Q3 2021 Cinemark Holdings Inc Earnings Call

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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 to press star one on your telephone if you require any further assistance press star Zero I would now like to hand the.

The conference over to your Speaker today, Chanda Brashears Senior Vice President of Investor Relations. Thank you. Please go ahead. Thank you Stephanie and good morning, everyone. At this time I would like to welcome you to Cinemark Holdings, Inc. 's third quarter 2021 earnings release Conference call hosted by Mark Zoradi, Chief Executive Officer, and Board director as well as Sean Gamble.

<unk> and Chief Financial Officer.

In accordance with the Safe Harbor provision of the private Securities Litigation Reform Act of 1995 certain matters that are addressed by members of management. During this call may constitute forward looking statements such statements are subject to risks uncertainties and other factors that may cause <unk> actual performance to be materially different from the performance indicated or implied by such statements.

Such risk factors are set forth in the company'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 in today's press release within the company's quarterly filing our form too.

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 appreciate you joining us to discuss our 2021 third quarter results.

I'm very pleased to start off by saying that our industry and our company continued to make significant progress in recovering from the effects of the pandemic.

We're highly encouraged by the continuing positive trends with increasing consumer demand for the cinematic theatrical experience and growing momentum at the box office.

This favorable progress was demonstrated in our third quarter's 61% growth in worldwide attendance since last quarter and <unk> 21 importantly.

Importantly that growth in attendance flowed through to our bottom line results in the third quarter, which included positive adjusted EBITDA of $44 million or three two results marked a significant milestone for cinemark as it represents our first quarter since the pandemic began began with positive total.

Adjusted EBITDA. Furthermore, every month and <unk> delivered positive EBITDA, which tangibly underscores our company's resurgence.

Strengthen the domestic box office was key driver of our third quarter performance as the North America industry delivered $1 $4 billion of gross proceeds on a larger volume of more sizeable commercial releases top hits in the quarter included Shang Chi and the legend at the top rings Black widow Jumbo crew.

Whose free Guy space Jam and the carryover from two Qs highly successful release of fast and furious nine.

And consistent with last quarter I'm thrilled to report that cinemark once again over indexed the North America industry box office performance relative to three Q19, with a substantial outperformance of 700 basis points. This outperformance helped us capture an approximate 15%.

<unk> market share of North America box office, which significantly exceeded our historic average of just under 13%.

Our 15% market share achievement is particularly meaningful this quarter as the vast majority of theaters in the U S and Canada had reopened.

During our last several calls we've talked about four key factors that impact theatrical exhibition recoveries all of which continue to experience noteworthy progress first is the status of the virus driven by vaccine penetration to date as well as impacts from the virus beginning to subside COVID-19 rates have plunged 70.

3% since the Delta variant peaked in September vaccination rates continue to rise across the U S, especially with the recent approval of inoculation for children five and older.

Moreover, vaccination rates are also rapidly progressing throughout Latin America.

The second factor is government restrictions, which have largely gone away in the U S and at this juncture at this juncture and continue to reduce and Latin America.

Third is consumer sentiment, while the Delta variant threw us a curve ball during the third quarter and caused a meaningful dip in consumer comfort regarding visiting theatres that sentiment has since recovered to 77% of U S movie goers expressing comfort and going to the theater in the current environment this level of Pos.

<unk> responses in line with the peak levels of sentiment we witnessed in early July a 78%.

And the final key factor incidents exhibition recovery is the consistent flow of new film content with broad consumer appeal, which clearly is now underway.

Of course, these recovery factors not only apply to the U S. But are also applicable on a global basis and while the domestic market is further along in its rebound cycle. We're also seeing positive trends in Latin America currently 100% of our theaters have reopened across the region and even though certain capacity.

<unk> and operating hour restrictions persist in central and South America consumer demand to return to the theaters is very strong.

There is no question that theatrical exhibition is meaningfully recovery around the world and Cinemark is extremely well positioned to benefit during this comeback on account of the many operational advancements we made during the pandemic as well as our ongoing efforts to maximize attendance and drive new ancillary revenue off.

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Improved operating efficiencies enhanced marketing programs and capabilities and our recently implemented online food and beverage platform, new alternative content possibilities and ongoing impact of our premium amenities.

In terms of operational efficiencies, we've made some significant strides over the course of the pandemic.

For instance, we're optimizing operating hours and Showtime schedules through utilization of enhanced data management analytics, we have simplified and streamlined numerous theater practices, such as ticket ticket issuance inventory procedures, and ushering routines to be leaner and more efficient and we've refined the degree.

We are staffing that is required to operate our theaters, including enhanced planning and management controls.

We also continue to significantly advance, our digital and social marketing capabilities utilizing proven best practices from retail travel and technology industries. Examples include leveraging iterative a b testing to identify and scale winning concepts simplifying consumer touch point.

To drive a more frictionless experience and applying advanced analytics against our highly valuable customer database to drive improved targeting accuracy and contextually relevant messaging.

These actions and capabilities are focused on increasing moviegoing frequency and overall consumer spend and we believe they will be highly valuable in navigating the competitive landscape ahead, and maintaining our increased market share.

In tandem with our digital and social marketing actions, we continue to leverage our unique industry, leading transaction based subscription program movie club to drive attendance during the third quarter, we completed billing reactivation on all movie club accounts that were proactively pause for the past year.

A half during the pandemic and doing so we have been extremely pleased by the minimal amount of churn we've experience, which represented only a modest 6% dip in our pre pandemic membership base that was largely driven by credit cards that expired during that timeframe.

This dip was better than expected due to our member first approach and we're already seeing new net positive movie club additions as we actively work to retain those expired members as well as attract new ones.

We've also continued to further enhance movie club and recently introduced movie club Platinum and earned premium tier that provides our most frequent moviegoers with even bigger incentives. We expect this heightened tier will serve to further increase loyalty of our most active customers as well.

As stimulate incremental transactions.

Since we announced the launch of movie club Platinum just over a month ago, 64% of movie club members familiar with the program stated that they have been incentivized to achieve platinum status. This year.

Another foray into simplifying and enhancing our customer experience, while driving ancillary revenues, if snacks and attack our recently launched online food and beverage ordering platform. This platform enables guests to skip the line and have their concessions ready for pick up upon arrival or delivered to their <unk>.

Seats for a nominal fee the added convenience and time savings provided by snacks net tap has been extremely well received by our moviegoers and we look forward to continuing to grow the program's awareness and utilization in the months ahead.

We're also continuing our reintroduction of select expanded food and beverage options as a more consistent release cadence of stronger film content takes hold and movie goer attendance increases.

Another exciting new business venture that we announced last week is our heightened focus on gaming initiatives, including our plan to hire a new vice president to forge strategic relationships and pursue content and licensing agreements in the gaming realm.

<unk> is the latest evolution and our ongoing focus to secure alternative content further utilizing our auditoriums to supplement Hollywood film content and we have seen several promising indicators with regards to consumer interest in both spectator and participatory gaming events.

Additionally, we're continuing to explore other alternative content offerings and have seen similar positive results from events, such as professional wrestling with a EW and WWE boxing with trailer fight club movie premieres.

Special live Q&A sessions with talent and concerts. All in addition to ongoing events provided by Fathom Entertainment.

We're also continuing to reap benefits from investments we've made in premium amenities that enrich the movie going experience, which movie fans continue to seek out including reclining seats with approximately 65% of our entire domestic circuit featuring luxury loungers the highest recliner penetration.

<unk> among the major theater operators premium large format auditoriums led by our XD, our proprietary brand, which ranks number one in the world, which delivered 12% of our box office in the third quarter alone on only 4% of our screens and an increase in D box motion seats, which are <unk>.

<unk> with the on screen action.

And finally <unk> laser projectors in line with our previously announced partnership we are featuring laser laser projections Crystal clear picture and all of our Newbuild theaters and continue to upgrade our existing theaters with laser laser technology, which lasts longer and operate more efficiently.

We're happy to share that in addition to other locations across the U S. We have completely converted all of our Dallas Fort worth theaters and screens, our home city delivering consistently bright colorful and sharp images on laser.

Speaking of new theaters strategic new builds are cornerstone cornerstone of our strategy and we are thrilled to have opened six new theaters and 67 screens already this year all of which were committed to prior to the onset of Covid. These newbuild theaters are all in high growth.

Areas with significant opportunities to capture a movie going attendance, while it's still early days, we're highly encouraged by the results to date, we have opened three locations in the U S. Kirkland, Washington, just outside of Seattle, Jacksonville, Florida, Waco, Texas, and three in Latin America, water, Mala, Chile and Peru.

We also have one more theater open to open later this year in Roseville, California, just outside of Sacramento.

Based on everything I've, just shared I hope, it's clear that we are pleased with our performance trend in the third quarter and the advancements we made to continue to make our business.

More vibrant through business development, while we're cognizant there is still a long road ahead over.

Over the course of the coming months, we continue to expect an ongoing ramp up of box office and overall financial results. The fourth quarter has already started out strong as October delivered our best monthly box offers as a result, since the onset of Covid, notably our cash generation.

During the month of October was significant enough to more than cover all of our variable and all of our fixed costs.

Looking ahead upcoming film content for the balance of the year includes highly anticipated blockbusters appealing to families and adults alike, such as a turtles, which opened with previews last night to outstanding results Ghostbusters afterlife, and condo house of Gucci West side story Spiderman nowhere.

Home matrix.

<unk> and thing two to highlight just a few.

And the slate next year looks absolutely tremendous with broad range of highly promising films for all movie going audiences. Importantly, these films were made to be experienced and a cinematic out of home entertainment environment that only a movie theater can provide we're also optimistic about the <unk>.

<unk> of exclusive theatrical windows as it's such a meaningful contributor to the overall media landscape as we've witnessed with the positive box office results generated most recently I have been a significant proponent of the longevity of the theatrical exhibition industry and especially for cinemark.

As the company is uniquely positioned and poised for long term success.

Before I turn it over to Sean This morning, I'd like to take a brief moment to comment on the upcoming executive transition as previously announced this is my last earnings call as CEO of Cinemark before I hand over the reins to Sean at the end of this year.

It has been in honor of serving as CEO and leading to the incredible people of cinemark the past six and a half years I would like to first thank the global team for their hard work camaraderie willingness to change and evolve and for their industry, leading results I would also like to thank the investment community. It has been tremendous getting into.

So many of you over the years and we appreciate your ongoing support.

I along with the rest of the board I'm highly confident and Shaun and his ability to lead cinemark going forward as operational background and strategic mindset, along with his keen eye for efficiencies and business opportunities will be especially advantageous as cinemark continues to emerge from the <unk>.

<unk> of the pandemic I look forward to watching the company thrive under his direction as I continue in our strategic capacity through my position on the board with that I'd now like to turn the call over to Sean.

Good morning, everyone and thank you Mark for your kind words, you've been a tremendous leader for our company and our industry over the past six and a half years and to say you'll be missed from our day to day operations is clearly an understatement. We all wish you the very best in your next chapter and we're thankful that will have the apo.

Attunity to maintain a continued working relationship with you through your ongoing seat on our board of directors.

On a related note three weeks ago, we announced Melissa Thomas will be joining cinemark as our next CFO.

Melissa was most recently the CFO for Groupon and has a strong and impressive leadership and financial background. We believe she'll be a great cultural fit for cinemark and an excellent complement to our leadership team and finance organization.

Melissa will officially start this coming Monday November eight and we look forward to formally introducing her in the near future.

As Mark already highlighted the resurgence of theatrical movie going is in full swing and cinemark delivered another quarter of meaningful financial improvement.

During <unk>, our average monthly cash burn reduce to approximately $11 million after normalizing for working capital timing.

This rate was in line with the expectation of a $10 million to $15 million monthly cash burn that we communicated on our last earnings call.

As of today's current operating environment, we have now flipped to modestly positive average monthly cash flow and we expect this rate will continue to improve as our industry further rebounds.

At the end of the third quarter, we had a global cash balance of $543 million.

As of October 31st that balance has increased to approximately $595 million driven by the strong box office results of venom, let there be carnage, no time to die Halloween kills and dune as well as working capital timing associated with corresponding film rental payments.

Based on our current and improving cash flow position. We continue to believe we have ample liquidity and will not require any additional financing.

That said multiple financing opportunities still remain available to us, including drawing on our $100 million revolving credit line tapping incremental term loan borrowing capacity within our credit facility executing sale leaseback arrangements on unencumbered properties, we own and issuing equity.

Also as we described last quarter following our recent refinancing transactions our revolver maturity now sits at November of 2024, and all other significant debt maturities extend through March of 2025 and beyond.

Turning now to our third 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 have indicated in previous quarters since the onset of the pandemic our traditional metrics continue to be somewhat distorted in the current environment.

Considering our theaters, we are only beginning to reopen with limited new film content in the third quarter of 2020, we will compare our most recent quarter's results to <unk> 21, and <unk> 19 in select instances.

During the course of the third quarter, we continued to further expand operating hours in response to increasing consumer demand for our growing volume of new commercial film releases.

Compared to second quarter or third quarter domestic operating hours expanded by nearly 40%, although still remained approximately 25% below <unk> 19.

Expanded hours and increased moviegoing led to quarter over quarter domestic attendance growth of 42, 4% to $21 5 million patrons.

Domestic admissions revenues were $195 $3 million with an average ticket price of $9 <unk>.

Our average ticket price increased 14, 1% versus <unk> 19, primarily as a result of price increases and ticket type mix largely on account of fewer matinee and weekday show times.

Domestic concessions revenues were $142 $6 million and yielded another all time high food and beverage per cap of $6 63.

Our third quarter per cap was roughly flat with two Q, but grew 27% compared to <unk> 19, as pent up movie going demand continues to drive our heightened indulgence in food and beverage consumption across our core concession categories and operating hours remain concentrated in time frames that are more conducive to.

Session purchases.

Our third quarter results also benefited from ongoing strategic promotions and pricing initiatives. The reintroduction of various enhanced food offerings and recognition of previously deferred revenues associated with the issuance of loyalty points.

Domestic other revenues also continued to rebound during the quarter and grew 28, 3% to $37 $6 million driven by volume related increases in screen ads transaction fees and promotional income.

Altogether third quarter total domestic revenues were $375 $5 million with positive adjusted EBITDA of $44 $8 million.

Internationally, we also continue to see material recovery in Latin American box office and operating resorts during the third quarter.

By the end of <unk>, we had reopened 100% of our international theaters, while certain restrictions on operating hours and capacity remain in place as Mark indicated during his prepared remarks.

Driven by expanded theater openings and increased available ability of new film New commercial film content, our third quarter International attendance grew 128% versus <unk> 21 to $9 2 million patrons, which generated $32 million of admissions revenues and $21 6 million.

And concession revenues.

Total international revenues were $59 $3 million and yielded adjusted EBITDA that was just shy of breaking even for the quarter.

Globally film rental and advertising expenses were 51, 9% of admissions revenues, which increased 200 basis points compared to <unk> 21.

This increase was expected and resulted from a higher concentration of larger more successful new film releases.

That said compared to the third quarter of 2019, our film rental rate was still down 420 basis points predominantly due to reduced film grosses that skew lower on our film rental scales.

Concession costs were 17, 2% of concessions revenues and were in line with both our second quarter results and pre Covid averages.

Third quarter global salaries, and wages were $67 6 million and increased 34, 1% versus <unk> 21.

This increase was driven by additional theory openings extended operating hours to accommodate growing consumer demand and the reintroduction of select enhanced food and beverage options that require more labor.

Yeah.

Facility lease expenses were $68 $8 million and while largely fixed experienced a modest uptick from the second quarter due to a slight increase in percentage rent and common area maintenance as volumes increase.

Worldwide utilities, and other expenses were $81 8 million and increased 33, 7% quarter over quarter 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.

Utility expenses also increased as we expanded operating hours, while other costs within this category such as property taxes and property and liability insurance remained predominantly fixed.

Finally, G&A for the quarter was $38 $6 million and remained considerably lower than pre pandemic levels. As a result of the restructuring actions. We pursued in the second quarter of 2020, and our ongoing efforts to minimize non essential operating expenditures.

Collectively our worldwide adjusted EBITDA for the third quarter was positive $44 $3 million.

As Mark previously described this result represents a significant milestone for our company as it was our first quarter of positive total company adjusted EBITDA since the onset of the pandemic and our second consecutive quarter of material adjusted EBITDA recovery.

Our net loss also materially improved in <unk> to $77 $8 million, reducing by $64 $7 million quarter over quarter.

We'd like to congratulate our studio partners on the success their films achieved in the quarter and we'd like to commend our hard working teams on their relentless execution and drive to deliver these results.

Capital expenditures during the quarter were $24 4 million of which $13 $6 million was associated with Newbuild projects that had been committed prior to the COVID-19, pandemic and $10 $8 million was driven by investments in maintenance in our existing theaters.

Our consistent investment in proactively maintaining and enhancing our theaters over the years has enabled us to scale back capital expenditures in the near term without hindering our asset quality or guest satisfaction.

As such we continue to anticipate spending a highly reduced level of capex in 2021 relative to pre pandemic ranges, which we previously estimated at approximately $100 million.

However, due to varied supply chain constraints that has started impacting the delivery timing of certain equipment and supplies. We now anticipate capex may come in slightly below $100 million for the full year.

That said, we do not expect these delays will have any adverse impact on our daily operations.

In closing we are thrilled with the positive momentum we continue to experience regarding the rebound of theatrical exhibition and our company's financial results and we are optimistic about the robust release calendar that lies ahead in the fourth quarter and beyond as well as further improvements in <unk>.

Consumer moviegoing enthusiasm as the pandemic subsides.

We are proud of the advancements our team has already made to set up cinemark for success in a post pandemic environment and we look forward to the impact of our strategic initiatives will continue to have on further enhancing the cinematic entertainment experience, we provide our guests and delivering long term shareholder value.

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

At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad again that is star then the number one to ask a question.

Our first question comes from the line of Alexia quite Ronnie with J P. Morgan.

Hi, Thank you very much and congratulations Mark best of luck.

I have just a couple of questions. The first one.

On the commentary you gave about the.

Recovery that seems to be kind of a broad base across Latin America.

Yeah.

But if you sort of drill into the Latin America recovery.

And look at sort of where they are versus the U S. Can you give us perspective in terms of.

We're in the seventh.

Dan before us I'm, just trying to get a sense of rather quickly.

Much behind it doesn't sound like too much how much behind youre backing operations versus the U S recovery.

Thank you Alexia.

Your baseball analogy.

But I think all I think I will go to more of a number of days and months if I could.

We've been very encouraged with the amount of vaccination progress Thats taken place in Latin America, just over the last 90 days I mean, basically now in Argentina, and Brazil and in Chile.

Others of our key territories down there.

Right a vaccination as a percentage of total population is very similar to the U S. It's caught up quite significantly in the last 90 days that said the business overall is still somewhere between 60 to 120 days behind the U S. In regards to recovery. So as you as you.

Sure noted the EBITDA in Latin America was just slightly negative this quarter and but what it made a significant improvement from the quarter behind that so to answer your question, specifically I'd say somewhere between 60, and 120 days behind the U S, but very much on a trend that we're positive about.

Perfect and then just a quick follow up if I may on the on the film slate and production delays that we've seen at least.

Of the studios like Marvel, which pushed out some of the film.

Into 2022, obviously of the backlog of all digital age from 21, so it looks like an amazing slate is there any reason to be concerned, though that you know if you look further out because things are getting delayed with staff shortages or difficulty in sort of getting things done on time, it becomes a bigger issue down the road or do you think we have.

Enough time to kind of sort that out given the slight near term. It is so chock full.

Again, that's a very interesting question, Shawn and I had the opportunity to go out.

Just two weeks ago and visit with every one of our content providers and Los Angeles and they are extremely positive about the 'twenty two slate.

As I've been I've been looking at this business for 40 years now in the 'twenty two slate might be as good a slate as any that I can remember over this time and also as we look to 'twenty three.

Are all active and putting together release schedules and so I mean really from the smallest studio all the way up to the most.

Our prolific studio everybody is working on their 23 content there.

Theres not a specific.

[noise] lineup at this point that we're ready to share with you, but it's starting to come together and we see it as very positive as well.

Other thing I would add too is some.

Some of the later labor shortages that are going on within the retail sector and other industries at least we're not aware of that affecting the movie production cycle. At this point in time, so nor nor does it appear that the current state of the pandemic is having a material effect on that at this point production.

Is largely back into full swing, yeah actually on that to Sean just just there was a there was a threat of a labor stoppage.

They were all very very pleased with that didn't take place so.

It looks like we're in good shape.

Good to hear okay. Thank you thanks Alexia.

Your next question comes from the line of Eric Handler with <unk> partners.

Good morning, and thank you for the question two questions for you.

First one being.

No.

Tober U S or domestic revenue for.

For the box office was down 20%.

But given the market share gains that you've seen given the cost efficiencies that youre.

That you are producing I'm curious how close are you to getting back to 2019.

The ability of margin levels.

Well, Eric are you, referring to 20% relative to 2019.

The 2019.

Gotcha.

Well, we're certainly improving on that trajectory.

As we indicated in the prepared remarks.

We have flipped currently to positive cash flow generation and you've heard how our cash has increased.

From the end of the third quarter in October already on account of the improvements in <unk>.

Box office and just the overall state of Moviegoing.

One one stat that we didnt provide but may give you some directional sense, our overall occupancy levels for the third quarter were about 13%.

In all of 2019, the full year and pre pandemic terms, our occupancy was about 19%.

So we're continuing to notch closer to that obviously.

<unk> ability is affected both by that as well as the extent of operating hours, which are still about 25% below what they were in 2019. So theres still has a ways to go but we're definitely moving in a positive direction, we flipped to positive EBITDA in the third quarter, we expect that to continue to grow and improve.

As we move forward.

Getting all the way back to 2019, obviously thats still is dependent on the ongoing improvement in the pandemic and just some of these other evolutionary factors that continue to take place within our industry.

But things like our improved market share and some of the other revenue generating opportunities. We're pursuing I think those have a good ability to get as close to where we were previously and if not better over time.

Great. Thank you.

And looking at your concession per cap numbers, which continue to climb quite nicely.

I'm curious how much of that is a function of.