Q2 2020 Cinemark Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Ciena marks the second quarter earnings Conference call.
At this time, all participants' lines are in a listen only mode.
After the speakers presentation, there will be a question and answer session.
You asked a question during this session you want me to press Star one on your telephone.
Please be advised to today's conference call is being recorded.
If you require further assistance please press star zero.
On your telephone.
I would now like to hand, the conference over today, She Chanda Brashears, Vice President of Investor Relations. Please go ahead.
Thank you common and good morning, everyone.
Let's turn I would like to welcome to Cinemark Holdings Inc. second quarter 2020 earnings release Conference call hosted by marks have already Chief Executive Officer, and Sean Campbell, Chief Financial Officer, and Chief operating Officer.
In accordance with the Safe Harbor provision of 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 cinemark actual performance to be materially different from the performance indicated or implied by such statements.
Such risk factors are set forth in the company's FCC filings.
The company undertakes no obligation to publicly update or revise any forward looking statements today. Colin webcast may include non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures can be found in today's press release within the company a quarterly filing on form 10-Q or on the company's website investors.
Datsun, Mark Dotcom I'd now like to turn the call over to Mark the right.
Thank you Chanda and good morning, everyone. We appreciate you joining us to discuss our 2022nd quarter results hopefully you'll see this time.
And healthy.
The format of I'll call. This morning will be similar to that the first quarter I will kick off with high level comments on our second core Sean will then provide commentary on our liquidity position and financial results before turning it back over to me to discuss strategy and reopening plans followed by our customary couponite.
This is certainly been a second quarter. Unlike any company industry nation for World has experienced in recent history.
Our priorities over the past several months I've been cash management and the heightened safety measures as we focus on liquidity re fortified our balance sheet safely operating in the current health environment.
With this we've restructured our teams establish new cleaning that safety protocols enhanced our technology and enhanced our technology just to name a few.
All to ensure that wouldn't we once again welcome back movie goers for years that we'll continue to provide them with extra ordinary entertainment and experience that they expect some cinemark with heightened peace of mind regarding their health.
Wellbeing.
On our last earnings call I shared with you a high level look at how we've been preparing to operate in this new health environment.
We have sense announced the cinemark standard.
Greatly enhance cleanliness sanitizing and safety measures, which are embedded in every aspect of the movie going experience.
These include.
Following stringent disinfecting in sanitizing protocols, which would be overseen by a designated cheap clean and safety monitor each theater shift.
Implementing social distancing measures, including staggered showtime's installation flexi glass and see suffering technology to automatically blocks adjacent seats to party, one tickets or purchase to ensure social distancing within the auditory.
Requiring face masks for all employees and guess substantially raising fresh air rights of our building HVAC systems by adding purge cycles and constantly using supply fans to increase the total volume afresh outside air flowing into our theater.
Using bathrooms equipped with new had some filters that trapped at least 90.9, 0.97% microscopic particles, including cobot 19.
Screening health and wellbeing of our employees before every shift.
With these comprehensive health and safety protocols in place. We believe we can safely operate our theaters, while prioritizing the health of our employees, yes and communities.
We will continue to evolve these protocols based on current recommendations by the CDC and local government mandate as well as key learnings from our test and learn theaters that we started reopening at the end of the second quarter.
These test and learn theaters have been instrumental in defining the training communication implementation and execution of the Cinemark standard.
They offer us a first hand customer and employee feedback to ensure that are protocols make practical sense for teens and experience. We offer is one that provides confidence and peace of mind for movie goers.
This feedback is critical in our more robust phase reopening plans as such this past weekend, we expanded our test from five to 15 theatres to deepen the refinement of our new protocols and enhance our ability to translate them across different markets.
A heartfelt thank you to the managers and the individual teams. So these test and learn locations for older doing to not only put these protocols into action, but for their insight and prompt key learnings, which is shaping how we prepare to welcome back movie goers to set a more.
As for the financial results of these 15 test and learn theaters, we've been very pleased particularly given that we're only opened on weekends with limited operating hours can showing library content for what we refer to as combat classic.
Welcome back pricing $5 for adults and $3 for children and seniors.
Attendance at our initial five test and learn theaters has grown by over 20% over the past three weeks alone with essentially the same library content.
And this past weekend, there were more than 500 theaters operating across the U.S. excluding drive ins.
Cinemark had 15 of these theaters open representing 3% of the total theaters operating and we generated 20% of the total nationwide box office.
Impressively cinemark represented the top five grossing theaters during the weekend across the country.
Moreover, we're also seeing an impressive food and beverage trends in our test and learn theaters. Despite headwinds of welcome back discount pricing and limited offerings with essentially popcorn soda and candy available, we're consistently generating food and beverage per cap in excess of $5.
Worthy these test and learn theaters are more than covering our incremental variable costs relative to being shut down.
These strong results or an outcome meticulous planning and execution that includes defining and successfully conveying the various aspects of the cinemark standard to provide yes peace of mind in returning to our theaters.
Maintaining close contact with our addressable customer base of more than 12 million guess.
Providing exclusive promotion for a movie club members.
Philippine highly affected digital and social marketing campaigns, enhancing our website and path with new functionality.
Securing substantial national and local media coverage scheduling like route film content with strong appeal to moviegoers and creating food and beverage campaigns to name just a few.
Additionally, we've been able to lean heavily on our highly successful movie club subscription program, which continues to provide a direct channels of communication and significant value to our most loyal movie goers.
This value was demonstrated by the fact that we've retained the vast majority of our movie club members, while our theater for closed from multiple month.
Remarkably our membership base of approximately 950000 is in line with the figure we communicated in February prior to the pandemic.
And our movie club members are already contributing to our results representing approximately 25% of our attendance with our test and learn theaters.
Before I turn it over to Sean Cinemark discipline, and consistency have been integral to our performance and success over the years and that is especially true in today's environment.
We have been thoughtful and thorough in defining our clean and safety protocols pragmatic and nimble and determining the phased reopening of arc theaters and proactive and conservative financial strategy has provided us the wherewithal to sustain the prolonged closure of our global theaters associated with this.
Pandemic.
With that I remain confident centermark ability to evolve and emerge stronger in this new postcode that operated environment, particularly with the caliber of our field and service center teams, who have worked relentlessly and purser here in the face of adversity.
I'm proud of the teams the resilience and tenacity and I'm impressed by their ability to constantly adapt in this ever changing environment.
Sean will now walk you through our liquidity position and second quarter results before turning it back over to me to cover our reopening plans Sean.
Thank you Mark good morning, everyone.
As we expressed during our first quarter earnings call and as Mark just reinforce the moment ago liquidity and cash management had been our top priorities. During the past few months that are theaters had been closed.
As a result of our consistent capital allocation strategy over the years, which has emphasized maintaining a strong balance sheet with low leverage we entered the coded 19 crisis Union advantaged position to withstand its impact even if prolonged.
We have taken significant measures to preserve cash and bolster liquidity throughout the crisis to date in cash management, along with three fortifying our balance sheet to its prebuild. Good standing will remain our central focus as we emerge from it.
As described during our liquidity call on April 15th.
Well as during our first quarter earnings discussion some of the more significant steps we've taken to sustain and increased liquidity include halting all non essential operating and capital expenditures as well as delaying numerous commitments made prior to the crisis.
Making significant reductions in our workforce in payroll through layoffs, furloughs and temporary salary reductions.
Negotiating payment deferrals in modifications across a wide range of lease related and other contractual obligations.
Drawing down $98.8 million of our revolving credit facility and securing $250 million of new five years senior secured notes.
Obtaining a temporary waiver on the net senior secured leverage ratio covenant associated with our credit facility.
Suspending our dividends and pursuing varied tax related opportunities provided by the cares that.
As a result, these many actions we limited our second quarter global cash burn to approximately $50 million per month ended June with a total cash balance of $571.8 million.
This pace continued during the month of July and as of July 31st our global cash balance was approximately $525 million.
Based on our current liquidity position, we continue to see a cash runway that extends well into 2021 should our theaters remained closed.
That said, we do not expect such a scenario is likely based on how our industry is progressing toward a large scale reopening leading up to the domestic release attended by Warner Brothers on September Threerd.
Mark will provide more color on that in a moment.
Mark already touched on various aspects of the Cinemark standard, which we've been developing to meet and exceed new cleaning and safety requirements that are necessary within the current health environment.
Additionally.
As we've been preparing to reignite our theaters. We have also been actively reevaluating various aspects of our company and reengineering a wide range of business processes to be more streamlined and efficient.
This includes accelerating certain productivity and innovation projects well postponing other initiatives that were already under way ahead of the pandemic.
Related to these efforts we undertook certain restructuring actions during the second quarter that included the permanent shutdown of 20 theaters 13 in the U.S. seven internationally.
As well as reduction in our corporate workforce.
Going forward, we expect to derive approximately $10 million annual benefit to EBITDA and cash flow as a result of these combined actions.
Furthermore, we have delayed seven new build projects, representing approximately $60 million in Capex that were originally slated for this year to 2021 and beyond.
To that end, we now expect better full year Capex for 2020 will be slightly below $100 million compared to the original guidance. We provided in February of approximately $300 million.
Oh that figure $34 million was spent in the first quarter with another $12 million in Twoq.
Anticipated expenditures for the remainder of the year are largely driven by real estate commitments made prior to the onset of Cobiz 19, as well as certain regulatory compliance and maintenance requirements.
Consistent with our prior comments regarding cash management.
In the near term, we expect Capex will be significantly reduced compared to our average expenditures in recent years as we focused on strengthening our balance sheet post pandemic.
We do not expect that just near term reduction in spend will cause much strain on our business. As we are fortunate to have pursued a steady history of investing in the ongoing upkeep of our theaters and we recently remodeled over 60% of our domestic circuit during its conversion to recliners.
Turning attention now to the second quarter I'd like to remind you that our reported financials follow accrual based accounting and therefore do not necessarily correlate directly to cash flow timing.
With the exception of our five domestic test and learn theaters that we reopened across the last two weeks of June our global circuit was closed for the duration of the second quarter due to the ongoing pandemic.
As a result could this temporary closure our second quarter revenue was materially impacted and we reported $9 million in total global revenues, which resulted primarily from the amortization of our deferred NCM screen advertising advances.
Film rental and advertising expenses are entirely variable and shrink almost zero as a result of our limited admissions revenues.
The $400000 a global film rental in advertising cost that we reported for the quarter was largely driven by true ups to our first quarter accruals.
Concession supplies are almost entirely variable as well and will generally fluctuate inline with concession revenues.
That said the $2.4 million, we incurred in worldwide concessions expenses. During the second quarter was the result of spoilage and waste of perishable goods that occurred as a result of our theater closures.
Global salaries and wages of $8.9 million were down 91.8% from the second quarter of 2019 and reflects the significant reductions we made in our theater staffing in compensation during the quarter.
Facility lease expenses of $65.2 million were driven by the fixed nature of our rig commitments. However were down 27.2% year over year predominantly as a result of reduced percentage rent associated with our drop in revenues.
Again, these expenses are accrual base and do not reflect the significant lease payment deferrals, we negotiated for the second quarter, which exceeded $40 million globally.
Utilities, and other expenses were $34.9 million and declined 71.6% from Twoq to 90.
While several cost within this expensive category felt almost zero such as credit card fees and commissions paid to third party ticket sellers.
Other expenses like property taxes, and property and liability insurance remain fixed.
Still other expenses, including utilities and repairs and maintenance declined by approximately 50% to 75% as a result of ongoing activity at reduced levels of consumption.
And Genie for the quarter declined to $28.1 million driven by temporary salary reductions furloughing, a significant volume of our corporate workforce and making sizable cuts and discretionary spending.
Collectively our worldwide adjusted EBITDA for the second quarter was negative $117.6 million and we posted a net loss of $170.4 million.
This loss included a restructuring charge 19, and a half million dollars related to the workforce reductions in theater closures I mentioned earlier.
While the impact of coded 19 on our company and honor industry has clearly been substantial.
In a mark remains well positioned to see airways through the pandemic and return to our industry leading performance.
We have taken significant measures to secure this position and we intend to continue to do so to remain prepared for the road ahead.
With that said I will now turn the call back over to Mark who will provide additional information on our preparation to reopen our circuit Mark.
Thank you Sean.
Consistent with our previous commentary, we're tightening the reopening of our theaters with the availability of new film content and the status of covert 19.
The shifts in film content have been disappointing, we're cognizant of the complexities associated with navigating the ever changing environment due to the Corona virus and government mandates.
That said, we're excited for the release of Tenet and come in both Warner Brothers, and Christopher Nolan for their commitment to and support.
Global theaters with their staggered released pattern.
With tenet now really seem to think side on September three.
We're recalibrating our phase three opening of our domestic theaters and currently expect approximately one third to open on August 20, while another third on August 25, and the remaining third on August 28, we.
We will continue to it we will continue to expect the reopening of Latin America theaters will follow the United States in a relatively short sequence.
As we've seen in numerous research reports consumers are consistently emphasizing that need to feel safe and secure in order to resume previous activities, including returning the movie theaters as such we taken great strides to educate our consumers on the Cinemark standard and conducted for pro.
Terry research regarding our own movie goers willingness to return to theaters approximately half of our surveyed consumers report that they would feel safe returning to the theater within one month and the number grows to more than 75% within the first three month.
For those guests that visited our test and learn locations I'm extremely pleased to share that we have received overwhelmingly positive feedback on our clean and safety protocols and Fas, 97% of our guests surveyed expressed a high satisfaction with cinemark protecting their health.
And safety.
Along those lines were also working with our trade organization NATO to establish an overall industry campaign. The chairs a uniform set of standards with a broader scope of movie goers to continue to increase consumer confidence and returning to the theater.
As I mentioned in my opening remarks, another key priority will be managing our operating cost as we prepare for the road ahead, we outlined several key initiatives in this regard last quarter, including optimizing our operating hours currently open only weekend in our test and learn locations concentrate in food and Bev.
Average offerings to our high margin core categories, which are also less labor intensive.
Revising our theater staff scheduling models to align with new procedures to simplify and streamline theater practices, such as issuing invalidating tickets inventory count audit processes et cetera, and restructuring our corporate office personnel, which on previously described.
These initiatives further secure our ability to excel in this new operating environment, even with content release date shifts and production delays, we expect the back half the year to continue to ramp up with significant titles that include tenet.
I Wonder woman 1984, James Bond no time to die Pixar sole black widow, do and Westside story from Steven Spielberg.
While there may be certain elements of a transition that occur over the course of the year. We expect 2021 will be a strong box office here with several key titles shifting from 2020, including Taka Maverick fast and furious nine a quiet place to the attorney.
No minions the rise of grew Raya and the last Dragon and the jungle cruise.
Of course. These films are in addition to those previously announced in 2021, such as the Batman Jurassic World Dominion, saying two mission impossible seven as forever.
We expect 2022 to return to a more normalized release schedule and box office here with numerous high profile said already announced including the long anticipated sequel to Avatar. The next installing the negative blockbuster hit Black Panther Captain Marvel.
Minecraft, which is based on the popular video game mission impossible eight Babylon of drama set and the Golden age of Hollywood The matrix for Thor 11 Thunder. The next adventure, Indiana Jones franchise, Dr. Strange to the fourth installment from John Wick and spiderman into the Spider.
Her sequel, just to name a few of the highlights.
Clearly cinemark is eager to welcome back guests to our theaters and based on the initial results of our test and learn theaters as well as what we're seeing and hearing from our guess via social listening and survey data. There is a significant pent up demand for the theatrical out of home experience with it.
I cannot screen immersive sight and sound technology and of course that irresistible movie Theater popcorn.
Before we open up the line for questions.
I thought I would briefly address a question that many of you likely have in your mind.
Consistent with our past practices Cinemark does not comment on the actions of our competitors.
That said, we believe an exclusive theatrical window is critically important.
Well, we have publicly stated that we are willing to have conversations with our studio partners to evolve windows. We are mindful that an overly aggressive shortened theatrical window could have an adverse impact on the mid to tail end of a films life.
Our industry delivered $11 billion domestically and $42 billion globally in 2019 with consistent annual growth of approximately 2% per year since 2015.
Furthermore, the global theatrical proceeds often represent 50% for more of a films overall revenue.
As such we will be very careful and methodical about how we approach any change to the theatrical window. We can we continue to carefully analyze and research this matter and we will endeavor to ensure any modifications are the best interest of the overall industry our company.
And our shareholders.
Operator that concludes our prepared remarks, I would now like open the line up for questions.
Thank you and as a reminder, if he has any questions press star one on your telephone keypad. Darren first a question will come from the line of Alan Gould with loop capital. Please go ahead with your question.
Thank you I've got three questions. Please first mark on that last topic I guess, a question comes down to what it from a major studio says you take or leave it yeah, we're going to a P value <unk> situation after 17 days or whatever it becomes.
And second question would be for Sean.
What's happening with <unk> with Euro landlords are they willing to do lease adjustment tour abatements beside a in addition to just leased deferrals and then the third question for either view.
You guys do seem to be the strongest positioned of any company in the industry I would assume some landlords are coming to you and thing are you interested in taking over this lease are there certain opportunities that are coming to you given your financial strength in this difficult environment.
Thank you Alan you know I'm going to take the third one I'll, let Sean do the mental and then I'll do the first one as well the third one we're certainly open to any landlord for lending institution that would come to us with opportunities as we sit today, we've not seen any significance of those so far.
Certainly be open to it obviously, we would analyze it very very carefully.
And consider.
The any capital that that would require so the answer is yes, we would we would consider that as it relates to your first question, where you laid out a hypothetical I'm going to respectfully just declined to to answer a hypothetical situation I think that's not really a.
Prudent a prudent decision for me to make sitting on a on an earnings call without having a lot of detailed associated around it so I'm going to I'm going to pass on on an aggregate.
Questions regarding hypothetical situations.
Sure and Alan Thanks for the questions on your your second question regarding.
Beat mens and adjustments to leases clearly the majority of the negotiations have involved deferrals of rent, which are deferred for varied lengths of time that span this year and well into next year. We have also received certain abatements term.
Rent or some of the U.S., particularly in international where the those laws tend to favor the tenants and we're also in malls that are when the malls are close there really isn't much access oftentimes to our theaters. So that has led to both reductions and.
In a minimum rent and then beyond that of course percentage rent has has gone down. So there has been some adjustments. Some abatements. The majority has been been deferrals as mentioned.
Okay. Thank you so much.
Appreciate it.
Your next question is from a line of Eric Handler with MKM Partners. Please go ahead with your question. Good morning. Thank you for the question two questions first Mark.
When you look at your number of theaters.
That municipal municipalities have allowed to reopen.
If that number stays steady going into the September threerd release of tenet, what percentage of your screens, Oh would be able to open and then secondly.
I believe tenet.
It was dated for Latin America by Warner Brothers, either one or two weeks.
After the U.S. opening I'm just wondering how willing are you gonna be to reopen theaters a in Latin America.
Alan I'll take both questions I'll do the second one first Latin America looks to be.
Somewhere in the two to four weeks behind the U.S. relative in their ability to open screens, we do business and 15 unique and different countries. There. So each one of them have their own requirements and specifics relative to when theaters can open but were along the same pathway.
With all the things we're doing domestically from the sentiment standard preparing all the health and safety standards. Each one of our teams are long that exact same pathway that we're doing in the U.S. and the expectation right now is that with tenants opening on September three in the U.S. the tenant will likely to open.
Towards the end of September in the majority of our countries and in Latin America.
Regarding how many theaters a percentage of our overall that will be hoping that that changes as you can imagine a weekly and in some cases daily. So it's probably as we sit today somewhere right around that the 80% range as we sit right now that the big hole of course is California.
And you know Warner brothers is aware that and they they've expressed that they're willing to do this phased rollout and we'll open up California as soon as available, California is a very important state for tech for Cinemark has is Texas. So that's probably the biggest single hole, we have a relative to our.
To the gap as we sit today. However September three is still a full month away and if we can't booking on September three in California, perhaps that will be mid September and we're prepared to do so at that time.
And Eric markers right I'll, just say is actually a touch even higher it's about 85% as as we sit now and it continues to grow so thanks.
<unk>.
Your next question is from the line of Mike <unk> with Goldman Sachs. Please go ahead.
Hey, good morning. Thank you very much for the question because I have to the first is I'm just about the test theaters is really encouraging to see the 20% attendance growth over the past three weeks and the strong.
SMB per patron spend.
Can you talk about your plans to reintroduce some premium SMB items, given the propensity for consumers to spend and.
Could you expand a little bit on the attendance growth that you've seen in the past three weeks is that.
Simply frequent movie club members, becoming more comfortable or are you seeing a broadening base of population.
Turning to come to the theaters, thanks, Mike relative to relative to the SMB.
We've done as we we brought welcome back pricing on FNB. The same way we did it on the box office as well and it's proved to be highly successful you know with per caps as I noted over $5. So we will we will can we will hold that pricing.
At least through a week or two after we opened up 10, it just to get people backend and comfortable and then over the next 30 to 45 days, we will gradually based on demand or start to add any other parts of SMB.
Where we have a a bar and and liquor license in theaters of course will will offer alcoholic beverages and then we'll continue down the line like I said in the next 30 days to start to offer the prepared food take more it takes more labor and as a little bit.
Or.
[laughter].
Preparation and prepare and so I would say if you give us somewhere in that 30 to 45 days, we'll continue to be able to grow that per cap north of $5. As we go forward and your second question was regarding.
Tend to be Yep yep, the attendance growth and weather was a thesis considers and I'll. Let me let me explain we had the five open for several weeks, but we opened 10 additional ones just last Friday, we were extremely pleased with the way that people were willing to come back and we had.
A big marketing effort to all the.
Channels that I have described and people were anxious to come back and they came back for for library content. There was a strong contingent of of movie club, but also a strong contingent of non movie club members and we saw what we saw he is effectively with just refresh library product that people are willing.
To come back into an environment, where they felt comfortable so everything that we did relative to the cinemark standard and highly increased health and safety protocols, we knew from research going and how important that was and it appears as if that is working and it's getting people more and more comfortable because once they come out.
Then the word spreads goes their families goes their friend. So that's one of the reasons why we decided on the phase three opening plan. So that we could start to build the word of mouth and also go along the line of.
Training, our people and taking learnings from the first theaters and applying those all of the the new ones as we move forward.
And Mike I would just add in addition to Mark's Mark's comment on clearly as people come and experience are going to the theaters in this current environment that positive word of mouth is a big deal I think we also believe a big chunk of it is just it's a demonstration of people's eagerness to get out and be able.
To participate in a safe environment in these types of activities that they've been starved of for quite awhile and we've also continue to refine our marketing tactics.
To basically encourage people to come out and how we're communicating the message. So all of these things combined had been a big factor that so just wanted to kind of add that piece and also welcome you back to the call me.
Great. Thank you John Martin.
Yeah, much appreciated happy to be back.
Your next question is from a line of Chad benign with Macquarie. Please go ahead with your question.
Morning, Jordan vendor on for Chad you guys went over a your shutdowns that new are implementing but do you think that there could be competitive should close there is and how this might affect your distribution you don't get where your overall business outlook and then.
And as you know update here you went over the new Cinemark standard.
Wondering the extra anymore color.
Behind this.
Sean why don't you take the second one end and Stuart I'm, sorry, I Didnt hear you broke up but at the end of your first question could you state that again please.
Yes, Hi, you went over some of your shut down yeah. Some of your theaters in the U.S. I was wondering do you believe that you could see how did the closure is and how that might affect your distribution zones or your overall business outlook.
Well, we don't have we don't have complete insight into competitive closures at this at this moment.
But you know clearly if we're in a competitive market and in a competitive zone and sharing.
Movie goers with a local or national competitor, if that particular competitor to close out it's going to be positive for us.
At this stage.
There's just a few a very few number of ceded closures. So as we sit today really don't have a good look at that but without question. If it if again if we're in a zone, where we're sharing trying to get audiences.
In in a zone with two or three other competitors and one close it's going to be helpful to us.
And your night I apologize I didn't catch that second part of your your shouldn't could you repeat that.
Yeah, what the annual cost the behind the new sanitary measure that you guys are taken.
Oh got you, we expect there'll be a startup cost for.
Implementing this as we get going that will range between $10 million to $12 million of a one time cost. That's that's kind of getting all the fixtures and supply A's and everything in place.
Beyond that we're anticipating.
Somewhere between $4 million to $5 million of monthly operating costs for just the execution of that ongoing cinemark standard a big chunk of that will be labor related.
And then part of that will just be the ongoing supplies. So you'll see that show up in our salaries and wages and utilities and other line items that said I kinda, we've indicated in our prepared remarks, where we're working on a whole range of ongoing productivity projects to be able to offset the impact.
That cost increase in more.
Yeah. Thanks, guys are going to pass it off.
Thank you right. Thanks appreciate it.
Your next question is from the line of Alexia Quadrani with JP Morgan.
[music].
I think it this is David Crown scaling for let's say a following the announcement from NCM Universal have you seen any shift from your studio partners regarding when doing is there a renewed or accelerated interest for similar arrangements or any changes at all to Windows and then maybe just as a follow up can you remind us of your footprint.
Overlap with AMC. Thank you.
[noise] relative to has there been any.
Renewed interest there there's been ongoing interest from various studios about talking about.
Some form of relief.
Schedule and and when doing so I wouldn't I wouldn't say that there's been any.
Aggressive new Theres with there's no there's no new aggressive discussions that are in the middle of so I would I would I'd characterize it as ongoing and nothing.
Tremendously different in the last week since that announcement came out so.
Really nothing else to say than that.
It is ongoing and has been ongoing for as long as I've been in this business I mean, it's been ongoing for 30 years and it's going to continue to so we're we're as I stated in the prepared remarks, where we are open and active discussions but relative to negotiations I think I would stop there.
And in terms of our overlap.
It really varies based on the market you know and just what you consider overlap based on distance in general it's pretty small I would say on estimate less than 20%. You know you just consider our market shares you know that can kind of show that it's only a small portion.
And we generally tend to be more suburban while they're circuit tends to be a bit more metro. So it's it's a limited overlap.
Thank you.
Thanks appreciate it.
Your next question is from the line of Jim Goss with Barrington Research. Please go ahead.
Alright, thank you.
I was wondering if you could talk a little more about your.
Test and learn theaters and this whole process.
So how many are what what share of the attendance was there in the theaters how closely spaced were they traditional or recliner seating.
Situations and how challenging was it for your staff to monitor and maintain the protocols for for a masks during that process.
Jim I'll give you a little backdrop. They were in we initially did the tessler theaters in the Dallas Fort worth the route because we wanted to have a close view of them and they were for the Dallas Fort worth area, primarily they were in the northern Dallas area with the exception of web chapel, which is more closer to the downtime.
Down area. So we did that purposely so we could be right nearby and get that and then we expanded to five additional states.
So that we could could get more of a nationwide feel so.
In addition to the Texas.
Theaters, we opened up in North Canton, Ohio, We opened up in Salt Lake City, Utah in Universal in the city walk in Orlando.
We opened in Colorado Springs, and also in Manchester, Connecticut and against the reason for that was because since they've been focused in Texas before we wanted to get a feel outside of just.
Our home base and it's proved to be very very insightful because some of the things we learned in Texas, we were able to apply to these these other five states as well. The result, this past weekend when they opened up were honestly very very impressive.
And how do we think that part of that was just the fact that we were able to apply that learning and as I mentioned to you those we at the top five theaters in the country and there were 500 Hardtops opened last weekend and we had to top five so it was a it was it was very encouraging and it told us that we are absolutely right.
For first front product when it when it comes out on September 30, and actually prior to that with unhedged.
[noise] engine that means that our customers they've been incredibly supportive of the processes in protocols you in terms of you know assisting.
With our management team in you back to Mikes question I think that's evidenced in just the growth of People's coming you know that there's a different perception once they come and see there's there's a high level of comfort and satisfaction and desire to return and we're just seeing that in the results. So so far everybody has been.
Working together really well on both both sides from or employ side in from a guess side in making sure that we everybody's stay safe.
Okay.
Unrelated is there any sense of the library content to the general that resonated in any chance you might allocate the screen or two to such content of the other side and somewhat of an ongoing basis.
Stephanie Miller Trinity answer that without question, we will we will go into into the fall with with some of the higher profile library content because it is placed so so well so.
Indiana Jones, and Jurassic World work ethic par for bar to top performer. So we're going to we're going to continue to do that but then what's kind of happened as more and more first front product cost that will be harder and harder to allocate but we have proved that there is a desire for it but so I think we'll get a kind of weaned ourselves off of it.
As new product enters into the marketplace.
Okay and.
Lastly, if you.
In terms of optimizing your operating hours.
Are you thinking that there may be shorten time frames during the earlier purchase a week and or end. It are there any favorable cost implications to having a somewhat of a different schedule than you've tended to do.
Well, Jim and first front content comes and more and more movies have we're obviously going to expand to seven days a week.
And and then like Weve always done when a movie.
Is appropriate for late night shows will do late night shows, but or when a.
Big High profile family content movie, Tom will open up earlier on Saturday and Sunday morning to two increased demand. So it's going to be completely demand base and content based but maybe your overall question is are you going to seven days a week with first front product the answer to that is.
Yes, and it will be.
Careful tightened relative to.
When were open add to answer your question, yes, absolutely. If we if we were cloak. If we're if we are open less number of hours were able to to manage our labor more effectively so.
What what the decision node for us is demand base.
Content base and as has that demand presents itself, we will expand our operating hours.
Okay actually if I turn on one more.
In the early call you talked about how your thoughts the phase and I take place and there was so early that it was really.
Difficult really frame that around.
Any reality, but you saw that a 2021, but wouldn't quite get back to 2019 to 2022 might have a shot if that sort of thing is there any a broader framework to those original thoughts that you might want to talk about.
Jim I think it's probably little early to be making box office predictions for.
Calendar year, 21, and 22 at this stage, but I think it is clearly fair to say that with the amount of movies they've got the laid out of 20. During all this time that we were closed.
The majority of those movies got pushed into 21, so that clearly is going to make 21, a good year now on the other had there have been some production delays for movies that were scheduled for 21 that have gotten pushed to 22. So that's why the way that Sean and I frame it up because we think twice.
21 is more of a transition here with really strong product.
Coming from both 20, and 21 and 22 is going to be the year, where it more normalizes because at that point the production schedule.
We'll be more in a normalized way. So we're optimistic about 21 I think it's a little early to put a box office prediction on that and we think 22 could even be better because there are a lot of penta movies and demands are going to fall into both those years.
Alright, thanks, so much.
Thanks, Jim.
Your next question is from Eric Wold with B. Riley. Please go ahead.
Thank you good morning, guys.
Just a few follow up questions just on the ones that have been asked already I guess you look at the Peter openings planned for late August up there the third the third.
As you get to Labor day weekend do you know based on the various state restrictions what kind of the blended certain wide domestic.
Capacity maximum will be.
When those those during the third open.
Eric as we sit now there are couple of places, where there's a 25% capacity, but through the minority most states at this point our 50%.
Unclear, how California will open up you know whether they will start with 25 and then in short order get to 50, but the majority of state.
Our at the 50% capacity level and and.
We can operate very effectively and profitably at that area and with the.
With the seating software that we put in place we think that we can we can get capacity levels left as I've said that will be.
Ability for us to operate profitably, Sean you might want to add some stands out as well.
No I mean, I think you you hit the he pointed the majority of of art theaters are in jurisdictions already that had a stated capacity.
Limits of 50% or greater so that gives us a lot of flexibility and we can operate very comfortably with that within that limitation.
Yeah, and how much visibility you have as you get to the ended the year and entered 21 in terms of how that those limitations may change.
I really think that's gonna be you know I did that and again, that's hard to predict but I, but without without question every local government and state government wants to.
Reduce the restrictions that have been put on the public whether it be in other forms of out of home entertainment or whether it be restaurants.
And of course, they're going to be cognizant and careful relative to not doing it too soon but I think.
With all that we're doing and also I think all that the rest of the industry is doing relative to health and safety standards, we're going to show that a movie theaters are a comfortable and safe environment to bring friends and family back to I'm going to add just one.
A little thing that we've seen in the in the 15 test and learn theaters, we've seen a tremendous amount of families come back and so if we can do our job of of convincing people that we have a safe and healthy environment Moms and dads are coming back with kids.
Two into to enjoy an afternoon afternoon out so we're seeing that across the board were seeing it and in multiple states around the union, which were pleased about so we're pretty optimistic that.
As time moves these restrictions will.
Correspondingly the removed and we'll get an opportunity to get back to a more normalized theatergoing environment somewhere in late this year early next.
Perfect and then Sean.
It's about the.
The deferrals and there is going to agreed you worked out the landlords what should we assume when theaters reopened do we save in school conform upon reopening or are there to deals were Delaware. There was some kind of ramp up in payments based on the same ramp up an identity.
It it's quite varied across we have it was a pretty.
[music].
We have many landlords that we had we don't really have a concentration in the particular, one so it's pretty buried but generally speaking we don't have.
Like a big Cliff payment that's do right. When we open the deals were negotiated with.
A payment structure, where we pay those rents back over periods of time and the periods of times start dip.
Morning.
In in third quarter, many don't start until 2021, so it's pretty phase over the course of the next year and a half.
Yes, sorry shy away from I misspoke, I mean, the your normal when payment due to start not the ones have been deferred the normal <unk> restart in fall when the teachers reopened.
Gotcha. The current Oh, my Mark feel free to elaborate here, but I think that too is varied the majority of those I believe ours are set to.
Resumed based on the timing that was originally negotiated so we negotiate Sean each on your your it doesn't have to basically the biggest if we negotiated a deal to defer rent payment then whether we opened the theater or not we can still get the benefit of that have that deferral. So and then when.
In theaters open up if we if we had negotiated at a four month deferral of rent and we opened a theatres were still going to get the four month deferral of rent and I think shot as mentioned you before that from an accrual standpoint, we are accruing.
Regardless of cash we're accruing all of these on a on the as you know on a monthly basis.
So what benefit of the sub the delays even when we start up and we'll just live by the contract that we that we presented to that particular landlord.
For begun this last one of our money to sneak one in for Mark.
I know you can do.
Even after multiple ways about the studio junior agreement, though those out there.
Yeah I.
No one can hypothetically we did mention.
Caution against quote, Italy aggressive shorten windows is there a number of days a week that you consider crossing that line is being overly aggressive.
You know not we're certainly not ready to talk about that at this point and that's that's a discussion that we will have you know with individual studio partners as opposed to a public earnings call and once we come to those conclusions then we'll we'll report back to you.
I figured I thought I'd go to try thanks guys.
Thanks there.
I think there.
Your next question is Robert Fishman Moffett, Nathan well ahead.
Good morning, I have one for Mark and one for Sun, a mark help us think about the right number of screens for Sun American whether we should expect more closings in the month ahead months ahead, or whether you still expect to grow screens over the longer term both in the U.S. and Latin America.
Ah Robert.
Were we think that the 20 theaters that we've chosen to close 13 in the U.S. and 17 internationally. It's really part of the process. Every every year, we do with what I call kind of trimming the rosebush and it typically or we might close six 810 theaters.
And then we'll end to between domestic and international we might we might theaters, we might at a six or 10 theaters as well. So this year, we closed a few more because we closed six it's 13 were domestically for a discount houses and then mr. several of the others that we're closing we're at the end of their lease.
And the ended their lease gives us an opportunity to evaluate as that's still a property that we want to happen and we chosen and in several cases not to do it. So I don't expect dramatic changes in our in our footprint either domestically or internationally I do expect that we will continue to do new build a boat.
In the U.S. and internationally, but probably at a little bit slower pace for the exact reasons that Sean laid out we're at a point, where we want to focus on rebuilding our balance sheet rebuilding our cash position and so we're going to be a little bit more careful on capex until we've done some of that because we've we've all on the industry.
Got to a tremendously difficult time, so there's opportunities we're going to say, but we're going to be a little bit more conservative with the cash as we build up the balance sheet.
Okay that makes sense and for Sean click clearly some of your peers are in very different liquidity position compared to 10 of our today and to the credit of few and the whole management team can you update us on your ongoing relationship in conversations with your lenders just just it would be helpful to to hear how those conversations have been going.
Sure they been very positive I mean, we're fortunate over the years to have established I'm, a strong relationship with our lenders and lots of credibility with those lenders based on our consistency.
So I would say just as the result of of the actions that we have taken liquidity. We've security preserved in just the communication that we've been proactive about that the a relationship remains positive bins and strong. So we're pleased with a with where things are in.
That regard and we're going to aim to continue to maintain that.
Maybe if I could add one more if there's time I'm just I appreciate the color on the Capex spend this year again understand this might be difficult, but anything you can help us think about <unk>.
Just capex spending on a new normalized basis, there when we think about going forward is there like a minimum level of maintenance capex that we should think about and like when to even think about or return to growth capex.
A big part of that rubber is going to really depend on.
Just how quickly things ramp back up and how quickly we return to positive cash flow I would say it will without putting a being able to put a specific number two it because it will flex just based on.
That those factors I, just mentioned, but directionally, we expect that it will continue to be more limited.
With the intent of just re strengthening our balance sheet rebuilding our cash balances and ultimately delevering. The company. So we will proactively go after opportunities and we will address maintenance appropriately, but it will certainly be at.
I do see level, and I would say fairly significantly reduced level to certainly where we've been in excess of $300 million over the past few years.
Okay. Thank you very much.
Sure.
Question.
I have with your question.
Just lost volume a little bit than anybody else lose that.
I couldn't hear the operator.
Your next question is from the line if Megan Durkin with credit Suisse. Thank you hi, Good morning, guys. So you talked about the tremendous amount of families coming back can you just discuss whether the mix.
I've attendees is consistent with historical attendance I are you seeing a similar mix of seniors and children coming and the 15 theaters that are only open on the weekends right. Now I believe you were actually opened during the week initially on the five theaters that you opened in June two on those five while you were opened.
During the week did you see any shift of attendance into the weekday that surprised you are or anything like that and then just one last one on universal can you remind us whether you have a deal in place with universal if so when that expires and is there a guarantee on titles to be delivered.
On the deal, making I'll do the last one first.
We have an ongoing deal with with universal relative to licensing the film its if theres no contractual obligations for a certain number of films or certain elements of film, but that our deal with them is more of a of what our film rental slip would be.
Similar to what we have with every other major studio, where it's a sliding scale, where we pay our film rental based on on the box office success. So that deal is in place and.
Penneast is similar in nature to what we have with all the other major studios.
Relative to our test and learn theaters, yes, when we first opened in Dallas I think we're open for one week fifth week, and then we decided that we could actually accomplish what we needed to with the Friday Saturday Sunday and be able to operate these theaters bought a positive cash flow basis, covering our variable costs.
So we decided that we could accomplish what we needed a that we could.
Add to our cash burn and in fact have a positive.
Cash situation relative to to variable costs. So that's what we went to weekends and in terms of people coming back it really dependent on the movies I mean, because we were played 15 and as many in some places us. Many 18 movies. We had some movies that were clearly you know very young male oriented and so for those movies.
You know you know whether it be something like the matrix clearly that was dominated by by by young males. And then we had some great romantic comedies and for that we got an overabundance of female and couples and then we had a lot of family movies as well and of course, so that we got family. So really it really was based on.
The content that we program and obviously and we did that with intention to try and bring back those people and then we also you know, we're very forthright and outcome in all of our publicity and marketing about our safety and health standards and that proved to be effective and then.
And then it was.
You know incumbent upon us to deliver on that promise and I think we effectively did it as evidenced by our research where we had such a high satisfaction rate with the health and safety standards that we had done. So so we got across the board primarily because we programmed to bring people in.
To get them a comfortable so I hope that answers those questions.
Yes. Thank you.
Thanks, Mike and keeping.
And I will now turn the call back over time.
Presenters for closing remarks.
Okay. Thank you all very much forgetting up early this morning pre market to join US on this call. We look forward to reopening our theaters in a in a big scale way in early in late August in early September and we look forward to speaking to you again following the third quarter be health.
Be safe be healthy and thank you all very much.
Thank you. Thank you again for joining today's conference call. This concludes the conference you may now disconnect.
[music].