Q1 2022 Cinemark Holdings Inc Earnings Call
[music].
Good day, and thank you for standing by and welcome to <unk> first quarter earnings call.
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 and if you require any further assistance. Please press star zero. Thank you I would now like to hand, the conference over to your speaker today Chanda Brashears.
<unk> Vice President Investor Relations. Please go ahead.
Good morning, everyone. At this time I would like to welcome you to Cinemark Holdings, Inc. 's first quarter 2022 earnings release Conference call hosted by Sean Gamble, President and Chief Executive Officer, and Melissa Thomas Chief Financial Officer.
Before we begin I would like to remind everyone that statements or comments made on this conference call may be forward looking statements forward. Looking statements may include but are not necessarily limited to financial projections or other statements of the company's plans objectives expectations or intentions.
These matters involve certain risks and uncertainties.
The company's actual results may materially differ from forward looking projections due to a variety of factors information concerning the factors that could cause different results that could cause results to differ materially is contained in the company's most recently filed 10-K.
Also today's call May include non-GAAP financial measures a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's most recently filed earnings release 10-Q and on the company's website at IR Dot Cinemark Dot com.
In today's prepared commentary regarding revenue comparisons, we will be predominantly referring back to the first quarter of 2019, unless otherwise indicated as the first quarter of 2021 was impacted by Covid closures government restrictions and limited new film releases from an expense standpoint, we are comparing to the prior quarter fourth quarter of 2020.
One and we believe it is the most relevant comparison in the current environment I would now like to turn the call over to Sean Gamble.
Thank you Chanda and good morning.
Everyone. We appreciate you joining us to discuss our first quarter 2022 results.
Following spiderman Noway homes record breaking success at year end, we continue to be highly encouraged by the progress our industry and our company is making as we recover from Covid, which led to first quarter year over year revenue growth of over 300% for cinemark.
Every film released in 2022 to date has performed in line or better than pre pandemic expectations benefiting from favorable opening weekend results and strong week to week holds which in many cases exceed historic trends.
Importantly, we're now seeing positive box office recovery across all categories of films and audiences blockbusters like Spider Man and the Batman not only appeal to younger male moviegoers, but their overall audience profiles were consistent with our pre pandemic demographic mix for Marvel and D. C Comics titles.
Dog and La city skewed older and more female while box office results for Sonic the Hedgehog too and the bad guys have been driven by families.
Notably Sonic delivered Paramount biggest opening weekend in nearly a decade and the films overall run to date already exceeds the first installment.
Yes.
We've also seen remarkable remarkable results with alternative content.
First delight captured performance of Bts's permission to dance on stage concert took screens by storm at the beginning of March and generated nearly $33 million of box office around the globe on only two showtime's.
As a result of our industry, leading technology Cinemark showcase this live concert and more theaters than any other exhibitor worldwide selling out auditoriums and meaningfully over indexing in market share.
Next came the global expansion of Jujitsu, Kaizen O, which has grown to become the second highest grossing animated film of all time.
In North America alone. This film generated nearly $30 million in box office and.
In closing out the first quarter was triple R, which set a new domestic opening day record for an Indian film and rounded at its domestic run at $11 million. The second highest result ever for an Indian title with.
With cinemark consistent focus on multicultural films, we were the number one exhibitor for Triple R and all Indian films throughout North America during the first quarter.
Now that Covid has entered a transition aerie fees from pandemic endemic and government restrictions on theatrical exhibition throughout most of the world have lifted our industry is well positioned for sustained recovery.
Moreover, consumer sentiment regarding moviegoing continues to improve and just reached a new high.
According to NRG, 87% and moviegoers are now expressing comfort returning to movie theaters today and 89% within one month from now.
While these improvements clearly represent further steps in the right direction. The near term film landscape remains dynamic with production timelines and associated release states still being affected by Covid.
Multiple film releases were impacted by <unk> in the first quarter and we've seen several titles intended for 2020 to shift to 2023 due to production delays.
As a result, we expect 2022 will remain below pre pandemic levels due to a reduced volume of films.
That said, we've become well versed in dealing with these types of shifts and we remain highly optimistic about the continued ramp up of box office results as an increasing volume of high quality films returns to theaters with a steadier release cadence over the course of the year.
That optimism was certainly validated by Doctor strange into the multi versus manages massive opening box office last night, which clearly has set the stage for its sensational opening weekend result.
Furthermore, last week, we were exposed to a wide array of highly compelling first look footage during our industry's annual trade convention cinema Con, which brings together studios and exhibitors from around the world.
During their presentations our studio partners showcased with they have lined up over the next year, which includes a robust set of diverse films that are sure to delight all types of moviegoers.
As expected 2022 slate of Tentpole films appears poised to fully deliver.
In addition to Dr. Strange, which is already off to an amazing start we saw captivating first time footage from Jurassic World Dominion Black Adam the Flash and Shazam theory of the Gods. We also got to see Disney's first official trailer for avatar two the way of water in <unk>.
James Cameron consistently pushes the boundaries of moviemaking technology and his storytelling and based on what we saw this film is no exception with extraordinary visuals that break new ground once again.
And one of the highlights of the conference was Paramount's first public screening of top gun Maverick in its entirety.
For those of you who have been anxiously awaiting the release of this film like me all I can say is get your advanced tickets now you will not be disappointed.
We were also shown several examples of highly encouraging footage in the mid tier category of films, including bullet train starring Brad Pitt and bad Bunny.
Paradise, a romantic comedy that reunites George Clooney, and Julia Roberts, and Elvis Biodrama with a modern flair, starring Austin Butler, and Tom Hanks from director Bosler Min.
Cinema Khan attendees were also thrilled by glimpses of a wide range of horror and suspense films, including the final saga in the Halloween franchise, Halloween and Stephen King's Salem's lot Jordan peels newest thriller Nope adjacent plums, the black phone, which also screen during the conference and generated significant buzz.
On the other end of the spectrum, we saw spectacular footage from several family films that are coming in 2022, including minions. The rise of grew puts in boots positive theory, DC League of Super pets, and an extended look at the first 30 minutes of Pixar as late year, which assure to fully enthral audiences young and old <unk>.
Finally, we had an opportunity to see a series of compelling scenes from various specialty and art House films, including Downton Abbey, a new era, where the crowd that saying are you there God. It's me Margaret White Bird of Wonder story, and don't worry Darling just to name a few.
There was a shared excitement and enthusiasm at <unk> regarding the box us plus momentum that is well underway and the future prospects of theatrical exhibition.
As stars and directors spoke about their upcoming films. They championed the magic of moviegoing and emphasize that they make their films for the big screen in the shared cinematic experience.
Furthermore, a key message we heard from every studio was the importance of a theatrical release and at the ethical window in the studio value equation.
This does not necessarily mean that every film they produce will be released theatrically. However, there was a shared recognition and reaffirmation about the strategic benefits of theatrical releases provides to very genre and sizes of film.
Multiple studios are now, indicating that films released theatrically with a window are performing better on their streaming platforms than those without a theatrical release. This observation underscores how theatrical exhibition can be complementary and accretive to streaming no different than it has been with VHS DVD.
Pay TV and free TV for years.
As studios aimed to create bigger cultural moments build larger brands and franchises more effectively promote their streaming platforms attract the creative community and maximize revenue and profitability a theatrical release with an exclusive window is a key enabler for doing so.
<unk> exhibition increases the awareness and value of films by <unk> them enhancing their perceived quality, creating stronger emotional connections with stories and characters, reducing piracy and providing multiple monetization opportunities, which increases revenue across all distribution channels.
Turning attention to our first quarter results.
While the impact of Omicron created a drag on overall box office performance in the quarter Cinemark once again far outpaced North American industry recovery by an impressive 650 basis points when comparing <unk> 22 against <unk> 19, and our performance trend. We have maintained for 12 of the past 13 years.
Similarly, our Latin American admissions surpassed their corresponding industry results by approximately 500 basis points.
And despite the challenging start to the quarter due to varied film release shifts we delivered positive adjusted EBITDA, both domestically and internationally in <unk> driven by our industry outperformance strong concession sales and stringent cost management.
Yes.
We've been asked multiple times about the drivers of our market outperformance and share gains over the last several quarters.
In addition to meticulous planning and solid operational execution, we attribute those results to two key factors first is the lift we realized by being one of the first circuits to reopen during the pandemic that enabled us to both capture new audiences and build tremendous goodwill with our guests.
<unk> is the combined benefits, we have derived from our key strategic initiatives and investments over the years, particularly in the areas of technology premium amenities, food and beverage marketing and loyalty programs and guest service.
Our industry, leading technological capabilities and presentation quality content management, and our ability to simulcast live events across our global circuit provide us an advantaged position relative to our peers.
For example, because of our integrated screen network, we are able to host live beyond the screen experiences that complement Hollywood content, such as exclusive talent Q&A sessions concerts, and sports and gaming events.
These type of communal engagements offer fans unique enhanced experiences that deliver guest satisfaction scores, which are off the charts.
A perfect example is the presentation of the live captured Bts concert I mentioned earlier.
<unk> consistent focus and investment in theater technology enabled us to seamlessly broadcast this global phenomenon and significantly over index.
And to ensure that our sight sound and content management capabilities remain best in class. We've continued moving forward with the plans, we announced back in 2019 to convert our entire global circuit to cinnamic laser projectors.
This transition will elevate our cinemark movie going experience, even further by delivering more vivid colors sharper focus and brighter onscreen imagery to showcase the incredible film content that is on the horizon as optimally as possible.
While doing so we will also derive meaningful cost savings and environmental benefits associated with laser projection.
Our investments in premium amenities are also an important driver of our outperformance, especially with regard to our luxury lounger recliners premium large format auditoriums and D box motion seats moving.
Moviegoers resoundingly prefer the enhanced experience that our recliners provide often driving past non recline theatres to enjoy the added comfort of this amenity.
Additionally, we've seen how reclined theaters have been recovering faster than those that are not reclined over the course of the pandemic with over 65% of our domestic circuit reclined, we continue to benefit from our luxury Loungers, which is reflected in our outsized results.
We've also seen an increase in consumers electing to upgrade to premium large formats and D box motion seats compared to pre pandemic levels.
While our nearly 300 premium large format auditoriums, which includes our number one exhibitor branded pls XD and IMAX only represent 5% of our global screen count the accounted for over 14% of our global box office in the first quarter alone.
This box office contribution ratio is up a sizeable 530 basis points over the first quarter of 2019 and it yielded an 8% increase in domestic pls admissions revenue dollars versus the same period.
Likewise, our <unk> revenues are domestic D box revenues are up over 25% compared to 119.
Considering the high demand for these ultra immersive premium experiences we plan to expand our XD screens and D box seats. During the course of 2022, which we expect will provide further upside we.
We are also about to launch a new equity campaign ahead of this year's summer blockbuster season to drive even greater awareness and engagement.
Our investments in food and beverage initiatives are also an important part of our comprehensive guest experience over the years, we've continued to place strategic emphasis on our high margin core concession offerings, while expanding our menus to provide broader appeal to every moviegoer.
These tactics have been paying off as evidenced by consistent per cap growth, we've achieved year after year.
Along with increased indulgence as moviegoers returned to our theaters, our food and beverage initiatives helped deliver yet another record setting per cap in the first quarter of 2022.
We have also evolved how we offer food and beverage by Reimagining. The design of our concession stands and introducing a new convenient online ordering platform called snacks and attack.
In addition to providing improved transactional ease for our guests who take advantage of snacks and to tap the platform simultaneously helps reduce lines in our theaters, thereby delivering a double benefit.
We fully launched snacks and attack less than a year ago, and we expect it will continue to provide benefits to our guest experience and concession revenues as more consumers discover the feature and we rollout future promotions and enhancements.
Uh huh.
Our market outperformance has also benefited from the advancements we've made in our marketing capabilities and loyalty programs, which have dramatically expanded our consumer reach increased purchase conversion and strengthened consumer engagement. For example, we now have the ability to dynamically customize the content we show consumers base.
On their location loyalty status film history and numerous other factors.
As a result, an average email we distribute typically has several thousand unique variations, which enables us to highly personalize, our messaging and improved conversion rates, our marketing and it teams continuously worked together to enhance our web app and online media platforms to improve our customer journey remove transactional friction and.
Our guests a compelling digital experience that stimulates return visits to cinemark.
Our highly successful tiered loyalty program movie rewards also aims to increase movie going frequency and visits to cinemark consumer.
Enthusiasm for our paid tier movie club the industry's first exhibitor lids subscription program remains strong and we currently have 980000 members, which now exceeds our peak in 2019.
We continue to add new members each week, and we are fast approaching 1 million subscribers.
Our very loyalty programs throughout the U S and Latin America provide direct communication channels to our guests and has a high perceived value, which in turn leads to incremental sales opportunities.
Our collective marketing efforts have been highly successful and we intend to continue leaning into our advertising promotional and loyalty campaigns throughout 2022, as we work to fully reignite theatrical moviegoing.
And finally, we continue to derive sustained benefits from our long history of providing topnotch guest service exceptional guest service has been foundational to cinemark operating practices since our inception 35 years ago, and we consistently earn guest satisfaction scores in excess of 90%.
That said, while we are ingrained the notion of guest service and our training and operational DNA. We continue to work on taking our service quality to the next level and doing so will remain a key focus of ours going forward.
The combined impact of our investments and advancements in technology premium amenities, food and beverage marketing and loyalty programs and guest service along with solid operational planning and execution drove our box office outperformance in the first quarter as well as our positive adjusted EBITDA results.
Additionally, our adjusted EBITDA was further supplemented by the productivity and process efficiency initiatives that we've described in prior earnings calls, including our workforce management and continuous improvement programs.
As we move ahead, and we focus on positioning our company for ongoing success in the evolving media and entertainment landscape, we intend to continue to invest in all of these areas to support our five strategic priorities as.
As I described in February these priorities are providing our guests an extraordinary experience by delivering world class guest service quality value ease and premium entertainment.
Building audiences via a wider range of content offerings and marketing sophistication.
Growing new sources of revenue by creating incremental sales opportunities.
Streamlining processes through additional simplification productivity and continuous improvement initiatives.
And optimizing our footprint to ensure we are appropriately situated in the most advantageous locations to deliver sustained long term results.
In summary.
I'd like to reinforce how pleased we are with the positive trajectory of industry box office recovery that is fully underway and our sustained optimism about its continued momentum going forward.
Our studio partners and varied content providers are delivering must see films and events that are intended for theatrical exhibition.
And because of our consistent investments in and our focus on providing our guests an exceptional cinematic experience as well as all of our concentrated efforts to reignite theatrical moviegoing cinemark is well positioned to fully capitalize on surging demand as we head into this exciting summer movie season and beyond.
I'd like to thank our incredible team for all they continue to do to keep cinemark at the forefront of our industry.
With that I will now pass the call to Melissa who will provide further information about our first quarter financial results Melissa.
Thank you Sean good morning, everyone and thank you for joining the call today.
We are encouraged by the recent box office recovery trend, Sean mentioned with momentum building in late February and March.
Despite the impact of the omicron variant and its effect on the film slate during the first half of the quarter. We were pleased with the results, we delivered which significantly exceeded our expectations.
Starting with our worldwide result, our attendance was $33 1 million patrons in the first quarter.
We delivered $460 5 million of total revenue and $25 2 million of adjusted EBITDA.
The first quarter represents our third consecutive quarter of positive adjusted EBITDA generation and underscores the resurgence in movie going and our discipline around cost.
Turning to our U S operations, we delivered attendance of $20 7 million patrons during the first quarter.
Operationally, we thought to be as flexible as possible and reduced our operating hours during January and February in response to the impact of of a crime and the related content shifts.
Our domestic admissions revenue was $191 8 million in the first quarter with an average ticket price of $9 in 2007.
Our average ticket price was broadly in line with the prior quarter and remained elevated relative to the equivalent pre pandemic period due to three key factors.
First a favorable favorable ticket type mix driven by the strong performance of alternative content in the quarter.
Which tend to have a higher average ticket price.
As well as fewer matinee and weekday Showtime and a lower mix of child tickets.
Second strategic pricing actions and third a higher mix of premium large format box office.
Our domestic concessions revenue was $141 1 million in the first quarter on another record high per cap of $6, 82%.
We were particularly pleased with the growth we saw in our incident rates for core concessions like popcorn candy and beverages, which were up 250 basis points quarter over quarter.
When compared with <unk> 19, our concession per caps continue to benefit from heightened indulgence in food and beverage consumption and audience mix it tends to skew higher in purchase incidence.
And our operating hours, which while reduced are concentrated in timeframe that are more conducive to concession purchases.
Furthermore, we benefited from the strategic initiatives that Sean mentioned as well as our value oriented approach to pricing.
Domestic other revenue was $39 1 million in the first quarter and reflects the impact of lower attendance levels on screen AD and transaction fees.
Versus the prior quarter and the pre pandemic period.
Altogether in the first quarter, we delivered $372 million of total domestic revenue and $14 4 million of adjusted EBITDA with an adjusted EBITDA margin of three 9%.
Turning to our international segment it too was impacted by the Omicron Varian, we welcome $12 4 million patrons during the first quarter. Despite certain government imposed restrictions in place on operating hours and capacity due to the pandemic.
It's worth noting that restrictions in place on operating hours.
And capacity has since been lifted the vast majority of them had.
Overall, we generated $88 5 million of total revenue from our international operations comprised of $44 million of admissions revenue $31 9 million of concessions revenue and $12 6 million of other revenue.
International adjusted EBITDA was $10 8 million with an adjusted EBITDA margin of 12, 2%.
Turning to global expenses film rental and advertising expense was 54, 1% of admissions revenue, representing a decline of 340 basis points versus the fourth quarter of 2021.
This decline was primarily driven by a lower concentration of blockbuster films during the first quarter.
Which skew higher on a revenue share agreements with our studio partners.
As a reminder, this line item will also reflect our step up in marketing expense and we continue to lean into investments to re ignite moviegoing strengthen loyalty and build our audiences.
Concession costs were 17, 3% of concession revenue and decreased 30 basis points quarter over quarter.
While the team did a fantastic job offsetting the cost pressures are smarter costs are rising and we are seeing some impact, particularly on our key concession supply.
For example, as you may have read in the headlines commodity prices have been rising for items like canola in Chile, which impact the cost of key staples in our business, such as canola oil and butter topping.
First quarter global salaries, and wages were $79 8 million and decreased four 7% quarter over quarter, driven by reduced labor hours associated with the decline in attendance.
Somewhat offset by higher average hourly wage rates.
Facility lease expense was $73 7 million and represented a decline of six 9% quarter over quarter.
While largely fixed lease expense will fluctuate as percentage rent and common area maintenance move directionally with volume.
Worldwide utilities, and other expense was $86 9 million and decreased four 3% from the prior quarter driven by variable costs, such as credit card fees declined in line with volume.
Finally, G&A for the fourth quarter was $40 7 million and decreased 17, 4% quarter over quarter due primarily to lower share based compensation excluding.
Excluding the impact of share based compensation G&A was down $1 million.
Altogether, we generated a net loss attributable to Cinemark Holdings, Inc of $74 million, resulting in loss per share of <unk> 62.
Capital expenditures were $18 $7 million during the first quarter, including $6 6 million for new builds that we committed to prior to the pandemic and $12 1 million for investments to maintain or enhance our existing theaters such as luxury lounger reclining seats laser projectors and XD conversions.
We continue to anticipate spending approximately 125 million on capital expenditures for the full year 2022, as we balance investing to position the company for the long term, while strengthening our balance sheet.
Turning to cash we ended the quarter with $569 million of cash on the balance sheet free cash flow was negative $138 million for the first quarter.
As expected our free cash flow was impacted by lower adjusted EBITDA semiannual interest payments and working capital headwinds, which were primarily driven by the change in box office performance from December to March and the timing of employee bonus payments.
As we look forward, we continue to anticipate positive free cash flow generation for the full year 2022 based on our current industry recovery expectations and trends.
Moreover, we expect to continue to outperform the industry in terms of box office recovery and are working diligently to maintain our market share gains.
And between our strategic initiatives and evolving pricing tactics. We believe we can maintain a meaningful portion of the upside we've experienced.
With both ticket pricing and concession per caps as the film slate diversified and a broader range of moviegoers returned to the theaters.
It's also important to keep in mind, the inflationary pressures, we are facing particularly around labor rates and concession costs.
Of course, we will continue to pursue initiatives and evaluate strategic pricing actions to offset these cost pressures wherever possible.
In closing Cinemark has consistently demonstrated its ability to adapt and evolve in this dynamic environment and continue to do so in order to fully capitalize on the box office momentum and the opportunities that lies ahead that lie ahead.
Even in high inflation in recessionary periods theatrical movie going has historically proven to be a recession resistant industry people still want and need to get out of their homes for entertainment and going to the movies provide a reasonably price means.
Escape reality and enjoy a shared cinematic experience.
We remain bullish on theatrical moviegoing, and especially on our ability to continue to excel and deliver industry, leading results for all of our key stakeholders, including guests employees and shareholders.
Operator that concludes our prepared remarks, and we'd like to now open up the line for questions.
As a reminder to ask a question you will need to press star one on your telephone keypad to withdraw your question. Please press the pound key.
We have our first question from Mike King with Goldman Sachs. Your line is open.
Hey, good morning. Thank you very much for the question I was just wondering if you could expand a little bit more on your strategy in <unk>.
Live events.
You mentioned the success of the Bts concert for the industry.
Are you, mostly relying on things like like Fathom are you planning to invest more in the IMAX live events experiences. Thank you very much.
Thanks for the question, Mike I would say, it's it's a range of scenarios. So certainly what you mentioned events through fathom. The Bts concert came through another company Thats in this space culture Fogger IMAX is getting into this area. Additionally, we've been doing we have.
Hosted several of our own events.
Through our own network, our live Q&A sessions with talent ahead of movie releases, which have proved to be received very very well by consumers. So.
It could come through numerous number of channels. There's other other categories of events to like live sporting events and live gaming events. We just look at this particular area as one that has a lot of future potential.
Now that our capabilities are in place to be able to broadcast these types of events. It just it just opens up new opportunities. So it's something that we're going to be looking into and leaning into the key is finding things that have appropriate scale.
Does the events do typically take a bit of work to put together so you've got to make sure that the time is worth.
The effort at the end of it but we are optimistic about the opportunities that lie ahead in that space.
Great. Thank you very much and just as a separate.
Question I was just wondering if you could talk a little bit about your views on the normalization of average ticket price and concession per cap.
Just as the box office recovers and we get a more normal mix of moviegoers that include matinee weekday in children's tickets.
You very much.
Hi, Mike I'll take that one to start so on ATP and per cap.
To your point, we do expect to see some normalization as the film content Diversifies, our audience next diversifies as well and operating hours expanding what.
As I said in my prepared remarks, and we are pursuing opportunities that.
We are.
Our expecting will allow us to sustain a meaningful portion of the outsized growth that we've seen in both the ATP and per cab over the pandemic period.
Think about the ATP side for.
Ticket prices.
We've talked about strategic pricing actions in the past that's something that we certainly see as an opportunity.
Proceed cautiously with that as we are trying to reignite movie going in the process, but we do see opportunity there based on the testing that we've done to date.
And then in addition to that promoting our premium large format screens as Sean has mentioned we've seen a nice increase in the mix of people selecting too.
Take her watch movies in in XD and that has boded well for us. So we continue to lean in there and Youll see us do more on the marketing front to really drive awareness.
And then similarly on on the per cap side.
While we expect some normalization there.
We have seen really nice growth in incidence rates and even quarter over quarter from Q4 to Q1 domestically and I've seen that 250 basis point increase quarter over quarter there.
We do believe that our proactive category management.
Accidents happen.
Those initiatives that we've been pursuing are are going to bode well for us to be able to maintain much of the benefit that we've seen there on the.
Pricing is certainly another opportunity we see on the concession side as well, but again, we know we're going to proceed cautiously and leverage data and analytics to drive those decisions.
Great. Thank you Melissa Thank you Sean.
Operator, do we have another question.
Yes, we do have a question from David Karnofsky with Jpmorgan. Your line is open.
Good morning. This is actually John Cardoso on for David Thanks for taking my questions I guess just very quickly.
That ticket question from earlier.
Inflation at all affecting any of what Youre seeing right now are any of your planned pricing actions going forward.
A follow up.
Yeah, I can take that one John thanks for the question so on on the pricing side.
<unk> certainly.
Is something that we're cautious about and we're going to monitor closely but if you think about the approach that we're taking to pricing.
<unk> said previously we're looking to get more sophisticated with our approach to pricing and we're increasingly leveraging data and analytics to evolve to more of a dynamic pricing model over time, we're still early days, but we're not taking a blanket approach to to price changes.
We're leveraging our data and models and our test results to determine where we have that opportunity and with our testing and learning we're doing that on a continuous basis and we implement the opportunities we identify along the way through our testing so I understand we're in an inflationary environment.
That's something we absolutely are are taking into account.
But we do see pricing as.
One of the many levers that we have to to offset.
The inflationary pressures that we're seeing both on the labor side as well.
On the Cogs side.
Great.
And then just switching gears a little bit do you mind, giving us some color commentary on what kind of trends look like internationally, maybe framing it as how much ahead or behind the international.
As compared to what we're seeing here.
Domestic market.
Particularly maybe as it relates to attendance momentum. Thank you.
Absolutely. Thanks for the question John .
Internationally, specifically Latin America for Us had been trailing by a few months in terms of its recovery from Covid relative to U S. I would say at this point in time, it's it's fairly caught up you know if anything there may be a slight lag but.
We've seen tremendous progress and improvement across Latin America with regard to movie going in and also with regard to restrictions one of the the hold backs up until the first quarter had been there. We're still several capacity restrictions that had been in place those now have largely been lifted every.
There with perhaps the exception of Peru, where theres, a few social distancing restrictions still in place so.
That that.
I guess that hold back now is gone and consumer enthusiasm has been very positive and Furthermore, while vaccines had trailed the U S. Largely just in terms of accessibility because it took a longer time to get vaccines.
Throughout the region now vaccination rates are actually higher just about everywhere in Latin America than they are in the U S.
Both in terms of double in single doses as well as boosters. So.
<unk> made significant progress too and when we look at the actual gains that were made in box office. Both at the end of the year than first and fourth quarter as well as during the first quarter. We saw gains that were were similar to the U S and as you've seen from our results. Our second quarter. We we delivered our second straight quarter of positive EBITDA in our Latin America.
Business in the first quarter of 'twenty two.
Great Super helpful.
Thats It from me, Thanks, again, and congrats on the quarter.
John very much appreciate it.
Your next question is from Eric Handler with MTN Partners. Your line is open.
Thank you good morning, and appreciate the questions.
Two things first what does he talk about movie club, specifically, providing some stats that you guys used to give what percentage of ticket purchases were for movie club how much are they spending versus non movie club people often theyre going.
Any stats you can give around maybe globally, particularly.
Sure. Thanks, Thanks for the question, Eric Let me, let me throw out a couple that I just have top of mind.
As I mentioned in prepared remarks, we have now 980000 members. So we've grown from our peak at the end of 2019 of 950000 represents more than 3000 members per theater actually our percent of box office generated by our movie club members.
In the first quarter was also high at 20, 20% of our first quarter box office.
To date since the inception of the program in December of 2017, we sold over 77 million tickets through the program. So it's been highly successful in terms of the volume that <unk> that.
That we've sold.
And I think those are some of the key stats that we've provided historically.
That I put out there from from memory.
Great.
And then secondly, wondering if you could talk about what the construction environment look like.
In the U S and in Latin America in terms of <unk>.
Power Center development Mall development are you seeing anything.
There.
It could allow you to maybe accelerate.
The developments.
Sure I would say that.
Our view of development is.
It continued its picking up slightly but it continues to be certainly slower than pre pandemic.
I would say well along with that we obviously are being cautious.
Just as we continue to get a better handle on.
What the new norm looks like and just where many of the dynamics that are in motion now where that all settles out.
Not to say that we arent moving forward on certain projects. There are still projects that we had already in place prior to the pandemic. We've opened a couple of theaters, we have more coming as a result of that so things are picking up but I would I would definitely say that the speed of new mall development in this.
Speed of construction is certainly at a much slower pace still than it was prior to the pandemic specific to new builds.
Thank you.
Thanks, Eric.
Your next question is from the line of Jim Goss with Barrington Research. Your line is open.
Thanks, Good morning.
Yes.
I wanted to ask a little about the staffing.
The whole concept.
Touch on a couple of areas, but they are attracting employees.
The wage levels that are necessary as a quality level of the people a lot of businesses are having trouble getting getting what they want to throw away alright, right price in your case.
<unk> sufficient numbers to guarantee that good customer experience. So maybe if you can talk about those challenges.
Sure thing, Jim I'll start with that and if Melissa welcome to.
You know, it's an interesting one we certainly had quite a bit of staffing challenges at year end.
When we were trying to ramp up the volume of employees coming into the holiday period, when we saw demand growing.
And it was it was a struggle partly just due to the labor market.
Partly due to the state of the virus at that point with Omicron. So we were we were definitely understaffed pretty significantly at year end, both because of those two factors are going to hire as many people and then we also had a lot of people, calling calling in sick.
That normalized in the first quarter as volume came down we've been in a position right now where we have the the volume of staff that we need.
We are starting to ramp that up again as we head into the summer season.
So I would say.
Full answer to that question still remains to be seen a bit in terms of.
Are we going to continue to hit another challenge in getting the full volume of staff, we need so far things are progressing well. So there has been some improvement in terms of the labor market at least in our world. We also rely very heavily on studer.
Students College students in high school students in the summer months when volume grows it tends to work well because they are off from school and looking for a source of income and looking for part time work and that fits very well with our model and we're heading into that that period as well. So we'll see what the dynamics are there.
All that being said wage rates definitely have been a challenge and Melissa touched on that in her prepared remarks, we've certainly seen the need to to increase hourly wage rates, which is commensurate with what's happening everywhere. At this stage are everywhere across the U S. We've we've had to do that in.
In order to be able to attract and retain employees in this environment.
Jim just to add on a wage rate side. So in the first quarter given that we.
We had limited hiring needs and coming off of that peak period. In Q4 is as Sean mentioned and any wage pressure that we saw in Q1 labor was really just realizing the full quarter's impact of wage rate pressure and increases that we did in in the fourth quarter. So we will.
No more as we progress through our summer hiring in terms of whether any additional wage rate pressure is coming.
Okay. Thank you and one other thing.
After film release schedule in the first quarter it wasn't ideal for the U S. But it also coincided with the base.
Basically summer in Latin America I was wondering if that was a key challenge there.
And I was wondering how you looked at the upcoming pretty robust film's release slate and as to how it might.
Play in the Latin American markets.
Sure.
Definitely the the overall volume of content the challenges associated with that that we saw here in the U S. We're also challenges in Latam right.
The content that we had worked very well as I mentioned, a moment ago that the recovery has been is very well caught up there, but they're just there werent enough films frankly in the quarter from <unk>. So that also played into Latam.
As far as we look ahead look we're very optimistic about the the films that we.
We expect will be big in the U S. We expect will be big in Latin America. There are always are certain nuances, where certain titles will likely tend to over index in Latin America. It was others will under index in comparison to the U S. I would say one real time piece of data.
We had our fourth largest pre show opening ever last night with Doctor Strange, which is off to just a sensational start that was here in the U S. It's also doing phenomenal business in Latin America. So that's an example.
<unk> the title and by the way that's obviously months. After we had the biggest depreciable opening of all time with Spider Man. So two of the top five within the span of a months of each other so Latam. Dr. Strange is also performing exceptionally where well there like it is in the U S. As we look to the rest of the year.
Certain films, while we expect there'll be really big in Latam like Black Panther will conduct forever.
To a certain degree Elvis into certain degree top gun they won't be as big as they are here in the U S.
While other films like light year, and Jurassic World and minions. The rise of grew we think those will tend to over index.
They will play their more family oriented type films, which do exceptionally well in that marketplace.
So I guess all that being said, we're I think we're kind of equally optimistic about the overall slate of films in the year for Latam as we are for the U S.
Okay. Thanks, very much for the color.
Thanks, Jim I appreciate the question.
Your next question is from Ben Swinburne with Morgan Stanley . Your line is open.
Hey, good morning, Sean and Melissa.
Well.
Two questions for you guys won.
I think coming out of cinema. It feels like there is more alignment between the studios and exhibitors than we've seen in a while but obviously there is still.
Lack of supply and maybe demand on the sort of the small and mid size kind of the non blockbuster.
Titled and I'm, just wondering Sean if you have.
Expectations about normalization, there or are we just probably in a different world kind of post COVID-19 as it relates to the kind of the long tail.
<unk> so on the film front in a more concentrated blockbuster market going forward I know that was sort of a trend anyway.
Then I just wanted to ask Melissa on the marketing side should we be I think all your marketing Thats correct me, but I think all the marketing shows up in film rental for you guys tell me if that's incorrect and should we be trying to bake in some pressure from <unk>.
Rising marketing spend in that line as we talk through the rest of the year.
Thank you guys alright. Thanks for the question has been really really appreciate it.
Start with the first question on volume of content for the smaller films.
My sense is over time, we will see recovery in those categories of films and we're already seeing how how some of those films.
Are doing well even in this environment now as a broader category of movie Utica would come back some of the impact on those films that we've been experiencing this year and we'll experience throughout this year have obviously been COVID-19 related just in terms of the timing of dating of releases as well as films.
<unk> by production cycles that got delayed due to COVID-19 in terms of coming together.
As well as whats been going on with the advent of these streaming platforms, where in certain circumstances because of Covid. There were gaps in content and studios looked to some of these smaller films to fill those gaps as well as they were being used as as marketing channels to help try to drive new.
Sub growth.
Is that dynamic normalizes.
I think I believe and I think that some of that will shift back as we've talked about there clearly is an overall economic and promotional value in releasing these types of films theatrically because they they provide a range of.
A range of lift across those films in terms of how they are perceived.
Economically the.
The brand building just the the creative community desire to have those films released to ice tend to think things will shift back.
The other thing that I would just flag is with a more die.
Dynamic and flexible window, which isn't as rigid as it was at 72 days prior to the pandemic. These films have a better financial model. There is a better economic equation on these titles for the studios by being able to get into homes earlier, so just by virtue of having less risk in a better financial.
Model that too I think could lead to more of those movies being released theatrically and help to perhaps.
Transition some of that behavior, you mentioned, where everything was moving more towards really big blockbusters and more micro budget films and we'll see some of that mid category come back over time.
Okay.
And Ben on your question regarding marketing. So you are correct that.
Film rental our film rental line item does include our marketing expense as well as you think about modeling that going forward I think it's twofold first you know as.
As we start to come into a stronger film slate for the balance of the year film rental Yeah. We would expect those rates will be impacted particularly given some of the blockbuster content, where as you know we did that fall tire on a sliding scale. So we would expect film rent.
<unk> two.
To return kind of more in line with pre pandemic levels there in terms of the.
You are correct that we do expect to continue to invest heavily in marketing. So that is something not sure whether you're modeling in quarter over quarter versus pre pandemic period, but it would be reasonable to assume that we will continue to be spend.
<unk> marketing.
At levels commensurate with with where we were in Q1, if not slightly slightly higher as we head into.
A strong film slate.
That's great to hear and it sounds like Avatar is really a movie and its really coming out.
Yeah.
We don't control that decision, but it seems like that is a very.
Very very much the case based on what was communicated to us and it looks absolutely amazing that's.
That's great to hear thank you.
Thanks Ben.
Your next question is from Mike Hickey with Benchmark Company. Your line is open.
Hey, Sean Melissa and good morning, guys morning migrate results.
Good morning, Thanks for taking my questions I've got two.
First one Sean on Latin America, just curious when you think through.
Your time and capital spend that region. If you feel like the historic strategic rationale for operating there.
Holds.
The sort of new normal environment that we're entering here.
And if you sort of thought through.
Strategic alternatives.
Or reducing your footprint.
That region sort of reallocating your time and capital to U S network.
Your balance sheet.
Capital return to shareholders. The first question.
Thanks, Thanks for the question Mike.
Obviously, yes.
We're continuing to keep a look on the entirety of our company from our overall footprint and optimizing our footprint.
Get a better handle on the new norm I would say specific to Latin America, we do like the diversification it provides our company.
The long term growth prospects, that's still remain within that region. It also does provide us increased scale in strategic importance with our global partners.
Latin America in particular has a very strong movie going culture, it's very social family oriented activity in many markets throughout the region remain underpenetrated. So over time. There is there is growth potential clearly there have been challenges with some of the recent economic political and.
Foreign exchange dynamics that.
That has been underway, but again, we think the long term fundamentals are positive and we've got a we've got a great team there strong teams with tremendous domain expertise, we've got excellent market share in all our operations there fully self sufficient so we're not in a position of having to to put new capital into the region where large.
<unk> circulating in using capital for growth that already exists there so.
So we'll obviously, we'll continue to monitor over the course of.
The next couple of years as things further evolve, but that's our that's our general feeling on that and let him.
Alright, Thanks, John I appreciate the color second question on the product volume.
Disconnect I think it seems like it's primarily fuel.
Fewer.
Wide releases I mean is this sort of an issue that we're going to be dealing with for multiple quarters multiple years. I mean is it sort of an impairment.
Here or is it something that.
You think sort of fix itself, obviously, a lot of film development compromise some of the gas stream, but just curious if you can.
What the fixes and then.
Tying into that.
You and your team have been.
Very forward leaning into the opportunity to.
To work with OTT providers and I think.
You've tested several.
Shanda correct me, if I'm wrong, but I think several films.
With Netflix.
So just curious I think there is sort of the idea that now we can start to see some OTT films come in and fill the gap and really that would be extraordinary moving from a box office that it's Australia and now streaming.
Coming into the theatrical experience using <unk>.
<unk> windows, so just that.
Thing that can happen. This year is it next year is it still a pipe dream or should we be encourage thanks guys.
It's a great question, Mike Thanks, I think.
I think definitely the potential is there and it's not a pipe dream I do think that those are real opportunities and we will see many of them play out over time speaking specifically to the timing element of the question you had you're right definitely are probably our biggest challenge.
<unk> this year based on what we're seeing right now is just the volume of films you know the volume of films overall because of how several movies windup shifting into 2023, and particularly in the smaller categories of films, which we just talked about a moment ago.
We expect that's going to be a challenge throughout the entirety of this year like we you know while there still could be some things that shifts back and forth around which is which is the norm for our industry. We don't see those gaps filling in fully this year. It's just timing wise, it's going to be hard to do that what happens with that going forward, we will see.
I. Just this is my personal sense is that I think some of that will work itself out in 'twenty three I don't think it'll be as significant of a gap in 2023 and likely get back to more of a normalized level in 2024, and I say that because by that point the.
The lingering effects of Covid ideally knock on wood should be gone.
And I think the streaming platforms will be in a much more mature place and as that happens I think thats when the pendulum it fully shifts when the value of theatrical in serving as a promotional vehicle for streaming platforms and elevating the perception of content and being accretive in comp.
Elementary to streaming I think that value is going to fully come back in to the overall decision making process for the studios.
As far as the OTT content, yes, we have been testing youre absolutely right. We have been testing and learning in terms of films with Netflix, we're having conversations with all of those providers will see were in terms of the timing of that we are optimistic that we will we will.
Have some additional films from those over the course of this year likely the latter half of this year I don't think we should one should expect that that will fully fill the gaps in the slate right now in 2022.
But we do think certainly over time that could provide.
Way to cover any gaps that may exist from traditional studios or ultimately lead to incremental volume to the extent traditional studios get back to their historic levels of volume. So we're again, we're very encouraged and optimistic about where that all plays out.
Thank you Sean Thank you Doug.
Thanks, Mike.
Your next question is from Eric Wold with B Riley <unk> Securities. Your line is open.
Thanks, Good morning.
Two questions that hopefully relatively quick I guess, how do you think about the price elasticity of your customer base kind of from what you've seen.
In the past when theres been prior periods of.
Recessionary concerns on the economy.
Tendency consumers.
Still kind of a theater going to spin the concession stands there.
That ratio kind of moves or that mix moves or.
Stay away.
Altogether the Warner.
The other is both.
Eric I'll take that one thank you for the question. So historically theatrical exhibition has proven to be a recession resistant industry box office actually grew during many recessionary periods over the past 30 years, so consumers still want and need entertainment and movie going.
It remains one of the most affordable and convenient forms of out of home entertainment.
I think the other thing that I would call out to us.
<unk> the current inflationary environment, we are continuing to see consumers choose premium amenities like XD, coupled with outsized food and beverage purchases relative to the pandemic period. So we're certainly still seeing them trade up and in this environment and I would just add you know one of the things that I found.
Fascinating being around this business for a while now is the same dynamics play out in the U S and Latin America that Moelis was just describing even in even in moments, where theres been more challenged economic situations in Latin America, what I've always found amazing is.
We've continued to see consumers.
Basically upgrade to the more premium options of food and <unk> and XD and things of that sort so that while they may tend to cut back on.
Bigger types of expenses like vacations, and sporting events more coffee things going to the movies still remains relatively affordable and they continue to choose the more premium options when they come to the movies.
Perfect and then.
Just thinking about the recovery of the U S and Latin America.
Yes.
Assuming both get back to kind of pre pandemic levels.
Over the near term how do we think about the relative margins between the two Bruce is worthy we're in pre pandemic.
More opportunity for <unk>.
Latin America U S to expand this.
Hey, Nick or just one phase more risks on the other one.
Yes.
Adjusted EBITA margin, so historically, our international adjusted EBITDA margins have been slightly below our domestic adjusted EBITDA margins as you think about the go forward I think one thing too.
Keep in mind is that there's a lot of puts and takes right now.
Rod.
Across the business globally.
Box office and attendance certainly the biggest driver but also.
<unk> seen.
Big outperformance from us from a market share perspective, as well as elevated ATP and per caps and then the dynamic on the cost side that we have with inflation right. Now. So I think there's too many puts and takes right now to call where that that's going to shake out.
But certainly we're going to be striving to continue to deliver on.
Historical track record of achieving industry, leading adjusted EBITDA margins and that would.
That would be what we're shooting for.
Got it thank you thanks, Eric.
Your next question is from the line of Meghan Durkin with credit Suisse. Your line is open.
Hi, Thanks.
I have a lot of talk at Cinemark on about finding the right audience and cutting through the clutter particular, Larry the way around that mid tier films. So I wonder if melissa could expand a little bit on the marketing efforts and what exactly youre doing that's new and innovative on that front and is the data that you have on your attendance and loyalty is that helping.
The negotiations with the studios.
So I'll start with that Megan so.
From a marketing standpoint, and we do and this is kind of gets into your ear point that on loyalty, but we do have the benefit of.
Having customer data access to customer data through our loyalty programs, whether it be through our our free programs or our paid program. So we are able to target to our customers.
And we're able to give them a more personalized experience and surface relevant content to that and so that is something that we're certainly leaning into as a team and we certainly broadened our reach over time as we continue to expand our members both in our free to air and free and paid programs.
And I would say too just in terms of our marketing efforts I mean, those those would span as you would expect across various paid channels as well as.
Our free which is reaching folks through email.
Directly it in that way as well that but but pretty broad broad efforts across multiple channels is as you would expect any retailer to to use.
With the benefit of having a pretty significant first party customer data that we can leverage in that process and I would just add Megan like we're fortunate that we had been leaning into this over four years ago building, a very comprehensive Omnichannel network that is now in place that we're fully taking advantage.
So we're in great shape with where we already are today and we're continuing to enhance it and we were directly connected to over 20 million unique addressable guests that we can communicate too and we're serving out billions of impressions every single month via social media engagement personalized email earned.
Media stories are highlighting the benefits of the cinemark movie going experience.
And attracting people to buy a ticket with great conversion success. Your question specifically on the studios to I mean, I think the studios have recognized that we have a lot of great partnership and collaboration with the studios because the very efficient channel for marketing to consumers that has a high conversion rate. So we've had great success in joint.
Campaigns to drive more movie going create more awareness and we've done specialized trailers that celebrate the cinematic movie going experience in XD experience, specifically, so we're having really strong success in that and we think there's a lot more to the benefit from over time.
And if I can just get one last one in can you remind us of your approach to acquisitions AMC took on new theatres, including my local bowtie locations here in Connecticut, I assume you looked at those as well. So can you discuss your level of interest in taking on new theaters, what your ROI thresholds would be and what areas would be most attractive.
Sure.
Absolutely I mean look we are we look at everything in.
In the market when it comes to market and also things that are long before coming to market is as we've talked about optimizing our footprint that involves growing recalibrating and strengthening our circuit wherever is appropriate. So we are certainly open to M&A and acquisition targets, we tend to favor.
Our high quality assets that we think can deliver solid assured returns over time.
I'd say the environment right now still remains a little complicated in terms of just some of the clarity of where the new norm fully settles in certain expectations of sellers in the marketplace. So for many of the deals that have been out there that we've looked at and we've had conversations with over the years, we havent found that right.
Point of alignment that delivers those returns that we would expect to achieve I would also say where we're not necessarily in the M&A game. Just just to grow you know growth for growth's sake. We are continuing to remain disciplined with regard to how we're deploying our capital in targeting financially accretive <unk>.
<unk>, that's served us very well over time, and we think it will continue to do so going forward. So we do think that there will be more opportunities that will fit our model.
Not too distant future I'm not trying to signal anything I'm just.
Think that.
I tend to anticipate over the next year or two there'll be more opportunities, but that at least is how we are approaching M&A.
Terms of the way we look at it.
Thanks.
Thanks, Megan very much I appreciate it.
There are no further questions at this time I'd like to turn the call back to management for closing remarks.
Okay I'd just like to thank you all again for joining US this morning, and we very much look forward to speaking again, following our second quarter results.
At the movies.
Thank you speakers, ladies and gentlemen. This concludes today's conference conference call. Thank you all for joining you may now disconnect speakers. Please stay on the line.
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Okay.
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