Q1 2020 Cinemark Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to Cinemark first quarter earnings call. At this time, all participants aren't in listen only mode. After the speaker presentation. There will be a question and answer session to asking question during that time.
You want me to press Star one on your telephone keypad. Please be advised that today's conference is being recorded I would now like Dan to conference over to your speaker today, Chanda Brashears, Vice President of Investor Relations. Thank you. Please go ahead.
Lincoln Italia and good morning, everyone. At this time I would like to welcome you to Cinemark holding Inc. first quarter 2020 earnings release Conference call hosted by Mark Your body, Chief Executive Officer, and Sean Campbell, Chief Financial Officer, and Chief operating Officer.
Given her circumstances with a reduced workforce and work from home policy protect our employees and their families. We opted to rely upon the belief provided by the FCC and delay the filing of our first quarter results as disclosed an 8-K filed Nate.
In accordance with the Safe Harbor provision at the private Securities Litigation Reform Act at 1995 certain matters that are discussed by members of management. During this call may constitute forward looking statements.
Such statements are subject to risks uncertainties and other factors that may cause <unk> actual performance to be materially different from the performance indicated or implied by such statements.
Such risk factors are set forth in the company that'd be filing.
The company undertakes no obligation to publicly update or revise any forward looking statements today's call and webcast may include non-GAAP financial measures.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measure it can be found in today's press release within the company's quarterly filing or form 10-Q or on the company's website at investors Datsun to Mark Dot Com I would now like a turn call over to Mark somebody.
Thank you Chanda and good morning, everyone. We appreciate you joining us to discuss our 2021st quarter earnings result on this virtual called Chanda, Sean and myself or all that unique locations. This morning.
[noise] before beginning with my formal comments I felt compelled to do all that we as a society or during with numerous crisis simultaneously.
Global Pandemics.
Dramatic economic during a downturn unemployment rates don't seem to historic levels and social upheavals sparked by racial justice is a most challenging time and I sincerely hope, we're able to find a path forward as United country and people.
Given the extra ordinary circumstances associated with the impact of the global Coop. It 19 pandemic, we're modifying the standards for many of our earnings call rather than providing a detailed summary of our first quarter results as well as an update on our key strategic initiatives out prepared commentary.
On these topics we'd be abbreviated.
Instead, we'll concentrate on our liquidity position as well as our plans to reopen or theaters before we turn to Q1 eight.
The social and economic effects of code at 19 had been widespread and hard hitting in our industry like many others has been does that have been especially impacted.
For context through February the North America industry box office was up more than 7% quarter to date compared to the same period last year driven by strong performances from bad boys for lights, 1917, Sonic to hedge hog and jumanji the next level.
However, the severity of cubit 19 increase throughout the month of March which resulted in a complete shutdown of the industry by did not box office rapidly declined in the quarter ended down 25%.
When positive detail, we felt worth highlighting is it sunoco centermark modestly surpassed the industry box office performance by 20 basis points, which is an impressive feat given our comparison of 450 basis points outperformance in the prior period, we've now extended our trend to over indexing 40 of the past 40.
The five quarters.
Cinemark is consistency has been the cornerstone of our performance over the years consistency in terms of our financial results balance sheet strength operational and strategic execution capital allocation strategy and highly experienced management team.
Our ability to deliver in these areas year. After year end varied economic climates gives me confidence in our ability to continue to excel, even as we adapt to an evolving landscape.
John will now walk you through our first quarter results and liquidity position with a bit more specificity before turning it back over to me to cover our reopening plants Sean.
Thank you Mark good morning, everyone.
As Mark indicated the Cobot 19 endemic has had a dramatic impact on our industry has materially affected cinemark.
As a result, the crisis, we temporarily closed all of our domestic theaters on March 17, followed by or Latin American theaters. The next day.
These closures created a significant drag on our first quarter results with a sizable distortion to all associated financial metrics and they continue to impact our business today.
Head of the crisis, our financial performance was tracking exceptionally well.
And by our continuous improvement program and are very strategic initiatives on relatively flat attendance February year to date total worldwide revenue was up 5%.
Adjusted EBITDA increased approximately 16% and our adjusted EBITDA margin had expanded by nearly 200 basis points compared to the same timeframe in 2019.
Unfortunately, however, the effects of the crisis in March were severe.
We estimate that covert 19 adversely impacted our first quarter adjusted EBITDA by almost $90 million.
The crisis also drove heightened level of long lived asset impairments on account of near term cash flow implications and depressed earnings per share by approximately 70 cents.
Furthermore, it negatively impacted our first quarters cash flow by more than $140 million.
As we discussed during our Investor call on April 15th we took swift action terrain in expenses and manage the quantity as the implications of cobot 19 became clear and the likelihood closing our theaters became more probable.
While several actions such as delaying berries payments in drawing down $98.8 million of our revolving credit facility benefited first quarter liquidity and helped to offset the drag on cash caused by Copel get 19, the impact of the majority of our actions began to take effect in the second quarter.
All told we ended the first quarter with total worldwide revenues $543.6 million adjusted EBITDA of $66.2 million and an adjusted EBITDA margin of 12.2%.
We reported a net loss of $59.6 million and had an ending cash balance of $479.4 million.
Moving on from the first quarter to present day and digging deeper into our cash position. We thought it would be helpful to describe many of the key actions, we have undertaken and continue to drive to increase and preserve liquidity.
We've covered these details during our April call and they include halting all non essential operating and capital expenditures, including delaying new build real estate commitments wherever possible.
Reducing our workforce and payroll, including laying off over 17500 hourly theater employees, taking our Ceos and our board of directors salaries to zero.
Reducing numerous other executive salaries by 80%.
Furloughing over half of our corporate employees, but also with 80% salary reductions and reducing the salaries of our remaining staff by 50%.
We've negotiated a wide range of modifications to existing and future contractual obligations with landlords and suppliers to delay the time that payments.
From a financing standpoint, we drew down $98.8 million, a revolving credit facility and secure $250 million, a new five year senior secured notes.
Along with the instruments of those notes, we also obtained a waiver to suspend the net senior secured leverage ratio covenant associated with our credit facility through the end of 2020.
Finally, we temporarily suspended our dividend of approximately $42 million per quarter, and we are pursuing a range of tax related opportunities provided by the cares act, including an approximate 20 million dollar tax refund associated with new qualified improvement property rules.
Varied payroll tax offsets and delayed payment options and meaningful potential associated benefits with net operating loss deductions.
As a result of these many actions we ended the month of May with a global cash balance of approximately $640 million.
Furthermore, we continue to see a cash runway well into 2021, even if our theaters would remain close.
That said, we do not believe such a scenario is likely based on how the industry is currently progressing toward a large scale reopening in the third quarter.
Mark is going to cover various aspects of the steps, we're taking to prepare for that reopening in a moment. We wanted to emphasize as we are working through those steps cash management and heightened safety measures are two of our key focal points.
Over the past two months, we've been reevaluating and reengineering numerous aspects of our business to operate leaner and more efficiently as well as it here to a myriad of new cleaning and distancing protocols to keep our guests and employee safe in the current health environment.
Doing so has involved accelerating several productivity initiatives that were already in motion Precrisis as well is pursuing a range of new actions.
At the same time as our near term focus will concentrate on must haves and re fortifying our balance sheet. Many other capital growth intensive growth initiatives that we are pursuing prior to the crisis will be put on hold for now.
Along these lines, where we are not yet prepared to provide updated capex guidance for the year, we do anticipate that our capital deployment for the remainder of 2020, we'll continue to be limited to essential needs signed commitments and select projects that were already in motion head of the coded 19 outbreak.
Fortunately, our active investments over the years in sustaining and improving the condition of our theaters have reserved quality of our circuit without a sizable backlog of deferred maintenance.
For instance, our significant investments in recliner is over the last several years, which now constitute over 60% of our domestic circuit included very theater upgrades and Remodels.
Our theaters are extremely well positioned as the industry gets going again and will not be materially disadvantaged by tightening of capital expenditures in the near term.
Over the years as we've invested in prudent ROI generating opportunities like recliner Remodels. We have also consistently maintained a disciplined capital allocation strategy that favors a strong balance sheet with low leverage.
We believe that one of the most significant reasons, we are so well suited to navigate through the cobot 19 pandemic is because of the financial strength our strategy has afforded us.
In this regard as we emerge from the crisis, our top capital allocation priority will be to re fortify our balance sheet to its pre crisis standing.
With that I will turn the call back over to Mark who will provide additional information about how we're gearing up to reopen our theaters.
Thank you Sean It clearly goes without saying we are thrilled to have turned the quarter from having our peters closed actively preparing for them to reopen.
As we do so there are several important considerations that were diligently assessing and factoring into our timelines and plants.
These include.
The current status of the virus.
Evolving restrictions imposed by governmental authorities availability of new film content.
New health and safety protocols, and consumer confidence and willingness to return to the theaters.
We're working within these parameters and utilizing consumer research to guide our decisions.
You may have seen media coverage of a recent survey conducted by Ito, a leading data and analytics company used by the major studios and other entertainment clients, which consumers were asked about their likelihood to return to theaters in July.
It's noteworthy that respondents likelihood increased from 40% to 75% when proper safety measures were implemented.
With that in mind, we have been intensely focused on developing enhanced health and safety protocols understanding. These factors will weigh heavily on the confidence and peace of mind of our employees guests and community as we reopened our theaters.
Examples of actions, we're taking conclude.
Increasing our already stringent cleaning and sanitation measures to levels that meet or exceed the CDC and world Health organization guidelines.
Minimizing physical distance at the box office and concession stand along with the installation of plexiglass screens to create additional separation.
Frequently and thoroughly disinfecting all high touch areas.
Disinfecting seats every morning, and again before each Showtime with products identified by the EPA to effective to be effective in eliminating coated 19.
Providing ample amounts of hand in seat sanitizer supplies for our guests screening the health and wellbeing of our employees before each shift.
Requiring all employees to face masks and encouraging guests to do the site.
Staggering showtime's to minimize crowds and implementing seat buffering technology than our point of sale system that will secure physical distinct thing between parties when purchasing tickets.
In light of the distancing protocols I just mentioned, it's worth reiterating that we're able to operate profitably in that environment with reduced capacity.
The key to doing so in this environment will be to optimize our operating hours and occupancy levels, while minimizing our operating expenses to degree greatest extent possible.
To that end, we've been actively reevaluating a wide range of business protocols as Sean indicated earlier.
In the field and at our corporate service Center, we're modifying various operating procedures to ensure their allied with near term demand and serve an essential purchase. Some examples include simplifying and streamlining certain theater practices, such as issuing and checking tickets.
Concentrating food and beverage offerings on core categories that are less labor intensive.
Revising all of our theater staff schedule models to align new procedures and optimize requirements and rationalizing head count in both field and at the corporate level as certain initiatives or postponed for the time being.
We also plan on optimizing our hours of theater operations, as we reopened and will scale them as consumer demand necessitate.
The revised operating protocols I just described have developed by a series of project management teams, we assembled to develop and implement our theater relaunch strategies for new norm as well as make our business leaner and more efficient.
The effort has encompass a vigorous projects structure with our cross functional working groups task to identify key actions to successfully ramp up our theaters in the most effective and efficient means possible.
As well as various contingency plans to enable us to be nimble and flexible to just quickly as circumstances demand.
All of these actions I just described are associated with our cash management objectives and will help to ensure that are operating practices and expenses are appropriately balanced with near term demand.
In addition to carefully reconsidering are varying are varied operational procedures.
We have also spent considerable time working through customer and employee communication plants in conjunction with the timing for reopening.
Our U.S. reopening will take place across four phases, beginning June 19th and continue through July Ted.
As the outbreak of coated 19 in Latin America trailed the U.S. by several weeks the reopening of our international theaters will face a similar delayed door plans are still evolving. We currently anticipate reopen in Latin America sometime in August and we'll continue to assess the circumstances.
Initially upon reopening we will be showing classic repertory content at very attractive welcome back promotional pricing.
We are appreciative of our varied studio partners for sure in many of their top library hits with Us and excited about the campaigns, we are creating together that will lean into them to salinger and emotional connection movie goers have with these wonderful films.
We're also collaborating with NATO, our trade organization and the studios London industry campaign to collectively celebrate the magic of movie going through a multifaceted approach utilizing talent appearances industry events and paid media. It's been a remarkable experience collaborating with these groups in unison in.
Support of our industry to reignite the shared immersive theatrical experience.
Along these lines, we have been maintaining close contact with our 12 million addressable customers across our global circuit through our various loyalty programs. This of course includes our movie club members, who continue to exceed 950000 members.
Thrilled by the fact that our current membership base remains in line with the figure we reported back in February even though our theaters has been closed for multiple months.
We view this result, as a true Testament to our guests love of movie going as well as a strong value proposition, we created with movie club.
Members have consistently provided feedback that they appreciated our proactive approach in pausing their membership when our theaters closed and they look forward to returning to our theaters for the newest blockbuster films and our freshly popped movie theater popcorn.
The film slate for 2020 continues to develop and we along with our studio partners are all looking forward to releasing new high profile films again on the big screen beginning in the third quarter.
As of today, we expect this will kick off with unhinged, featuring Russell Crowe by new studio entrance solstice.
Warner Brothers Tenet directed by Chris Nolan, who we are extremely grateful for for his relentless support at the movie theaters over the years, but especially now I missed this crisis Disney's live action Milan.
Sponge, Bob movie and quiet place in Paramount and Warner Brothers hit Wonder woman 1984.
The third quarter is followed by a further array of big tent pole films with diverse genres and broad appeal in the fourth quarter, such as Marvel's Black widow, Pixar sole James Bond no time to die top gun Maverick, the crudes to and Steven Spielberg West side story to highlight just a few.
And we're very optimistic about 2021 and all it has to offer with many significant titles that got shifted from 2020 as well as numerous highly anticipated films that have already been plan for next year. Examples include the long awaited sequel, Avatar too, which has recently resumed production.
In the New Zealand Batman Jurassic World.
Domination Spiderman live action sequel minions, the rise of Gur the attorney rules Raya in the last Dragon the matrix for fast and furious nine chain try and the legend at the 10 rings live action Jungle book and mission impossible seven the list goes on and on our.
Studio partners produce market and distribute amazing content year after year at Cinemark with our Giants screens and heightened sounds in technology, we provided extra ordinary and deeply immersive entertainment experience for viewing that content in a shared atmosphere, one which simply cannot be.
Replicated at home, we've consistently seen for decades, how the theatrical atmosphere creates and provides an escape for movie goers, which is something we're all craving and need right now it's one of the many factors along with significant pent up demand to get out of our homes that we believe bodes well for cinemark and.
Our industry as theaters reopened.
In closing I'd been in this industry for more than 30 years, having spent most of my career at Disney I have confidence in this industry and our ability to not only weathered the storm that emerge a stronger and leaner company. Yes. It may take some time, but movie going is it beloved pastime that spans generation.
Thanks for states long overdue dates girls nights out fanboy get Togethers and of course family outings, everyone has fond memories of go into the theater and we believe that tradition will continue.
One last thing before I close.
I'd like to say a heartfelt thank you to the cinemark team.
They are cross functional collaboration tireless work ethic and dedication to the company, which is expected to be valued given the significant reduce salaries has elevated to a level. During this crisis that is beyond impressive for which I am extremely grateful I'm proud of all that weve, what we've accomplished to.
To date and I'm confident in our ability to successfully operate in the new future that awaits us as we reopened we're all truly excited once again to welcome guess and team members factored the cinema.
Operator that concludes our prepared remarks and would like now like to open the line for questions.
Ladies and gentlemen at this time, if he would like to ask a question. Please press star one on your telephone keypad again that is star one to withdraw your question press the pound the key please standby, while we've compiled acuity roster.
Your first question is from the line of Eric Handler with MKM partners.
Thanks, Thanks, and good morning.
Mark a couple of questions for you first I Wonder if you could maybe outline what's in your four phases for reopening between June 19th since and July 10th.
And also what gives you confidence that.
You know tenants the first big movie.
Two to two to launch how to Hollywood, what gives you confidence that New York and La Youre going to be ready and Warner brothers will be willing.
To to rollout that movie at that time, and I've got a follow up question.
Thank you Eric let me deal with the first part as I mentioned, a four phase. The first phase is a five theater test phase in and around the DFW area close to our headquarters in service Center just to make sure. We've got all of our systems in place everything is working technique.
Really all of our operational and health and safety protocols are operating as planned so thats a five that's a one week five theater test then the following week, we will open up approximately one third of our theaters those will be generally in the larger theaters in larger markets.
And then we'll open up one third of the theaters in the following week and then the final third.
We'll all be opened by July 10th and by doing so we will have all of our theaters open.
With lots of test and opportunities to.
Just out all of our systems, we will have significant amount of promotion would welcome back pricing welcome back pricing not only on tickets, but also on concessions.
Big pushes relative to movie club, and we'll have everything up and running in those four weeks leading up to tenants.
Regarding your your question on Tenet, we have been in close contact with Warner brothers, They remain extremely optimistic and positive.
Well as well does Chris Nolan about the July 17th opening I mean, it does go without saying and Warner Brothers is clear about this too of course it depends upon a continued positive movement.
Relative to the decline of coated 19, and the government restrictions being reduced across the country. How we do expect most.
Counties and states will have relaxed their requirements and allow theaters to open up somewhere close to if not a full 50%. We're confident that we can operate profitably at 50% with all of the techniques that we put in place the social distancing the models we've run.
So.
Look you can't I can't promise you nor can Warner brothers promise you that tenants can opened on July 17, but you have to choose a date to plan to this is what Warner said they want to do Disney's followed and kept Milan on July 24.
However, the key thing is this.
We've put this plan in place and it is flexible and if for whatever reason that might be whether its virus related or whether its.
Regulation related and we have to delay for a month or four weeks or five weeks.
We're we're fully prepared to be able to do that we're prepared from the financial standpoint, we're prepared for an operational standpoint. So the planning that we put in place allows that flexibility, but on the other hand, you've got a plan to date and until such time as Warner's tells us that they're not going to be releasing that movie we're moving towards at the last thing I would say.
It is warner's was highly encouraged when they released nationally the second trailer for tenet tied to the to fortnight.
It got a tremendous amount of positive reaction from consumers in social media. It was a it was a big encouragement to them to say there is a pent up demand for people to come see this movie.
Great and just as a follow up you said you've been in contact with.
Your movie club members and other people that attend your theaters I'm just curious if you've been conducting proprietary surveys and maybe some of the results you can share some of the results you're getting from those service about consumers' willingness to return.
We are we are talking to our consumers and and doing it on on a regular basis. There is no proprietary research at this point that were prepared.
To share with you, but I can say that the key thing that we see in every piece of research whether it's to the research that we're doing ourselves or the industry research, which has been done there's been multiple pieces of research from various companies. The key thing that comes out every.
Single time is the consumer wants to come back to the movies and to the extent they feel confident in the health and safety protocols that we put in place it tremendously increases their likelihood and willingness to come back. So it's really it's really two things one to people feel safe to come.
Okay and by putting all these protocols in place and that's why we spent.
So much time and effort and being very diligent and then now we're going to communicate it very clearly because we know that's the key for the consumer that along with great movies, and we know we have great movies coming so our part right now is to number one up plan the health and safety protocols number two to execute them.
Number three to communicate them properly to the consumer.
Great. Thank you very much thank you Eric.
Your next question is from the line of Alexa Alexia Quadrani with JP Morgan.
Thank you I had a couple of questions I wanted to follow up on a previous question about time Warner brothers in today's release I.
I know you can't speak from Warner Brothers, but just in your in your eye experience in this industry.
Since then.
Is it fair to say it gets harder and harder to Cushing Petite you know when you get further to the marketing process, meaning spending a lot PNM can we take some assurance that the more sort of advertising we're seeing in the could you be gatson less likely it is for them team to moving that's my first follow up and then I just wondering if you are.
If there's any way you're sort of incentivizing gas into pricing and I'd love to hear that generally on pricing anyway changing.
Kind of get demand spread out throughout the week and not just on the weekends.
When you open.
Okay Alexia relative to.
To Warner Brothers I am glad you recognize that obviously I can't speak to water brothers.
But they have been consistent.
In very much wanting to do this as has Chris Nolan from a a director and writer standpoint.
Yes, the marketing budgets and marketing spends are critical in absolutely Warner brothers is thinking about that so there's going to come a time, where they've got a booster button I'd say, we're going to go spend hard media to start promoting this.
One of the things that the most recent thing they've done already mentioned, which was the the trailer drop which was very key and so they will they will make that decision some absolutely somewhere in the not distant future again I can't speak for them, but is clearly going to be during the month of June it's probably going to be during the.
Somewhere before late June, but not speaking for them. That's that's likely in their thinking because they've got work to do in terms of actually putting paid media behind the social and publicity media that they're currently doing.
And again.
What is critical to US is that we are planning on the 17th because you've got to pick a date in the in the sand that makes sense you put your 10 pull down there we've done that Warner brothers has done that but we've done it and such away. If in fact, they believe they have to change, which they've given us know indicate.
And to as of today.
We will be prepared to make that change an adjustment along the way that will not be a devastating change or adjustment for us it would be something that we actually anticipated could happen.
In our in our planning and the second part of the question was about pricing.
We're gonna have very attractive pricing coming back to the to the center, but we're going to do $5 for adults in $3 for children for all of the library product.
So we're very excited about that we're also going to have highly discounted concession offers as well. So we're doing a big welcome back campaign, both ourselves Ines ourselves cinemark as well as the industry and when consumers returned to first run product, we will return to standard.
Pricing I.
I think you you likely know Lexia that cinemark has always been relatively conservative on pricing our average ticket price across a circuit in the us under $9.
Movie Club member can come to the sentiment anytime Friday night Saturday night highest cost for for $10. So we've been very careful to continue to make movie going an affordable out of home.
Entertainment. So we don't anticipate either at price increase or decrease with first one product when we come back with that first from product.
Thank you very much.
Your next question is from the line of Chad Beynon with Macquarie.
Good morning, Thanks for taking my question.
Thank you congrats on the the market share and strong margins before before the shutdown wanted to focus on that.
Sean I guess related to the continuous improvement plan given given the margins that you put up in January and February is it safe to assume that.
The plan was kind of trending on track with with what you originally talked about I believe on a on the last quarter call.
And then related to that is 40 million still been achievable number in kind of a normal environment. Thanks.
Sure. Thanks for the question Chad Yeah, I mean, a big portion of that performance through February was on account of the progress, we're making with made continuous improvement program.
Through February year to date, we were actually pacing well ahead of our target for both for February year to date as well as just for the overall 40 million dollar margin improvement we were going after for the year.
Where her as mentioned we're currently accelerating many of those efforts that were already underway as we re assessed the business I think going forward. There's there's it's going to get a little bit challenging kind of discern what's continuous improvement versus whats, perhaps process restructurings, but I would say based on.
Some of the actions we already see in some of the potential opportunities. We've already identified over the last few months likely the overall impact will probably be a bit higher in total than even what we originally targeting.
Okay.
And then on the 140 million dollar free cash flow impact to the quarter that you called out in your prepared remarks.
It will was there an imbalance between payments in receivables that was just a little bit more than than what we're thinking and as your cash burn.
Still similar to what you.
Would you outlined on a continuous or on the.
Business call last month thanks.
Sure, Yes, the cat just answering that second question first the cash runway is that pretty much in line with with what we communicated back in April so there's really not a material change.
In that projection as far as the 140 million dollar impact on cash flow that I mentioned really.
The biggest driver with the flow through EBITDA and then on top of that from working capital standpoint really the additional large driver was just the lack of collection of admissions revenues that we had.
Through most of the month of March so, particularly last two weeks when are closing that created a significant drag just on working capital.
And we we pursued a range of other payment actions to offset that.
Both to help boost our cash position by the ended the quarter, but the driver of 140 million was largely the EBITDA flow through and the impact of the lack of admissions revenue collections.
Okay. Thank you very much.
Thanks.
Your next question just wanted to line of David Miller with Imperial capital.
Hey, guys.
Can you Sean can you talk about I'm curious on a couple of things, where where where your admissions revenues domestically as of March one.
I'm, just curious where things stood before obviously activity fell off a cliff now follow up thanks.
Give me a second on that one I think as of the end of February I believe.
Going from memory here, we see we along with the industry were about 7%.
Hold on a second over the air out, but I believe that whereas we were up year to date, we are collectively up about 7%.
Heading into the crisis, Okay that sounds about right and then where do you guys stand right now with rents I mean actual fiscal rents not film brands, but where do you guys stand right now with rents with your landlords do you plan on paying any rent when you reopened and how should we model ran.
Say in 2021, where you know what's assumed the crisis is over by then and you're probably going to have to remit you know what you did.
Landlords sometime in 2021, how should we model that.
David Let me, David Let me, Sean Let me start running and let you finish finish it up if I could take David our landlords, we contacted literally every single landlord and we we have.
I have had successful negotiations with many of them for for rent delays and they've been very cooperative.
We see some were for three months delay some were six months. Some are nine months, everyone was was a different deal that negotiation.
And most and most we're willing to do some form of the deal with its not everybody, but most were but our real estate department has done a very very good job and.
And the the payback so some of those some of them will be towards the balance of this year. Some of them will will fall into 2021, theres not a specific schedule that we're going to be able to share with you on that but let me just say that we've been able to effectively.
Negotiate and work with our individual landlords across the board.
And we have not taken a position across in any kind of significant way were said, we're just not going to pay rather we went into active discussions and negotiations with with all of our landlords.
Okay. Schon, we are you going to add something or.
Well I think the mark kind of Mark on a explained it I mean this specific modeling of cash decisions that gets complicated because the the shape of those negotiations takes all different kinds of forms a lot.
I'd say a majority of the payments.
From discussions to date have been shifted with in year for 2020.
There are some that have a push into next year and depending on kind of how things continue to progress with the status openings in movement. Those there could be subsequent dead subsequent actions that are taken so.
I guess.
It's hard to just given kind of a simple answer on how to anticipate kind of that cash timing of that flowing through over the rest of this year next year because it it's a range of different results.
Let me just make sure I'm clear. So there are some scenarios around the country and you're not going to detail that but there are few scenarios, where you will be opened but you will not have to pay any ran.
For 2020, but may have to pay a portion of that back in 2021 is that the right way to think about it.
That's correct a lot of the there they're all different kinds of deals. Some some of the deals are just based on delayed timing. So there's kind of extended dates when they're do that aren't always connected to a reopening.
Okay perfect. Thank you some yes.
But just to just to be clear David is I know this.
From an accounting standpoint, what will reflect in our.
EBITDA on the piano will be the full.
Expenses per our our rent expenses.
Even though the cast timing for paying those will vary from that so gets reflected in EBITDA on a go forward basis month to month quarter to quarter will be the full rent them out that we're obligated to because we have to we have to recognize that expense.
Takes place.
Okay. Thank you.
Thanks, David.
Your next question is something line of Megan Durkin with credit Suisse.
Hi, good morning, guys.
So I wanted to get a little bit more color on the way you'll be pricing you talked about $5 for adults $3 for Todd for children, but are you going to be adjusting the prices for the weekend. So that you know you have drive more attendance into the weekdays and since then.
Likely more demand on the weekends I don't know if that's the expectation going forward and then how do you expect the premium large format screens to be price are you going to be trying to optimize for that.
Thank you Megan we decided during our ramp up stage, when we're showing repertory library product leading up to.
Unhinged and.
And tenet that we're going to make it very simple for the consumer very simple marketing message very attractive pricing $5 for adults $3 for children and seniors.
No change on the weekend, just very simple we don't think based on on the research we've done that that five and $3 is going to keep anybody away. What what is going to attract people to come is number one the movie and like I said number two confidence that we've taken all to health and safety protocols. So.
No. So we've made it's very simple very clear easy consumer message welcome back and then did the same thing relative to concessions and I'm. Your second question was the large format screen and again again, what we decided to do is make it very simple so during library.
Product, there's no incremental charge for XD as well.
We believe that we will not have a capacity issue for the library product because.
Obviously these are movies that have been out through their available to to people in multiple formats and have been for many years. So we're doing this just to get people comfortable in coming back to percentages and that's why the attractive pricing and that's why didn't know upcharge for XT now once.
Tenants and unhinged are released we will go back to normal pricing with normal Upcharge SREC states.
Got it and do you believe that your theater staff is ready to come back are you in contact with them or they prepared.
Yes, one of the things that we did we did have to lay offs meal thousands of people. We did not layoffs are general managers and we also kept a section in our larger theaters as well so each one of our general managers is still in place.
They still remain in contact with their theater staff, we will have an expedited easy higher back process.
For anybody that left cinemark in good standing which was the vast majority of our employees, who will build to bring them back relatively quickly.
And.
And when and when we start up in beginning with library product, it's not going to be like we're going to turn to switch and the theaters are going to before theres going to this has been planned out so that theres a rolled.
Ramp up ability for both our staff and our employees and that's why we decided to do this in a four week cycle to gildan to bring everything backup instead of just trying to flip the switch and bring mall back at one day and we were very confident in our in our general managers with an outstanding group of general.
Managers, we've not lost our general managers and their prepared to bring back their assistant managers and hourly people and if necessary higher higher new correct.
Got it thank you.
Your next question is from the line of Allen Gold with loop capital.
Thanks for taking my questions.
I've got a few first Mark you mentioned in the opening remarks back having FICC weighting, assuming the governments will allow 50% capacity.
I thought with six feet social distancing.
Theaters only were closer to 30% capacity are you expecting to be able to sell 50% of your seats.
Alan that would be depth. The maximum number of seats that we would be allowed to sell if in fact, that's in case the case, but we can operate our theaters as we've indicated before very very profitable.
Even below that that level, so and in the beginning, especially when you have.
Tenants will be the single Big movie on the 17th we're going to plenty of seat when a plenty of showtime's.
To be able to to satisfy demand, what's what's critical and which we are monitoring all the time is all the time we're getting.
An additional stayed in additional county, starting to relax their other requirements of a perfect example is our home state which is.
Our second biggest staked in the Union and Thats, Texas traditionally that's put for the last several weeks.
The requirement there has been 25%, we fully expect that 25% to go to 50%.
Sometime this weaker next that's the indication that we're starting to get.
Added to the government there so and we also expect that the vast majority of states and counties will will be at that 50% level by the time, we opened up tenant on July 17th.
Oh.
Second question is what's your expectations be I in terms of concessions per patron are you going to be able to about three or wondering is just the whole process I know you're staggering movie opening times, a little bit more but with social distancing should we expect the same amount of concessions per patron.
You know I think you were going up we're going to focus on the core as I said in the prepared remarks. So one good thing about focusing on the core is the margins are going to be higher because those tend to be the highest margin concession items. We have they take the least amount of labor. They have the least amount of spoilage on them.
We don't expect on day, one that our concession per caps will be at the same level. They were would close first of all we're going to do some significant.
A price reductions welcome back price reductions during the month of June leading up to tenants opening again to encourage people to come back so they'll be there'll be some level less than what we ended with in terms of per caps that I think overtime as we move into the third quarter and we start.
Offering additional concession items.
That that we will build back up to that to that per cap level. I think initially it won't be there, but I think there's no reason as we continue to.
Get more and more consumers in and we bring back all the various items initially we won't be selling pizza hut, but wont be long.
Not talking about a half a year, we're talking about months and we're going to be backup with pizza hut, and burgers and and the more complicated things to buy beyond Coke Candy and.
Popcorn, we will be offering a limited alcoholic beverages as well in the beginning and then we'll expand that to the full level.
As as time goes.
Okay, and then for Sean you ended March 31st with 730 million of cash pro forma for the debt that you took on I guess may 30, Onest square at 640 million.
Is 45 million per month, a good cash burn rate growth to assume.
That's a fairly significant.
Function I mean, we will fluctuate.
Up and down a little bit just based on the timing of certain items, such as our bond payments as an example that come in during November and December but in general, we probably would be hovering around.
That level give or take a bit.
That does not obviously include that does not include any any incremental ramp up costs too to restart the business as well.
Okay.
Last question, Sean I know youre costs, a internationally, our all in local currency, but the Brazilian real and diversifying pay so continuing to get weaker and weaker versus the dollar is there anything we have to worry about with covenants or balance sheet items or anything as the currencies at new lows.
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We're not concerned about.
The fact of those currencies on any covenants or anything you know debt related.
As we've said in the past.
The majority of our activity in those countries everything's transacted in local currency and they're fairly.
Self sufficient so I mean, the short answer is no. That's that's not a concern you. The biggest concern press is just simply.
The effect it has on the translation of their results back into us dollars.
Okay. Thanks for taking my questions.
Thanks.
Your next question, it's on the line of Jim Goss with Barrington Research.
Thanks.
Mark you've clearly thought out this plan very well and I was wondering if everything went is close to perfectly executed envisioned.
What would be the earliest month, you feel you might be able to achieve a sort of a normal type operating environment or at least the new normal.
And how how might that their friend.
Be different for domestic persons, let EM ops.
Is it same several week lag.
Thanks for the question Jim.
There is clearly going to be a transition period. This because we've had so much product movement. Both within the year of 2020 also with a number of movies in 2020 getting pushed to 2021.
And there has been production delays were studios thought they were going to have movies done in 21.
What are going to get push to 22.
So as we as we look at what's a new normal we'll start to feel it.
Towards the end of the fourth quarter and into the new year of 21.
But the reality is I don't think we're going to get into really a full on rhythm again of.
Of product cycle and.
And all that we had prior to coated until 22 and that's more production.
Related then our operation related because.
As studios that had to adapt to not being able to actually do filming and do post production they've had to move their schedules. Therefore, we're going to adapt as well. We think that 21 is going to be up a nice recovery year, obviously off 20, because we've been close for so long.
And because some of the movies and 21 came from 20.
But there is there's a there's a longer tail to this as it relates to when do you get back to a new normal I think we're going to operationally get back to a a new.
Normal for us somewhere in the late fourth quarter into the first quarter of 21, but from a pure industry product flow standpoint, I think thats going to fall I think that tail is going to go into 2022.
Okay and the couple of other things one is.
You have provided a lot of encouraging statistics about.
Your ability to upgrade to fairly close to normal with the 50% limitation on seating capacity.
Your.
Theaters tend to be in suburban or smaller markets relative to a couple of the other bigger players.
And I Wonder if you do have some exposure in urban areas L.A. for example, there.
Perhaps.
You might have more tenancy thereof.
Sellouts overtime.
What share of your.
As the mix might.
Might be more impacted by that 50% ceding limitation.
Others, I assume that there would be a bigger problem. If you tend to sell more.
And the well, but over the impact on you.
Yes, Jim.
Yes, Jim I don't I don't have a stat for that off the top of my head, obviously, I mean that would be something where we would have to go look at that specific vertical, but let me say this to give you some perspective.
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Our our three strongest markets.
Our San Francisco Bay area.
Dallas and Houston, I mean, that's where if you if you said where cinemark the strongest in more urban urban areas and we have a lot of theaters in each one of those places and a lot of screens. So he is the part that gives me confidence that we're going to be able to operate profitably is.
This is it is rare that cinema would get even close to that on a on a weekly basis. So we're going to say, we're going to we're going to have the ability to spread out the consumer demand among a lot of screens and a lot of theaters in our urban environments.
And to the extent.
We see a problem on a Friday night or a Saturday night, I think it wont be hard for us to make some midcourse corrections and try and do some things, which would spread some of that demand into mid week.
For example, we've we've already done that and we'll come back and do that as well with our discount tuesday's.
Discount Tuesday is now the second most popular day pre closing it was our second most popular data the weak because we did strong variable pricing to bring people in there. If we see that we have a problem on a Friday or Saturday night, we could choose to do more of such tactics like that so we're very aware.
Era of of.
Being careful relative to content and I am just really confident especially as we re launch we will not have seat capacity issue a simply because in the beginning we're going to have the.
Third week of of.
Unhinged those with the first week of tenants or second week of tenant and the first week of move launch. So there's plenty of room in our multiplexes to be able to satisfy the consumer demand even on a weekend nights on that and actually one really good thing to his new launch.
In the play obviously to a a somewhat different demographics and tenants, they're gonna be some crossover but.
Launch is going to have a very strong family component to it and tenant is going to have a very strong.
Mailed component to it not that they won't also have other demographics, but I'm just saying the primary so we're confident at 50% that we're going to be able to operate plus there's there's every likelihood as time goes into the fall that the 50% can become sixtyv can become 75, you know this we're not going.
Operate at 50%.
For ever in the day, it's going to be for a period of time when we open and then we're all going to see that relaxed as the months go forward.
Okay, maybe one last thing.
Every crisis seems to create changes that.
Linger on go on.
I'm wondering if there are new protocols, you're seeing that you're creating right now.
I think will change the way things are done in the future.
Well I think the answer to that is yes.
I'll give you I'll give you just you know a simple one.
The way that we do our tickets in the theatres were going to adapt and change we're effectively going to go to what airports do so already.
A significant portion of our tickets are sold online and people are walking in with their smartphone and they have their ticket.
Well it in the past somebody would have to stop and get a printed ticket at a podium or.
Or at a kiosk and then utilize that printed ticket to get into the theater.
As we reopened that's no longer going to be the case will be like an airline if youve. If you bought your ticket online is on your phone you just scan your phone and you walk in.
So we're going to eliminate millions and millions of paper tickets, which will be.
Obviously healthy in this environment, because nobody's going to be touches and rip and those tickets and it's also going to be cost savings because we're not going to be print them anymore as well. So that's that's just one of the simple things that we've done the second thing is we were already.
In process of.
Putting protocols and a testing in place for online concession orders, we think that that.
It will be only more imports into the future. So we're not going to open with a fully baked tested online concession ordering but we're continuing to work towards that so in the not too distant future, we'll be able to do so and and this crisis and everything around it is Joe.
Confirmed to us that we need to continue to do so.
Okay. Thank you very much thank you Jim.
Your next question is from the line of business wind burn with Morgan Stanley.
Hey, good morning.
Mark when you look at your expectations for these films coming up over the next several months I'm curious.
Do you expect them to underperform, what they would have done pre covidien and maybe the answer is obvious but I'm just trying to put ourselves in the position of the studios as they watch these films come out and obviously, they're very sensitive to box office results. They impact the downstream earnings are these movies.
Based on what you know about consumer demand and sort of how you run your theaters and in terms of capacity utilization do you think theres going to be a material reduction in box office relative to how these come out in a quote unquote normal environment.
I don't think so in it in it in a in a macro sense, it's hard to say.
Exactly what consumer demand is the studios Havent put these pictures on their traditional tracking yet.
We have access to but but we have seen on our own social media.
A big interest in in seeing the first couple in seeing tenants and seen moving on and Wonder woman. So we we expect there to be some significant consumer demand for it and I don't think that the.
The seating capacity is going to limit. These people I think that with the researchers showed us.
One of the most important things we can do is concerned as a as an exhibitor is too.
Provide a very a consistent health and safety environment, and then to communicate that to two to the consumer. So I think that is very incumbent upon us to do that and the research is clearly show that consumers are much more willing and anxious to.
Come back if they know that we have done all of these things. So that's why we've put so much effort and time in doing so and we're about ready to begin the consumer campaign to communicate that to the consumer but your overall question do I think these movies are gonna do less in this environment I don't think Theres, a I don't think there.
As an absolute reason for that to happen I think it all comes that back down to us, creating a safe environment and the studios, creating a very strong demand campaign and thus far it looks like what Warner's has been doing with tenant has been very successful and that particular audience.
Is probably the first audience, that's going to be willing.
To come back to the cinema.
Again, it's going to play it's a four quadrant movie, but there is no question that the young adult demo is going to drive that for movie and I think that young adult that young male demo is going to be the first one willing to come back.
Hey, Ben the other thing just quickly add on one at one of the unknowns too is the extent to which some of these films start to play longer than pre crisis. What had happened in near term is a lot of films wall years ago. They would run a lot longer that theaters that come to a point, where they have these massive opening weekends and instead.
To trail off well, you know with kind of the new dynamic in the marketplace. There is a good chance that films could open a little bit lower but then run much longer, particularly when the theaters are going to be set up and certainly with these earlier films with less first run content in the marketplace for some of the theaters that have already started reopening in the marketplace. We're already seeing.
The how some of the content that was in the market prior to the shutdown has been holding pretty consistent and we think that's a positive sign as well that we could start to see a little bit of this dynamic as things reopened.
So that's a great point.
I also wanted to ask.
I think Mark you listed a whole number of things you guys are doing you talked about plexiglas than disinfecting seats, and Sanitizers et cetera.
How long do you is your plan expect baking and continuing these processes I think you said a new normal for Syddanmark would be through late Q4 into Q1. So is it your expectation that when you get passed that you won't need to have these additional initiatives, which seemed like they would bring additional cost with them, but maybe I'm thinking about them the runway.
Ben So of course this additional costs, it's not it's not outlandish produce additional it all it really all comes down to two what happens with coated and what happens right vaccine and how comfortable consumers are so yes some of those.
Some of those extra special disinfecting procedures at some point, we'll start to the two to two drop off but it's too early to know exactly when that is we're going to be very cognizant to make sure that we don't stop too early and we're going to be cognizant to make sure that we don't continue and spend money, we don't have too.
Makes sense and then lastly, just for Sean back on the accounting stuff.
Thank you for the help on the cash burn just wanted to confirm we will see a gap between rent expense on the PNM now and the cash paid for rent as we move through at least Q2 and probably into Q3 is that accurate.
That is accurate, yes, we will continue to have a delays of cash payments in the second quarter, but we will recognize the full expense of those rent payments into a certain degree other expenses in full in the quarter.
Got it thank you guys.
Thank you thanks.
Your next question is on the line of Mike Hickey with benchmark.
Hey, Mark Sean Thanks for taking my questions.
I guess the first you guys are.
This is a solid operator here with equal sources of capital and concern link.
Maximize your liquidity for a couple of years here, but when you look at I guess the broader.
US market sort of total screen count.
Do you get a sense of the sort of magnitude private operators could be shuttering.
Or your view I guess.
Potential reduced you asked capacity in total screens from the shutdown.
Mike. Thanks for the question, that's that's really hard for us to to gauge.
You know and honestly, it's not something that were that focused on at this moment.
And maybe or maybe subs, maybe what you're asking.
The sub question there is there going to be opportunity for us to potentially could be.
Right now.
Our primary concern is getting the theaters hope it in the consumers' confidence to come back secondarily around cash security position. So that were secure even in the the downside contingencies that may happen and it's just it's just really hard for me to answer about.
Other local exhibitors and their particular.
Worried relative to cash flow and and liquidity.
Fair enough. Thanks, the second question would be Latin America noted the virus, there's a lag.
Sounds like Uli openings in August, but I imagine you are reopening.
Plan and Latin America, your profitability assumptions, given a bus flux and labor I, maybe lower screen count would be different than what you're experiencing us.
Here is on that and then more broadly speaking I guess when you.
Sort of look at the risk return profile in Latin America.
Do you still think that's consistent with your desire to operate in that region. Thank you.
Let me deal with the second one first because it's it's the Sentinel issue. Yes, we're we're very much interested and continuing to operate in Latin America, we think its gifts.
Very very good profitable ongoing business for us nothing nothing has changed in that a material aspect relative to that.
Relative to the virus, yes, there are several weeks behind probably the current hot spot. They are more than anywhere else is Brazil, we're very much attune to that.
We have outstanding teams in each one of those areas plus they have they were going to have all the learning that take place in the us because the U.S. has several weeks in front of it. So we anticipate being able to open there during the month of August we think it'll probably be on similar guidelines.
The question Mark there as we operate in 15 different countries. So now you've got now complicated it because you know it's not just dealing with one country, but its 15 countries in states and counties within those countries. So it's it's complicated we think that we're going to be able to.
Use a lot of alerting inside of the United States to be able to open it up and we do think we have an ongoing profitable business in Latin America.
Thanks, guys.
Thanks, Mike.
The final question is on the line of Robert Fishman with Moffettnathanson.
Hi, good morning.
One for Mark and one for Sean.
Okay, you touched on it already with Warner brothers, but keep provide more color on cinemax relationship with your other major studio partners right now and given your isn't sean's prior studio experience and other relationships. You have there are you planning to take a different approach to dealing with window experiments after reopening and just on a last front there.
Is there any creative way.
Potentially it to be more flexible to certain movies or John Rose to help these movies stay in the theater first instead of potentially just skipping over the theatrical window and going right to streaming.
Thank you Robert.
I did mention Warner brothers, but it I'm glad you asked a question because.
We have equally good relationships really across the board.
And it is let's start with Disney and Universal impair our mountain and Sony in Lionsgate, we've been in we're in regular contact with each one of them about our plans and their plans.
I would say that.
Either Sean or myself for our head of film is on with the studios on a on on at least a weekly basis.
I feel very comfortable in that world I know the players I know what it feels like to be in their shoes as does Sean because Sean with CFO. It at Universal for years. So I think we're kind of unique there the way that we've negotiated with the studios on on Windows and release States. We've 10.
To do that in business settings, as opposed to as opposed to press settings, and we're going to continue to to do that because we think these are private negotiations between us and our content providers and yes. We are open to alternative ways to distribute films were going to be very we think.
The exclusive window is very important to the theatrical experience and so we're going to be extremely careful about.
Any undue change to that but as it relates to lower grossing titles and small titles.
We are open to talk with our studio partners about what's the what are what are some alternatives that we might consider.
I don't want to get the wrong impression here, Robert we think the exclusive theatrical window, which is currently 74 days is a very important one and for especially all your big important blockbusters, we fully support that.
Okay. Thank you and Sean I'm understanding this is a difficult question that to try and put more color around but assuming a more normalized level of attendance in the months ahead anyway to help us think about what type of range of Capex spending what we should think about for 2021 I understand.
And there's a lot of announced though but.
Yeah. It's it's a I agree that is a tough when I think we are still kind of working through the details I mean, I mean I mentioned in the prepared remarks, we do expect that.
That will continue to hover at a very low level, you were going to be very limited in what we.
We will spend capex on it'll be really the essential and things that debt, we're committed to and even those committed items we've been working on.
Delaying some of the timing that's required for those so.
I think will aim to give more clarity to that.
In future calls as we kind of from up some of those plans, but for the time being and it's going to continue to be a fraction of kind of what our original.
Original guidance was.
Okay. Thank you bye.
Thank you Robert.
Yes.
I'll now turn the call back over to seeing remarks for any closing remarks.
Thank you very much.
We really appreciate all of you being on this call. This morning, we know that it's not the easiest sometimes you're all working from home. We look forward to speaking with you again, following our second quarter and that concludes our call. Thank you all very much.
This concludes today's Cinemark first quarter earnings conference call. Thank you for your participation you may now disconnect.
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