Q2 2022 Cinemark Holdings Inc Earnings Call
[music].
Greetings welcome to the Cinemark Holdings, Inc. Second quarter 2022 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to your host Chanda Brashears you may begin.
Good morning, everyone. At this time I would like to welcome you to Cinemark Holdings, Inc. Second quarter 2022 earnings release Conference call hosted by Sean Gamble, President and CEO and Melissa Thomas CFO 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.
They 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 results to differ materially.
It really 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 comparison, we will be.
Referring back to the second quarter of 2019, unless otherwise indicated as the second quarter of 2021 was severely impacted by Covid closures government restrictions and limited new film releases I would now like to turn the call over to Sean Gamble.
Shanda. Good morning, everyone. We appreciate you joining us to discuss our second quarter 2022 results.
Following numerous examples of strong individual film performance in the first quarter that delivered results in line or better than pre pandemic expectations. The second quarter marked another significant step forward in the resurgence of the theatrical exhibition industry's recovery from COVID-19.
North American industry box office exceeded $2 $3 billion during the quarter, which was nearly triple that of two to 2021.
Continued improvement in consumer sentiment regarding the pandemic and movie going as well as a more consistent release cadence of compelling new films with broad consumer appeal and is it exclusive theatrical window culminated in the highest quarterly box office, yet since the onset of the pandemic.
According to ongoing weekly surveys conducted by NRG between 85% to 90% of moviegoers continue to indicate they are now comfortable returning to movie theaters, we have certainly witness that improving sentiment over the past few months as June and July delivered gross domestic box office receipts that were.
Approximately 90% of 2019 results.
Furthermore, as we've indicated in the past moviegoing, begets, moviegoing, and a growing volume and diversity of new releases with a steadier week to week release pattern continues to bring a wider range of audiences back to theaters.
Meaningful advances have been made in the return of older female and family moviegoers, which our audience segments that had been slightly lagging and those advances have helped produce multiple performance records across numerous categories of films.
During the second quarter action in superhero fans were castigated by films like Doctor Strange into the multi verse of madness, which delivered 75% more domestic box office in the first Doctor Strange and Jurassic World Dominion, which opened in line with its predecessor fallen Kingdom from 2018.
Families came out in droves for films like Sonic the Hedgehog to generating almost 30% more box office than its first installment and more recently minions. The rise of grew which became the fourth of July weekend biggest opening film in history.
Par in suspense audiences have been thrilled by titles like the Blackstone and nope.
Specialty film fans were enthralled by everything everywhere all at once so much. So it is now 824 is highest grossing film of all time.
Older audiences Couldnt help falling in love with the release of Elvis which continues to hold exceptionally well with minimal week to week drops and already has grossed more than $130 million of domestic box office.
And then of course, there is the phenomenon top gun Maverick, which has already surpassed titanics original run to become Paramount biggest movie ever with more than $650 million of domestic box office and it is still going.
These remarkable results across a wide range of films clearly demonstrate that consumer enthusiasm for theatrical movie going is as strong as ever across all categories of audiences.
And not only our consumers clearly demonstrating their strong sustained interest in theatrical moviegoing, but we continue to see significant growth in upgrades to premium amenities and food and beverage even in the midst of a high inflationary environment.
Almost 15% of our second quarter box office at Cinemark was derived from our premium large format auditoriums X D. In IMAX, even though they only account for 5% of our screens.
That mix represents a 400 basis point increase relative to the second quarter of 2019.
Similarly, our box office mix from D box motion seats is up 100 basis points over the same timeframe.
And food and beverage consumption remains highly elevated with worldwide per caps up over 25% versus 2019.
This over indexing of premium offerings, along with the box office results realized during the second quarter provide further validation that our industry is most closely tied to the strength and volume of film content and not necessarily ebbs and flows in the economy.
As concerns are growing about a potential U S recession, it's important to remember that theatrical moviegoing provides a reasonably priced premium out of home entertainment experience and domestic box office actually grew in three of the past four recessions.
The theatrical exhibition industries continued recovery during the second quarter, certainly played through to Cinemark and both our topline and Bottomline results.
Domestically our box office performance surpassed North American industry results by over 300 basis points comparing to Q22 against <unk> 19, and we had the largest share gain of all the major exhibitors over this period.
Likewise, our second quarter Latin America attendance outpaced its corresponding industry benchmark by approximately 400 basis points compared to <unk> 19.
Our Latin American business continues to benefit from being one of the first modern circuits to open across the region more than 25 years ago and I'm thrilled to report that Cinemark was recently voted among the top 10 overall brands in Latin America.
The combination of improvements in the second quarter film slate and associated overall resurgence in movie going and our sustained focus on our strategic initiatives drove our second quarter global revenue to $744 million, which was up more than 150% year over year.
Adjusted EBITDA also grew to $138 million, which is a $150 million improvement from <unk> to 'twenty one.
I'd like to commend our studio partners for delivering such compelling films in the second quarter and our entire cinemark team for their dedication and execution to deliver such strong results.
As I indicated.
<unk> last quarter Cinemark continues to benefit from the investments we've made and continue to make in technology premium amenities food and beverage marketing and loyalty programs and guest service.
These investments clearly had a positive impact on our second quarter results and they remain focused on our five key strategic priorities of continuously enhancing the experience we provide our guests building audiences growing new sources of revenue streamlining processes and optimizing our footprint.
I already described how we're benefiting from a significant uptick in premium amenities. Thanks to the investments we've made in enhanced formats like our XD auditoriums D box seats and expanded food and beverage Likewise the investments we've made to recline over 65% of our domestic circuit continued to pay off as those theatres have.
<unk>, the fastest recovery coming out of the pandemic.
Meanwhile, our recently rolled out snacks in a tap online food and beverage ordering platform continues to gain traction and we're already seeing it produce basket sizes that are 3% larger than in theater purchases, while helping to reduce lines and wait times for other patrons.
And the workforce management program, we initiated prior to the pandemic is delivering material productivity savings that are helping to offset inflationary wage pressures without adversely impacting our guest satisfaction scores that continue to exceed 90%.
We also continue to derive meaningful benefits for movie club, our industry, leading subscription program, which is still growing in popularity and reached a significant milestone in the second quarter exceeding 1 million members or.
Our movie club membership now surpasses pre pandemic levels by more than 10% and during the quarter movie club drove over 20% of our domestic box office, which is up over 600 basis points from 2019.
The ongoing success of this program is not only a testament to the exceptional value movie club provides our guests but is also one more indicator of the sustained enthusiasm consumers have regarding moviegoing.
And finally as we work on comprehensive advances in our overall guest experience. We felt it was the right moment to update the look and feel of our brand to provide a more modern engaging and cohesive aesthetic.
We recently began introducing our new brand concepts into our marketing materials website and App. For instance, you may have noticed our new cinemark logo at the top of this quarter's earnings release and we're excited to continue rolling out these concepts in our concession vessels theater uniforms, and new theater designs over the coming months.
As a result of our sustained investments over the years the operating enhancements we've made throughout the pandemic and the further advancements we are achieving through our strategic initiatives. We believe cinemark remains exceptionally well positioned to navigate our industry's ongoing recovery and fully capitalize on our continued resurgence in movie goer.
<unk>.
The full timing and extent of that resurgence remains dependent on a further rebound in consumer sentiment regarding the pandemic the sustained quality and diversity of new films and the volume of future releases.
While we are optimistic about continued improvements in all of these areas over time. The next two months will be challenged by another temporary dip in new release volume that is predominantly due to seasonality pandemic related production delays and film release date shifts.
That said, we look forward to a strong close to 2022 and the many promising films that are lined up as we round out the year, including the action packed release, a bullet train. This weekend anime film Dragon ball Super superhero the thrilling conclusion of the Halloween franchise with Halloween and DC.
<unk> Black Adam starring Dwayne Johnson romantic comedy ticket to Paradise, with George Clooney, and Julia Roberts, David O Russell Amsterdam, the highly anticipated Black Panther will conduct forever, which just yielded one of Marvel's top trailer launches of all time with an astonishing 172 million views in its <unk>.
24 hours than there are family films Strange World and puts in boots. The last wish the sequel tissues am theory of the gods, the Whitney Houston biopic I want to dance with somebody and of course avatar the way of water.
We also remain highly encouraged as we look beyond 2022 to next year's lineup of films, while it is still a bit early in the process to evaluate the entirety of 2023 slate the volume an array of next year's Tentpoles already looks compelling with releases in the first half of the year that include ant man and the wasp.
Quantum mania, Aquaman and last Kingdom, John Wick Chapter four Super Mario Brothers Guardians of the Galaxy volume three fast and furious 10, the little Mermaid Spider man across the Spider verse, the flash and a new installment of Indiana Jones.
In the second half of the year is no less exciting with films such as mission impossible Dead Reckoning part one Barbie Oppenheimer. The marvels Madam web a prequel to hunger games trolls three due in part to blade and a new Star Trek movie.
And while we have less visibility into the smaller and mid tier titles for 2023 at this point in time, which is typical this far out we expect to see the volume of these films continued to improve as their individual film performance remains favorable and content production cycles returned to normal.
So in summary, we believe the second quarter's results and recent film performance clearly demonstrate that consumer interest in going to the cinema remains strong and vibrant as.
As the adverse impact of the pandemic has significantly improved and a growing number of diverse films have been released theatrical attendance has materially rebounded across all categories of genres and audiences.
Furthermore, the sustained progress we are making at cinemark advancing our consumer growth and productivity initiatives continues to yield outsized performance results.
We believe all of these factors are indicative of positive long term prospects for our industry and cinemark.
Melissa will now provide further information about our second quarter financial results Melissa.
Thank you Sean.
Good morning, everyone and thank you for joining the call today.
We are highly encouraged by the box office momentum we saw in the second quarter.
North American industry box office exceeded $2 3 billion during the second quarter, representing a 73% recovery.
2019 levels.
That momentum carried through to our results with cinemark, achieving 76% box office recovery in the quarter.
Starting with our worldwide results.
Welcome to 52 million guests during the second quarter.
Were pleased to generate $744 1 million of total revenue and $138 3 million of adjusted EBITDA.
Resulting in an 18, 6% adjusted EBITDA margin.
Our ability to deliver a strong adjusted EBITDA margin in the quarter is reflective of our team's ability to adapt quickly to a dynamic environment.
Effectively capitalizing on the box office recovery.
Managing through inflationary pressures.
Tightly controlling costs.
Turning to our domestic operations, our second quarter attendance was $34 million.
The most gas we observed since the onset of the pandemic.
To accommodate the steady stream of films and strong consumer demand, we expanded our operating hours throughout the second quarter.
So our operating hours still trailed 2019 levels.
We delivered $309 7 million of domestic admissions revenue in the second quarter.
With an average ticket price of $9 and 11%.
Our average ticket price remained elevated compared with pre pandemic level and continues to benefit from strategic pricing actions are favorable ticket type mix.
And a higher mix of premium large format box office.
Our domestic concession revenue was $234 6 million.
With our per cap, reaching another all time high at $6 90 in the quarter.
Our concession per cap was up 26% compared with the second quarter 2019, driven primarily by higher incidence rates for our core concession products and alcohol.
Our per cap results also reflect strategic pricing actions instituted during the quarter to mitigate some of the inflationary cost pressures we are experiencing.
Other revenue was $56 5 million during the quarter.
Altogether, our domestic operations generated total revenue of $600 8 million and adjusted EBITDA of $111 1 million in the quarter.
<unk> and an adjusted EBITDA margin of 18, 5%.
Moving to international we serve 18 million patrons in the second quarter.
Our Latin American operations generated $72 2 million of admissions revenue $51 4 million of concession revenue and $19 7 million in other revenue.
International delivered its highest post pandemic results in the second quarter with total revenue of $143 3 million adjusted EBITDA of $27 2 million and a 19% adjusted EBITDA margin.
Underscoring our international segment's ongoing recovery.
Now shifting to global expenses.
Film rental and advertising expense was 58, 3% of admissions revenue.
At the 170 basis points compared with the second quarter of 2019.
This rate reflects a high concentration of blockbuster films during the quarter, which skew higher on a revenue share agreements with our studio partners.
As well as our stepped up investment in marketing to reignite theatrical moviegoing increased loyalty to cinemark and build our audience says.
Concession costs were 18, 4% of concession revenue and increased 20 basis points compared with the second quarter 2019.
Driven by supply chain challenges and rising costs across several categories, including key commodities such as canola oil.
We continue to work diligently to offset these impacts whether it be by considering product alternatives broadening our supplier base or otherwise.
Our global salaries and wages were $100 2 million in the second quarter and decreased 8% versus the second quarter of 2019 primed.
Primarily driven by lower attendance and labor management efficiencies.
Partially offset by higher average hourly wage rates associated with the tighter labor market.
We were really pleased with our ability to move quickly to expand and contract our operating hours and labor hours throughout the quarter based on fluctuating attendance levels.
Facility lease expense during the quarter was $80 3 million and declined 10, 3% driven by a reduction in percentage rent and common area maintenance expense due to lower attendance levels.
Worldwide utilities, and other expense was $106 5 million and decreased 13, 2% from the pre pandemic period, driven by variable costs, such as credit card fees that declined with attendance.
G&A for the second quarter was $48 2 million and increased eight 8% from the second quarter of 2019, due primarily to higher share based compensation legal fees and cloud based software expense.
Globally, we generated net loss attributable to Cinemark Holdings, Inc of $73 4 million, resulting in loss per share of.
61.
Yeah.
Capital expenditures for the second quarter were $21 9 million, including $9 2 million for Newbuild, and $12 7 million to maintain or enhance our existing circuit.
We continue to target 125 million in capital expenditures for the full year 2022, albeit supply chain constraints may impact our ability to spend at this level.
As a reminder, the company's peak Capex years, where in 2015 through 2019 as we utilize the strength of our balance sheet to a client a substantial portion of our circuit pursue new build and expand our food and beverage offerings among other things.
All that said, while we expect our capital expenditures to step up from this year's levels going forward, we do not anticipate returning to those peak capex cycles.
Shifting to the balance sheet, we ended the quarter with $695 million of cash we generated 143 million of free cash flow in the second quarter due to our adjusted EBITDA performance and working capital benefits, partially offset by interest payments and capital expenditures.
Looking forward, our third quarter results will be impacted by a later film slate in August and September as well as the timing of our semiannual interest payments, which may lead to negative free cash flow during the quarter.
Based on our current industry recovery expectations, we continue to anticipate positive free cash flow generation for the full year, even with the ongoing inflationary pressures around wage rates and concession costs.
From a capital allocation standpoint, our priorities continue to be centered around strengthening our balance sheet, which includes delevering overtime.
And making the right investments to position the company well for success over the long term.
In closing we are highly encouraged by the box office recovery in the quarter as well as the team's ability to capitalize on the industry's resurgence well.
While operating efficiently to deliver strong second quarter results.
As we look forward, we remain optimistic regarding theatrical moviegoing and maintain our focus on delivering shareholder value over the long term.
Operator that concludes our prepared remarks, and we would now like to open up the line for questions.
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One moment, please while we poll for questions.
Our first question is from Eric handler with M. K M Partners. Please proceed with your question.
Yes, good morning, and thanks for the question.
To get a handle on your expenses and margin potential.
As far as I look at your expenses in <unk> salaries, and wages and utilities were up.
Up pretty meaningfully sequentially.
How much of that was expanded hours versus inflation and then maybe you can provide some perspective in terms of relative to 2019 those expenses were down.
You know high single low double digits, and how do we think that extrapolates into the third and fourth quarters.
Sure. Thanks for the question, Eric So I'll start with the salaries and wages side. So there what we saw in Q2 was a couple of things. So first when you think about the comparison relative to Q2 of 2019.
Effectively we have lower attendance and we have we're benefiting from our labor efficiencies that we put into place, but that said as you know similar to the service industry more broadly we are seeing pressure on the wage rate side.
On due to inflation. So you are seeing that come through in those comparisons relative to Q2 of 2019, while we did expand our operating hours.
We.
Our wage rate pressure is going to be the bigger the bigger factor there.
Have started to see that ease as we think about it we ramped up our staffing for the summer season, and we didn't see.
The same staffing shortages or while we face some small wage rate pressure it wasn't.
Nearly to the extent that we have been saying it was more in pockets, so and I'd say, it's still unclear, where that's going to settle out we'll run into that hiring season again in Q4, when we ramp back up for the strong film slate, but certainly there are puts and takes.
They're with operating hours labor efficiencies as well as the wage rate dynamics.
And then for from a quarter over quarter perspective there.
You're seeing an increase in attendance given Q1, having a pretty light film slate.
Ramped up staffing in Q2, as you would expect to to accommodate that.
On the utility side.
A few things that I would highlight there.
We have relative to Q2 of 2019.
Certainly volume attendance is going to be a factor there there's variable components like credit card fees and commissions to third party ticket sellers that are going to move in line with volume, but we do have some expenses within that category that have both a fixed and variable mix. So that's gonna be utilities.
Maintenance janitorial and then of course.
Our utility pricing is in there that's only about 20% of that utilities and other bucket.
Are seeing utilities costs rise.
You see that in pricing also record hot summer so that is certainly going to be reflected.
And the number isn't even when do you think quarter over quarter kind of that same dynamic we have more people running through our theaters and we're pumping air conditioner hang through there so that that certainly is going to impact our cost.
So those are those are really the key factors that we're certainly both on the labor side as well as utility side trying to push through offsets and efficiencies, where we can but there are certainly inflationary dynamics at play.
That's very helpful and then just.
As a follow up and continuing on that question. So when you have a month like July which was essentially flat.
With 2019 levels.
Ken.
Hey, your profitability or your EBITDA.
Be at a similar level.
[noise] over Youre speaking to overall more EBIT overall EBITDA.
Yes, I'm just looking at your profitability or your margin.
If you have.
A particular month.
That is similar.
Essentially flat with pre pandemic levels are you capable of generating the same level of margin as you did prepaid stomach yeah. So Erik the way that I would think about that is there. There's a couple or several puts and takes there but key driver is going to be attendance and box office.
That gives us a leverage in the model and that's largely going to be a function of volume and quality of films released with broad consumer appeal, we've seen through Q2 that consumer enthusiasm for movie going remains strong.
And that we have average ticket prices and concession per caps those remain elevated relative to 2019, so that is a tailwind.
Two our margins now on the flip side, we do have pressure that we've talked about on the labor and supply chain side now we are benefiting.
More on the concession per caps at an average ticket prices from a margin perspective more so than in some of those inflationary impacts that we're seeing that.
That said, we need to see how that plays out and attendant. The boxes. It's really the single single biggest driver that comes into play or the other the other stuff, there's positives and some headwinds.
That are that are certainly offsetting but its attendant demand.
Thank you I appreciate it.
Our next question is from Ben Swinburne with Morgan Stanley . Please proceed with your question.
Thank you and good morning.
I wanted to ask two questions one on the concession per caps, which are up really nicely from 2019 levels.
How are you guys thinking about continuing to drive that as we head into 'twenty three and beyond what are your sort of you know.
So your strategic goals and operational strategies to keep that growing.
And particularly if the consumer that comes under a little more pressure.
Just given how much that's up from a couple of years ago or are you feeling good about the ability to grow that going forward.
And then on movie club seems kind of a question how are you thinking about innovating.
And evolving that product over time.
I mean, it's it's a pretty meaningful part of your overall box office is a differentiator for the company.
What do you have planned.
Want to talk about.
To continue to drive that business and make it a bigger driver for the company. Thank you.
Alright, I'll start with the per cap piece.
On the per cap side then.
We continue to be encouraged by what we're seeing there with our per caps on the domestic side, reaching 690 in the quarter and up 20.
26% versus Q2 of 2019, what we're really pleased about is the majority of the growth in our per caps is primarily coming from higher incidents that as I said in my prepared remarks.
On our core concession side as well as as alcohol, but we're really pleased with the volume side of things we have put in place.
Some strategic pricing actions.
To mitigate some of the inflationary cost pressures that we are seeing on the per cap side and we do expect despite once again hitting record level per caps, we do expect that we'll see some normalization there timing and extent, though it's certainly difficult to predict from an initiative stands.
Point, we do certainly have an eye on how do we maintain those elevated per caps going forward.
Things that we're focused on so our snacks in a tap mobile ordering platform really looking to promote further adoption of that that's going to drive a more frictionless experience not only does it result in a higher basket sizes that Shawn talked about but it also reduces the lines.
<unk> keeps other customers going in and purchasing concessions also leveraging self serve product displays.
Second point I would call out is on the proactive category management side, what we're really focused on is ensuring that we have the right product mix on a theater by theater basis, and leveraging plan O grams to further optimize purchase incidents.
And then the third item strategic pricing actions, while we have taken actions to push through.
Some inflationary impacts.
As part of our overall pricing strategy.
On an ongoing basis, leveraging data and analytics to really.
C, where we had the opportunities on the price side and we do think we have opportunities there.
And I would add Ben on movie Club look we're just thrilled with the continued success of the program as I mentioned in the prepared remarks, obviously, we hit a major milestone with 1 million members in the second quarter and we continue to see.
Our program grow at weekly rate that is comparable to what we saw pre pandemic. So we still think there's quite a bit of growth just in acquiring consumers into the existing program that said to your question on where do we go from here.
We're constantly adding little tweaks here and there one of the biggest things. We did more recently was the introduction of a new elevated tier in movie club platinum we put that in place just at the end of last year. We have over 100000 members that qualified for that level of program.
It's still very early phase into that it looks like it is working well and there are things, we're doing for surprise and delights and looking at other iterations or slight tweaks to that so I think we're just going to continue to work on our consumer acquisition strategies and there are a whole host of different things, we're doing to continue to attract people into the.
Graham and then just figure out ways to provide meaningful but again are our guest satisfaction rates with movie club.
Exceed 95% overall, so we just consistently are receiving exceptional feedback about the program as is a big part of that is these kind of special things that we bring up now and then and just the overall value that exists with the core aspects of the program.
Can I just follow up Marissa on your comment about normalization of per caps does that mean growth slows from 'twenty to 'twenty, 6%, which doesn't sound like a surprise, where do you think it comes down because it's just it's sort of inflated by reopening and consumer enthusiasm.
You certainly have the macro trend right of folks shifting into experiences and indulging as they they go back out from from the pandemic period. So we certainly think there could be an element of that but frankly, we just we haven't seen it and it's something we would've would've thought would've happened by now.
Now so far.
For us they thought as potentially some of that could come down.
But again, we're trying to offset that with different strategies and I would just add to that Ben our historic growth rate was around 5% to 6% annually from a per cap standpoint, when we have a whole series of initiatives you Melissa spoke to several of them that we're working on that we think will have the ability to sustain that what Melissa.
He was saying to it it's just you see it in just general experiential things travel, where there seems to be a continued over indexing of consumer behavior exceeded restaurants, if people going out. So we're just watchful for is there ever just a step change back to a certain level. We don't think its going to come all the way.
Back to pre pandemic, but a bit of a step change does that throttle down as we get a little bit further distance from the pandemic and then you're building off of that new baseline on a 5% to 6% range. So its still a little bit unclear what that is broadly in terms of consumer behavior, but so far we haven't we haven't had any any hints of that.
Great. Thank you so much.
Our next question is from Steve Kay Hall with Wells Fargo. Please proceed with your question.
Good morning, guys. This is actually Omar on for Steve.
Hey, Omar.
Maybe for Sean as you mentioned in your prepared remarks, the supply films come into market has been below pre pandemic levels could you maybe unpack how much of that is due to production production delays in scheduling shifts versus small and mid sentence films going direct in the streaming.
And also do you expect production delays to continue into 'twenty, three and how do you see through the environment improving from from here. Thanks.
Sure.
Well I don't have a specific breakdown on that you think it would be tough to break it down precisely but definitely the majority of that volume impact is associated with the.
Production related delays through the pandemic and we saw even several films that were originally slated for 2022 as we went through the first half of the year got pushed into 2023, just bike continued COVID-19 incidents onset and things of that sort. So the lion's share is clearly associated with that.
Yes, there is perhaps some impact still of some of the early phases of these new streaming platforms looking to some of the the smaller films as marketing vehicles to try to gain new subs, but also an extension of production delays when some of the serialized television.
Content was not available there was a need to fill gaps and we saw some of that take place looking to films as a way to service that it seems like that is lessening as we go ahead and certainly when you hear public commentary by some of the different studios.
They are publicly stating theyre looking to lean more into the theatrical with their key film products versus the other way around so I think directionally things are swinging back certainly as our industry now is more heavily rebounding in theatrical is delivering a more significant revenue stream once again to the <unk>.
So my personal sense is as we look forward, yes in 2023, we could still see a little ongoing effect, usually I mean, just when whenever theres, a ramp down or delay in production. It can take two to three years to get that back up to full swing, so a little bit of that could still affect 2023 and getting back to full tilt.
But.
Yes, as we just look at the the.
Numerous examples again of films that are performing across all types of films.
A theatrical release as we've said in the past it contributes meaningful value to the overall asset value of those films. It provides meaningful promotional value to those assets. When they are released into the home and we think because of that it's just going to be an ongoing driver of more cars.
<unk> being released back into theaters over time for the studios and again, we're hearing more and more commentary about that and we're also optimistic that the traditional <unk>.
Dreaming players as Theyre looking for new sources of revenue and Theyre looking to compete in any environment now that has got significantly growing competition that we think theres a lot of mutual benefit in partnering together more extensively on larger theatrical releases with that content, which also is another source of product.
To fill any type of gap in volume.
That's very helpful and I have a follow up if I may.
Maybe Sean.
With Canada reopening in the box office normalizing, how should we think about cinemark share of the North America box office going forward.
I noticed there was a bit of a downtick here in Q2 would you be able to hold on some of the games.
Or will your market share revert back to pre COVID-19 levels of program towards 13%. Thanks sure. It's a great question. Thanks Omar.
We definitely believe that we will be able to retain a meaningful portion of the market share that we gained by being one of the first circuits to reopen.
<unk> said in the past and we do it.
Have expected that as more and more theaters open across the industry. Both in the U S and Canada as well as when there is a growing volume of films, we've expected that that share would ratchet back a bit we certainly saw that in the case of <unk> and.
Year over year, obviously in the first half of last year. There were more parts of Canada that were closed so that does have an effect.
But we've indicated we expect that we should be able to retain approximately 100 or so basis points of improvement versus our pre pandemic share which remains the case, we're working aggressively to continue to to secure that going forward and I'd say, we continue to be continue to have one of the largest share gains.
Relative to the other major exhibitors in the market.
Thank you much.
Thanks, a lot I appreciate the questions.
Our next question is from Robert Fishman with Moffat Nathanson. Please proceed with your question.
Hi, Good morning, I got one for Sean and one for Melissa Please.
John can you remind us the average length of.
Deals.
The term for with your studio partners and I'm, asking because now that Hollywood screaming pendulum has shifted back as you just alluded to how aligned are your mutual interests going forward compared to when you struck the deal in May last year, and then maybe what impact that could have for film splits or other parts of the agreement as it deals.
Is that to be renewed in the years ahead.
Sure.
Historically the length of our deals have generally ranged from about two to three years. You know that was usually the cadence of circling back and revisiting terms and things of that sort.
Obviously with some of the dynamics going through the pandemic, we were working on some shorter term arrangements and I would say we are kind of still operating in that realm to a certain degree. So we have if anything a bit shorter terms on some of those deals and I would say.
<unk> still where there are tend to be one offs here or there we're having individual discussions about those particular situations. So.
I would say at least for this current period over the next couple of years. So, let's say, even though we all are aspiring to get back to.
Back to a situation where probably back in that two to three year timeframe I think it'll be a little bit more active just as things fully settle out.
And do you see any opportunity to realign the deals as some of the <unk>.
The pendulum had shifted back sure I mean look I'd say we've had healthy.
We've had healthy conversations and I think landed in a positive place holistically with all our studios in terms of.
Finding appropriate economic consideration for some of the shifts that have happened at least over the last couple of years with regard to windows and things of that sort.
Playing field a bit more varied just in terms of some of the releases, even though overall windows seem to be gelling around closer to around a 45 day window for the more significant films. It is still a little bit more varied. So I think just as as we move forward.
We will continue to be in a position where any types of films that have a shorter duration, we're going to be looking for greater economic consideration in that regard and films that have a longer window would probably be more reflective of pre pandemic terms would be my my sense.
Okay. Thank you and so then Melissa on the related note. After U S film rental share 60% in the quarter I'm just kind of curious how we should think about these costs with a more steady box office going forward.
Especially looking forward to the fourth quarter and next year and maybe just call out.
If there is any meaningful differences that we should think about in Latam.
Latam versus the U S. Thank you.
Yeah. So.
As you think about film rental rates for the U S. As Sean mentioned, we have been successful in receiving economic consideration commensurate with the shortened theatrical window, but what we have been seeing is that that has been offset by a higher concentration of these larger tentpole films.
As you know SKU at the higher end of the sliding scale. So it's really going to be a function of the timing in which that smaller to mid tier content starts coming back in at a more steadier and steadier clip, but until that point I think it's reasonable to assume that film rentals, maybe more in <unk>.
Line with pre pandemic levels, if we continue to have that heavy blockbuster mix.
The other piece to take into account is that marketing is also included in that film rental and advertising line item and we have meaningfully stepped up our spend relative to pre pandemic periods to capitalize on the recovery of the industry. So that that would be the other factor too.
Do you consider.
And in terms of our marketing spend levels.
By return so that's really going to be that's going to be that driver of how much marketing. We ended up deploying when you talk about the difference between U S and international I mean, just structurally the terms are typically different so you can't really look at those side by side with the industry.
<unk> XR are different there, but I wouldn't no major changes I would call out.
Okay. Thank you both.
Thanks Robert.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Our next question is from Jim Goss with Barrington Research. Please proceed with your question.
Good morning.
Melissa just touched on this a little bit, but I had a question about the.
The.
Prior concern over the viability of a return of mid sized films.
Wonder if you could talk a little bit more.
About how you're seeing that develop.
And what's your what Youre expecting from your discussions with the studios.
In terms of the aspects like the length of run Windows and.
Rooms on the screens for a number of those when you're making room for the larger blockbusters.
<unk>.
It is important to have the midsize films represented to bring them to bigger audiences, but I'm wondering how you see that the vote.
Sure. Thanks for the question Jim Good morning.
Look we agree we tend to feel that.
We prefer a wide range of movies that just speak to a very broad audience and we'd like to have the diversity.
That that brings and it just brings in a wider reaches of moviegoers.
Clearly saw some examples of that in the second quarter as the films you had more compelling diverse content.
A greater range of audience is coming back so we think as Theres just.
Ongoing evidence in more and more examples of these movies.
In the mid tier that are working and performing all of that is going to do is show Hey, Theres a great opportunity here to the studios to continue to release those films. So some of that like I said earlier was more of a byproduct just of the pandemic in the production cycle and there was I guess at least in certain circumstances.
This is perhaps some <unk>.
Near term strategy effect with regard to some of the early phases of the streaming platforms, but again directionally that seems to have shifted now with the intent to put more of those films out and when you look at the results of a film like Elvis or lost city or where the crawdads seeing in Blackstone I mean, you just go.
On and on and on what we've seen in <unk>.
And since <unk>, even in an environment, where there are still 10% to 15% of moviegoers, who were a little apprehensive because of the the health environment.
Points to Hey, Theres, great opportunity not only for Tentpoles, but for all of these films and we continue to hear the data is showing that for those films alike. They perform better when they get into the home on both streaming platforms and all other channels.
I think just bodes well for more and more of that content coming out. So I suspect my view is over the next one to two years, we're going to see that normalize back to prior levels, maybe even see a bit of an uptick I've said this on prior calls I.
I do think that even though it is clear that a meaningful window as is necessary to drive the full value that.
<unk> release can provide to a film asset knowing that theres, a little bit more flexibility in those circumstances, where a movie doesn't necessarily perform as expected out of the gates I think all that does is create more confidence for the studios to take take a chance on something that might be more of a question mark because they don't know that they have more.
Optionality to deal with whatever may happen, if it big breakout great and if it doesn't work right. There's other things that might be able to do.
Just following up on that a little bit.
If you do have say 10 or 12 screen auditorium.
And you have one or two or recently, we've had a weekend with I think five blockbusters that were new or lingering.
Leaves less room, if you give them multiple screens to the blockbusters for the smaller screens do.
The platform usage question, where you might have a couple on a given screen and do a different day parts or something like that.
How do you make sure you leave room for that and get the greatest profitability for the overall circuit.
That is the balancing act that.
We work with yeah. That's that's just the nature of our business and it has been the case.
Pre pandemic, we were constantly dealing with those types of choices right. How do we maintain diversity of films.
When there's a significant volume of films being released at the same time and several of those being big tent Poles, it's clearly easier to manage that balance when you've got a 'twenty screen complex. It becomes more challenging when you get below 10 screens and not everything necessarily is able to get screen time.
So that's just the balancing act that we have to do.
There is.
We do our best to try to make sure that we maintain that good diversity.
But.
Typically the way you saw that also is we have multiple theaters in a particular market and we will try if theres. One theater that may have a selection of certain films will try to round that out with the films and another theater.
Okay. Thank you and one other thing I'd like you to address the festival with the physical attendance trends the premium preference.
Created a widening gap between trends in box office revenues and physical attendance and physical attendance is important for selling concessions for example.
How are you looking at that trending or is it are there any things you've noticed that.
Right.
You sort of adjust that potential return.
Well just youre just talking about anything that may adjust getting more attendees into the theater.
Please yes more bodies in the theater.
The bombings.
That is clearly our main focus is on attendance.
Not not certainly not just from a food and beverage segment because it drives the maximizes box office, which is a significant part of our revenue and bottom line. So.
Our main focus is exactly that how do you attract a greater range of attendees to our theaters and then how do you give them a great experience to keep them coming back and coming back more frequently.
Obviously, we're still our whole industry is still working itself out of the pandemic. It's been a long recovery part of that has just been concerns about the health environment and part of that has been this this commentary discussion we've been having about volume as those factors continue to improve as more volume.
<unk> released and we distance ourselves from the pandemic, we think that that attendance.
<unk> tenants is going to continue to.
Recover and rebound.
And that's certainly our focus is thats our number one focus is how do you build audiences with a wider range of content with more sophisticated marketing tactics and make sure that when you've got them, you're just giving them an absolutely fantastic experience that keeps them wanting to come back.
Alright, thanks very much.
Thanks, Jim.
Our next question is from David Karnofsky with Jpmorgan. Please proceed with your question.
Hi, Good morning, this is actually John on for David.
I guess I just wanted to refocus them on the Lat am for a second can you give us some color highlight as to what content did well there during the quarter, maybe what it didn't do well relative to the U S and I guess just more broadly what you're seeing from an attendance momentum will trend perspective in the market and then I have a follow up thanks.
Sure.
I would say.
Similar to the U S.
Broadly speaking the majority of films performed a bit better than we were expecting across the board. However, there is some mixed factor like you said different types of films tend to over.
Over index in under index in Latam relative to the U S. Clearly the biggest example of that was top gun Maverick.
Which was the fourth largest film in Latin America, and represented about 10% of the attendance compared to being clearly the biggest film in the U S with about 23% of the box office. So that's something that it actually outperformed expectations, but just didn't have the same level of of scale.
That it did in the U S. Doctor Strange was the biggest performing film in the quarter for Latin America, So that really did phenomenally well drastic world in Sonic to also.
Performed that you delivered strong results and performed better than expectations I would say.
Their level of performance was comparable to the U S. If anything Dr Strange probably indexed a little bit higher in Latam relative to the U S. Conversely, too.
Two.
Top gun Maverick.
Sorry, <unk> you were at.
On a go forward basis, I would say just broadly speaking.
Latin America as a region had been trailing the U S a bit throughout the pandemic that is more or less caught up at this point. However, as we do look ahead similar to what we would've seen pre pandemic, we will continue to see some.
Fluctuations quarter to quarter, just based on the type of films that are being released there is there is certain films like horror and family films that over index in the region and Theres other films like fantasy and Scifi that and other than that under index and then of course, you have just other onesie twosies types.
Things like a top gun Maverick, which may have.
Global phenomenon, but theres things like that that May still just have a little bit more of a U S flare that that really over index in the U S.
Great.
Helpful.
And then switching gears a little bit to follow up on one of Ericsson earlier questions.
Understanding that there is some seasonal hiring built in there, but I guess more broadly can you remind us kind of where we are in regards to staffing levels and progress I guess towards what would be a new normal. Thank you.
Yes, so I can I can start on that one so from a staffing standpoint.
As you May know just given the seasonality of our business, we hire up for the summer season than typically August September its going to be slower and will ramp back up in Q4.
When you think about staffing levels I mean, we were able as I mentioned to hit the staffing levels that we needed for that summer season, but as we mentioned August and September not only are we seeing a light film slate due to seasonality, but also given <expletive> film shifts.
That has occurred so we do expect that to be a lighter slate than normal. So we'll essentially ramped down our operating hours and our labor hours and then ramp that back up in Q4, So we're going to flex as needed.
Guided by the film slate and I would just add to that debt.
That said earlier yearend was tough just in terms of being significantly understaffed given.
Calling in sick because of <unk>.
Coming down with Covid as well as just what was happening in the marketplace with the demand on resources and not being able to hire as many people as we like that has improved significantly I think for the most part now we've been able to get back to the levels, we need and it's just a matter of flexing based on demand.
Most also mentioned what happened as a result of some of that and it goes beyond just our industry and retail I mean, it was really across the board. We obviously have seen some some wage rate pressures that had been somewhat significant over the last few quarters that seems to be improving considerably as Melissa touched on so as we.
We look forward, we think things are certainly stabilizing there in a much much better position than they were and our focus now is how do we continue to extract greater value out of the workforce management initiatives that we've been pursuing to find incremental productivity to help offset some of that and work it back.
And then look for opportunities to try to perhaps recapture some of the distortion that took place over the last few quarters.
Got it that's really really helpful. Thanks, guys.
Thank you.
Yes.
Our next question is from Eric Wold with B Riley. Please proceed with your question.
Thanks, Good morning.
Couple of questions I guess.
One you give me kind of following up on the on the wage question given the wage pressures that youre seeing.
Now would you say that youre being a little more cautious.
On taking price with tickets and concessions to offset that kind of an inflationary environment, we're in and potential pressure on household budget.
We'll look to catch up later or you still feel you have the power to push up prices now as needed and consumers are back in as much as would be expected.
Yes.
The pricing side.
So as I mentioned, we are we are leveraging pricing.
And as a <unk> and.
And offset in part to the inflationary pressures that we've seen but consistent with how we've approached pricing historically.
We're approaching it cautiously and we obviously want to get the attendance as we talked about earlier in the door. So that we can further monetize with ancillary opportunities. So for us, we're really going to be cautious about how we move them through with with prices and pushing that through we do believe.
That there is further opportunity and we're testing our way into that but we're just approaching it cautiously.
Got it and then last question.
What are your current views on newbuild opportunities in the U S. As cash flows improve obviously youre past most of the remodel.
Okay.
Spending programs from the past.
How much do you think there still is there for you do you want to be.
More or less tethered to kind of malls or shopping areas. As you kind of were in the past or most of you kind of look towards Standalone and then kind of same same thoughts around Latin America.
I would say specific to new builds.
There continue to be opportunities in various underserved markets for new builds.
That said I know, we and I think the industry as a whole will continue to be a bit tempered more tempered at least in the near term here just as as we fully pull out of the recovery cycle I would say, we actually had a couple of new builds opened recently that we entered into before.
Pandemic.
One here in Texas, and another in Utah, and they are performing exceptionally well.
Just again justification that if there is an underserved market, putting a really nice new theatre in their.
Even in this way I mean, they're doing better than expected.
So I think we will continue to see that.
For us I think for many in the industry again.
Not only is it just continuing to work through the full recovery of the industry and balancing some of those investments with that.
Also it is a matter of just balancing some of those capital allocation decisions with.
The reported <unk> of our balance sheet and what do we think some of the the biggest near term returns can be generated from some of the investments, we're making new builds take a longer time.
So some of Thats, great for long term sustained growth of the.
The enterprise, but there may be some other near term investments that have more immediate payback.
Latin America same Oh, and yes, sorry, Latin America, Latin America, I would say is definitely similar situation of our Latam.
Circuit as you know its self sustaining where we're not having to push cash there. These countries generate their own cash and have their own cash balances and that's that's the position. They are in at this point to the stage of recovery there continue to be and we still remain optimistic about long term prospects in the industry. There is more underserved markets across the region.
<unk> there than in the U S, but the speed of mall development in there you asked about mall versus stand alone in the U S. It really depends on the marketplace. It's much easier to put build a stand alone and more economically feasible in these countries in Latam that's much more difficult both from a just getting to those theaters.
Just quickly.
As well as just the cost to do so so we continue to be tethered to mall development and mall development is still a bit slow at this point. So I think that that will probably take a little bit longer to start to rebound.
So we're that's a governor also on some of the new build opportunities that we'll have as we look ahead in Latam.
Perfect. Thank you both alright, thanks, Eric I appreciate it.
We have reached the end of the question and answer session and I will now turn the call over to Sean Gamble for closing remarks.
Alright. Thank you all for joining us. This morning, we appreciate your time and we look forward to speaking with you again following our third quarter results have a great day.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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