Q2 2021 Cinemark Holdings Inc Earnings Call

[music].

Good day, and thank you for standing by welcome to Cinemark.

Third 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 to ask a question. During the session you will need the press star 1 on your telephone if you require any further assistance press star Zero I would now like to hand, the conference over to your speaker today, Chad and the brochures.

Senior Vice President of Investor Relations. Please go ahead.

Thank you Stephanie and good morning, everyone. At this time I would like to welcome you to Cinemark Holdings, Inc. 's second quarter 2021 earnings release Conference call hosted by Mark Zoradi, Chief Executive Officer, and board of director as well as Sean Gamble, President and Chief Financial Officer.

In accordance with the Safe Harbor provision of the private Securities Litigation Reform Act of 1995, and certain matters that are addressed 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.

The 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 for the most directly comparable GAAP financial measures can be found in today's press release within the company's quarterly filing on form 10-Q or on the company's website investors dotson of Mark Dot com.

And 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 remain healthy and well. We appreciate you joining us to discuss our 2021 second quarter results.

I'm pleased to report the following the start of the ramp up of our industry and business and the first quarter. The recovery is for craft has progressed at a faster rate than we expected during the <unk> in fact, our recovery improved so significantly during the quarter that our domestic operations delivered positive.

Adjusted EBITDA for the first time since our theaters were forced to temporarily shut down last year well ahead of the.

Well ahead of the pace, we were anticipating even when we met last night.

Our domestic adjusted EBITDA recovery was propelled by a resurgence and our attendance that grew by almost 200% compared to the first quarter results as Covid cases became more contained a wider array of commercial film content became available and we were reopened and we reopened the entirety of our domestic circuit.

Furthermore.

We continued to see our domestic average ticket price and food and beverage per caps again reached new all time highs.

Most of these results benefited from significant pent up demand as our movie goers eagerly indulge and concessions and premium formats. Upon returning to our theaters. They were also boosted by our ongoing innovation and strategic initiatives that aim to simplify the buying process as well as capitalize on upselling opportunities.

Such as our recently rolled out snacks and of tap online ordering platform.

Additionally, we resumed our pre COVID-19 outperformance trend and substantially over indexed the North America industry box office, despite representing only 12% of the total industry screens Cinemark second quarter, North America industry box office market share with <unk>.

<unk> per cent again significantly surpassing our average of slightly less than 13%, while we expect our market share will continue to become more normalized in the third quarter as Canada fully reopens, we will remain aggressive and our tactics to maintain a meaningful portion of our market share.

And growth.

1 of our strategies to maintain market share growth is our unique industry, leading transaction based subscription program movie club, we have now reactivated billing with 2 thirds of movie club accounts without a significant impact on our overall membership base, which remains at more than 950.

50000 members and is consistent with the figures we reported prior to the pandemic.

Turning attention to our international footprint for a moment, while Latin America continues to lag the U S by 2 to 3 months considering the status of the virus. We also started to see our international operations turned the corner during the second quarter as Covid cases started falling across the region with vaccinations, becoming more widely available.

<unk> by.

By the end of the second quarter over 75% of our international screens were open and operating and that figure now exceeds 95% as of today. Furthermore, all data points and financial metrics are trending and the right direction with all countries nearing positive adjusted EBITDA results even in the <unk>.

<unk> of reduced capacities and restricted operating hours to that and like the U S. We actually generated positive adjusted EBITDA and selected countries during the quarter.

And on a global basis, we continue to more than cover our incremental variable costs associated with being open as we've consistently done since we began reopening more than a year ago. Importantly, we are approaching positive cash flow generation, which we expect to achieve before the end of the year based on.

The second quarter's trajectory.

That said, we've consistently stated the rebound of the theatrical exhibition is contingent upon 4 key global considerations 1 of the status of the virus and vaccinations to government restrictions 3 consumer sentiment and for availability of new film content.

While we are closely monitoring and the status of the Delta variance and rising COVID-19 infection rates, we remain confident and the resurgence of the theatrical exhibition business as the viruses contained we have witnessed that phenomenon and other parts of the world and have now experienced firsthand and our second quarter results here and the United.

<unk>.

Beyond these near term recovery drivers, we believe numerous factors bode well for the long term health and stability of theatrical exhibition to start theatrical moviegoing provides of premium out of home entertainment experience that people simply love. We repeatedly received that feedback from our guests, particularly as the return to cinemark.

The theaters for the first or second time since the pandemic. It is simply the best way to view content.

Watching a movie and our big screens fully immersed without distraction and with the heightened sight and sound technology creates of shared cinematic experience and emotional connection with content that cannot be matched anywhere and.

And the blockbuster content coming during the balance of this year and next is truly outstanding with something for everyone for families. We are seeing 2 hotel Transylvania and Disney's and conto for superhero fans, we have marvelously tunnel and Spider man and new way home and for action seekers, we of James Bond and no time to die.

Ghostbusters matrix for and the long awaited return of Tom cruise and top gun Maverick and the films I. Just named are all in this year's fourth quarter. The film slate in 2022 is full of blockbuster titles with broad consumer appeal.

I recently listened to a podcast and which we're now the film producer and director of J J Abrams made a statement that really resonated with me and I thought it worthwhile to share with you today, He said and I quote you can see a movie at home, but you can only experience it and a movie theater. He went on to add debt there is power.

And there was there a tower and of memory that has been made and a movie theater that you just don't get when youre sitting at home.

We cannot agree more of this embodies this statement and bodies of the premium out of home entertainment experience that is unique to the cinema and has not changed even as in home delivery technologies have advanced over the years.

Beyond the premium consumer experience theatrical releases also remain a key contributor and differentiating content building brands and maximizing profitability for the studios over the long haul historically theatrical exhibition has delivered approximately half of the films worldwide revenue on major releases.

Furthermore, as a significant portion of customers, who view movies and theaters subsequently consume them again at home. The content owners received multiple bites of the Apple with of windowed release pattern, which maximizes their profitability and because of the theatrical release provides a stamp of quality and truly event.

Kaisers of movie all additional distribution channels down the line are lifted.

These relationships and the results have remained consistent again and again over time as new evolutions of technology and distribution have been introduced into the home a successful theatrical release is complementary and additive to the overall content owners revenue pie and elevates the perceived value of the movie.

And subsequent release channels I continue to firmly believe and exclusive theatrical window is critically important to the overall media landscape and remain confident regarding the long term prospects for our company and the overall industry I am proud of the Cinemark team and all of <unk> accomplished both during the second quarter.

And throughout the pandemic, the agility innovation and perseverance enabled us to be opportunistic and the most challenging environment and continues to position us for ongoing success.

Before I turn it over to Sean I would like to take a brief moment to content to comment on the executive transition announcement, we made last week.

After the most amazing 6 years of my career I will be retiring from Cinemark management team effective at the end of this year and will continue to serve on our board of directors after committing more than for decades to this industry I am ready to shift gears, a little I'd like to devote more time to my personal interest and.

I'm looking forward to focusing my attention less on the daily operations and more of the strategic level, particularly through the 6 boards I serve on 2 of which are public companies, 1 private and 3 philanthropic.

The initial commitment was to serve as cinemark CEO for 3 years, and I have more and double debt and enjoyed every moment truth be told I. Initially planned to retire during 2020, but when COVID-19 hit I couldnt, possibly leave in the midst of the pandemic clearly we had no idea of how long would last or the lingering.

It would have and our industry and our company as the theatrical as theatrical movie going has shown signs of resurging and cinemark has consistently demonstrated its ability to flex and adapt and and ever evolving environment now felt like an appropriate time to formally begin this trends transition.

Well I don't think retiring from day to day is ever easy what makes this decision, especially difficult is the passion and I have for this industry and our company as well as my optimism regarding the resurgence and long term prospects of theatrical moviegoing I'll also greatly missed the frequency of interactions with industry relationships forged.

Across the globe.

The Cinemark board of directors take succession planning very seriously and we conducted a diligent and thorough process and ultimately determined that there was no 1 better to help guide and steer the company than our very own Sean Gamble, who you. All know is our chief financial Officer, and Chief operating Officer Sean.

And was promoted to president last week and will be named CEO and President effective January 1.2022, following my retirement share.

Shawn has been my right hand, and and amazing partner throughout the throughout my 6 plus years at Cinemark his background as the CFO of Universal Studios has been a tremendous asset to our company. In addition, his significant tenure at the General Electric company with his proven track record of strategic thinking vision set.

<unk>, leading change improving processes and driving efficiencies has proven invaluable to cinemark over the course of the past several years, but especially during COVID-19.

And as part of the succession planning I have been working with Shawn and helping to prepare him for quite some time now in anticipation of this announcement and to ensure a seamless transition will continue to work side by side over the course of the next 5 months beyond that I'll continue to serve as a member of Cinemark Board of directors.

I would now like to turn the call over to Sean and he will walk through walk you through our liquidity position and <unk> results Sean.

Thank you Mark and good morning, everyone.

I would first like to say it has been and absolute pleasure working with Mark These past 6 years and I'm grateful for all of the partnership mentoring and opportunities. He has provided me personally as well as the exceedingly positive impact. He has had on both of our company and our industry.

1 of the key reasons I joined Cinemark 7 years ago was because I thought there was just tremendous opportunity to further enhance differentiate and evolve the moviegoing experience, which is something I still think today and under Mark's leadership. We have done just that as Cinemark has continued to raise the bar set the standard and take movie going and our industry to the new.

<unk> level.

It's an honor to be named Cinemark next CEO and I look forward to continuing to work closely with our exceptional team and board of directors in of new capacity as well as having the opportunity to transition with mark over the coming months.

As I have been heavily involved and the development of our strategic plan and do not anticipate any significant deviations to our near term direction and initiatives, which will remain focused on continuing to effectively navigate the ongoing impacts of the pandemic and positioning cinemark for ongoing success and the evolving media and entertainment landscape.

With that let's shift to our second quarter financial results.

As Mark already highlighted with the complete reopening of our domestic theaters growth and the volume of new commercial film releases and improvements and the status of Covid Cinemark movie going experienced a strong rebound and the second quarter. This rebound drove a meaningful uptick in both of our financial performance metrics as well as our liquidity.

Position.

During the quarter, our cash burn reduce to approximately $25 million per month after normalizing for working capital timing benefits and of $137 million tax refund. We received in April which we discussed during our previous earnings call.

This reduction and cash burn represents $25 million of improvement compared to the projections. We provided in may which was based on the operating environment at that moment in time.

As of today, our average monthly cash burn has reduced even further to approximately $10 million to $15 million, including disbursements for capex interest payments and deferred rent and we expect that rate will continue to improve as our industry further rebounds.

We ended the second quarter with the global cash balance of $596 million and as of July 31 debt balance had increased to approximately $610 million.

This increase was driven by working capital benefits that were largely associated with the timing of July box office receipts relative to the film rental payments.

Based on our overall liquidity position and current cash burn rate our cash runway now extends well beyond the end of 2022.

Again that projection does not include any further improvements and operating results nor does it include any additional financing options that remain available to us such as drawing on our $100 million revolving credit line tapping incremental term loan borrowing capacity within our credit facility executing sale leaseback arrangements on unencumbered.

The properties, we own or issuing equity.

During the quarter, we once again took advantage of favorable market conditions and refinanced our $755 million senior notes that were coming due in 2023.

In June we issued $765 million of new senior notes due in 2028 with a coupon of 5 and 1 quarter percent of very modest increase compared to the 4% and 73 of our 2023 notes.

In conjunction with this deal. We also added 2 years of maturity to our revolving credit line.

Following these transactions our revolver maturity now sits at November of 2024, and all other significant maturities extend through March of 2025 and beyond.

Moving onto our second quarter results, we'd like to remind you that our reported financials followed of 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.

As our theaters were essentially shut down and the second quarter of 2020, we will compare our most recent quarter's results to <unk> 21, and <unk> 19 and select instances.

Domestically second quarter total revenues were $269.3 million driven by attendance of $15.1 million patrons that grew 190% compared to last quarter.

Admissions revenues were $146 million book.

Bolstered by an all time high average ticket price of $9 and 33.

Our average ticket price was up 15% compared to <unk> 19, primarily as a result of pricing increases and ticket type mix that included a higher rate of consumer upgrades, the premium formats as well as fewer matinee and weak day Showtime's.

Domestic concessions revenues were $99.4 million with another all time high food and beverage per cap of $6.59.

Our per cap grew 5% versus last quarter, and 20% compared to 2019 as pent up movie going demand continues to drive the heightened indulgence and food and beverage consumption across our core concession categories.

Our second quarter results also benefitted from strategic pricing initiatives and the reintroduction of various enhanced food offerings.

As Mark described earlier as the result of these improvements and attendance average ticket price and concession sales are domestic operations generated positive adjusted EBITDA for the first time since the pandemic escalated last year. This achievement is clearly a significant milestone and our companys recovery and we are so.

Proud of our incredible team for their relentless perseverance creativity and topnotch execution to make this happen.

Internationally, we also started to see an increase and recovery momentum during the second quarter as vaccines across Latin America became more accessible.

By the end of the quarter, we had reopened approximately 75% of our international theaters and market conditions as well as availability of vaccines continue to improve.

Second quarter attendance grew 60% versus <unk> 21 to 4 million patrons, which drove $25.3 million of total international revenues.

International adjusted EBITDA was negative $12.3 million.

Globally film rental and advertising expenses were 49, 9% of admissions revenues, which increased 850 basis points compared to <unk> 21.

This increase was expected and resulted from a higher concentration of larger more commercial new film releases combined with the phase out of library of content that tends to carry lower film rental rates.

That said compared to the second quarter of 2019, our film rental rate was still down 670 basis points predominantly due to reduced film grosses that skew lower on our film rental scales.

Concession costs were 17, 1% of concessions revenues and <unk> and were in line with our pre Covid and pre COVID-19 averages.

Global salaries and wages were $50.4 million and increased versus the <unk> 'twenty 1 as we opened more theaters and extended operating hours to accommodate the growing volume of new film releases.

While ramping up we maintained our strict focus on efficient staffing levels and held quarter over quarter salaries and wages growth to just over 60% despite of global attendance increase of almost 150%.

While largely fixed facility lease expenses of $67.2 million experienced a modest uptick relative to <unk> 21, due to a slight increase and percentage rent and common area maintenance as volumes increased.

Worldwide utilities, and other expenses were $61.2 million and increased 24, 6% compared to Q21, driven by variable costs that grew in line with volume such as credit card fees janitorial expenses and commissions paid to third party ticket sellers.

Other costs within this line items, such as property taxes and property and liability insurance remained largely fixed.

Finally, G&A for the quarter was $37.3 million and remained considerably lower than pre pandemic levels. As a result of the restructuring actions. We pursued in the second quarter of last year and our ongoing efforts to limit non essential operating expenditures.

Collectively our worldwide adjusted EBITDA for the second quarter was negative $11.8 million, which improved by $82 million compared to the first quarter of 2021.

We posted a net loss of <unk> of $142.5 million, which also improved by $65.7 million quarter over quarter.

Capital expenditures during the quarter were $15.1 million of which $8.1 million was associated with Newbuild projects that had been committed prior to the COVID-19, pandemic and $7 million was driven by investments and maintenance and our existing theaters.

We continue to anticipate spending a highly reduced level of capex and 2021 relative to our historic ranges with approximately $100 million projected for the full year.

Approximately half of this projection is associated with previously committed newbuild projects that were mostly delayed from 2020, and the remaining balances driven by maintenance and compliance needs.

Our consistent investment and proactively maintaining and enhancing our theaters over the years has enabled us to scale back our capital expenditures as we prioritize cash management without hindering our asset quality operations or guest satisfaction.

In closing as Mark touched on earlier theatrical movie going remains and unparalleled entertainment experience that is both loved by consumers and highly important to the overall media landscape.

We remain optimistic about the long term prospects of theatrical moviegoing or industry and cinemark and we are confident and our ability to flex and adapt as we continued navigating the COVID-19 pandemic, while positioning our company for ongoing success thereafter.

Stephanie that concludes our prepared remarks, and we would now like to open up the line for questions.

At this time, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad again that Star then the number 1 on your telephone keypad to ask a question. Your first question comes from the line of Eric Handler with <unk> partners.

Good morning, and thanks for the question.

Wondering if you could just give a little perspective.

On the cash flow from operations.

<unk> business is essentially.

And at breakeven.

Cash flow.

Doing well.

$269 million of revenue is that a good baseline to say things should ramp from here as revenue rises or are there other added cost debt could impact your cash flow generation and then similarly.

And what level of revenue do you need to reach internationally for for that segment to be.

For the breakeven cash flow.

Thanks for the question, Eric with regard to the U S. I'd say, yes, we think.

It's a good baseline based on what we're seeing in the current environment and is kind of Mark indicated in his prepared remarks.

The.

The trajectory where to continue going forward, we'd expect to hit positive overall cash flow for the business.

<unk> all of our fixed costs sometime during the second half of this year. So we think that things continue to progress and the positive direction internationally.

And Todd to give a specific revenue figure, but as we mentioned we had 2 countries that actually flip the EBITDA positive and the second quarter.

And that our performance. There also continues to improve so likewise, we think it's highly likely that if those trends were to continue.

Internationally as well, we'd be both and the positive EBITDA territory, and the second half as well as and a positive cash flow situation.

Thanks, and just as a follow up in Latin America.

Are you seeing a lot of countries.

Having curfews and.

How is that when you think about normal.

Normal homes.

How important are those late night.

Screenings and lab.

And America.

Eric This is mark.

And I wouldn't say there is limited and that's in any really significant way.

And Argentina, we of 100% of the of theaters opened it with very little restrictions.

Brazil, we of 95% of our theaters opened.

And again with only minimal restrictions and sometimes it's the last late show that has to get out but we don't we don't see these restrictions is really limited and that's what the.

The key thing here will be will be the continued vaccination, which we said is somewhere between 30 and 90 days behind the U S and and continued positive cash flow of along the way the only country Thats really not almost nearly opened up is Peru, where where we only have about 60% of that country opened up and there is still some restrictions relative.

To social distancing and and percent of of box office of excuse me the percent of auditoriums that can be that can be filled up.

Thank you very much.

Thanks, Eric.

Your next question is from the line of Chad Beynon with Macquarie Research.

Good morning, guys. This is Jordan Bender on for Chad. This morning. Thanks for taking my question can we start off by talking about pricing a little bit it seems like the U S pricing is running well above.

Pre COVID-19 levels.

International still lagging some of those levels and I was wondering I guess are you expecting to see kind of that catch up in the pricing from the international markets or is there.

Something whether it's government stimulus or something else that's impacting.

Better than expected pricing and the U S.

Sure.

We're going to have to see internationally. There is nothing that is government related regarding pricing and terms of any kinds of restrictions or anything like that.

Of that is just more of the competitive landscape and a piece of it was the amount of pricing actions. We had pursued prior to the pandemic part of what's driving our domestic pricing lift where price increases that we had enacted in 2019 that are now being fully annualized. This year. We've also seen in the USA a huge of.

Uptick and our premium format consumption, which is up about 300 basis points and as a percent of total box office, even without availability of <unk> content compared to 2019 per.

Premium content is also highly highly consumed internationally. So we do expect that as things get fully going we would likely we're likely to see a similar kind of uptick there that could boost the pricing a bit so more of that will be based on the competitive landscape.

I think also what we're seeing internationally now and the U S. We're kind of back to our full pricing.

Earlier on as we were kind of getting things going we had more promotional activity and more library of content and you still have a little bit of that impact happening in international as it still trails. The U S. By a few months as Mark mentioned.

Awesome and then you can add this.

Here at theaters open.

Here are you seeing any way.

Labor per.

Pressure or trouble finding work.

We're certainly having.

Pressures like I'd say the entire real estate segment is having with regard to what's going on with the workforce.

Most of those pressures have been just on our recruiting effort, which has become more cumbersome.

Thus far we've been able to continue to get largely the workforce that we've been seeking and we haven't seen a material impact on wage rates yet it's something we're going to continue to monitor 1 of the things that we're fortunate about is we tend to have a younger more seasonal workforce that hasnt been as of.

<unk> by stimulus money. These are students and high school and college, who are generally looking to work during the course of the summer and the holidays to be able to have money to take back to school. They like the flexibility of hours that we offer and they like the perks being able to get free movies. So that's an advantage we have as well as we're trying to.

The source workforce, particularly and the kind of peak periods.

Awesome, Thanks for taking the pass it off thanks Jordan.

Your next question is from the line of Alan Gold with loop capital.

Thanks for taking the question and I've got 2.

The first of all with your studio experience, how do you either mark or Sean.

You see <unk> release schedules working out when we get past the pandemic do you think it all comes back down to more of these 45 day exclusive windows.

And secondly, with the increasing Delta variant the.

Are you seeing more government restrictions or any changes in consumer behavior coming to the theaters.

Alan I would say this relative to.

The studios, it's actually very encouraging because.

We now as we announced on our last.

Call, we have redone our deals across the board and so as we as we look at it all of the studios, whether it's paramount or Sony or Universal or Lionsgate Warner brothers each of them have come forward and said that their release window will be somewhere the.

First of all it will be operating and exclusive release window and typically for the larger moving somewhere in the 30 to 45 day range. So we feel pretty good about that Warner brothers has come out very directly on that so has so is paramount and the other studios.

Disney has come out as well.

And express last time they.

<unk> had 5 pictures, we've released 3 of those had and in home.

The premium access day and date, but the next 2 free Guy and Chang Qi have 45 day exclusive windows for Disney has been very clear that they have been testing and learning they're trying to figure it out during this pandemic trying to offer of.

Optionality to consumers so that they can either in the home or or in theatres, particularly during this pandemic time and.

I think the thing that gives me solid sort and this is.

Bob Chapek their CEO has been very direct very clear.

The theatrical business was at $13 billion worldwide business for them that help setup franchises that helped the <unk> movies and was very important and their ecosystem notwithstanding the Disney plus isn't very important it clearly is and its been a company priority, but I think Bob and the other people. There have also recognized that the <unk>.

<unk> plays a really important part in it so.

At this point Disney still of that test and learn phase and I fully expect that they will come out of that with a very reasonable strategy going forward thats going to support both the theatrical business and obviously their in home business as well.

And then your second your second question was of the Delta Varian. Okay. So on that we've had very little at this time, our government restrictions and Theres been a couple of Los Angeles County is specifically 1 of them. We monitor it literally on a day by day basis, Many times of several times during the day.

So and Los Angeles County, there has been some additional requirements that we have of course adhere to right away and that was a of mass policy.

What we've done on a go forward basis like many other major retailers around the country. This week, we've reinstated a required mask requirement for all of our employees across the entire circuit that will go and that will go into effect on Monday.

So that's the first thing that we've done, but we haven't seen any new significant requirements of social distancing.

Coming back or.

Or.

Capacity limits, but here's the here's what I think is the key thing.

When the whole Covid crisis began we responded very very quickly and I think led the industry with the Cinemark standard.

And we came out with a whole set of protocols based on the data that was coming out of the CDC and then the when the CDC made their adaptation and said the most important thing is air quality, we pivoted literally almost immediately we converted all of our theaters to the Merv 13 air filtration on the HVAC on the <unk>.

<unk> system, we increase the fresh air coming from the outside as much as of 100% to 300%. So we're very nimble at being able to adapt and change on this and we've been doing it now for 16 and 17 months. Our theater teams are very adapted this so so we're ready to go.

And if and when we have to make further adaptations.

Okay, Thanks, and Mark Congratulations on your upcoming retirement, Thank you Alan I appreciate it.

Your next question comes from the line of Jim Goss with Barrington Research.

Thank you and good morning.

And the run rate for the second quarter.

The domestic admissions and concessions was roughly 35% of 2019 level to look at it that way, if that's sort of the normalized year and I'm wondering.

Even with the film slate you have for the third and fourth quarter, what do you think might be acceptable.

Minimum targets for Q3, and Q4 and that regard do you think there is a chance to get back to a 100% or would it be more of like an 80 or 85% by the fourth quarter and how would the flow into it because it seems like theres been a little bit more of a lag of getting into the.

The bigger numbers, even though obviously, the very well and the second quarter.

And then I'll follow up.

Jim I think what Youre asking please please let me know if I'm not answering the question you were asking.

Look we think that the box office is going to recover beginning it's actually obviously began and the second quarter, it's going to further and the third quarter. The fourth quarter as I indicated the lineup of films is outstanding and I didn't even go into the the lineup for 2022, we've done that before but I mean it is it is really outstanding.

And now the question is is the box office going to recover to the 100% or 90% or 85% I think I think that debt very hard to predict and guests against but I would put it. This way we are very very well positioned to be able to adapt to that too.

Make sure that our profitability returns to a level that is acceptable to us and and to our investors and we're just going to have to see I mean, we don't know and.

And as the box office is going to return to a 90% level or and 85% level I am assured of this.

When people have the availability.

When COVID-19 is less of a concern to them and obviously, we've had a hiccup relative to the Delta variant that I think we will obviously work its way out in the coming months.

There is a big desire to return to the theaters and so.

As we look forward, we model our own projections.

And on several different on several different areas look we look it at 100% on the upside and we and then we project down several several different categories being being ready and willing to adjust our business as necessary.

Okay.

The other things if if you didnt get back exactly to where you would like to be on the box office level.

And do you think the theatrical business becomes viewed as more of a premium experience and what levers would you be more likely call would it be.

The pricing or are there other things in order to maybe make up for any box office steps of if you will you might have and then on a separate issue related to your comments about Mr traffic and what's going on with Disney.

And I'm wondering if you might comment and the piracy issue with regards to the early PV O D that might have actually.

And then.

2 of them in terms of the aftermarket.

And what maybe Sean will take the first question I'll take the second.

With regards to your question about.

And could theatrical become more of a premium experience of the articles Lord of.

That's certainly a possibility.

I think we still believe that.

The <unk> will continue to be very broad and its appeal to a wide audience and a wide array of different kinds of consumers.

And it clearly live and learn through that.

And to our ongoing pricing strategies, where perhaps there are some more premium pricing for peak periods and more variation in terms of.

Pricing, that's the continuous duty to.

And to kind of make it accessible I think 1 of the the important things that we think that is has been a driver of the business is number 1 going to the movies is 1 of those great activities that you can choose from when you are looking to get out of the home and number 2 it's 1 of the most affordable opportunities you have in terms of spending a few hours of your time.

When youre doing that so we're going to be sensitive to that but there certainly could be some potential. We're just going to have to see how things evolve with regard to how much of a premium experience. It becomes you know in terms of more and more of that premium versus broad with kind of premium up sell opportunities.

Jimmy and regards to Mr. <unk>, what I was referring to and I'm sure you noticed I was referring to comments that he's publicly made he has been very very clear that Disney's intention. During this COVID-19 time was to present, some flexibility and consumer choice so that the consumer had and.

<unk> to still enjoy their movies, whether they were comfortable going out to the cinemas or weather or whether they were not comfortable and then also I think he was very clear and had been very clear about the importance of theatrical and the the tremendous value. It's presented to the Walt Disney Company and how we see the continuing going forward into the future so I'm pretty confident.

And at about that and.

And the.

And I don't think Theres any kind of any major change in strategy there relative to piracy.

And as you know as you know Jim had been and this business of longtime and we've been fighting piracy, both on the studio level and the exhibitor level for as long as I can remember it used to be the piracy would come out of the out of the Asia.

Asia countries and then it started to come over to the U S and people with camcorders, we put big efforts in place from an exhibition standpoint to reduce anyone that would come into our theater with a camcorder and record debt and so the issue now is as if a movie has the potential to be in the home day and date.

And a digital copy as go into any of that home and potentially increasing the level of piracy. Because now you are introducing a new place to be able to pirate it from and I think all of the studios are obviously very concerned about this and doing everything they possibly can to reduce debt and then also.

Running their own numbers and considering what the negative impact is not only on their business of the studios business, but it also clearly effects.

A part of the partnership with Us because we're doing everything I can do everything we can to reduce piracy and if it is introduced and the home and that's starting to affect our business as well, we haven't been able to to come up with the hard and fast number to to put against that it's clearly important and something that is debt.

And as industry and industry wide issue for for not only exhibition, but also the content providers.

Okay and.

And because it's the perfect copy basically.

The eligible easily they don't even need to sneak and do anything like that and.

Does come out of your aftermarket your.

First Ron Mark because as well and of both our businesses.

Right so.

Thank you very much for your comments.

Thanks, Jim Thank you Jim.

Your next question comes from the line of Robert Fishman with Moffett Nathan.

Hey, good morning, Mark I'm curious as you start to look back over your tenure as CEO what are the biggest the accomplishments you're most proud of and are there any priorities you you'd still like to get done before the end of the year and then for Sean as you take over the CEO helm.

And standing that the near term focus isn't really going to change.

On the other stuff you've already laid out anything you'd like to share about your longer term priorities and how that might evolve from current strategies of cinemark.

Robert.

That's a very interesting question and 1 that that I'll certainly reflect on more of it as I sit here off the top of my head and I look back on certain things and say I am so glad that we were as aggressive as we were on reclining our theatres across the circuit and 16, 17, and 18 and Thats that's paid a lot of dividends for us and.

Doing so secondarily, we doubled down on the whole XD effort, which preceded me and its beginning but we've recognized the importance of of Pls and we've doubled down.

On that area as well.

And maybe third I would say.

What we've done and the whole marketing area and that's a big broad area and maybe I'll I'll just call out what we've done and loyalty with the complete.

Redo of our loyalty program and the launch of of movie club, which.

Was the first exhibitor sponsored subscription program and we're we're we've been very successful with it we've had a big success in and re.

And <unk> and all of our members as we come off of.

<unk>.

Of Covid and and as you know I think I said, we we still have 950000, plus members and we're back to billing more than 2 thirds of our customers and and it won't be long until all of our customers are now back on the rebuilding cycle. So I think all of those things kind of kind of.

Kind of add up and then maybe the final thing and it kind of wraps up into this is we've been very successful at growing our market share with only a minimal amount of tuck in acquisitions and of course, our new screens on our new builds have been have been important and that mix, but we we were slightly under 13%.

And market share and last quarter, we were 17% I've been very careful to always say that we don't expect that 17% to hold necessarily as all theaters across the U S and Canada open up but I think we will hold onto a meaningful share of debt of that market share growth. So I think.

The kind of kind of hits the some of the highlights.

And Robert you know for me as the kind of look more long term like obviously.

There's the near term just looking forward to getting past this pandemic and then refocusing on some of the key things. We are refocusing on before number 1 is clearly just continuing to take that phenomenon and movie going experience to the next level with new amenities new.

Visual enhancements, just all kinds of different ways to attract people to our theaters and then when they were there just give them a fantastic.

Exciting experience engaging with all different forms of content.

<unk> you just deepening that guest engagement, we have I think we're very very much still and the early days of all of our marketing enhancements that we kicked off over the last few years I think that really has the ability.

To take our reach more broadly.

Net deeper with our audiences and create a and extension beyond our theater walls to them.

Net debt, we just haven't really fully even tapped into yet and I think beyond that to looking for new ways. Just to continue to utilize the theatres that we have clearly our core is and movies, but there are other opportunities to kind of fill in and use those spaces, whether it's alternative content and we're actively exploring kind of the <unk>.

Gaming category. So there's lots of different things there that are ways that we can find synergies and opportunities that connect to our theaters debt that represent growth opportunities.

And Robert I would say just 1 last thing for me too.

As I look back I am really proud of the team that has been developed here. Many of those people were here when I came many of the many new people of also come but the team that <unk> got the leadership.

The leadership skills that he has I think we're extremely well positioned so as I look back.

And if I had 1 goal over the next 5 months. The goal is to just do everything and my and my power to help this transition and to help set up Sean and the rest of the company had big success and I think we're really set the <unk> is the absolute perfect guy to step in and the team around him is red is ready and is.

Ready to to go to go to some new heights, So I'm pretty excited about the team that's built and what I get to just participate and looking more from a strategic level.

And my Board involvement continues.

Okay.

And if I could sneak 1 more and just on the M&A given your financial flexibility and strength are there opportunities to benefit of some of these smaller private movie theater chains, and maybe start to explore other options.

Robert There always is and this this this question comes up quite a bit and we look at every deal that comes and it comes down the line and we evaluate it very carefully and I think we felt very good about of the small acquisitions that we've done and we feel very good on on passing on some of the larger opportunities that have come on.

And we passed on and so.

Right now.

Many of the smaller exhibitors.

Who may have otherwise had financial trouble have been given a lifeline by save our screens government funding. So I think theres less amount of that and 1 might have expected 6 months ago, but as opportunities come we will evaluate each and every 1 of them put them through the mill and if we think this isn't going to be a good investment for.

For our shareholders will have the ability to act quickly and move fast so.

As I've said, many many times before.

We're active in this space, but we're not anxious and this space.

Thank you Beth Thanks Robert.

Your next question comes from the line of Ben Swinburne with Morgan Stanley.

Good morning, and congratulations Mark on your tremendous career and for Sean.

Awesome opportunity and congrats to both of the incident.

Absolutely.

For either of you.

Mark as you mentioned you have agreements with the studios and those include what we've seen over the past few weeks and I know, it's really hard to interpret what we're seeing and the market.

And there are handful of films and it really bizarre period.

But there's been just a ton of press on trying to interpret the fade of black widow, and space jams and sort of the jungle cruise result.

What do you take from these numbers and.

Did we learn anything about the shortened window of that day and day about pizza hut.

None of that all of it how do you interpret these results for us.

Well first of all I think given the circumstances of the industry and the Covid variant and all of the publicity associated with that.

I think that opening up of movies like Black widow to $80 million is very very successful the run for fast and furious and again extremely successful a quiet place part 2 and I think that movie opened strong and continued to play and play and play So we've got to take it in the context of the.

And which were acting in and look there is no secret that debt cinemark feels very strongly that we would like and exclusive window and we're willing to adjust what had been the traditional exclusive window. Because we think it's good for our business and truly we think it's good for the for the entire business because we think it.

And it allows studios to then window there their revenue and allows consumers to actually purchase the same exact content and multiple formats, which benefits the content owners. So look we're in a very fluid environment. It's hard to say this movie was successful and that 1 wasn't but when you.

When you look at these past films that we've had I'm pretty darn encouraged on what's going to happen I'm also excited to see the third and especially the fourth quarter because of the fourth quarter.

And with movies like bond coming and Doon coming and.

And of course top gun coming and many of the others I mentioned I think that we're in for a very significant recovery come the fourth quarter, which is going to lead in to that 'twenty 2 so.

I can't be put in a position of of <unk>.

And the Orkin shot of trying to predict but I would say relative to the movies that I indicated we're satisfied we think that we can actually continue to do better as the COVID-19 threat becomes less and less and we think we can do better.

With the and exclusive window, then we're going to have win the day and date arrangement.

That's helpful. And then maybe just 1 financial question, Sean If you think about the fixed cost part of your business.

Going back to the earlier conversation about whether we're at 100 or 90 or 85 long term, which is totally unknowable.

Is there opportunity around your fixed cost base to either keep it where it's where you've taken it like on G&A for make further reductions to try to protect the kind of margins, we've seen and the business historically, if the if the attendance of the sort of structurally lower which again, who knows but I thought I'd ask you that question since you've got a handle on the on the cost structure certainly we.

We think that there will be opportunities for ongoing.

Cost efficiencies both in some of the areas. We've already pursued you mentioned in G&A and then we have a whole slew of initiatives that are focused on additional opportunities that said, they're they're likely will also be the reintroduction of costs as the business fully ramps up some of that.

And we took out we took out.

We will be more permanent other will start to fill back in.

And there's been other I think near term costs like our all of our health and safety protocols, which have introduced new cost into the equation. However over time, you know of William to work that down so.

Definitely.

There's opportunity I think probably 1 of the biggest things which.

Maybe consider it fixed cost we tend to look at it a little bit more variable is just our overall workforce management and the field, we had already started down a path of.

Some of workforce management initiatives prior to the van <unk> those have been incredibly impactful during the course of the pandemic with some of the new controls and techniques. We had just in terms of managing our field labor those will continue to yield impact as we kind of ramp the business and you heard and the kind of our prepared remarks globally.

<unk>.

Our salaries and wages grew 60% on thats on the attendance that grew 150%. So we've been able to scale at a pretty good rate without introducing costs at the same clip as we've got attendance growing and.

And we think that will continue so.

Can't put a precise number on it because there are a lot of moving pieces, but directionally, yes, we expect that we'll have ongoing cost efficiencies and that's our focus looking for both new revenue growth potential and cost efficiencies to cover whatever types of near term impacts we might continue to be impacted by the pandemic.

Thank you both thank.

Thanks Ben.

Your next question comes from the line of Meghan Durkin with credit Suisse.

Hi, good morning, guys.

So Sean on the movie Club I think you said that 2 thirds of the subscribers are now being billed.

Wanted to clarify if that means that 2 thirds of the subscribers have opted back and and.

And if that's the case has that been improving as Mark films are opening and given that data that you have on the members is there any analysis of which customers are demographics arent yet back and then anything interesting that you can do with that data that will inform your strategy going forward or better sort of your customer base and that's it for me.

Certainly yes, you are correct, we said about 2 thirds of our member base has and we started rebuilding.

Some of those were proactive changes.

What we've actually done now is at the onset of the pandemic, we proactively paused everybody's membership and we received a tremendously positive response for doing that now as the business has gotten going again.

Carefully been communicating with our members about <unk>. So the majority of that is actually us now going forward and proactively and causing in doing that we've had some promotional incentives to retain people. We've been reminding everybody about all of the value that comes along with movie club and our churn.

Has been fairly minimal so even though we have proactively gone forward and re initiated those accounts of reactivated those accounts.

We have had minimal churn and we like to think because of the value of the the offer as well as just the way we've handled the communication movie club is kind of Mark indicated in his prepared remarks, I mean, we look at this as a as a real strategic.

Asset in terms of using the data and that direct communication, we have with our most frequent moviegoers to just encourage them to see more films showcase whats coming up look at kind of their behaviors and figure out how we can simplify the process and take friction out.

So there's a whole range of things of tactics and ideas that we've been pursuing.

To both get people coming back and get people comfortable coming back and that will continue to pursue going forward. We've also started to look towards more of a back to our customer acquisition and interestingly, we've continued to add customers throughout the pandemic.

As a result of just some light promotional efforts and we're going to continue to bring to start ramping that up as things get going again as well Meg and the only thing I'd add to that is just just so that you understand some of them want to understand.

And we've reactivated 2 thirds and we've done this and very well planned and thoughtful phases. So the instead of just reactivating everybody on the same day, we've done it in phases to make sure that we could of hold as many of those customers as possible. It's been highly effective and so over the course of the next couple of months we will.

And parse the remaining 1 third and begin rebuilding knows the same what we've already done it with the 2 thirds and so I think this plan has been extremely effective and holding on to that to the majority of those 950000 members. So much so that we still have and excess of 950000 men.

<unk> is just 1 third of them will be begin their billing process and the next couple of months 2 thirds. It's already happened too. So that's what gives us so much confidence that were and really good shape with movie club.

And just the follow up if.

If you're rebuilding the customers.

Are they all coming or are they all coming out and see movies, if theyre being billed oh, yes, nearly nearly <unk> nearly 20% of our business during the second quarter was coming from from from movie club for.

And for movie club members so.

And that's obviously 1 of the reasons, we want to do it is just further communication with them they tend to be the most frequent goers and they also tend to be very high of.

Food and beverage purchases.

Got it thanks.

Thanks, and I guess.

At this time there are no additional questions I would like to turn it back over to management for closing remarks.

Yeah.

I'd just like to say thank you very much again for joining us. This morning, we always look forward to speaking with you. We appreciate the good questions and we look forward to talking to you again, and our third quarter call and we ask that you just we hope that you stay safe and and be well. Thank you all very much. Thank you Stephanie.

Thank you. This concludes today's conference call you may now disconnect.

Okay.

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