree as the Doctor Strange, and some of the other big movies we anticipate over the next number of months.

So, yes, you do see that there are the bigger movies up over-performing and the smaller movies not to the same degree. But overall, I don’t think its impacting the business from the perspective of attendance and box office revenue.

Maybe just building a little bit on Drew's question, something that was interesting in the quarter was that concession revenue growth lagged box office revenue growth, something that we don't usually see. Any particular items worth highlighting there?

I think we saw the box office per patron grow at a faster clip based on the overall premium penetration. With respect to concession revenue, year-over-year, you typically see that Q3 is typically the lowest amount during the fourth quarter, just given the expanded operating hours of the theatres.

But we’re still running, as we mentioned, about 26% growth year-over-year with basket size, being the primary driver, and then VIP being the second highest impact and then visitation, third highest contributor to that BPP growth. So Adam, I would just say it’s a little bit more muted kind of in the third quarter based on the expanded operating hours and the mix of film and there’s nothing -- I wouldn’t read anything else into that.

And if I turn over to CSI, the margin moved up quite nicely here versus the prior three or so quarters that we've seen. Anything related there, in terms of seasonality or just better traction and perhaps some efficiencies.

Yes, and again Adam, you will see a little bit of seasonality to the business when you think of the higher margin out for those two elements for the business, really. There’s the distribution side, which is sale of equipment and then there is the route operations side.

So again the route operations side will perform a little bit stronger in the summer months when there is more kids kind of off for holiday.

Maybe I'll try to get one in for Ellis. Ellis, can you just give us maybe a little bit of an update in terms of some of the pricing moves that we’ve seen?

We saw some increases announced early in October and then obviously some of these interesting developments on the 4DX price proposition?

Yes, we took some modest price increases, Adam. We’ve been saying back on pricing, because we did want to press that trigger.

But given some of the increases in the minimum wages across the country and the cost of operating, we felt that these small increases would not have a major impact on our attendance, and that’s the reason we moved forward with them. And the premium offerings continue to be well taken up by our guests as we’ve seen with our UltraAVX and with the 4DX we just installed on Friday.

And we will continue to innovate as we move forward with those premium offerings.

Could you talk a little more about the pipeline you're seeing on the media side, guys? You obviously talked about the win yesterday, but the types of opportunities you are seeing in terms of demand in Canada versus U.S.?

And maybe also how much of the shopping center business you've now secured in the Canadian market? Then one quick follow-up would be on the timing and the roll-out of the recliner seat program?

Thanks, guys.

Paul, all your questions relate to the outlook for the Digital Media side. And as we mentioned, we opened an office in the U.S.

about a year half ago. We’ve establish a great relationship with number of our customers in Canada over the next, they will extend into new customers like the beer store, A&W Canada, some additional shopping mall client as you mentioned.

As a result of our interest into the U.S., we’re able to secure American Dairy Queen as we’ve mentioned. And the number of times, we’re involved in a number of processes of large organizations that are looking to convert primarily in the U.S., but also North American operations.

And we’re very optimistic about the outcomes in those processes. So it's kind of more of the same, I guess, the focus is a little bit more in the U.S.

The U.S. market is roughly 10 times the size of Canada, but we have been announcing these wins in Canada.

And on the recliners, your question as far as the roll-out, we will -- initially we’re looking to do approximately 10 locations, and then look at the results and continue to focus on that. To, some of our peers in the U.S., have seen significant opportunities with the recliner program, so we will be looking at it selectively across the country.

Maybe just a quick question to follow-up on Adam's, are you able to maybe quantify some of those price increases that you've put through?

Derek, what I would say that the impact and some of them have been implemented throughout 2016. So I would suggest that the incremental impact going into 2017 to be roughly $0.15.

And maybe just talk about -- there was a 1% drop in attendance at the box office, and it was a little weaker than the Canadian industry growth. I was just wondering what the drivers were for the drop in attendance?

This is one thing that we see from quarter-to-quarter, that there variations between Canada and the U.S. And in the third quarter, the major contributors to that were in the prior year Minions way outperformed the performance of PETS, because Minions did a better percentage in Canada compared to the U.S.

in 2015. So, when you’re looking at it year-over-year, you see that we didn’t perform in Canada, as well as the U.S.

did. But if you go back for example to the first quarter Cineplex was up 24%, Canada was up 22% and the U.S.

was up 12%. And the second quarter, we were down 13% Canada was down 13% and North America was down 9%.

So it all depends on the types of product that’s out there and the content that’s available. And there are movies that are played in the U.S.

that we sometimes don’t get, or don’t work in Canada, like movies like the Infiltrator and Hillary's America, they are not big grossing movies, but together they did over $25 million. So we didn’t play those movies in Canada.

And then in the third quarter there were 15 -- of the top 15 films, three of them were horror movies, and those movies don’t tend to do as well in Canada and in the U.S. So Purge: Election Year didn’t do as well, Lights Out didn’t do as well, Don't Breathe, also a horror movie, did better but not as well as what one would expect for usual movie percentages in Canada.

And comparing Canada as a percent and Cineplex, sometimes what happens is in the summer times, there are number of drive-ins that are open. And this year, as we all know, we had some spectacular weather that drove the performance.

And we just have one remaining drive-in in our circuit. So, in certain of those locations, we see where we end up slightly lower.

And maybe one final one on Cineplex Media, in the MD&A, you talked about some new media initiatives driving the business. Can you maybe just touch on what those are?

Sure, and I think, we look at -- and we’re talking about this traditional media side of things here. So, we’re extremely pleased to have 16% growth in the traditional media business, and what is for most of our peers in space is challenging media environment.

We had growth, really in three core elements, the more traditional also the show-time and the pre-show of the overall $4 million growth, but $2 million came from increased capacity those days, new addition in that space, but about 35% of that $2 million coming from new customers. We had about $1 million of the increase in some of our interactive initiatives.

So our interactive media zones and in particular time play installations drove $1 million of increases. And then last as we speak about trying to engage customers into more long-term commitments with us, those commitments also contributed to $1 million dollar increase, and part of that was related to the WorldGaming business.

But $2 million from the traditional presales and show- times, $1 million dollars from the interactive and time play initiatives and $1 million from some of these corporate commitments, including some of our gaming sponsorships.

Thank you very much and good morning. Two questions, if I could.

The first would be on your film margin. It was very nice to see it down on a year-over-year basis.

Could you discuss any factors influencing that, be it over-indexing, under-indexing? And then the second question would be if you could give any additional color on your CSL partnership with Riot Games?

So on the first one on the film costs, as we mentioned in previous quarters, it’s largely dependent on how the revenue is spread-out between the films. And when you have a more even distribution, you tend to have a more moderate film cost percentage.

So, this year was pretty close to what happened in 2015. So, the percentage was very close within one-tenth of 1% of each other.

So, that -- you will see that trend. If you have a lot of movies that are very high grossing, that make up a big percentage of a particular quarter, then we would see the higher film rental like we did previously.

With respect to the question on League of Legends and CSL, CSL is our Collegiate Starleague, which is on about 700 campuses across North America. And we were extremely excited to partner with Riot Games to become the office campus competition for League of Legends.

And as you may or may not know, League of Legends is really the premier title in eSports. It was the event that for the North American championship series, which the publisher tends to control, they filmed The Air Canada Centre for two days.

So that is the premier title we’re extremely pleased to partner with them to bring that title to the campus.

Thanks. Just following up on that, Ellis, could you give us a little more color on how the conversations are going, or how the progress is going within Canada on the eSports initiative?

And then any color you can provide on conversations you are having with international or non-Canadian exhibitors and their interest level in the platform? Thanks.

Sure, Tim, I'll take that question. So with respect to the events in Canada to-date and the conversations, as you may or may not noticed, we’ve been really building a brand in Canada.

We’ve been focused on bringing titles or perfecting the experience. We introduced our first title Call of Duty, which was single player versus single players as opposed to kind of the more traditional team versus team.

And then we followed that up with Street Fighter: V, which again was one versus one. And then we’ve just introduced our first team based title, Uncharted, which was our third quarter event.

And as we look forward, we’re going to expand off of console, more teams, and more -- and additionally introduced PC type games. But we’ve also introduced the more one-off type events in the theatres too, so we’ve done a number of events during the third quarter that are not championship spirit based, but we’re trying to also build a market, which will be less intensive from a participation perspective.

And then we’ve also focused in the U.S. in building out the college league and some of the fruits of labor included the announcement with Riot Games and League of Legends.

And as we’re working to build-out and perfect the operating structure, I would just say, we’re having conversations with peers globally. And as we build that model and we look forward, we are excited about the opportunities that build across the borders.

Thank you very much for taking my question. I think most of them have been answered, but maybe just a quick housekeeping question for me upfront.

Gord, just wondering if you could clarify if the food revenue from Rec Room is included in CPP or not?

And hopefully we tried to footnote that, but no, it is not. So it's absolutely not.

And then maybe bigger question on the reclining, the recliner seating, I know you are obviously happy with trials you’ve run and now putting it out in the broader footprint. How should we think about pricing for recliner seating versus maybe more of your traditional offerings?

I think when you look at the first American peers, they certainly seen some strong price increases as they grow those out in the networks.

Yes, we will be looking at it overall and seeing how our experiences are and what we do from a pricing perspective. On the couple that we’ve tested, we felt that the pricing that we were able to raise it without much guests concerns, because of the offering.

And that’s what most of our peers are starting to do in the U.S. also.

Good morning. Thanks for taking my question.

For Gord or Ellis, I was wondering if you can revisit the opportunity on the gaming side following the Tricorp acquisition. I mean you're moving more and more into the U.S.

You're expanding presence. Maybe just touch on the magnitude of the opportunity given the recent acquisitions?

Sure, and I think you may recall our experience in Canada where we took two companies that were Canada, we combined them, we extracted the synergies of combining them. We ended up with a national footprint, which has allowed us to extend and service ourselves better as well as new customers in Canada.

In the U.S., CSI had a presence in the South-eastern U.S. with the acquisition of Tricorp that gives us presence in the Northeastern U.S.

That allows us to service some of our existing customer better, as well as to extend into new customers and geographies that we didn’t have our presence within the U.S., so again somewhat of a similar game plan, we now over distribution business in the U.S. We have a more expanded roots business.

So that gives us revenue synergies and some operating synergies to allow us to service our customers better than other states.

Just on the CapEx side, obviously, CapEx is rising next year, as you mentioned. If you think about free cash flow and CapEx levels out of long-term basis.

How should we look at this level, I mean, we’ve been at the 100 levels for few years, obviously, we’re stepping up. Should we be thinking of this as a new norm considering the breadth of new initiatives that you have?

Or is there a genuine chance of actually that pulling back to more normalized level we’ve been in recent years?

Yes, look, as we’ve said, we’ve jumped up $100 million when we inherited some additional bills from Empire and we’re rolling out our premium initiatives. As I mentioned, the expectation was is that new construction or new build and from the exhibition side of things down a little bit from where have been historically given the expanded build rates, but that would have been replaced by increases in The Rec Room side.

We’ve now said today that we’ll look to go up to $125 million, $25 million of that is really for the recliner program. And so, again, that’s more of a premium type roll-out, which would have more of a limited life in terms of overall spend.

As we have mentioned, we’re looking to roll-out and 10 to 15 Rec Rooms in major markets over the next four years, and we’re working on a model that could service and smaller type of markets. And would look to potentially roll-out and increase that count by about twice, so another additional 10 to 50 bps smaller box version of The Rec Room.

So with that said, we would expect that we’ll be operating that 100 plus, slightly over $100 million, CapEx range over the next number of years. But our focus is really to kind of remain free cash flow neutral as we go forward, and obviously run at a relatively low leverage ratio and have a significant amount of debt.

Capacity, which -- and that leverage should remain low as our operating earnings increase.

So two questions, on the renovation or the retrofits, and the re-seating, U.S. guys have generally targeted between 20% and 25% based on the operator.

In the tests that you've done, have you seen, that's where that’s the IRR, in the tests that you've done, have you been able to see similar kinds of returns?

Yes. Ben, we have seen some great returns, both on the incidence of people coming to the theatres and also on the concession that has also increased.

And it’s much in line and sometimes better than what’s happened. But our tests have been pretty limited.

So, as we roll it out, we will see the benefits of the program.

Obviously the U.S. guys have far more competitive market.

But in the Canadian market, do you see any of the smaller operators doing anything similar in that market, in your markets?

Look, the operators do what they’re doing, depending on their position in the marketplace. So we can’t really talk about them.

And then one for Gord, so Gord, when I'm looking at cash flow from ops, very, very large outflow on the non-operating side year-to-date. When you look through fourth quarter and reversal of up-timing around those things, should we expect cash flow from ops to be similar to, say, what it was in ‘15, just adjusted for the net income difference, if you will, or even back to ’14 levels?

Yes, so you’re speaking about the working capital changes then, Ben?

Yes.

So look at historically what happens as when we saw corporate tickets and get cards in the fourth quarter, there is a huge build-up or source of working capital. And in the first quarter, typically, there is a big drawdown as those certificates and coupons are being redeemed.

Now, 2016 was a little bit unique year and the fact that through 2015. We were making tax installaments based on our 2014 filed returns, which had the benefit of those AMC tax losses.

So, we’re in essence making our recurring tax payments base, or installment payments, based on lower tax payable level. And then when we filed our returns in the first half of 2016, as we needed to make that big catch-up payment.

And so when you look at, and those are our financial statements, you will say that, the cause of that big drain in the first and second quarters is due to those tax payments. So little bit of an anomaly with year 2016, there will be a little bit more of a drain of working capital than there typically would be, but don’t read anything into that into the future.

And then in your comments earlier about just staying with the CapEx levels around free cash flow neutral. You were using dividends or distributions in that equation.

Is that correct?

Yes.

That’s what I thought. Yes, I thought that was the case, just want to double check.

Thanks again.

Thank you very much for joining us this morning. We look forward to speaking with you again on our year-end conference call on February.

And hope to see you in our theatres over the holidays. Thank you.