Q3 2020 Cinemark Holdings Inc Earnings Call
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I ask a question during the session you will need to press star one on your telephone keypad. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Chanda Brashears, Vice President of Investor Relations. Thank you.
Please go ahead, they can't Italia and good morning, everyone. At this time I would like to welcome you to Cinemark Holdings Inc.'s third quarter 2020 earnings release Conference call hosted by Mark is Ronnie Chief Executive Officer, and Sean Gamble, Chief Financial Officer, and Chief operating Officer and.
Accordance with the Safe Harbor provision of the private Securities Litigation Reform Act of 1995 certain matters that are addressed by members of management. During this call may constitute forward looking statements such.
Parties and ongoing health concerns associated with the pandemic continue to challenge a material resurgence and moviegoing as such resolving these pressure points, along with stringent cash and liquidity management and driving incremental productivity gains remain our top near term priorities.
While the current operating environment remains difficult. We're very pleased to report that on account of tireless and focus efforts of our broad cinemark team, we have been able to adapt our business two more than satisfied the current health and safety needs and reengineer a wide range of procedures within our field operations to derive mean.
<unk> new efficiencies.
For more than 75% of our domestic circuit.
One strong indicator that this phase approached served its purpose is the feedback we've been receiving from guess who for the past four months have consistently reported a 96% satisfaction with cinemax health and safety measures. Furthermore, an overwhelming majority of those movie goers indicate they intend to <unk>.
Turn again and will recommend visiting cinemark to a friend.
While our abundance of new cleaning and safety protocols are more than satisfied the needs of many moviegoers in this current environment. We recognize that there is a segment of the audience, who may still who may still require an additional layer of comfort as such starting back in July we introduced the innovative concept of.
Private watch party, which has been met with a resounding positive results are private watch parties offer consumers, a simple and affordable way to reserve an entire auditorium for their trusted group up to 20 guess and select the contact of their choice from a list of new releases and favorite film Classics.
A few simple clicks on our website or mobile app.
Since we launched private watch parties four months ago, we've already sold nearly 50000 of these private events, notably more than 600000 people have attended a private watch party to date with a significant portion reporting it was their first time back in the theater since the shutdown.
<unk> the opportunity for guests to sample the cleanliness and safety of our theaters, while several comfortable civil of our competitors have since followed with their own version of private watch parties, we've not seen them impact our sales to date, which continue to grow.
Two additional benefits of our phased reopening approach already enabled us to materially improve the speed and ability of the reopening process. It also provided us with the ability to test and hone our newly designed more optimized operating procedures as I previously indicated as a.
Built of these procedures and their focus on maximising revenues, while minimizing expenditures, we are burning less cash with our theaters. Open. Then went then when they were shut down set another way we are more than covering the incremental costs of operating art theaters, such as film rental concession costs of goods sold.
Hourly payroll utilities security janitorial cleaning and safety supplies.
These results have been achieved by closely evaluating our business theater by theater and adjusting our operations as necessary, we develop sophisticated data analytics related to this current operate environment. During our initial tests and learn phase, which is now enabling us to optimally aligned operating.
Hours based on current market demand and ability to produce positive cash flow as a result, we've been expanding operating hours in showtime's in certain instances and reducing and others.
Furthermore, during this period of reduced demand, we've limited our food and beverage offerings to the highest value core offerings that require less flavor to fulfill and have less risk of spoilage consumers can still enjoy moviegoing favorites like freshly pop popcorn candy and drinks and this tactical approach has supported our ability.
To maximize our operating cash flow.
In addition to cash management and our variable field operations. We continue to remain hyper focused on fixed costs as well as an example, we restructured our business during <unk>, which resulted in the permanent closure of 21 theaters as well as the reduction in our corporate workforce, we're continuing to seek various means.
As we continue to navigate the ongoing impact of COVID-19.
Consistent with our comments made last quarter Cinemark remains well positioned to effectively C. R way through the pandemic as a result of the balance sheet strength and the leverage we possessed heading into the crisis as well as the many actions we have taken since to bolster and preserve our liquidity position.
As we've indicated on prior calls some examples of these actions include significantly limiting all non essential operating and capital expenditures restructuring and streamlining our operations in headquarters, including the permanent closure of 21, lower performing theaters and significant reductions in workforce in payroll nigger.
Shading substantial lease related and other contractual payment deferrals and modifications suspending our dividend.
And issuing $250 million, a new five year senior secured notes.
Additionally, during the third quarter, we secured $460 million of new five year convertible senior notes that netted us approximately $390 million of incremental liquidity inclusive of fees and cost spread transactions, we entered into related to the deal.
Percent of our domestic circuit.
As we look ahead, we expect our cash burn will increase somewhat.
As a result of incremental interest payments associated with our recent debt raises and phase settlements of rent deferrals that we achieved earlier this year.
Under our current operating scenario, which includes a modest amount of positive variable cash flow generation from our open theaters, we estimate that our fourth quarter cash burn will grow to approximately $75 million per month due to the timing of our bi annual bond interest payments.
$34.6 million driven by attendance of 1.9 million patrons.
U S admissions revenues were $14.9 million of which 17% were generated by private watch parties.
Our average ticket price of $8.01 benefited from first run film content private watch parties and mix associated with reduced matinee availability.
These benefits were partly offset by discounted pricing associated with library film content [laughter].
Domestic concession revenues were $8 $9 million with the food and beverage per cap of $4.79.
We were highly encouraged by this result, which was aligned on a same category basis with our pre Covid performance. Despite are highly discounted welcome back pricing.
Variance to pre Covid per cap results was largely driven by fewer menu items being offered during the quarter.
Globally film rental in advertising expenses were 54, 7% of admissions revenues and were driven by first run film content, which constituted the majority of our third quarter box office results as well as reduce leverage over marketing and promotional expenses associated with Relaunching our theaters.
Concession costs were 29, 5% concessions revenues and increased from 17.8% in the third quarter of last year predominantly as a result of additional spoilage associated with our temporarily closed theaters.
Promotional pricing, which has been very helpful in attracting consumers back to our theaters and stimulating incremental purchase incidents also created a slight near term drag on our Cogs right.
Global salaries, and wages were $22 million and declined 82% year over year as many theaters remain closed for a large portion of the quarter.
Furthermore, theatres that reopened did so with reduced operating hours and staff.
Facility lease expenses of 67 $1 million were driven by the fixed nature of our rent commitments, however were down $23 million year over year predominantly as a result of permanently closed theaters varied rent abatements and reduced percentage rent associated with our decline in revenues.
Again these expenses are accrual based and do not reflect approximately $21 million of cash payment deferrals that we negotiated for the third quarter, which were on top of $42 million deferred during the second quarter.
At the strategic test and learn theaters, followed by a phase reopening plan in each country as government restrictions allow we recently launched 55 theaters in Brazil aid in Ecuador, and 12 in Central America, and we're continuing to work towards getting our residual theaters opened over the coming months.
As we approach the reopening of our theaters there are five key factors that influenced the process. These.
These include one the status of the virus to government regulations, three consumer sentiment for cleaning and safety protocols and five film content.
Making advancement and consumer awareness and comfort about visiting theaters, we're collaborating with NATO and other exhibit appears studio partners and talent agencies to better inform the consumers at theaters are open and to educate consumers about all the extensive measures we're taking to provide a safe environment for guests.
Employees and the communities.
At Cinemark, we're actively communicating with our 12 million addressable customers and over 950000 movie club members were also engaging consumers through varied social media channels, and we've been aggressive with targeted PR campaigns.
Based on our survey data so far these efforts have been resonating as our consumers rank movie theaters above all other indoor recreational venues such as restaurants shopping malls in gyms.
Discussion of course to the status of the theater opened through the status of the theaters, which are opened across the country to help determine their individual release strategy.
Our team has been creative in supplementing film content with campaigns around fan favorite classic films to draw attendance such as Fright night for the month of October and Big holiday campaigns planned for November and December as we've seen over the past four months. There is an avid movie going audience.
That is eager to watch movies in the theater on the big screen with heightened sound and site technology and of course that one of a kind movie theater popcorn and we want to continue to provide appealing content for those moviegoers.
We're advocating for for more of a dynamic window that varies with the box office generated which benefits all parties studios exhibitors and most importantly moviegoers.
In conclusion, Cinemark is working fervently to manage our liquidity, while streamlining innovating and evolving our business model.
I'm confident in the future of this company and the underlying guidance and direction of our outstanding Board of directors and exceptional management and field team.
Our disciplined approach consistency and execution have positioned us well leading into this crisis and continue to be the most important distinguishing factors in the current challenging environment.
One final note before we open it up for Q in a.
We are highly encouraged by the recent theatrical movie going results coming out of Japan and China.
Demons layer the local Japanese film that opened last month generating nearly $50 million during the opening three day weekend to become Japan's highest grossing opening of all time domestic or foreign the second weekend dropped only 8% and the film is on target.
To become the most successful film ever in Japan.
Local industry leaders I've spoken to are truly a static with these results and our crediting the phenomenal success to the virus waning built up demand to enjoy the theatrical experience and of course, a highly commercial film China.
China has experienced similar success with three local movies over the past 60 days highlighted by the film the 800, which has generated $464 million since opening in late August.
Okay with universal in the event it doesn't tend to take Ah the crudes or any of its other upcoming films to an early peeve out window and then secondly, wondered if you could just sort of talk a little bit more and give some insight into what's going on in in Latin America beyond.
Brazil, specifically, Columbia, Chile, Peru, and we've seen in Brazil, some local language content work quite well before how you <unk> you know is that an opportunity for for Brazil or is there even any new local content to distribute.
Good morning, Eric. Thank you for the questions I'll take the first one and maybe Shawn will pick up the second one as it relates to our studio discussions as I mentioned, we are in active discussions a universal obviously is one of those content providers that we're in active discussions with so I can't I can't make any cough.
That's about that because there's nothing concluded at this point, but I will answer your question specifically as it relates to cruise.
We since we don't have a specific agreement set on.
That would carry us into 2022, so yeah I wouldn't wouldn't include a revolver drawdown other capital raises her as I mentioned any further improving of just operating performance or successful rent negotiations with landlords.
Okay, and then Mark can you give a little more color on the changes that you're making to preserve the cast though are you closing certain days of the week like M. C is doing I'm just wondering if you're gonna be benefiting in the near term even if attendance is light from.
From your peers, either being closed or being closed part of the week.
<unk>, we really honed in.
Window, but we've been using it for for several months now as we talk to various content providers and the concept is is is actually very simple.
Historically, there was a 74 day window.
Prior to some form of of home Entertainment and that's what we all live by and we think in the current environment and on a go forward environment that that will probably be a dynamic window, meaning that it won't be one set of days for every single movie movies that are your big tent pole blockbusters.
Ken available.
Mike I think it's it's exactly what you just said let me, let's start with the virus.
I think we all know that the virus is going to wane, what we don't know exactly when so I think we have to make the assumption that sometime in 21, there is going to be a vaccine and that vaccine will be.
We'll be effective and as such people will start to become more and more comfortable coming to the theaters and then when we've looked at what happened in Japan and in China. These are these are really specific data points, because it's not research, it's not people, saying, what they might do or want to do its people actually doing it.
With mass numbers. So there is no reason that the.
First run first world markets with China and Japan.
Great. Thank you for the time Mark really appreciate it thank you Mike.
Again to ask a question. Please press star than the number one on your telephone keypad again that is star one.
Your next question is from the line of gym cause with Barrington research.
Thanks, and good morning.
I was wondering if you could.
One one additional thought on that and dynamic windows issue and that is whether whether it could involve something along the lines of what day of the AMC Universal deal good where you get some piece of the.
Downstream either through your own you know franchise or through a part of them so that you're pulling the same direction.
Jim.
You know as it as it relates to that I think we set about as much as uncomfortable insane relative to the progress of those discussions on dynamic windows I really I really can't get into the specifics of what that might be at this point, but you know I I tell you when we're ready to talk about it and we have a deal or two in place will.
Certainly describe it to you.
And what we consider a a reasonable amount of detail, but but much of this is obviously confidential. It's it's discussions that are going on with various studio partner. So it's just not appropriate to speak about when it's not concluded in a public format HM.
Okay Uhm separately, they're private watch party idea is this an idea that will live on beyond Covid say Wednesday, and Thursday evenings as an alternative to alternative content so to speak.
Jimmy you know, there's there's several reasons why private watch parties work, so well one of them clearly was it welcomed back people to the cinema, who were a little hesitant and they could come with their trusted group, but what we found is that people really enjoy it and I'm, having the simplicity of.
Being able to purchase it like a regular ticket on the app or the website.
With reasonable pricing has shown us that yes. This can continue the key thing is.
Like yourself to the extent that some.
Options become available.
Jim just to add to clarify the bulk of those theater closures actually happened last quarter as part of restructuring actions and yes.
As you implied those were lower performing theaters that we're nearing the end of their lease term. So those would have been theaters that we would have been careful.
Carefully considering even before the coded crisis. So it's it's certainly possible we could have a few more of those as we look forward and we continue to assess our theater performance like we do as just our normal process, but that was kind of the driving force of those theaters.
Certainly consistent that we we believe that an exclusive theatrical window upfront is very important for both us and also we can demonstrate that an exclusive theatrical window event ties as a movie and actually creates additional value downstream. So to answer your question, specifically, yes, we would be open to it but.
Always comes down to what the terms and conditions would be.
Okay that makes sense and and then just bigger picture can you discuss whether you're open to alternative strategic investments from outside investors and and maybe help us understand you know given where where the stock prices that the the benefits of remaining public during this time or if going private as an option to take even greater advantage of the.
And were or multiple years and your second question was.
This is bill yes, okay ace exclusive period of exclusivity. So that's really the whole function of what dynamic windowing is.
It's a it's a shorter window for your smaller movies that that don't play as log in the theater and it's a longer a window for those that have a longer potential and are going to be in our theaters for for a lot of weeks. So thats. The whole concept. The concept is shorter on some and get them into home entertainment quicker because there are no long.
During the theater and longer on the ones that are going to play longer relative to.
Being specific about that length of time, no. We're not we're not prepared to talk about that.
I'd just add to that these are conversations that we had been having with studios in this concept of a dynamic window, even preceding the whole covert pandemics. So this isn't new we clearly are factoring in the current environment into the nature of how any direction might take place, but and just kind of putting it out there that isn't something.
That had been fully prompted by it but it certainly garnered a lot more attention in light of the current circumstances.
Okay. Thank you.
Your next question is from the line of Chad Beynon with Macquarie.
Hi, good morning, Thanks for taking my question.
Sean as you.
Had some time to further refine the cost structure and get that opex to more accurate projection and the cash burn as well for 2021 and beyond what's your view on long term margins and is there a revenue percent.
Percentage that you need to get back to to get above 20% margins are back to peak levels have you kind of gone through that math given the updated structure. Thanks.
Thanks for the question Chad.
I'd say that yes, we have been refining kind of our operating practices and we have been stripping out certain degrees of fixed cost I'd say that those routines are still going on in terms of what levels to get to and I'd say, it's still a little early to kind of fully go there.
We certainly will have the near term objective of returning to 20% margins, but so much of that is going to be heavily influenced by attendance and how quickly patrons ultimately return it to theaters in light of the whole pandemic. So that's going to be really the biggest governing factor in kind of getting back.
Back to those levels so.
It's something that we may be able to provide a better clear answer on a little bit down the line, but I'd say things are still so dynamic and still moving and attendance is such a big big piece that it's just kind of hard to to put a precise number to that right now.
Okay. Thanks, I appreciate it and then.
We're pretty well versed in terms of what's going on in the us with your public and private competitors, but could you provide some context, what you're seeing with some of these.
Lot and own circuits by by families. They probably don't have the same financial opportunities like what you guys do have there been more closings there what's been the outlook has anything started to kind of shake loose or is it too early to have a conclusion in terms of how that changes long term.
Well I think you're you're really talking about two circuits Cinemax a declared bankruptcy 30, 60 days ago, which you are certainly aware of and.
And so.
Your operating.
In bankruptcy currently and and then synopsis is a good competitor there well financed very.
Very strong owned by very strong.
Mexican family that.
We cooperate within Latin America, they are actually part of us that we actually sell our ads together under flicks.
In Latin America, and they are they are they are competitors of ours throughout Latin America, and the U.S. and they remained strong competitors.
And Ted I would just add to that and you know many of the other local businesses.
Within the different countries that we compete against two similar to come.
Companies that Mark mentioned, they they tend to be fairly well to do families that have other lines of business and other sources of income beyond just their theatrical businesses. So.
In many respects I'd say, there's kind of perhaps been less.
Movement that we've seen thus far in terms of.
Localized bankruptcies in those countries.
And things shaking out as a result of endemic not saying that that couldn't still take place down the line, but to date, that's been pretty limited.
Thank you both appreciate it.
Thanks.
Your final question is from the line of Mike Hickey with the benchmark company.
Yes.
Hey, guys. Good morning, Thanks for taking my questions. Thank you for this call.
Just curious on your.
We are sensitive to how much you can.
Talk about the.
The windowing hearing Paul when you think about the negotiation process, sorry office will Rob.
Broadly aware of trying to get a coordinated deal.
Theater operators.
Yes, he did something but.
Non most follow through from your from you or your your peers. So is that an important consideration I guess would you look to.
The strike a deal something that mark in some other operators an awful awful sign off on.
Mike Thank you.
These negotiations the they have to be exclusive between us and the individual content providers, we were not in a position legally to be able to combine together in any kind of unified negotiation. So the discussions that we're having with the.
The individual content providers are unique and specific with them and thats, where it has to stay.
Okay Fair amount that you think it's a deal about other operators would agree too right.
By yourself, and then I'll follow through with the rest of the industry than it's probably not nearly as effective.
Tens of getting movies back to the box office when you agree.
Mike Thats again, Thats really hard to say because.
That would that would require me to speculate on what competitors are going to do on what is not even a completed deal that we've done. So it really it really requires two elements the speculation that I feel like I'm really not comfortable in and talking about obviously, what we're going to try and negotiate as something that cinemark is.
Well with and and along the lines of that to the dynamic when doing as described so once that's done and out there then our individual competitors will I'm sure get.
At least an idea of whatever we say publicly about it and I would suspect that our competitors are also talking to the individual content owners.
Uniquely and individually. So we'll see what comes of that I think I'll just add Mike I think a big part of that too is ultimately what the studios decide to do you know to the extent they feel comfortable if a certain number of exhibitors are inclined to to show their product under a certain kind of conditions that.
That may be sufficient for them to to give the go ahead. So I think a large part of it will just become what what do they need to be comfortable releasing it.
More so than kind of our situation as Mark said, our situation will be really unique between us and the studio.
Thank you Mike.
Yes, thanks, guys take care, thanks, a lot.
There are no further questions I will turn the call back over to Cinemark for any closing remarks.
Thank you all very much for joining us this morning it was.
Truly a good session. We look forward to speaking with you all again, following our fourth quarter stay safe and be well.
Good bye now.
This concludes today's remarks third quarter, earning thank you for your participation you may now disconnect.
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