Pat Marshall - VP, Investor Relations Ellis Jacob - CEO Gord Nelson - CFO Pat Marshall - VP of Communication & IR

Derek Lessard - TD Securities Drew McReynold - RBC Tim Casey - BMO Aravinda Galappatthige - Canaccord Genuity Robert Goff - Echelon Adam Shine - National Bank Financial Jeff Fan - Scotiabank

Good morning. Before beginning the call, we 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, 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 our President and CEO, Ellis Jacob.

Thank you, Pat. Good morning, and welcome to Cineplex Inc's.

2017 second quarter conference call. We are pleased you could join us this morning.

I will begin by providing a brief overview of our second quarter results and a summary of our key accomplishments during the period, then we will take a look at some of the most anticipated movies to complete this year's films slate. 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.

The results this quarter were mixed as attendance shortfalls and declines in media, coupled with the startup costs associated with Cineplex's ongoing diversification strategy, resulted in decreased adjusted EBITDA. Gord will speak to these results in more detail later in the call.

A weaker performing films slate resulted in decreased attendance this quarter versus the same period last year. However, BPP of $10.36 and CPP of $6.03 both represented all time quarterly records as we continue to improve premium experiences and expand offerings outside of core concession including offerings at VIP Cinemas and Outtake locations.

Top performing films during the period included Guardians of the Galaxy Volume 2, Wonder Woman, the Fate of the Furious, Beauty and the Beast, and Pirates of the Caribbean: Dead Men Tell No Tales. Although these films performed well, many films did not meet expectations.

As I've said previously, box office revenue will fluctuate due to the film product release from quarter to quarter which is outside our control. Now I would like to highlight some of our key accomplishments during the second quarter.

Beginning with film entertainment and content, during the quarter we announced plans to open two new VIP Cinema locations in West Vancouver and Burnaby, British Columbia as well as a new theatre in Calgary. This theatre, Cineplex Cinema's East Hills, will feature an auditorium specifically designed for families with young children with its colorful interior, playful seating, and G-rated family friendly films.

We also continue to rollout luxury recliners in select theatres across the country with great success, converting 33 auditoriums during the second quarter. We now have 11 locations completed within our circuit.

Alternative programming for the second quarter of 2017 included strong performances from international film programming, WWE WrestleMania 33, live national theatre and a special presentation of the Japanese animated film, Your Name. Cineplex.com registered a 30% increase in visits during the second quarter compared to the prior year period.

We also continue to direct guests to utilize our online offering including ticket purchases. In the quarter, 22.5% of total admissions were purchased online and via mobile devices.

The Cineplex Store remains a strategic area of focus for us. During the second quarter, the Store registered a 30% increase in device activations and a 72% increase in monthly active users as we continued to develop and enhance the user interface and experience.

We currently offer more than 8,100 titles ranging from classic films to the latest blockbusters available online via web and through a portfolio of devices. We continue to see this evolving business grow quarter-by-quarter and I would like to reiterate that the Store is one of many initiatives that differentiate Cineplex from other film exhibitors worldwide.

Looking at Media, Media was faced with a tough second quarter. Cinema Media experienced declines of approximately $3 million due to lower than anticipated on-screen revenues.

Cinema Media was impacted by the NHL playoffs where five Canadian teams made the playoffs versus zero teams in the prior year period, shifting media spend from cinema to television. Cineplex Digital Media was also impacted by approximately $2 million due to delays in the timing of a number of project installations in the quarter.

Looking at amusement, gaming and leisure, in April our Amusement Solutions Group acquired Dandy Amusements International, a western United States based amusement game operator. The addition of Dandy to our Player One Group, combined with our previous acquisitions in this space, enhances our ability to provide amusement services to a much broader and expanded market from coast to coast across North America.

Also during the quarter, we opened our second location of the Rec Room at the historic Roundhouse in Toronto, located just across from the CN Tower, Ripley's Aquarium and the Rogers Center, the Rec Room could not be more perfectly located to capitalize on the numerous condo residents, office dwellers and tourists to this area of the city. After five weeks of operation, the Rec Room at the Roundhouse has far exceeded our expectations and generated over $2.5 million in revenue.

This Rec Room is also home to Canada's first location of THE VOID, a virtual reality experience that combines interactive sets, real time effects and special gear to bring you right into the action. This is one of only 4 locations in the world.

In this instance, content for the experience was developed by Ghostbusters creator Ivan Reitman, Paul Feig and Sony Pictures in conjunction with THE VOID. We see VR as a growth opportunity for us with a number of initiatives underway to leverage this type of attraction in the Rec Room, our theatres, and with clients of Player One Amusement Group.

In addition to the previously announced new locations for Calgary and the West Edmonton Mall which will open in Q3 and Q4 respectively, we also have plans to open the Rec Room in Mississauga at Square One and at Burnaby BC at The Amazing Brentwood development. In eSports, Collegiate Starleague, a subsidiary of World Gaming, hosted a 2017 North American Collegiate Grand Finals at the Scotiabank Theatre in Toronto.

This was the first standalone grand finals we hosted in Canada and included 16 colleges and universities from the US and Canada to participating in the championships with pricing totaling more than $100,000 in scholarships. Also during the quarter, World Gaming launched the Northern Fights Canadian Championship Series, the first multi-title Canadian championship tournament which culminated in the National Finals also held at our Scotiabank Theatre Toronto.

Due to its success, this promises to be an annual event in our overall Canadian Championship Series. World Gaming tournaments are becoming increasingly recognized as a destination for top rank gamers, not just within the local Canadian community, but also across North America.

As previously disclosed, Cineplex acquired the remaining 20% of World Gaming that it did not already own for $4 million and now owns and operates 100% of the business. Continuing in the location based entertainment area and subsequent to quarter end, we announced an exclusive partnership to bring global sports entertainment leader Topgolf to Canada.

Topgolf venues are sports entertainment complexes that are typically three stories high and 65,000 square feet, located on approximately 12 acres of land. Perfect for individuals, families, corporate events and groups, Topgolf brings together people of all ages and skill levels, even non-golfers, to play in the comfort of a climate controlled environment that is open year-round.

There are currently 33 Topgolf locations operating within the U.S. and UK with great success.

These are high volume, high revenue entertainment destinations that draw traffic from within a 50 kilometer radius. Given the success of Topgolf in many cities across the U.S.

with varied climates, we expect these locations to be very successful in Canada as well. The joint venture will bring multiple locations to markets across Canada over the next several years with the first location expected to open in 2019.

This initiative marks another milestone within our diversification strategy and expansion of the location based entertainment area of the business. Now let's take a look at the film slate and some of the films we have coming later this summer and for the balance of the year.

The third quarter got off to a strong start with films such as Spiderman Homecoming, War for the Planet of the Apes and Dunkirk. Opening this weekend, we have the Dark Tower based on the Stephen King novel starring Idris Elba and Matthew McConaughey.

On August 18, we follow two brothers as they attempt to pull off a NASCAR race heist in Lucky Logan. And on September 8, the Stephen King remake IT comes back to theatres.

This one was filmed here in the GTA. Next up is the Lego Ninjago movie which high kicks into theatres on September 22 as well as the highly anticipated sequel, Kingsman: The Golden Circle, starring Colin Firth which rounds out the third quarter.

Looking at the fourth quarter and kicking off the holiday season, we have the return of Blade Runner 2049 directed by Canadian Denis Villeneuve which once again stars Harrison Ford, but this time is joined by Ryan Gosling. November begins with Marvel's Thor: Ragnarok, which is the third film in the Thor standalone series.

Then on November '17, DC Comics brings its heroes back together on the big screen with Justice League. On December 15, the saga continues as Rey carries on her epic journey in Star Wars: The Lost Jedi.

Finally, just in time for the holidays, we have the third installment of Pitch Perfect and Jumanji: Welcome to the Jungle, starring Dwayne The Rock Johnson, Kevin Hart and Jack Black, and the Greatest Showman starring Hugh Jackman. As you can see, the films slate has something for everyone for the remainder of 2017 and we're encouraged by the films slate for 2018.

In May we were very pleased to open the Cineplex O.E. Smith Theatre at the IWK Health Center in Halifax.

This charitable initiative offers patients and their families the ability to enjoy the escapism that movies provide while receiving treatment at the hospital. The multipurpose theatre auditorium also provides an updated meeting and presentation facility and is home to the annual IWK Telethon for Children.

In June, the world's leading cinema operators created the Global Cinema Federation of which Cineplex is pleased to be one of the founding members. The group brings together 11 exhibitors from around the world as well as members of the National Association of Theatre Owners and the International Union of Cinemas.

The Federation will focus on cinema issues and opportunities including piracy, technology standards, accessibility, and matters of common interest with our partners in film distribution. As you have just heard, the quarter had mixed results.

We may have some ups and downs in some quarters, but we remain focused on value creation and diversifying the business to build a stronger Cineplex for the future. With that, I will turn the call over to Gord.

Thanks, Ellis. I am pleased to present the second 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 website at cineplex.com. For the second quarter, total revenue increased by 7.7% to $364.1 million, a second quarter record, and adjusted EBITDA decreased by 11% to $38.1 million.

While the results for the quarter were positively impacted by higher amusement revenue, which increased 85.9% to $45.7 million, primarily relating to acquisitions. A 2.2% drop in attendance, declines in media revenue, and costs associated with Cineplex's ongoing diversification strategy resulted in the decrease in adjusted EBITDA.

Cineplex's second quarter box office revenue increased 2.4% to $170.7 million compared to $166.7 million in the prior year, as a result of a BPP increase of 4.8% to an all-time quarterly record $10.36, up from $9.89 in 2016. This was partially offset by an attendance decrease of 2.2%.

The increase in BPP is due to price increases in selected markets as compared to 2016. Food service revenue increased 4.7% to $101.4 million.

Included in food service revenue is $2 million from The Rec Room. Excluding the revenue from The Rec Room, theatre food service revenue increased by 2.7% from the prior year due to the 5.1% increase in concession revenue per patron to an all-time quarterly record of $6.03, partially offset by the decrease in attendance.

The CPP growth was primarily a result of increased visitation, basket size, and expanded food offerings, including those available at Cineplex's VIP Cinemas and Outtakes locations. Total media revenue decreased $3.6 million or 9% to $36.6 million for the quarter.

Cinema Media revenue, which is primarily theatre-based, increased 8.7% due to a decline in cinema advertising partially a result of the factors Ellis mentioned previously. Digital place-based media revenue decreased 9.5% due to lower project installation revenue compared to the prior year period, as the prior year included the impact of the Beer Store rollout.

Amusement revenue increased $21.1 million, or 85.9%, due primarily to two acquisitions in the United States made during the fourth quarter of 2016 and the acquisition on April 1, 2017 of Dandy Amusements International, Inc. In addition, amusement revenue includes $1.7 million of amusement gaming and other revenue earned at The Rec Room.

Turning briefly to our key expense line items, film costs for the quarter came in at 53.6% of box office revenue as compared to 54.4% reported in the prior year. The decrease in the film cost percentage is a result of the reduced concentration of box office revenue from a select number of titles during the quarter as compared to the prior year period.

Cost of food service for Q2 2017, excluding the $0.6 million incurred at The Rec Room, was 22.7% as compared to 22.3% in the prior year period. Other costs of $211.5 million increased $28.2 million, or 15.3%.

Other costs include theatre occupancy expenses, other operating expenses and general and administrative expenses. Theatre occupancy expenses were $52.6 million for the quarter versus a prior year actual of $50.6 million primarily due to the inclusion of favorable one time real estate tax credits in the prior year.

Other operating expenses were $138.9 million for the quarter versus a prior year actual of $114.4 million, an increase of $24.5 million. Major reasons for the increase include an increase of $17 million in amusement solutions expenses primarily due to the two acquisitions completed during the fourth quarter of 2016 and the one in the second quarter of 2017, an increase of $0.7 million due to the impact of new and acquired theatres net of disposed theatres, $2.8 million in unit level operating costs related to The Rec Room, and costs related to new businesses, including preopening costs for The Rec Room and payments on certain third party digital place based media networks.

These increases were offset by decreases in other costs including reduced marketing expenses of $1.5 million due to the timing of expenditures. G&A expenses were $19.9 million for the quarter, which was $1.6 million higher than the prior year due to higher head office costs including payroll costs and costs arising from share based compensation.

Net CapEx for the second quarter was $50.2 million as compared to $16.4 million in the prior year. Current year expenditures include amounts for ongoing construction of three new Rec Room locations and the continued rollout of our Recliner program.

We estimate that our net CapEx will be approximately $150 million for 2017 and this includes an incremental $15 million related to our Recliner program based on the success of the initial program, and $10 million related to new business initiatives and retail concepts in the Player One Amusement Group business. Also during the quarter, we completed the acquisition of Dandy Amusement International, Inc.

for approximately $13.7 million. We acquired the remaining 20% of the World Gaming Network, L.P.

which we did not already own for $4 million, and we substantially paid the deferred consideration on the EK3 acquisition which amounts to $10 million. While the results for the second quarter were down from the prior year, we are pleased with the results from the amusement business and we are optimistic about the remainder of the 2017 films slate, in particular the fourth quarter.

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

Our strong balance sheet and low leverage ratio allows 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.

You guys did identify a few areas where you believed the discrepancy between the actual results and consensus EBITDA lied. Just wondering if you would add some color in terms of where you think these costs would be one-time in nature versus ongoing.

Derek, it's Gord. There's a couple of items which we identified, particularly related to the Rec Room, where we opened our Roundhouse location in this year so we're going to have the preopening costs related to those.

The party, the marketing, the launch, training payroll, etc. And in addition, as we're building out new locations, when we take control of the construction of a project, we typically start accruing noncash straight-line rent at the point of time of taking over control of construction.

So during the quarter there was about $1.9 million related, in costs related to these straight-line noncash rent items and then the remainder of the variance. So the total sort of preopening costs line item was about $3.6 million here in the quarter.

So primarily preopening rent, primarily straight-line noncash rent, and the remainder kind of marketing and launch costs. I identified some items related to realty tax appeals where we had a number of successful realty tax appeals in the prior quarter which amounted to about $2 million.

And those are the kind of more significant of what I would characterize as more one timers. Then we've got a number of timing related matters when we look at the digital media installation schedules and we sort of quantified some of those during Ellis's prepared script.

So those were the majority of kind of timing and more one-timers.

In terms of the Rec Room, is it really one-time or do you think you have to spend as much on marketing and launch costs as you open more of these going forward?

Each location, and sorry, that cost really relates to three locations ongoing. So I think what we've typically said and what people have typically modeled is the preopening costs related to a single Rec Room is typically in the kind of $1 million range.

Switching gears to the Recliner program, just wondering how much disruption you guys expect for the remaining retrofits? And of that 2.2% drop in traffic, how much of that was due to the 33 auditoriums going dark at one point?

Derek, it's Ellis. Basically the Recliner program, as we get them started and take the screens off, they have an impact on us during the period that they are taken off service because we don't have as many auditoriums in those particular locations.

The results so far have been extremely positive. We've completed 11 of them.

We look to complete another four by the end of this year. So we will continue to roll them out in specific locations as it continues.

Now a reason for the difference between the industry and ourselves in Canada was also driven by the Quebec movie called Backup which did extremely well in the marketplace. And when you look across the country, Quebec is where there are more independent theatres and that's why we ended up with a lower percentage increase as a result of the performance of Quebec which was one of the highest growth provinces in the second quarter.

Just in the opening remarks, Ellis, I think you alluded to 2.5 million in revenue. Is that from the Toronto Rec Room?

Did I get that correctly?

Yes, that's correct. I said that during the first five weeks of operation it grossed $2.5 million.

And we are quite pleased with the performance and we feel very comfortable with the location and the feedback we are getting from our guests.

That's definitely a good number. And then just two other ones, just first on the outlook for Cineplex Media and then Digital Media, I guess for you, Gord, you've said in the last couple of quarters you've thrown out a couple of kind of broad parameters on how you expect these businesses to grow.

When you look at the Q2 impacts that more or less look a little bit transitory to us, is there any change in that full outlook for Media or the growth outlook for the underlying businesses all together? And then secondly, just on the CapEx, I think you've alluded to kind of a normalized level of about 100 million if you strip out some of the Recliner-related CapEx.

Just wondering if that's kind of a longer-term kind of targeted run rate that's still intact just based on your updated guidance for 2017? Thank you.

Yes, so look we had previously guided to $125 million in CapEx, we've increased that to $150 million. Two different incremental additions, an additional $15 million related to Recliners based on the success we've been seeing to date, and then $10 million related to some retail concepts and some new business growth related to Player One Amusement Group.

So we now have a guided number of $150 million for 2017 of which $40 million is Recliners and $10 million is the Player One Amusement Group. So we continue to indicate that the $100 million is what we would have on a run rate going forward, but I would suggest with our announcement of Topgolf, that as we look to roll that out, as you look forward, is $1.5 million would be more of a run rate going forward than the $100 million, including the introduction of the new concepts.

So that answers your second question. On the first one, look, as we mentioned, particularly on the Digital Media side, there are some timing issues in installations.

When we look at the QSR business in particular with the franchise relationships, sometimes those can be a bit more challenging to get off the ground. So we're a bit behind where we initially thought we were in terms of installations.

I would suggest that kind of the numbers that we've given previously now might be more challenging to reach for the full year 2017. But on a go-forward basis, we're still comfortable with that longer-term outlook

Could you talk a little bit about, provide a little more color on what you saw in the Cinema Media advertising line on the quarter and what you're hearing about that business going forward from your key advertisers?

We got impacted, as I mentioned on the call, Tim, from the hockey which people had reallocated dollars. But we are comfortable where we are going to end up on a full year basis and we'll continue in that business to see single digit growth going forward.

We aren't getting any pushbacks from the advertisers themselves because the cinema is still a great location to get people's undivided attention when it comes to the advertising.

On the Recliner program, can you provide a little more color on what you're seeing in terms of throughput that's causing you to accelerate that program? And also on that, with the $40 million full spend, is that sort of it?

Or do you think you may even go further. Last, what's the timing on it?

Is that all going to be done this calendar or do you think some of it will flow into next year?

We are basically committed to completing 15 by the end of this year. But based on the results, we may continue to look at opportunities right across the country.

And as we open the newer theatres, they will all be fully reclined. So I think you're going to see the returns start to flow in as the quarters move forward.

I wanted to follow-up quickly on the extra $10 million in CapEx on the Player One segment there. Maybe Gord or Ellis, just wondering if you can just expand on what the new retail concepts are that you are sort of experimenting with.

I just want to make sure, this sounds like it's more of a one-time spend, I was wondering if you can expand on that investment a little bit. Thanks.

Sure. As we mentioned, the business that we have created in the U.S.

was really created to consolidate a national position, so we're serving multinational, or sorry, national customers across the U.S. We have introduced one concept in Mall of America, so this would be one of our standalone concepts for us.

I would characterize it as limited, more of a showcase location for us. And so there's been some capital spend in terms of both equipment and creating a location at the Mall of America.

Just staying within that segment, obviously the quarterly numbers move around a bit given the acquisitions that you made. Just to help us in forecasting, how much seasonality do you get in this business?

I'm trying to use Q2 which includes all three acquisitions. I know Dandy was completed in April.

How can we kind of think about the seasonality of the business as well as the margins? So this is just the Player One component, excluding Rec Room and excluding Cineplex Exhibition.

With respect to the seasonality, a lot of it follows the patterns of a majority of the audience is younger, a younger demo. So if you follow kind of the school and the holiday patterns more closely than you would say from a movie attendance perspective.

So a little bit heavier in the summer months as people are off school and then heavier kind of around those Christmas vacation periods. But other than that, there's not as significant seasonality as there would be in the film industry as an example.

And typically kind of a lower end teen type margins there, right? In the lower teens let's call it.

Is that...

Again, there's two elements to the business. So there's one which is the distribution which is the sales of equipment which is a relatively low margin business.

And then there's the route business or the distribution business where we're placing equipment at third party venues and operating under a rev share. So Dandy as an example is an acquisition that was primarily a rev based business and so the margins under the distribution business would be low single, or high single digits, sorry.

And under the rev business you're closer to that 20% range. So as we add more rev business, which we did through the acquisition of Dandy, you'll see the margin in that business increase.

Just a big picture question perhaps for Ellis, premium VOD is back being in sort of the headlines again. I know you've discussed it in the past.

We're seeing sort of contradicting comments coming from various parties. I know that Bob Iger at Disney has said he's really not interested in the format, whereas others maybe on the Time Warner side and surprisingly AMC, seems to be more positive about it.

I was just wondering if there were any other updated parts around discussions that have been had or any updates you can provide on that front?

We continue to have discussions with our distribution partners about the premium VOD. Nothing has been in place and I can't comment on different rumors that are out there.

All that being said, we are positioned very differently than most of our exhibitor peers because we've been in the Cineplex Store business for close to 5 years. We've got our own delivery mechanism, we have 8,100 titles, we have Super Ticket.

So for us, this is something that we will continue to discuss with our partners moving forward. But again, neither of the parties, either the studios or ourselves, want to be in a position where we are trading dimes for nickels.

So we are very focused on doing whatever happens is the right thing for both of us.

If I could, I'd like to go back to the Recliners. And there, I appreciate you probably don't want to go as far as Regal where they're suggesting that they're getting incremental $77 million in EBITDA from an investment to date of $140 million.

But could you give us perhaps some data points in terms of the initial traction of the Recliners? Or perhaps is your threshold IRR 20%, 30%?

We are seeing some great results, Rob, on the initial installs. But I think what we have to do is give it a bit of time to get an annualized run rate for all of the ones that we've completed.

Where we are seeing a lift, too, is on the concession per person at the same time as the attendance and the penetration of the locations themselves. So we would be looking at definitely a 20% return on our investment and in some cases it may be higher or lower depending on the positioning.

Our big concern, compared to the US, is they have many screens per location. So in Canada we run around 10 screens, they are at 14 to 16.

So we have a capacity issue, so we need to deal with that also when we look at individual sites as to whether they warrant having recliners.

If I might, could you perhaps provide any additional color on the box? I know Q2 started off well for you and then fell off.

Can you talk to what you've seen in Q3?

Q3, again, it started off as I said, quite strongly the first couple of weeks. We were ahead and then we ended up I guess this past week where we had Legally Blonde open and that was competing, Atomic Blonde, sorry.

That was competing against the Bourne franchise last year. In the coming week, we've got the movie this year which is going to be Dark Tower and Lucky Logan the week after that and that is competing against Suicide Squad.

So those are the two tough weeks. But when I look at the balance of the quarter, we've got movies like Hit Man, Bodyguard, Logan Lucky.

We've got a number of movies like Lego Ninjago and Kingsman, that weekend I am sure we will definitely out-gross the prior year. And I did a week by week comparison from last year to this year and really the big difference for the third quarter is really Suicide Squad and it will all depend on how Lego and Kingsman do towards the end of the quarter to see where we end up.

But in the fourth quarter we again look quite strong with Blade Runner, we've got Fuel Storm, we've got Bad Moms, we've got Thor which should be huge, we've got Justice League, we've got Coco. And then of course this year Star Wars I expect to be significantly stronger than the prior year.

Maybe just to press a little bit on Cineplex Media and Cineplex Digital Media again, I don't think it was explicitly stated, but although we don't expect to see maybe the same degree of weakness, particularly on Cineplex Media heading into Q3, are we still working through a bit of a troughing dynamic ahead of I guess better traction reasserting itself in Cineplex Digital Media in the Q4? And then certainly on the back of the strong box office expectations that Ellis just alluded to, Cineplex Media coming back with some strength?

Can you just talk to that in terms of Q3?

Adam, in terms of the digital media, as we said, kind of the installation revenue gets a little bit lumpy. There's a number of different, we're focused in three kind of key verticals, the QSR, retail and financial institutions.

The retail and financial institutions vertical tends to be very focused, wide scale, installations occurring relatively quickly. QSR, when you're dealing with franchise situations, you get very lumpy installation programs in place.

As I mentioned, last year we had a retail customer in the first half of the year, the Beer Store, which in essence fully deployed within the first half of last year, and then this year we're rolling out some of those recently announced QSR customers. And as I mentioned, those are a little bit lumpy.

So as we look forward, we're still comfortable with where we ultimately think the business has moved, historically communicated, we just got into some kind of quarter-over-quarter comparisons where the lumpiness is a little bit more intact or more evident to you guys.

From a media perspective, I think the fourth quarter, given the movie slate, you're going to see a lot of advertisers wanting to be in front of those movies. Like movies like Thor, Blade Runner, Justice League, Star Wars are all going to drive the Cinema Media business.

Ellis, if I could ask you one question, and it's maybe a bit hard to address exactly and maybe a bit moot to a degree in the context of you're not likely to do acquisitions outside of Canada. But inasmuch as Aravinda touched on PVOD, I guess another interesting issue that's been out there in the market, particularly talked about in recent weeks, is the idea that we've seen some degree of domestic weakness for a number of titles as you alluded to earlier.

But then some of that is being mitigated by strength overseas. So that net for some of these studies who would love to see strikes on both sides, nevertheless they come out somewhat pleased by some of the upside they're getting internationally.

As it relates to Cineplex, which is more Canada focused, how do you look at that dynamic? Or maybe, again, this is a specific quarterly issue and/or specific titles that are simply not resonating.

But it looks to be a bit of an interesting potential trend.

Yes, and Adam, that is the case. We do get impacted in Canada sometimes in a great way and sometimes in a not so good way, especially with the kinds of movies that are being released.

Like we know things like the Potter franchise, Star Wars and all of those kinds of movies, Bond movies do extremely well in Canada. Movies that are related to books also over index in Canada.

One of the things though we've had as you saw in the second quarter is a big Quebec feature which helped us comparatively to how the U.S. performed.

Because the box office in Canada, both for Cineplex and the industry, was up compared to the U.S. in the second quarter.

But you are correct, there are expansions taking place around the world and there are certain movies that have underperformed in North America but have made up the difference internationally. But I don't see that as an ongoing trend.

It's just the growth in the business outside North America is partially causing that increase in the rest of the world.

Just maybe on the minimum wage, there appears to be some dialogue going on with the government and industry. I was just wondering if you had any further insight into the negotiations or discussions.

Derek, we are not directly discussing or negotiating with the government. We are basically doing all of the necessary measures that we need to from a technology perspective and other things to look at the different wage structures from what's taking place across the country.

And we are part of the Retail Council of Canada which is representing us as part of the issue of the whole minimum wage and the speedy increase that they are looking at implementing.

And maybe your level of confidence in being able to offset any of those increases?

We are looking at all of the different avenues from efficiencies, technology, pricing, whatever we need to kind of, the buttons and the levers we need to pull to get us to the right level so it does not have a long-term impact on Cineplex.

Maybe just a housekeeping question for Gord. Wondering if you have the number of digital media installs that you have this quarter?

Last year we were about 10,600, we're about 11,600 at the end of Q2. One thing I'll just mention on locations though is, as we're branching out into kind of some of these mall networks on the path to purchase is that a Yorkdale is one location and a small QSR at a single location is also one location.

So not all locations are equal, remember that as you look forward.

I've got a few. First, on the Recliners, if we can just do a quick clarification.

How much total CapEx are you spending in 2017 for the 15 locations? And what's the plan for 2018?

It's $40 million. So we increased it from $25 million by an additional $15 million.

And as Ellis mentioned in his comments with respect to 2018, to date we have a plan and that's what we're looking to address in 2017. To the extent that we see future opportunities, we could potentially deploy additional, but at this point in time, we've identified the first I would say two phases of where we think we would go.

There may be opportunities, but there may not be as many in 2018.

And the $40 million, is that for the same 15 locations? Like are you adding more screens?

That adds an incremental approximately 6 or so locations.

Onto the Topgolf, what's the plan here with respect to the size of the investment that you think Cineplex is going to have to make into the joint venture? Just want to get a sense as to the magnitude of this and then also the return profile that you expect to see from that JV.

Look, the size of the site needed to deploy a Topgolf location is roughly 12 acres. The size of the box is about 65,000 square feet.

And look, as we look and kind of benchmark against our other LBE concepts, particularly in the Rec Room, I would suggest that the cost of deploying Topgolf, our costs will likely be roughly twice the cost of a Rec Room, in a major market Rec Room. And we'll likely deploy half as many as we would Rec Room deployments in major markets.

But Jeff, we are quite excited about this opportunity, and the reason being, it really is about we were a cinema company and now we are an entertainment destination. To me, that's really important for us and with our SCENE loyalty program and all the different businesses that we have with our gaming business and our signage business, it fits well into our Topgolf facilities.

And I don't know if you've gone to one of these in the U.S., but today I got more emails this morning about Topgolf than I did about our financials. We are quite positive about this joint venture.

Jeff, sorry, also in terms of the return profiles, then with our LBE concepts and the ones that we've announced to date prior to Topgolf, our targeted returns are roughly, our cash and cash returns around 25% and EBITDA margins around 25%. And I would suggest that the expectation would be that we would be consistent with those as we look to roll out all our LBE concepts including Topgolf.

Great. Just maybe one final question.

More of a big picture. As we sit back, can't help but think that some of the investments in some of this growth initiatives are increasing not only for this year but looks like for the next couple of years.

Has there been, as you sit back, is this because you're a little bit more concerned about the box office recovery this year not having as big a bounce, so far at least, that you think you have to spend a little bit more in order to drive some of these growth initiatives? I'm not questioning really whether these are great opportunities, it sounds like they certainly are, but just wondering how you're thinking about sort of bridging the box office trends, also from contribution from these growth initiatives?

That's a great question and it's not that we started this quarter. We have been looking at diversifying as a company for the last 5 to 10 years.

And as we grow those different businesses, we expect contributions to continue to basically minimize our risk when it comes to the Hollywood movies. The issue becomes is you're going to have situations where there are quarter to quarter variations on the box office, year to year variations.

But when you look at the overall movie business, it has been quite strong and significant even though there have been a lot of disruptions over the last 25 years in the business. Because it still is a social experience, it still is a night out and it's all about giving that guest the best experience.

Our diversification wasn't based on this quarter's results or the last number of quarters. It was a long-term, thought-out process that we wanted to continue to use our infrastructure and human capital to diversify our business so we are less reliant on just one facet.

And there is a lot of growth opportunities in Canada because of some of these entertainment complexes that have done well south of the border that we are able as a result of our infrastructure, our relationships, to build. And given where things are theatrically and our market share, it's harder for us to grow in that space in Canada.

Thank you all for joining us this morning. We hope you have a great balance of the summer and enjoy the Rec Room at the Roundhouse.

We'll speak to you again during our third quarter conference call in early November. Thank you.