Q1 2021 Cinemark Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Cinemark first quarter earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today Candour per shares senior Vice President of Investor Relations. Thank you.
Go ahead, and 19 Italia and good morning, everyone. At this time I would like to welcome you to Cinemark Holdings, Inc. 's first quarter 2021 earnings release Conference call hosted by Mark Zoradi, Chief Executive Officer, and Sean Gamble, Chief Financial Officer, and Chief operating Officer.
In accordance with the Safe Harbor provision of the private Securities Litigation Reform Act of 1995 certain matters that are discussed by members of management. During this call may constitute forward looking statements such.
Such statements are subject to risks uncertainties and other factors that may cause cinemark is actual performance to be materially different from the performance indicated or implied by such statements such risk factors are set forth and the company's SEC filings. 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 measures can be found on today's press release within the company's quarterly filing on form 10-Q or on the company's website investors Cinemark Dot com I would now like to turn the call over to Mark Zoradi.
Thank you Chanda and good morning, everyone. We hope you and your families have remained healthy and well during this most challenging time. We appreciate you joining us to discuss our 2021 first quarter results.
And over a year has passed since COVID-19 prompted the shutdown of our global circuit and today I'm happy to report that we are now actively on the road to recovery.
And the U S 98 per cent of cinemark theaters, and 60% of the industry have reopened and.
This weekend, we'll be operating and each of our 42 states.
Since before the pandemic.
Furthermore, government imposed capacity restrictions continue to ease as the virus is more contained presently 90% of our theatres are now operate with 50% or more capacity.
Of course, we are mindful that many regions across the globe global landscape are still struggling with surging COVID-19 cases, including India, Canada portions of Europe, and our own Latin America were only 50% of our theatres are currently operating due to renewed government restrictions. However, we remain.
And optimistic that like the U S. These countries will quickly recover as lockdowns rain and the virus and vaccines and start to more widely disseminated.
And to that and we are highly optimistic about theatrical exhibition recovery over the coming months driven by a range of factors.
To begin with the COVID-19 vaccine rollout continues to progress and and aggressive pace in the U S per.
Per the CDC as of today over 55 per cent of adult Americans have received at least one vaccination and more than 40% are fully vaccinated with the vaccine now openly available to full population age of 16 and up these figures continue to rapidly grow each and every day.
As a result of this growing vaccination penetration consumer sentiment about returning to movie theaters is improving according to data from the National Research group and our G, which had been tracking the consumer sentiment through weekly surveys of U S. Moviegoers since the inception of COVID-19, 64%.
Of respondents are now, saying and they are a very or somewhat comfortable going to the movies and that figure grows to an impressive 86%. When respondents are asked about their comfort once vaccinated, we expect consumer sentiment will continue to rise in the coming weeks following the Cdc's revised guidance.
Last week that explicitly indicated it's safe for fully vaccinated people to return to indoor movie theaters.
And as this new compelling and as new compelling film content is starting to be released into the marketplace. We're already seeing how the impact of vaccinations and improved consumer sentiment is translating into box office success.
Over the past few weeks, we've witnessed Godzilla vs Kong significantly outperforming expectations and deliver the best opening box off results since the onset of the pandemic.
Those results were shortly followed by mortal Kombat, and demons flare, which together generated a new.
COVID-19 era box office record importantly, these successes came not only from advanced tickets, but also from a substantial amount of walk up attendance, which further underscores the growing consumer eagerness and confidence and returning to theaters when compelling content is available.
Yeah, and another encouraging sign we've been experiencing is the strength of our food and beverage business. Our domestic per caps have been running at all time high and excess of $6 and while we expect this level of spending will temper a bit as overall moviegoing rebounds, and stabilizes. We view these per cap results is a clear indication.
And a sizable pent up demand guests are demonstrating they want to enjoy the full movie going experience they've missed for the past year and they're actively splurging on food and beverage, particularly debt irresistible movie theater popcorn.
Collectively all the factors I, just mentioned are contributing to a steady trend of improving positive variable cash flow for cinemark. Since we started reopening our theaters in July we have consistently covered our incremental variable cost associated with being open which has led to.
Turning less cash with our theaters open and then with them closed. This achievement was accomplished through tailoring our business for the current landscape and includes streamlining and right sizing our operation tightly managing the fluid environment executing our strategic marketing actions offering unique products.
Such as our industry, leading cinemark private watch parties of which we have sold more than 235000 to date.
Resulting in over 3 million attendees, many of whom were returning to the theater for the for the first time.
And while we're not yet fully covering all of our fixed cost. We believe the enhancements we have executed to date the growing penetration of vaccine the resurgence of new film content and the strategic priorities. We are pursuing and 2021 will put us on a path to positive cash flow generation before.
For year end.
During our call last quarter, we provided an overview of strategic priorities for this year. These priorities are threefold first is continuing to effectively navigate the ongoing pandemic. This includes maintaining our stringent focus on cash and liquidity management as well as effectively executing our industry leading.
Health and safety measures that are part of the Cinemark standard and consistently earn guest satisfaction ratings and the mid to high 90 percentile.
Second is reigniting the exhibition industry, while we are carefully managing cash and we're also preparing for a significant wave of upcoming demand, which involves hiring thousands of new and returning employees expanding our operating hours and beginning to re and reintroduce our.
Enhanced food and beverage options.
I speak on behalf of our entire team when I say that is a huge reprieve to be taking these steps forward, particularly hiring back more of our team members across the country.
Additionally, we've been actively working on industry, an industry wide campaigns to welcome back movie goers to the theater, we were thrilled to see the first piece of these efforts come to fruition on the Oscars, a couple of weeks ago with and extended onscreen Psa promoting moviegoing.
And supporting the 150000, plus theater employees nationwide to spot featured some amazing footage of this summer and upcoming films. This campaign named the Big screen US back came together in collaboration with our studio partners NATO and P. A a talent agency.
C C a a and leading entertainment executives the big screen us back along with cinema week, our initiatives to rekindle theatrical exhibition and highlight the industry's excitement to welcome back guests to the immersive cinematic moviegoing experience.
Of course these campaigns will only work to the extent new film content is consistently available and we've been actively working on solutions regarding the theatrical release window during the pandemic to bring new content to the big screen.
As you May recall in November we announced an agreement with Universal which included a two tiered theatrical window that varies based on box office performance.
Today, we are extremely pleased to announce we have reached new agreements with all of our major studio partners to feature their upcoming films, including Warner Brothers, Paramount, Sony and Disney reaffirming our shared commitment to the theatrical experience and.
And that vein I hope you've all seen the Marvel real released by Disney on Monday, underscoring their passion for the theatrical experience with tremendous footage of upcoming Marvel movies over the next couple of years.
Additionally, we've also extended our test with Netflix to include our first wide release films, which we expect will be the first of many more films to come and we're the only nationwide exhibitor showcasing the film titled Army other debt and are thrilled to provide our movie goers to chance to see this movie and our theaters.
<unk> before its available to stream.
And our ongoing effort to maximize attendance and box office during the pandemic and beyond we're seeking to provide the widest range of content available with a green with agreements that are and the best long term interest of Cinemark, our studio partners moviegoers and shareholders. We are pleased.
With this progress and we believe they are positive steps towards reigniting, the theatrical exhibition and evolving the industry for a post pandemic landscape.
And that brings us to our third priority, which is evolving cinemark to remain successful and a post pandemic landscape along with our ongoing window discussions we are pursuing a wide range of initiatives aimed at implementing further cost efficiencies as well as identifying incremental sources of revenue just to highlight a few.
We're continuing to optimize our workforce management through a combination of new technologies and comprehensive labor models, including enhancements to our demand based labor budgets to take into consideration theatre specific attendance operating hours and amenities. We're also building new labor models for all aspects of.
Our theater operations based on productivity and time studies, we recently conducted.
We've had success with our workforce management initiatives to date, including the identification of labor saving areas with the ability to adjust assumptions for attendance levels and enhanced cleaning and sanitizing protocols. We're looking forward to reaping even more benefits from our workforce management program such as supporting new.
<unk> offerings and demand based labor budgeting on an individual theater basis.
The continuing rollout of snacks, and a tap our mobile and online concession and ordering service that allows moviegoers to order their food and beverages and advance will be fully available across our domestic circuit and the coming weeks guest feedback about this performance has been very strong and like so many other food.
And beverage enhancements, we've introduced over the years, we expect it will help us maintain our per cap growth trend well into the future.
Additionally, we continue to significantly advance, our digital and social marketing capabilities, delivering and increased volume of marketing campaigns and promotions via multiple channels. These campaigns provide a tactical cadence of strategic communication and seek to better leverage the data from our.
15 million worldwide addressable customers by delivering customized messaging and targeting these actions along with our web and App enhancements have been essential and the current environment and we believe these capabilities will be vital and managing through the competitive landscape ahead.
We're already realizing some early successes for many of these actions we've been pursuing during the course of the pandemic. This success as demonstrated by our box office results, which consistently represented more than 20% of the North America industry. During the first quarter despite cinemark occur.
<unk> for only 11% of the total screens operating which is significantly outpacing our historic results.
We expect that the full extent of this over indexing will subside a bit as theaters across the industry reopen and the competitive landscape fills out. However, we believe we will continue to retain and meaningful share of this lift.
We're highly encouraged and optimistic about the significant progress cinemark and the industry are making and that optimism is amplified by the film lineup that lies ahead in the coming weeks.
And the rest of the second quarter, we will continue to get things fired up with titles such as a quiet place two cruella black widow, and the Heights, Peter Rabbit, and fast and furious nine and.
And that leads into a second half of the year. It is loaded with blockbusters, including jungle cruise Venom Eternal hotel Transylvania for space Jam Free Guy Boss Baby Ghostbusters afterlife, James Bond and no time to dice suicide squad to Shang Chi and the legend of the 10 rings dunes.
<unk> and no way home and canto and the highly anticipated top gun Maverick.
2021 does remain a transition every year. However, we believe the industry recovery kicks into gear during Q3, and Q4 and returns to a more normalized year and 2022, which is stacked with mega movies from giant franchise titles.
<unk> Avatar Black Panther, Captain Marvel Aquaman Jurassic World Mission impossible, Thor minions Doctor Strange, John Wick, and Indiana Jones as well as a remake of the Batman and spinoffs, such as light year and Black Adam and this is to name just a few of these 2022 titles.
There is certainly a lot to look forward to as we begin the path to recovery.
Cinemark persevered through the pandemic due to our disciplined and operational excellence, both leading into the crisis and over the course of the past year, we remained agile pragmatic and savvy and and most turbulent environment and we will maintain that approach as we turned the corner to ensure we are.
And well positioned for ongoing success.
As cash management liquidity and re fortifying our balance sheet to its pre COVID-19 levels remain a key focus point, we're now elevating our our attention to capitalizing on the recovery of our business and capturing full value from a rapid acceleration and attendance our strategies and managing Cinemark route.
<unk> focused on the long term, which is in the best interest of our company our industry and our shareholders. Sean will now walk you through our liquidity position and first quarter results Sean.
Thank you Mark and good morning, everyone.
As Mark just indicated we were thrilled to be scaling up our operations as our industry recovers and we prepare for sizable anticipated demand with this summers upcoming lineup of new film content.
Of course, while we are ramping up we will continue to maintain a diligent focus on cash management and liquidity some.
Some examples of ongoing actions to do so include continuing to limit non essential operating and capital capital expenditures.
Pursuing additional deferrals and modifications to contractual payment obligations.
Actively working on initiatives that will yield incremental productivity and operating efficiencies and proactively managing our debt.
With regard to debt, while we estimate that we have sufficient liquidity to manage through the expected industry recovery. We did take advantage of favorable market conditions during the quarter to refinance our $400 million senior notes that were coming due in December of 2022.
In March we issued $405 million of new senior notes due 2026 that were exceedingly well received strong investor demand enabled us to secure a coupon of five and seven 8%, which was the lowest rate achieved by any high yield Entertainment company since the inception of the pandemic.
We also continue to actively pursue tax relief opportunities afforded by the cares Act, which resulted in the receipt of an additional $137 million of tax refunds in April.
We ended the first quarter with a cash balance of $513 million and as a result of these tax refunds along with some additional upside from our improving variable cash flow results and the other cash management actions. Just described our cash balance at the end of April increased to $645 million.
Our monthly cash burn during the first quarter was approximately $50 million. This is lower than the $65 million monthly burn rate, we projected last quarter as a result of four key drivers.
First our <unk> ending balance was propped up slightly by $9 million of new local borrowings received and Latin America.
Second the $65 million estimate last quarter was based on our operating results at the time, which continue to improve as the industry has started recovering.
Third we benefited from additional timing favorability with regard to real estate payments during the quarter that will balance out over the full year and.
And finally, our first quarter interest payments are slightly lower than other parts of the year due to the timing of our semiannual bond payments.
Looking forward as a result of improving market conditions to the extent todays current environment current operating environment were to continue we would now anticipate and average monthly cash burn of $50 million for the remainder of the year with a cash runway that extends into the second quarter of <unk>.
'twenty two.
That projection does not include any further improvements and operating results or additional financing options that remain available to us such as drawing down on our $100 million revolving credit line tapping incremental term loan borrowing capacity within our credit facility executing sale leaseback arrangements and unencumbered properties, we own or is.
<unk> equity.
All that being said, we expect our burn rate and runway, we will continue to improve as the industry rebounds in the coming months.
Moving on now to our first quarter results, we'd like to remind you that our reported financials follow accrual based accounting and therefore do not necessarily correlate directly to the timing of our cash flows.
Furthermore, as we've indicated in previous quarters since the onset of the pandemic, our traditional metrics continue to be somewhat distorted and the current environment.
Domestically approximately 90% of our theaters were open and operating at quarter end and first quarter total revenues were $97 $1 million driven by attendance of $5 2 million patrons.
U S admissions revenues were $48 5 million of which 20% was generated by private watch parties.
Our average ticket price of $9 25.
It was up 11% year over year as a result of lift from private watch parties. The recognition of deferred revenues associated with our free loyalty program and mix driven by fewer matinee and weekday showtime's that more than offset lower price library content.
Domestic concession revenues were $33 million with an all time high food and beverage per cap of $6 30.
As Mark outlined earlier pent up movie going demand is driving a heightened indulgence and food and beverage offerings that is boosting overall purchase incidents across our core concession categories.
We are especially pleased with the record per cap result, considering we're still running welcome back pricing discounts at various locations and we only offered a limited range of menu items during the quarter.
Similar to our domestic average ticket price. These figures also benefited from the recognition of previously deferred royalty revenue.
Internationally, our Latin American operations had a tougher quarter as search and cases of COVID-19 led to the re closure of several theaters across the region.
We ended the first quarter with approximately 40% of our theaters open and operating.
International revenues were $17 $3 million with attendance of $2 5 million patrons.
Globally film rental and advertising expenses were 41, 4% of admissions revenues, which declined over 200 basis points compared to the first quarter of 2020.
This decline was predominantly driven by lower grossing first run film content and was also impacted by library films that tend to carry more favorable terms.
Concessions costs were 18, 2% of concessions revenues and were in line with the 18, 3% figure we reported and the first quarter of 2020.
This quarter's Cogs rate included an adverse impact of spoilage associated with temporarily closed theaters that was offset by favorable product mix.
Promotional pricing, which has been very helpful and attracting consumers back to our theaters and stimulating incremental purchase incidents create a slight drag on these metrics as well.
Global salaries, and wages were $31 $2 million and declined 64, 4% year over year as our theater teams managed to continue to effectively operate with highly reduced hours and staffing.
Facility lease expenses of $64 8 million were driven by the fixed nature of our rent commitments, however were down $17 $4 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.
Worldwide utilities, and other expenses were $49 $1 million and declined 51, 1% versus <unk> <unk> 'twenty.
While several costs within this expense category, such as credit card fees and commissions paid to third party ticket sellers are 100% variable others like property taxes and property and liability insurance remained fixed still.
Still other expenditures, including utilities and repairs and maintenance have a blend of fixed and variable attributes and had been increasing as our theaters have continued reopening.
And finally G&A for the quarter declined 12, 4% to $35 $9 million driven by the impact of our recent restructuring actions and reduced discretionary spending associated with our ongoing efforts to limit non essential operating expenditures.
Collectively our worldwide adjusted EBITDA for the first quarter was negative $92 million and we posted a net loss of $208 2 million.
Capital expenditures during the quarter were $17 $7 million of which $2 $3 million was associated with Newbuild projects that had been committed prior to the COVID-19, pandemic and $15 $4 million was driven by investments and maintenance and our existing theaters.
We continue to estimate spending approximately $100 million on full year 2000, and 'twenty, one capex with approximately half of that deployed to previously committed newbuild projects that were mostly delayed from 2020 and the remaining balance driven by maintenance safety and compliance needs.
While our expected maintenance expenditures remain highly reduced from historic levels. We are fortunate that our consistent investments in the proactive upkeep and enhancement of our theaters over time have positioned us to sustain a period of reduced capex without hindering our asset quality operations or guest satisfaction.
These types of prudent capital allocation decisions have driven the strength and stability of our company for years.
Furthermore, a big reason why we have been able to navigate the pandemic. So effectively is because of the financial strength, we carried into the crisis on account of disciplined capital management strategies.
To that and re fortifying our balance sheet to its pre COVID-19 standing will remain a priority as we drive our business forward and devote significantly greater attention to recovery growth and fully capitalizing on increasing consumer demand.
And Italia that concludes our prepared remarks, and we would now like to open up the lines for questions.
At this time and if you would like to ask a question. Please press Star then the number one on your telephone keypad again Thats star one to ask a question.
And your question press the pound key.
We'll pause for just a moment to compile the Q&A roster.
Yeah.
Your first question is from the line of Alexia <unk> with Jpmorgan.
Hi, Thank you and thank you very much.
And now the agreement that you announced a debt.
Or be kept confidential, but I was wondering.
If there's any more you can share with us about maybe the length of the agreement shall we assume that you know that.
This will no longer.
Good day and date, I mean, they'll be nekoosa is theatrical window.
Hum and.
I guess anything you could share with us would be great. Thank you.
Thank you Alexia.
As we mentioned there's five different deals here each one of them is different and unique some go for multiple months of them go for multiple years and I can't really go into the details of any one of the specific ones, but we've tried to have them be meet.
Meet the needs and the goals and objectives of that particular studio and us.
It began with universal.
As I mentioned, which was which was completed several months ago and then over the course of the last <unk>.
And 60 days, we've completed the others with the other four but we've never gotten into specifics on and deal terms and I feel like we can't start at this point.
Okay, and then just do you think the optimism and the reopening and the the.
Current trends and I've seen.
Relatively favorable do you think we're at a point and our studios have stopped shifting their movies around.
Current schedule is is really debt and then just one last question if I may.
Snacks.
And a tap is there any sense of how much savings that could potentially offer you guys longer term.
Okay, I'm going to deal with the first question and channel once you deal with the snacks and to tap.
Relative to the content lineup.
I would say this I would say that the studio lineup for the remainder of this year and into 'twenty. Two is absolutely a solidified that does not mean, however that there won't be a title here or film there that gets shifted removed I mean, that's been the nature of the Beast.
For the 30 years that I've been in this business I mean release dates always shift around and move and in today's environment with <unk> and streaming it's going to continue but what we've seen is that the vast majority of these titles now look like they are in their slot and it's.
It's a difficult job with the studios have to do because they've got their master schedule and they look at it and depending on when that movie is going to get done is it going to be delayed to the app to shift and so sometimes that causes it and if a studio makes us shift because of our production delay will then it it affects somebody else when they moved out.
Another spot so I don't I don't think we can assume that theres not going to continue to be some ebbs and flow relative to the release schedule, but but by and large we feel very confident about the strength of the content for the second half of the year and leading into 'twenty two because there's been so many movies.
And that have had the delayed along the along the way studios are very anxious at this point to get them out and they've all kind of locked into their key spots.
And with regard to your question on snacks and us tap to start I'd say, we're we're incredibly encouraged by what we're seeing already and the very early phases of the rollout.
We look at the platform more as a revenue generator than a cost savings I think your question was on you do we anticipate efficiencies and if anything the efficiency is just more and the consumer side and let taking friction out of the system that allows them to preorder their food allow us more speedy.
Access to their their purchases when they get into the theaters. So we look at it as a way both to drive upsell opportunities as a way to take friction out of the system for the consumers and as a result of that a way to further boost our food and beverage sales less so as us.
Cost savings opportunity.
Thank you very much thanks, Leslie thank you.
Your next question is from the line of Ben Swinburne with Morgan Stanley.
Hey, good morning.
Maybe just to take another swing and Alexia its a good question on the new agreement I don't know if its possible guys, but if you look to 2018 and 2019 results and apply sort of these new agreements would we noticed any discernible impact I don't know if its.
And a lower attendance, but higher higher gross margins from lower moving splits or anything you would when you think about the long term impact of these agreements and how the movie business and.
The terms change post COVID-19 debt.
Might be material and maybe the answer is you don't and and <unk>.
And it all comes back to the original drivers of the business, which is content and the consumer.
Ben Thanks for the question.
I think the Big picture response to you there is I wouldn't look for any significant change relative to <unk>.
Splits.
What we tried to do with each one of these us to look at the desires and.
Of each individual studio and each one has some various priorities and their particular business and we tried to adapt our our deal with each one of them too.
To make that work for them and for us, but at the end of the day when we're looking at what do we think our film rental will be on an ongoing basis to answer. Your question I don't think theres going to be a material difference in and how it movie would split the overall box office.
A little give and take here and and some ebbs and flows but when you add it all up and you look at the portfolio of movies across all the various studio partners that we have we tried to just customize each one of these deals to meet their needs and also meet our needs and we think that there won't be a material difference relative to the box office splits.
Okay.
Got it and then just to follow up.
You mentioned Mark that you think there's potentially more to come with Netflix and what can you tell us about the keys to getting to yes here.
Is this an exclusive arrangement with the cinemark.
Wide releases.
Army the debt looks really interesting, but maybe you could just tell us a little more about your expectations.
And it starts with as you likely remember we tested a couple of Netflix titles Christmas Chronicles two was probably the largest of them.
Late last year, and so that was the beginning of it but those were and three four or five market tests.
And the difference for army of the debt is we're doing at circuit wide where.
We're the we're the only one of the large three circuits.
And are doing this on army and the debt and we anticipate this to be first of many we have a very strong relationship.
Our film team with Netflix and also up through the executive ranks.
And we believe that this one will be the first of many to come Netflix has got some great movies.
Theyre filmmakers.
And talent want to have a theatrical exposure and so we're going to find a way through various testing to be able to do that and sometimes it will be a <unk>.
Window, sometimes it'll be a little bit longer window, but.
We're going to we're going to find a pathway with Netflix and hopefully with other streamers as well to be able to showcase some of the higher end product that theatrical would help show off and therefore create more value for the streamer, because it's had a significant theatrical exposure, which clearly helps and the consumers.
And when they're looking at what do they want to watch.
Yes, it makes sense. Thanks, so much.
Your next question is from the line of Eric Wold with B Riley Securities.
Thank you good morning, a couple of questions. If I may I guess I guess, one you talked obviously about the favorable trends you're seeing on concession purchases, while the reopening and maybe a little bit on the kind of the movie going trends and maybe going behavior.
Such as you and visitation trends during the week versus weekend.
Shift towards XD Pls and these films.
Films and and your views on.
Whether these trends can hold and are more fully open environment versus behaviors.
And the early stages.
The thing that we found it and this.
And this wasn't excuse me Eric.
This wasn't just.
During the pandemic, but it held true during the pandemic and that is clearly Youre Friday night Saturday and Sunday or are your best days with the exception of Tuesday, Tuesday, which has always been our discount day continues to be a very strong day as well. So so no real significant changes there one thing that.
We have continued to see is that when we put on sale a movie.
Ahead of time, especially a high profile movie usually the first tickets that sell out the most our XD screens and thats very advantageous for us and content providers, because typically we're getting about a $3 upcharge for the <unk>. So the investment that we did and our 250 plus X. These around the <unk>.
World has clearly paid off and.
And and we think it's going to continue so so I wouldn't say, there's been any significant change, but it is confirmed and us.
Debt, having strong ex the large format screens is important and also that we need to have significant variable pricing so that you.
You can get your full price and and maybe even a little upcharge, sometimes on a Friday and Saturday night, but also allow us to more value oriented consumer to be able to come for a lower price on Tuesdays.
Got it and then secondly on Latin America and obviously.
Struggling right now and I guess.
What are your views on the timeline of Latin America, especially Brazil recovery versus the us given what they're going through and any conversation with studios in terms of their thoughts on possibly delaying title releases down and that market.
Greater than what they may have done previously and versus the U S.
I'll take that one Eric.
And clearly.
Latin America like several other parts of the world have been struggling more on account of just not as ramp and a rollout of vaccinations.
We're looking at the region is probably two to three months behind where the US is right now and not too different from where they've been.
And throughout a good chunk of the pandemic just on account of the.
And the state of vaccinations, and there's going to take a little bit of time to both bring the current issues in line and then get vaccines more quickly disseminated good news is.
The interest or the desire to get vaccinated in the region is extremely high and surveys I think is places like the U S start to reach a critical mass you already seeing talk of vaccines being disseminated more widely to places like Latin America. So we think it will catch up.
With regard to your question on the release timings.
The good news is we don't anticipate that impacting kind of global releases right now and releases and the U S. However, certain titles have been shifted in the region.
In Lat am already so certain things.
Like crudes, which are.
Released obviously last year in the us that has yet to be released and places like Brazil, Argentina, Peru and Chile.
Sing too which is set for the end of this year isn't going to happen until 2022 at least at this point in Latam. So there's things like that that have kind of shifted some of that isn't atypical because part of that is also related to just holiday calendars and seasonality in those markets, but I do anticipate that you will see some delays in.
And those different regions on a cat at the state of the virus that may ship more than you would typically see relative to the U S.
Perfect. Thank you both.
Okay.
Your next question is from the line of Robert Fishman with Moffett Nathanson.
Hi, Good morning, I'll take another shot at the New Studios agreement, even understanding you can't speak to the real specifics, but should we now assume that there are terms for a full slate for each studio where are the terms.
Still negotiated on a film by film basis, or said differently, if a major tentpole.
It is currently scheduled to for us theatrical exclusive window and that happens to switch to a day and day to earlier window release does the studio need permission or is that incorporated within the framework of these deals.
Robert again.
Each deal is different and unique so it would be imprudent for me to make any any overall statements and us.
As you as you know and probably most of the people on the phone know.
Typically we would not typically we license movies from the studios on a studio by studio basis, and they operate underneath and overall typically a scale deal and depending on how that particular movie does on the scale is is how we split up the box office now Theres. Some theres some individualities on this and there is always going.
To be studio by studio, we're not going to go into that it wouldn't be appropriate for us to do that for multiple reasons. So so what we've really done here is in the midst of all of the changes going on all the testing of PV O D and streaming and and <unk>.
Typical and.
And more traditional we've solidified.
Five a deal with each one of the major studios. So that we're confident we have a deal going forward with each one of them.
And length of time on each deal varies a little bit so again, I can't make a Blake and statement.
And Sean do you want to add something the only thing I would add Robert to that is and I agree.
And with everything Mark said.
The kind of goal if anything was to provide a little bit more flexibility and.
And have terms that kind of match that flexibility similar to us scale type structure. So I was just kind of say that was as Mark said everything was unique it's different studio by studio, but that's kind of one of the themes that we were aiming to achieve and and coming to <unk>.
Benefits that are in the best interest of both the studios and Cinemark.
Okay got it and how should we think about the ongoing efficiencies of staffing levels and operating hours as you've experimented with different different outcomes, there and the second half of the year and and what does it mean for margins when attendance levels go higher.
Well, we've become very adept.
Not that we werent before the pandemic, but more so than ever at flexing our hours flexing our staffing.
It's been one of the key focal points of.
Our operating team during the course of the pandemic just to get that right to be able to operate with positive variable cash flow. So we're going to continue to maintain that discipline as we ramp up.
One of the things we're going through right now is trying to appropriately balance our staffing with and.
What we expect us going to be a surge of attendance coming back and.
We think as Mark indicated in his prepared remarks, and it's one of the productivity initiatives, we've been working on as a way to to derive some additional margin benefits going forward when we get to a more stabilized level. It's something we had already started working on ahead of the pandemic and we saw early signs of benefits at that point and we think it's going to be that much further it can.
And really put us as a firm number on that at this stage, but it's definitely part of and overall program of cost efficiencies that we and working on and I think we've we've developed some new controls and new techniques that are going to continue to benefit us going forward.
And if I could squeeze one last one how are you guys approaching shutting down theaters and screens.
This quarter and 71 screens closed and the U S. So just wondering how what's the strategy there is going forward on <unk>.
Openings and closings.
Well in terms of openings. We've we just opened a brand new theater last month, we got another one opening before the end of the year, we have four brand new theaters opening during calendar year 'twenty. One obviously these were committed pre pandemic and we continued along the line. So so we're very excited about the four new theaters and we have <unk>.
<unk> relative to closing we closed a very small number of theaters, both domestically and internationally. It really is part of what we would do each and every year as leases come to their conclusion.
And maybe that we've had that theater for 15 2025 years that come to the conclusion. If we think the theater is at a point, where it's had most of its useful life, we won't renew the theater. So we've closed.
Less than 5% of our theaters on a worldwide basis, and and any typical year, we might close two or 3%. So it's not a whole lot different than what we've done and in any other year. This year, just has slightly more but not a material amount.
Okay. Thank you both thanks Robert.
Your next question is from the line of Alan Gould with loop capital.
Good morning, and thanks for taking the question.
Couple here first I missed a little bit of Eric So I hope I'm not repeating anything you said, but.
In terms of Disney Shanghai on your website I don't see black widow on the website and I assume that black widow is covered and whatever Disney deal you have.
Yes. It is yes, I'd be very surprised I havent looked this morning, but I'd be very surprised.
If it's not us.
It really comes to US we probably haven't we haven't started selling tickets yet but in terms of our.
Pre awareness, we vary all kinds of titles well into the into this summer. So you may have seen one screen that didn't have it and you look at it a day from now and will be on there, but we haven't started selling tickets, yet, but thats because disney hasn't allowed any exhibit to start selling tickets yet for black widow, okay.
And Mark it's nice to see the 137 million tax refund in April to Big number is that pretty much the bulk of what we should expect for the year in terms of tax refunds, and Sean and Mint and I'll, let Sean take that.
It's certainly the bulk of what we received.
Last year and then in April we do anticipate another $30 million or so towards the end of this year.
Related to our 2020 filings. So we think there's a bit more refunds still to come but the bulk has been received.
Good to hear us.
And last thing Mark anything you can talk about on the M&A environment I mean, there had been some high close.
And I profile closures and the industry.
And you certainly have the liquidity is there any appetite for M&A.
Alan.
And that Hasnt changed at all the answer to that is yes.
I think Sean and I, both said and our comments that we're continuing to be.
Relative to our liquidity and rebuilding our balance sheet, but that does not mean that we're not looking at every potential opportunity that comes alive. So.
<unk> heard about it and the marketplace I promise you we have two and we're actively looking at all the potential deals and we're going to evaluate them with a sharp pencil like like we've always done and.
And where we think it makes good.
Long term.
And for our shareholders, then we will step up and and and.
And and potentially move forward, but there is no mandate to go do M&A, it's more of just opportunities as they arise and we're looking at every single one.
Thanks for taking the question.
Yeah.
Your next question is from the line of making Dunkin' with credit Suisse.
Hi, guys.
Mark I think and your statement.
Prepared remarks, he said that 64% of debt.
And the us have reopened and.
What is your sense of where that will go over the next few months I'm trying to get a sense of the outlook for how many screens are going to be closing permanently and the U S. Here and then on the Netflix arrangement.
And I'm interested if youre, if youre going to be the only circuit there they're doing this with you know what attracted them to cinemark is it something about your footprint, where you know Netflix penetrations are lower or is it your circuit, because it's just and in better shape.
Were you were going to two.
Replace all of the cameras.
Pre COVID-19 is that something that attracted them that youre, just sort of taking care of your theaters better than than your peers. Your experience is better what can you say about that.
Meg and I can take the Netflix one first I want to make sure that.
Haven't given the wrong impression on this particular movie we are the only national circuit debt.
And Thats doing army of the debt that doesn't mean that in the future Netflix wouldn't do deals with other any other circuit across the country. So it is only on one particular movie and I think.
The attractiveness of Netflix to us and us to them. It's just that we've been open to.
Looking at some creative opportunities and we started testing late last year and as I mentioned and so but I don't think this precludes to say that Netflix won't do deals with other people I think it's likely that they that they would.
And it's our anticipation that we'll continue to test with them and go forward. So it's not an exclusive deal on a go forward basis. It was an exclusive deal and it's not even exclusive there's lots of other exhibitor smaller and midsized exhibitors that are also playing army and that we do.
Just happened to be dealing and nationwide circuit is playing army. So so I hope that clarifies that for you.
And in regards to theater opening I think what I said was 60% of the industry is currently open and 98% of Cinemark now how far does that 60% growth too that's hard to say because no. One has made announcements that they are going to permanently close other than a few here and there and even the ones that are.
Gone into bankruptcy.
There's already been a couple that have come out of bankruptcy and our operating and only a portion of their theaters or are not going to be opening up. So I would expect debt when everything settles out you know the government has come in and supported mid size and small exhibitors with some significant financial support.
I would expect that theres going to be a lot fewer theaters closed than what one might have thought three or four or five months ago.
Right and the.
The worst part of the pandemic when the smaller exhibitors had not been given clarity to the financial support that the government, we're going to put forward.
And again.
Again, I can't I can't give you a number early because no one knows I mean, we don't know no one else knows until then until in fact, they don't open up but I think it's not going to be a gigantic number and the United States.
Okay got it thanks.
Thanks, Mike and.
Our final question is from the line of Eric Handler with MK and partners.
Good morning, and thank you for the question couple of questions for you first.
With regards to concessions and I Wonder if you could talk about what's changed on the margin.
Now that you've gone.
Completely to are mostly too.
Prepaying and advance and versus what happened.
Pre pandemic.
What is where are you seeing that people are what are they buying now that they weren't necessarily volume.
Net income for ups.
I'll start and then maybe mark will add some more to that Eric I think one of the big things and Mark indicated in his prepared remarks, I mean, one of the things. We think is happening and driving a lot of just the uptick in sales is people have been deprived of the experience for a while and they hadn't been back to.
The theaters and when you come in they're kind of go and all out and they want to fully indulge themselves in.
Mark said, particularly the popcorn and ever.
We have to offer.
If anything from a mix difference, we're not offering the full menu that we had before.
And to manage risks of spoilage.
Simplify things as we're bringing a bunch of new employees into the theaters. So we've got more of our traditional core popcorn and coke and candy concessions in the theaters. So we've got obviously a greater mix of that.
With regard to.
The online purchases I wouldn't necessarily say there is a huge shift if anything again, we're seeing incremental incidents and larger baskets, but we're seeing that both online as well as with our in theater purchases. So we think that again is a phenomenon and people just returning and these early days and kind of over indexing on their.
<unk>.
We will see our aim will be to continue to drive that forward on an ongoing basis, we suspect some of that will stabilize.
We think that's really the biggest driver and.
Again, as I mentioned earlier with snacks and attack, we think we will be able to use that platform to hopefully continue to drive ongoing growth and our food and beverage sales upsells and make it just easier for consumers with reduced lines and reduced weights and and being able to reorder what they've done before just makes the whole process easier and that could.
And that could supplement some of the purchases with incremental buy.
Got it all right you got it.
Great and then just two and a follow ups first with your subscription service.
What's the plan.
And to reinstate.
That service and what sense do you get from.
And your prior subscribers that there'll be coming back and then lastly.
Latin America do you expect to get any type of government subsidies that might help you out with your cash position.
I think in particular Latin America, one first and then we'll end with movie club and Latin America, we've gotten governmental support through our various.
Loans and and modest subsidies.
It varies by country and so our local general managers have been extremely adept at.
At getting the benefit of any particular.
Loan.
Or government.
And so they could get and it's been one of the reasons that we've been able to continue to operate there as efficiently as we could and the one thing about Latin America as well as it is that.
We were able to keep on board.
The vast majority of our employees because the government was supportive and doing that so that was probably one of the most significant things that we got.
Relative to movie Club movie Club is right now.
And process of what we would call kind of Relaunching, we had paused all of our movie club memberships when pandemic was at its height.
And so everyone's still remained a member, but we stopped charging and everyone on a monthly basis, they could still use their benefits they could come us the credits that they still had them, but what they werent, adding new credits and therefore, they werent being charged a monthly $10 fee.
In the coming 90 days, we're going to do a phased approach to to bringing those people off of and unplug situation and on back to and active movie club membership. So what I'd say on that is stay tuned and we've got a very strategic and detailed plan.
To bring to bring as many as possible of our 950000 member.
Members are back online and go go from and a pause position to an active position and we'll be we'll be we'll begin to do that during the month of June and forward from there.
Thank you very much.
Thanks, Eric Thank you Eric.
We do have a question from the line of Jim Goss with Barrington Research.
Okay. Thanks for squeezing me in.
Just a couple of things one is I have been at some concern about the.
The ability to have smaller films complementing the blockbusters and I'm wondering if the new studio agreements and the relationship with Netflix addresses debt or is that net not necessarily and issue in terms of breadth of product.
Jim Thank you for the question.
Specifically none of the deals.
Deal with that however, we think that the current environment of the way that we license movies.
We will continue to encourage smaller films to have the opportunity to play and our our screens. We've got we've got a lot of screens.
And we have a lot of.
Opportunity to not just play the blockbusters, but also we want to encourage smaller films and some of these films may only play for US a shortened period of time.
As a launch platform for further aftermarket, but no. We are we are going to actively look for alternative content for smaller films for artistic films as you as you remember I'm sure we have a whole emphasis of art films and many of our theaters actually specialize in that.
And so the commitment to the small and medium sized films has not gone away or been diminished because of our five studio deals.
Okay, and maybe one just final mark.
Broader question.
Wondering what you think would be the most striking changes post pandemic.
And as they might impact your financials.
Striking changes that might interest in terms of it could be just the reduced cost structure that enables us to be more profitable and lower global box office levels or anything else you think people would notice.
Jim I don't think there's one particular thing I think we've hit on a number of those whether it be Sean talking about snacks and to tap as a way to increase revenue or how I talked about some of the efficiencies.
Debt that we're looking at putting in place and that we had the opportunity to do two.
How aggressively we will continue to market to the consumer both in the digital world and the social World Movie Club movie Club relaunch. So I don't think there is one particular thing that's going to drive other than the whole accumulation of things that we talked about on this call.
Alright, Thank you very much okay. Thanks, Jim.
And there are no further questions I will turn the call back over to Cinemark for any closing remarks.
Thank you very much we really appreciate all of you joining us this morning.
For our prepared remarks, and the active Q&A. Thank you for that we look forward to speaking to you all again following our second quarter. Please all be safe be well talk to you soon.
Bye now.
This concludes cinemark first quarter earnings call. Thank you for your participation you may now disconnect.
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