Q4 2022 Cinemark Holdings Inc Earnings Call
Greetings and welcome to the Cinemark Holdings fourth quarter and full year 2022 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the call over to Chanda Brashears Senior Vice President of Investor Relations. Thank you you may begin.
Morning, everyone I would like to welcome you to Cinemark Holdings, Inc. Fourth 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 the statements or comments made on this conference call may constitute forward looking statements forward looking statements may include but are not necessarily limit your 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 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 of them.
Recently filed earnings release 10-K, and on the company's website at IR Dot Cinemark Dotcom and today's prepared comments regarding comparisons we will be referring back to the fourth quarter of 2019, unless otherwise indicated as we typically do we filed our 10-K. This morning in conjunction with our earnings release.
Please note that similar to last quarter. The filing represents a combined cinemark holdings and Cinemark USA filing well the differences between the two is that the financials are minimal I wanted to point out. This change once again with that I would like to turn the call over to Sean Gamble.
Thank you Chanda and good morning, everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2022 results.
As we recently turned the corner from 2022 to 2023, we thought it would be constructive to share some of our key observations from the past year.
First and perhaps most importantly people still love going to the movies sustained.
<unk> consumer enthusiasm for movie going with validated time and again throughout 2022 across all genres of films all segments of audiences in all periods of the year.
Last quarter I highlighted a wide range of films that outperformed relative to pre pandemic results in many cases setting new all time records some.
Some examples include blockbusters like Batman Doctor Strange in the multi verse of madness and top gun Maverick family films like Sonic the Hedgehog too and minions the rise of grew.
<unk> titles, such as the black phone and smile adult skewing dramas, like Elvis and where the crowd that sing and specialty content such as everything everywhere. All at once the live captured Bts music concert permission to dance on stage and multicultural films like Triple R.
And consumer passion to experience content in an immersive larger than life theatrical setting has only been reinforced since our last call.
Over the past three months, we've seen black Panther will conduct forever delivered the biggest November domestic box office opening ever with a $181 million launch global phenomenon avatar, the way of water crested $2 $2 billion worldwide to become the third largest movie in history.
Family film puts and boost the last wish is well on its way to over $170 million of domestic box office, which is 14% higher than its first installment.
Horror film Megan is quickly approaching $100 million of domestic box office adult drama a man called auto has eclipsed $60 million. Following its initial platform release in December 30th and this past weekend Ant man and the Wasp quantum media delivered the third largest February opening ever with its over 100 million.
Domestic debut.
Furthermore.
We continue to witness strong interest in specialty titles and events, such as Baton, which just at the largest north American opening of all time for a Bollywood film the chosen three which generated unprecedented demand from faith based audiences selling out auditoriums across the country.
In filmed concerts, including Billy Irish live at the O two and Bts yet to come in cinemas, which continue to generate overwhelming enthusiasm for music fans.
The impressive performance of this expansive range of titles clearly demonstrates that consumers are as excited as ever to experience compelling movies and events in theaters.
And if these examples over the past year arent proof enough ongoing demand for Cinemark movie club, our monthly subscription program further reinforces the point.
After we fully reactivated movie club in July of last year. It quickly reverted back to growth and now surpasses one 1 million members well in excess of our 950000 pre pandemic membership base.
Moreover movie club members drove 22% of our domestic ticket sales in 2022, which is up a sizeable 800 basis points compared to 2019.
Movie club's continued growth and positive impact on Moviegoing is a testament to the many exceptional attributes of the program as well as sustained consumer enthusiasm for theatrical moviegoing.
And that brings me to our second key observation from 2022, which is movies performed better when they are released theatrically, particularly when they have an exclusive window.
But the ethical release enhances our films promotional impact and overall asset value.
This observation is not a new phenomenon. It has been reinforced with growing frequency by all of our traditional studio partners over the past year.
Consistent with the relationship that has existed for decades with VHS DVD pay TV and free TV.
The movies studios are releasing theatrically with a window or not only generating lucrative box office proceeds, but also providing greater impact for their streaming platforms with regard to subscription subscriber acquisition retention and engagement and an increasingly competitive in home environment.
And that is because when market is sufficiently a theatrical release increases consumer awareness of and interest to see movies and all forms of filmed entertainment by <unk> them and elevating their perceived quality.
This perception leads to a greater sustained recognition remembrance and longevity of theatrical titles.
Furthermore, experiencing films in a shared cinematic environment develop stronger emotional bonds with stories and characters that helps build bigger brands franchises and cultural moments. It also satisfies the desires of filmmakers and talent, who aspire to see their films on the big screen.
Now the theaters are fully operational again and movie going has rebounded our traditional studio partners are expressing intentions of returning to pre pandemic levels of release volume with a few indicating they plan to scale up even further.
While our industry is still facing a near term headwind from a reduction films being released which was a byproduct of the pandemic impact on the production cycle of movies overall volume continues to improve.
Last quarter, we mentioned 85 wide releases had been announced for 2023 to date.
As of today that figure now exceeds 95 and is well on its way to reach our expectation of 100 to 105 wide releases for the full year.
Although still short of the approximate 130 titles released annually prior to the pandemic. This improvement represents a meaningful 30% increase from 2022.
A noteworthy addition to the 2023 films slate since our last call is Ben Affleck and Matt Damon's upcoming movie Air that Amazon will release exclusively in theaters on April 5th.
Over the past year, we've indicated that a significant opportunity for our industry is the prospect of streaming companies releasing there more commercial films theatrically.
To help build momentum in that direction, we've been testing limited releases with various streamers for several quarters and we're thrilled that Amazon has now elected to amplify their theatrical ambitions in a big way with air including the captivating AD. They ran during the Super Bowl.
We believe Amazons move could represent the start of a more substantive entry into theatrical exhibition by streaming companies.
In light of this potential shift as well as the anticipated ramp up of film production by our traditional studio partners. We remain highly optimistic about the continued recovery of film bought volume over the next couple of years.
The third key observation from 2022 that we'd like to share is cinemark remains strong stable and resilient as a result of our consistent financial and operating discipline and ongoing focus on continuous improvement.
2022 marked a series of important results and milestones for our company that exemplify our outsized recovery relative to our industry and peers are improved financial stability and our advantaged market position for.
For the full year, we generated $336 million of adjusted EBITDA, which was up more than 320% versus 2021 and had an adjusted EBITDA margin of 13, 7%.
We also delivered positive free cash flow of $25 million, even after paying down substantially all of our pandemic related deferred rent.
Achievement of these results required active planning prioritizing and flexing throughout the year to effectively navigate a wide range of shifting content supply chain labor and inflationary dynamics.
Fortunately, we benefited from a solid operating foundation and the many process improvements we have pursued since the onset of the pandemic with regard to workforce management, Showtime planning and overall cost controls.
Those same enhanced operating disciplines, coupled with our sustained focus on guest service sophisticated marketing capabilities and varied promotional content and pricing strategies yielded box office and attendance results that far outperformed industry benchmarks.
Compared to 2019, our full year domestic box office recovery surpassed North American industry results by 500 basis points with both our domestic and international market share up more than 100 basis points.
Part of our box office strength was propelled by the tremendous continued success of movie club that I described a moment ago.
We also benefited from a significant uptick in consumer demand for premium amenities.
Despite the inflationary environment, we encountered during 2022.
Consumers continued to actively upgrade to premium large formats and D box motion seats at levels, well above pre pandemic norms.
We leaned into this trend through a series of new XD and D box campaigns that helped grow our 'twenty two 2022 domestic XD revenues by almost 6% versus 2019.
And domestic D box revenues by almost 48%.
Furthermore, even though pls only represent 5% of our screens they accounted for $13 six of our global box office and increase of nearly 400 basis points from 2019.
Akin to premium amenities, we also maximize food and beverage opportunities throughout the year, maintaining our significant concession per patron growth trend.
Through a range of promotional pricing and category management strategies, we achieved an all time high domestic per cap of $6 98.
Which was up more than 30% compared to 2019.
Our international per cap also grew a sizeable 65% in constant currency over the same timeframe.
Our outperforming results and industry, leading recovery are a direct result of the positive experiences. We provide our guests are ongoing financial and operating discipline and the perseverance dedication and skill of our extraordinary cinemark team.
I'd be remiss, if I didn't take a moment to commend our entire global organization for all of their hard work commitment and resourcefulness to deliver these tremendous results and put us in an advantage position to capitalize on future growth potential as our industry further recovers.
And that brings us to our final key observation from 2022, which is cinemark maintains a strong competitive position with an abundance of opportunities ahead.
As I just described the disciplined approach by which we manage cinemark over the years, including the way we prudently invested capital actively focused on revenue and margin generation and aggressively pursued process improvements has provided us with a financial and operating position that as a strategic differentiator for our company.
Moving forward, we intend to maintain our discipline as we focus on effectively navigating this fluid period of recovery expanding our pipeline of content and audiences and evolving our company to ensure ongoing success within a dynamic media and entertainment landscape.
To that end, we are confident in the capabilities, we have developed to quickly flex and adapt to shifts in the marketplace and we are highly optimistic about our ability to capture an outsized portion of our industry's recovery and the myriad of growth and productivity opportunities that remain in our purview.
Examples include continuing to strengthen the experience and value we provide our guests through premium amenities like XD D box and laser projectors as well as enhanced concession offerings.
Increasing moviegoing frequency through our Omnichannel marketing platforms extensive consumer reach highly impactful loyalty programs and data driven promotions.
Expanding our strategic relationships with content creators retail partners in home delivery services, and new E Commerce sales channels.
Scaling up our recently launched snacks in a tap online food and beverage ordering platform, while reducing friction in theater with improved floor designs and planet grams.
And driving meaningful additional efficiencies and cost savings through our ongoing workforce management continuous improvement and sourcing initiatives.
These varied actions will strengthen our core business grow new sources of revenue further streamline the way, we operate and enhance our ability to capture maximum box office and attendance upside as compelling content hits our screens.
And we look forward to doing just that as we consider the promising array of diverse titles that lie ahead in 2023, which are primed to excite audiences from.
From action films, like Indiana, Jones, and the dial of Destiny fast turn John Wick, four and mission impossible dead Reckoning part one to family films like the little Mermaid Supervalu of brothers and elemental to superhero spectacles, including Guardians of the Galaxy <unk> III, the flash Spider man across the Spider verse and the marvels.
To suspenseful horror films like the none too evil dead rise and screen six to intriguing adult dramas such as Oppenheimer Book Club. The next chapter and my Big Fat Greek wedding <unk> III.
The plentiful list a promising titles in 2023 goes on and on and extends across all genres and demographics.
So to summarize our key observations from 2022.
The theatrical exhibition industry continues to follow a positive recovery trajectory with regard to consumer enthusiasm for movie going the value of theatrical release provides studios and content volume.
Within that backdrop.
Cinemark is poised to excel on account of our advantaged financial position sophisticated operating capabilities and sensational team and we remain highly optimistic about our many opportunities ahead.
Before I turn the call over to Melissa I'd like to take a moment to personally acknowledge and thank our founder Leroy Mitchell, who announced his retirement from our board of directors last week.
Leroy has been a cornerstone not only for cinemark, but the entire theatrical exhibition industry over his influential tenure of nearly four decades.
Many of you have had the opportunity to meet Leroy over the years at various industry and investor events and I am sure you can attest to his captivating energy engaging personality and entrepreneurial spirit.
He is a pioneer who consistently challenged the status quo growing cinemark from only a handful of theaters to the global leader in theatrical exhibition we are today.
We are abundantly grateful to Leroy for his leadership and the tremendous value. He has provided over the years and we will all continue to work diligently to position the company that he and his wife Tandy founded for long term success.
With that <unk>.
I will now provide further information about our fourth quarter results.
Thank you Sean good morning, everyone and thank you for joining the call today.
The cinemark team once again demonstrated our ability to effectively flex and adapt in a dynamic environment throughout the fourth quarter.
Despite a significant reduction in film volume and softer than expected performance for certain films in the quarter Cinemark served $39 2 million guests worldwide and delivered solid fourth quarter results.
Globally, we generated $599 7 million of revenue.
And $73 5 million of adjusted EBITDA.
Yielding an adjusted EBITDA margin of 12, 3%, which remained healthy, particularly considering the impact of the reduced film volume on our attendance in the quarter and the relatively fixed nature of our cost base.
I would like Echo shining commending our global team for their hard work dedication and focus to deliver these results.
Turning to our domestic segment, we welcomed $25 1 million patrons to our theaters during the fourth quarter and generated $251 1 million in admissions revenue.
We continue to outperform the North America industry box office recovery in the quarter.
Outpacing the industry by more than 600 basis points versus the fourth quarter of 2019.
Furthermore, our market share reached heightened levels in the quarter.
Increasing over 100 basis points relative to <unk> 2019.
Our outsized market share was primarily driven by our strong performance in alternative content.
Coupled with our ability to capture a greater share of the market due to the lower film volume.
Our average ticket price was $10 up 19% versus pre pandemic levels drill.
Driven by strategic pricing actions and a favorable format mix.
With a meaningful uptick in three D and premium large format in light of the content released in the quarter.
For context, thanks in large part to avatar and James Cameron's commitment to visual technology.
10% of our tickets sold during the fourth quarter were in three D compared with only 3% in the fourth quarter of 2019.
With respect to premium large format, 16% of the domestic box office was generated from XD in IMAX and.
An increase of over 500 basis points versus <unk> 2019.
Our domestic concession revenue was $186 5 million in the quarter.
With our concession per cap, reaching an all time high.
$7 43.
39% increase over the fourth quarter of 2019.
Incidents rates continue to be the primary driver of our per cap growth.
Our team did a nice job capitalizing on the film slate in the quarter with notable success from limited time offers as well as collectible vessel and other merchandise tightened movies and characters.
Strategic and inflationary pricing actions also contributed to our per cap growth, albeit to a much lesser extent.
Other revenue was $48 1 million and outpaced attendance recovery relative to fourth quarter of 2019 due to an increase in screen advertising revenue.
Higher transaction fees.
And promotional income recovering at a faster rate than attendance.
Overall, our domestic segment generated total revenue of $485 7 million and.
And adjusted EBITDA of $59 5 million.
Resulting in a 12, 3% adjusted EBITDA margin despite.
The challenging operating environment.
Moving to our international segment, we served $14 1 million patrons.
The fourth quarter has historically been our lowest attended quarter in Latin America due to seasonality.
And in 2022. It was also adversely impacted by the World Cup.
That said relative to fourth quarter 2019, Cinemark continued to out perform the Latin American industry in the fourth quarter and gained market share.
Our international segment generated $53 $5 million of admission revenue $39 2 million of concession revenue.
And $21 3 million of other revenue in the fourth quarter.
Altogether, we delivered $114 million of total international revenue and $14 million of adjusted EBITDA, yielding a 12, 3% adjusted EBITDA margin.
Shifting to global expenses.
Rental and advertising expense was 56, 9% of admission revenue.
Up 70 basis points from the fourth quarter of 2019, due primarily to a higher percentage of box office generated from blockbuster films during the quarter.
Partially offset by modifications and film rental term.
The higher rate also reflects our ongoing marketing efforts to grow our customer base increased visit frequency and strengthen loyalty.
Our level of marketing investment continues to be guided by our box office expectations and the returns we are seeing.
Concession costs as a percent of concession revenue were 17, 9%.
Consistent with the fourth quarter 2019.
While we continue to face supply chain constraints and inflationary pressure in some key categories. Some of that pressure is now easing.
And in the fourth quarter, we were successful in offsetting these headwinds through product alternative category management and strategic pricing actions.
Our global salaries, and wages were $95 7 million and decreased 6% compared with the fourth quarter of 2019.
Primarily due to lower attendance operating hours optimization and labor management efficiencies.
These factors were partially offset by higher average hourly wage rates driven by labor market dynamics and government mandated increases.
We continue to leverage tools and data to drive our decisions with an emphasis on maximizing our over all profitability on a per theatre per hour basis.
Facility lease expense was $77 1 million in the fourth quarter and declined seven 8% driven by lower attendance, which led to a reduction in percentage rent and common area maintenance costs.
Utilities and other expense was $103 4 million and decreased 12% from the fourth quarter of 2019, driven primarily by variable costs that declined with attendant par.
Partially offset by higher utility rates and increased mix of credit card transactions and the expansion of our gift card program.
$43 6 million or 6% lower than <unk> 2019 levels.
Excluding the impact of share based compensation G&A was down 10%.
Our G&A reflects our continued discipline around discretionary spending and staffing which remain lower than 2019 levels.
Partially offset by a shift towards cloud based software higher professional fees and wage and benefit inflation.
Globally, we generated a net loss attributable to Cinemark Holdings, Inc of $99 3 million in the fourth quarter.
Resulting in a loss per share of <unk> 82.
We generated $63 million of free cash flow in the quarter and $25 million for the full year.
Turning to the balance sheet, we ended the year with $675 million of cash we continue to view our balance sheet as a strategic asset and a key differentiator.
We executed upon our capital allocation priorities and strengthen our balance sheet during the year.
Paying down $21 million of international debt and repaying substantially all of our remaining deferred rent obligations incurred over the course of the pandemic.
Importantly, we were able to do so while continuing to invest in the long term.
For the full year, we invested $111 million and capital expenditures to enhance and maintain our theaters with some spend initially planned for 2022 shifting into 2023 due to supply chain constraints.
As we look to 2023, our capital allocation priorities remain focused on strengthening our balance sheet, which includes delevering and strategically investing to position the company for long term success.
With that we expect to spend approximately $150 million in capital expenditures this year.
This step up relative to 2022 capex levels reflects our expectations around further box office and free cash flow recovery in 2023, as well as our balanced and disciplined approach to capital deployment.
In summary, cinemark remains well positioned to fully capitalize on the industry's recovery given the strength of our balance sheet prudent investments.
And operational excellence.
We will continue to focus on strategic initiatives that will benefit the company and our industry over the long term, while aiming to maximize shareholder value.
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 your questions.
Our first questions come from the line of David Karnofsky with J P. Morgan. Please proceed with your question.
Hi, Thank you.
I guess first on your market share you noted some of your.
Growth there was from alternative content and we've seen strong continued contribution from programming.
So like DTA surpass out of the chosen so just wondering if you think your share gains you made in the quarter sustainable or whether any of that.
It might normalize out by Q2 is sort of the film supply picks up.
Thanks for the question David.
Certainly some of the the influence of alternative content will fluctuate just based on the volume of content. That's out there. It's an area that we particularly leaned into we have I'd.
I would say some of the best technology in the business, particularly when it comes to live events with some of the live concerts, we have the ability to broadcast that across our entire circuit, which gives us an edge and also boost our share on things like some of the live events like the Coldplay concert in the Bts concert earlier in 2022 so.
Certainly has the potential to give us a piece I would say in the aggregate alternative content is still relatively small as a total percentage of box office. So we still think there is growth potential and we're hopeful that as more and more of these events find really solid success. It will lead to an increase in the volume of that so it certainly can.
Just I think part of what we saw in the fourth quarter with alternative content in terms of why it really gave us a boost to our market share was.
Unfortunately, just a limited overall volume of content, we expect that that's going to continue to round out over the course of 2023 and because of that alternative content will likely have a smaller influence in the total of the total.
Total share as well as just the total box office.
Okay, and then we see supply come over from streaming but in some cases, that's not always getting a wide release or full marketing push.
Wondering if you think those are isolated cases or whether there is sort of.
A new class of films, that's going to kind of earn some revenue and theatrical with limited PNA before moving over to streaming and then would just be interested to get your view on lithium Butte boots, I think it's around $50 million posted home release, you see that mainly as a function of it being a family film or do you think other genres can kind of do similar after after it's out on USD.
Thanks.
Sure well look with regard to content from the streaming companies as mentioned in the prepared remarks, we've for a long while felt like that is a really sizable opportunity for the industry.
And with all the benefits that we continue to hear from our traditional partners about how movies, they're releasing theatrically are providing greater benefits to their streaming platforms. We've thought for a while that it's only a matter of time before the streaming companies get into theatrical and a much more significant way Fortunately we're seeing.
Amazon continue to do that with their MGM product that they recently purchased and we're seeing it now with air their own homegrown film, we likely we know in our discussions with Apple they are giving us similar types of commentary about intentions to do the same so we do see that moving forward in a positive direction clearly some of the learnings we've had.
Testing releases in a smaller way they just don't drive the same level of value.
Overall in terms of promotion in terms of lift on the streaming platforms and just in terms of financial impacts I see that probably being lessened over time.
Then.
Second I'm, sorry, what was it.
Put some boots put some boots I think we've been really really pleased with the holds on put some boots has been a fantastic run.
Our view of some of the main drivers of that is just really right now it's the lack of family content in the marketplace and we think theres been a big opportunity in January and February but if your family and you wanted to go to the theater, that's really the only show in town.
For young audiences. So we think that part of the value I mean number one.
The reviews have been very positive so that helps as well it's a quality film, but then on top of that the fact that there is a limited amount of alternatives and limit amount of choice has really helped to drive some of the success it put some boots.
Okay.
Okay.
Thanks, David.
Thank you. Our next question is coming from the line of Ben Swinburne with Morgan Stanley . Please proceed with your questions.
Hey, good morning, everyone.
Sean could you come back to the wide release outlook I know.
It's not really your role to forecast that over time per se since it's the studios, but anyone who has been on media earnings calls this month.
Has heard about the sort of return of theatrical has a priority. So do you think I guess the question is do you think the 100 to 105 for this year is there upside to that.
And maybe if not because we're sort of we're pretty far into 'twenty three now.
Where do you think that goes over 'twenty four 'twenty five but can we get back to $1 30 could we exceed 130 I'd love to get your thoughts because you obviously have.
More conversations in depth with distribution.
At the studio side than we do and then I did have a follow up from Elisa.
Sure. Thanks for the question Ben.
Let me start with the second part of your question. There I definitely think over time, there is the potential to get back to the 130 plus range of films, we were seeing prior to the pandemic.
Both because of the indications we are hearing from our traditional studio partners as well as what I was just speaking to a moment ago the potential for streaming companies to get more significantly into the theatrical space. There is also the potential for new entrants.
New studios coming into play.
Beyond just the value that theatrical is providing to their streaming platforms and other distribution channels.
We've said this on prior calls.
The more dynamic flexible window I actually think helps because it creates a better model for many of those mid tier films that were starting to disappear prior to the pandemic. We've seen many of those films work and generate some terrific results. During the course of 2022 and with the studios have.
The knowledge that if for whatever reason they go forward and it doesn't work they can get into the home faster and still recoup any of their downside that bodes well for them, taking more swings in putting more films out. So we look at all of that is really positive in terms of where things go the governor on all that and ramp up back to that level is really just the.
<unk> cycle. It takes two to three plus years to make movies that was disrupted by the pandemic. So all the studios are having to kind of get back up to those levels and it just takes some time so it's not a.
It's not a perfect Assembly line process, there is an art to it so well.
We will just have to see how that goes specific to 2023.
We do think there is the potential to have some upside to that we know that.
You mentioned it yourself on some of the public calls studios are looking at some of the other films that they had originally been contemplating for streaming platforms and considering if those could be released theatrically. Instead. So there is that there is the potential for that to grow higher I think we will have to see.
A lot of time is to in addition to films that gets slated late in the game. There are those platform releases that you just don't know if they really connect like in everything everywhere. All at once there are several examples of our in May in Colorado like they can grow to be wide releases in success. So there's more of those with quad.
<unk> it could certainly lead to something in excess of 100 to $105.
It makes sense and then Melissa just as we think about our 2023 forecast and the expectation of a larger box office, a broader slate hopefully a broader.
Sort of audience coming back to the theaters what would you highlight we think about.
Either on expenses.
U S margins.
Atp's or per caps as we think 'twenty three is hopefully another step towards the normal.
Here on the box office front, just to make sure we're thinking about some of the major swing factors in your mind.
If anything.
Sure. Thanks for the question, Brian So I'll start off by saying as it relates to 2023, we do anticipate margin expansion relative to 2022 as the box office further recovers and we gain more leverage over our fixed cost base.
Big picture on the revenue side.
They key callout, there would be we do believe we can modestly grow both our average ticket prices as well as concession per cap relative to full year 2022 levels, albeit those growth rates may be tempered a bit from what we saw in 2022 and will vary quarter.
Third quarter based on our film mix.
Yeah.
Expense side are key.
Our expenses are comprised as you know both fixed and variable components as you think about the boxes scaling our biggest variable expenses are going to be film rental and advertising salaries and wages concession supplies and then to some extent facility lease expense, but thats particular related particularly.
<unk> related to international.
Reasonable to assume that those expenses will scale up as attendance and box office continues to rebound so that won't necessarily be at the same rate that overarching Lee we do expect to remain diligent in our cost control and we'll continue to pursue productivity initiatives with a mindful eye towards profitability and of course.
Free cash flow generation.
Great. Thank you both.
Thanks Ben.
Thank you. Our next question is coming from the line of Robert Fishman with SBB Moffett Nathanson. Please proceed with your questions.
Hey, good morning, two questions. Please first Sean I appreciate your comments around the return of the movie supply I'm wondering if you can share learnings about the frequency of moviegoers and how that's maybe changed compared to the pre pandemic, where maybe your movie club members are just the broader movie going audience.
And are there certain movies on Roes.
Think streaming are windowing has had a bigger impact on theater attendance like family or drama.
And maybe is this an opportunity for growth given the pendulum shift on the streaming strategies that youre talking about from the Hollywood Studios.
Thanks, Robert Great Great questions.
We have been looking at frequency of moviegoing behavior, both in general and of our movie club members I'd say the one challenge we have just in looking at that in a comparable way as with volume down in 2022.
Almost 40% to where we were prior to the pandemic. It's just it's hard to compare that directly because with limited more limited choice.
Naturally it will be more limited frequency. So I would say, we're very encouraged by what we're seeing in terms of.
Movie club going behavior, I mentioned on the call. We continue to see overall subscriber ship grow which we see as a real positive in terms of.
In terms of interest and sustained demand. However frequency is down just a small change, but we based on what we've seen is it's down less than volume is down. So if anything based on the volume of opportunities people have to select from there.
There over I would say they are overall frequency is up a touch even if in the aggregate frequency is down a little bit, but again it comes back to fewer films being available to them.
Specific to any impact on any type of particular genre, perhaps the one area, we would kind of call out that we're watching we're just.
If nothing else be more animated content.
We have seen.
Perhaps a little bit of consumer confusion, just based on some of the re leasing strategies specific to animation that took place over the course of the pandemic, but even that is a little hard to to fully say because there've been so few of those movies released in 2022 compared to.
Pre pandemic times that part of that could also just be.
Our response to.
Less opportunity to go see those movies and people not being as much in the habit as a result of it.
On the flip side, we've seen some great. Examples of solid results I mean, you had sonic the hedgehog too although that wasn't fully animated the bad guys did really well minions. The rise of grew had a record July opening we just talked about puts and boots on the call. So there's a bit of a series of those we've also seen how families on just overall non.
Animated films their behavior has been more consistent with pre pandemic levels. So we'll have to see how 2023 plays out I mean, we're we're very encouraged about the lineup of animated films over the course of the year and we think that could really loved what to see engage that over the course here, we think that could change the course of things based on a more sustainable.
Momentum of options.
That's great. Thanks, Sean.
Any additional color you can provide to us about the capex levels beyond 'twenty three like how should we think about normalized levels from here with the return of movie supply.
Sure. So from a capex perspective, it's important to note that we do believe our capex years are behind us and that we continue to benefit from our history of proactively maintaining and investing in our theaters prior to the pandemic as you mentioned for 2023, we are targeting a one.
<unk> 50 million of capital expenditures, so certainly a step up from the $111 million in 2022, as we think about long term I mean naturally as the box office continues to recover in 2024 and beyond it's reasonable to expect us to continue to step up our capital expenditures.
But again, we don't expect to get back to those peak capex year.
Okay. Thank you Beth Thanks Robert.
Thank you. Our next question is coming from the line of Eric Handler with Roth <unk>.
Please proceed with your questions.
Good morning, and thanks for the question.
Sean.
You are having.
Premium amenities I'm curious as you think about your.
Okay.
Why not.
Another.
Screen.
The theaters were accelerate the box rollout.
Youre welcome.
Okay.
Great observation, Eric actually we have been doing exactly that.
We have in all of our new builds we're putting in <unk> and in many cases, we're putting into directly we've been going back and thats been one of the areas of growth for XD over the course of 2022 and even to a certain degree during the pandemic. We went back and we're looking at where we could add second XD is just based on the profile of our auditoriums.
Part of the the only limiter. There is is obviously there is an ROI assessment that we do but also just the scale of the auditoriums, we need to make sure that there is an auditorium that has the appropriate size and scale for an XD, but we've been doing that and likewise with D box seats.
And some great success in some of the different ways, we're installing D box and we've been adding those considerably over the course of 2022 and we continue to we plan to continue to do so in 2023, just given the demand.
Great and then.
So with movie club.
Correct me if I'm wrong, you started movie club and good.
2017 99.
Now it's 999.
Have you thought about pricing maybe a lever.
Just to keep up with inflationary.
Thank you.
Absolutely, it's something that we routinely look at one of the things that we try to maintain as just the appropriate parity between our general admission levels and our movie club levels to make sure that the right the right.
The rate variances there. So it's something that we're going to continue to watch I would say in general.
The way, we have approached pricing as we've been working through the pandemic and reigniting theatrical moviegoing is we aim to be a bit more moderated there as we get what <unk> been trying to attract people back to our theaters and a more significant way one of the things. We were we've been cautious about is not <unk>.
We're doing it with price of their experience when they come back to the theaters is one of feeling like theyre not getting an appropriate value doesn't mean, we haven't been taking up price appropriately in this environment, but something we use data to drive our decision, making and we're very careful about how we do that so we do that with overall pricing and we certainly do it with movie club.
As well so something that we're going to continue to pay close attention to as we go forward.
Thank you very much.
Thanks, Eric.
Thank you. Our next question is coming from the line of Eric Wold with B Riley Securities. Please proceed with your question.
Thanks, Good morning two.
Two questions I guess first one kind of a follow up on an earlier question around.
Kind of expenses and kind of outlook kind of taken it a little further if we do.
In the coming years get back to a comparable number of releases and that 130 ish range get back to a comparable level of attendance.
How do we think about the push and pull or the kind of the offsets between the.
The stronger gas monetization, assuming kind of per cap stay elevated along with the expectation that expenses are probably going to stay elevated can can we get back to that 24% global adjusted EBITDA margin that you saw.
Some point in the coming years on that kind of a comparable level of attendance.
Thanks, Eric So clearly our goal over the longer term is to get back to pre pandemic adjusted EBITDA margins level margin levels, but our ability to do so is going to depend upon a number of variables. So the primary driver as you know it is going to be the extent to which attendance and box office.
Recover to historical levels, which is going to be a function of volume and the quality of films.
Films that are released but the other key variables at play or weather.
Our tailwind from market share average ticket prices and <unk>.
Her caps persist how inflationary pressures evolve on the expense side and to what extent dividend income return. So those are really the key the key factors to keep in mind, there, but it's really too early it's difficult to quantify it at what box office levels, we could potentially.
Whether we could potentially return to pre pandemic adjusted EBITDA margins I think there is too much influx. It at this stage, but clearly our goal.
Got it and then I appreciate that and then the second question.
On Latin America.
Maybe you're talking about the current state of the kind of the build newbuild environment kind of what youre seeing with the pipeline firming up of discussions I guess.
Same kind of thought process I mean can we get back to that goal of 75 to 100 screens per year is that still the opportunity in your mind on that region in the coming years.
That may be changed one way or another based on kind of what youre seeing.
It is interesting we still when we look at the entire region, we still see plenty of opportunity for growth as many of the markets are still highly underpenetrated with regard to the number of theaters that exist compared to the overall volume of people who who.
Reside there. So we do think there is some potential for incremental new build activity over time.
I'm not sure we would get back to a level of 75 to 100 screens like we had been operating at.
About five plus years ago.
In the near term certainly just because of the overall expansion of malls.
Just the current.
Just say the current market environment, right now which is still.
Recovering so we do have some new builds that were committed prior to the pandemic that we are continuing to move forward on we're going to continue to monitor the environment.
As you may recall of our all of our theaters in the marketplace are connected to malls, because that tends to be where people aggregate for activities on the weekends and there is easier mass transit and theyre safer so some of that overall.
Expansion will be affected just by how much mall development. There is also in the coming years. So I think we're just going to have to see but I would say in the short run it's probably unlikely that we'll get back to those levels over the next three years to four years.
Well, thank you Bob Thanks, Doug.
Yes.
Thank you. Our next question is coming from the line of Chad, Brian <unk> with Macquarie. Please proceed with your question.
Hi, good morning, Thanks for taking my question.
I wanted to go back to a movie club you mentioned memberships over a million.
Subscribers are people and just given the ongoing evolution of loyalty are there other ways to monetize this group, whether it's partnerships with other consumer brands branded credit cards or other things like that thanks.
Yes.
It's a great question Chad at the short answer is yes, those are things that we're looking at.
It depends on what we do one of the ways. We're doing that is certainly working with our studio partners right. It's a great channel to promote films, particularly when people have credits that they've amassed that they haven't used and we have better familiarity with the types of movies that they like being very targeted in terms of showcasing what's upcoming to them looking at third.
Party partnerships and things like that in terms of how we can do connections and things we've done certain things with like Costco. As an example, just new sales channels and ways to do to do that we do a lot of things where companies may have different programs employee base rewards programs, where they become good consumer acquisition opportunities where you may.
Give away a free month of movie club to try to get some kind of access and sign up so there's a range of different ways that we can look to the program for broader opportunity whether it be accessing new customers or just finding shared mutual benefits with with a third party in terms of that so it's an area that our team is.
Continuing to work on and we think there is upside.
Great. Thanks, Sean and then.
Just given your outlook on the industry and your healthy balance sheet obviously.
You need time with with the position you're in and potentially some assets that are for sale or it could be converted can you just kind of update us in terms of your appetite for looking outside your organic portfolio for assets that have been or could come up for sale.
Absolutely look we keep a close watch on the marketplace and the different opportunities that.
May be out there or may ultimately become accessible I'd say, our general philosophy on that is still consistent where we tend to target high quality assets that we have confidence can deliver solid assured returns over time, so we're kind of looking.
At everything through that lens, we're not necessarily just looking to grow for growth sake, we tend to be pretty disciplined with regard to how we deploy our capital and seeking as we seek financially accretive investments I'd.
I'd say, probably the only limiting factor to that is as we think we're in a position of advantage as we go forward and there may very well be some good opportunities, we're going to be mindful of not straining our balance sheet certainly as we're working to reinforce that coming out of the pandemic further and the only other thing I would flag.
When it comes to any type of M&A is clearly where we are still as our industry recovery.
There's a little bit of complexity when it comes to fully assessing margins and appropriate multiples and things of that sort so trying to get reconciliation of expectations between parties.
Just just adds an additional layer of difficulty in trying to close deals not to say that we don't think there could be some potential that that comes our way.
Great. Thank you very much appreciate it thanks.
Thank you. Our next question is coming from the line of Jim Goss with Barrington Research. Please proceed with your question.
Alright, thank you.
You have a slide of 2023 notable titles with a.
Pretty significant gap in late August September and October .
With the absence of such I'm wondering if.
Given the discussion you had about alternative content and some of <unk>.
Some of the options you might have.
This sort of advance warning.
Challenge creates opportunities to plan and if there might be some things you might share with us in that regard.
Certainly Jim you're right when you look at the overall profile of the year at least on paper now.
Has some some similarities to 2022 more volume clearly, but there is a little bit of a lull when you get into that like late summer early fall period, not to say that's too indifferent from pre pandemic times I mean, thats always a softer period of the year with kids going back to school in terms of the way Studios program there Phil.
But at the same time, what we've seen is movies do really well in that period. So there.
There is opportunity there well, we suspect might happen is.
Recognizing it's a studios will see that I mean, we recognize it and there is certainly is the potential for some shifting around of date. So if a studio wants to have a clear run of a title. They can put it in there and there'll just be less competition. So we may wind up seeing some of the films right now that are in the summer spring.
Spread out a little bit more and take advantage of that period and we could also still see like you pointed out some new films, if youre thinking about where to date your title and you haven't done that yet be at alternative content or just a traditional film I mean, theres a great opportunity within that window to do so right now so I think.
My guess is we'll start to see some of that fill out a bit more as the year progresses.
Okay. Thank you and you had a comment.
An interesting comment about.
The dynamic window, if you will sort of helping mid tier films.
And I'm wondering how much variability you are seeing right now.
Sort of a normalized 30% to 45 day window.
And also how that might.
Impact say this Amazon release for some of the other ones you might get from streamers, where maybe you can.
Get them to extend the window a little bit. So you have more of an impact to the extent you wanted.
Overtime.
Sure well I mean, obviously theres been a lot of experimentation.
With the window and different types of releases throughout the course of the pandemic and for.
For the most part it seems like things are gelling around a 45 day window now certainly for the more commercial films I think part of that reason is I think what everybody has been finding is you need a certain amount of run time to generate the full benefits that a theatrical release can provide a film and thats.
That's right around that kind of sweet spot as is.
A a starting place.
Because it gives you enough time to get the value added theatrical without losing that momentum as it goes into the home now that can shift a bit depending on how well it films performing I mean, you look at a film like top gun Maverick as an example, as well as many of these Marvel films.
Avatar right like those films have done exceptionally well and they've run quite a bit longer than 45 days before going into the home even saw that with Elvis is an example, where it ran quite a bit longer. So in success, that's where some of that dynamic behavior comes into play can run longer and if something doesn't work.
There is that opportunity to get into the home faster and minimize downside.
So I think this is Mike.
My take it seems like Thats kind of that sweet spot, where everybody starts off and then it could skew a little bit from that and I think that's the same for.
For the streaming companies.
With Air Amazon I don't think its been I don't think it is public and I'm not sure. It's even been fully decided yet in the window. We know directionally, that's kind of a general place that they're starting and I think some of that too will be dependent on how well. The film continues to hold how well. It opens there is obviously other dating decisions that get made in terms of some of the downstream.
Targets for release, but that seems to be the direction that they are heading with that film and it's certainly what they're indicating with regard to what they are telling us as well as what we're hearing from some of the other the.
The other streamers like an Apple.
Okay. Thanks, one last one.
The concession per cap.
Getting into a record level.
<unk> driven by higher incident rates incidence rates, primarily I'm wondering if you might comment on the implications for the mix of offerings now and in the future and whether the supply chain constraints might have had any impact on that.
Just in terms of our per cap performance in the quarter Jim.
Yes, and how thats trending.
Sure. So as we think about per caps and what we saw in the quarter. We certainly saw a benefit both from higher incidence rates as well as strategic pricing.
The incidence rate side, a few things that I would call out there. So first favorable film mix in the quarter certainly benefited us coupled with the success of the initiatives.
That we had in place tied to the fourth quarter film slate that was the merchandising collectibles vessels I mentioned in addition to supply chain constraints easing did improve our ability to meet customer customer demand with fewer out of stocks that we certainly did see a tailwind there and then third I would call out.
Activations have expanded Hartford and alcohol in certain locations leading into the quarter. So those are some of that they keep factors as you think about the per cap.
Going forward for concession as I mentioned earlier, we do believe that we can continue to grow concession per cap in 2023 relative to full year 2022 levels, but that growth rate, maybe more tempered than what we saw in 2022, but <unk>.
Tailwind certainly on supply chain, starting starting to use there.
Okay. Thank you very much thanks.
Thanks, Jim.
Thank you. Our next question is coming from the line, Mike Hickey with the benchmark Company. Please proceed with your question.
Thanks, Sean Melissa Sam.
Good morning, guys. Thanks for taking my questions just two questions from me.
The first question on the first quarter looks.
It looks like the domestic.
Market share if you look at sort of just the top 10, grossing films, which is obviously the majority of the market looks like quarter to date.
Domestic is tracking up 42% compared to.
22, obviously, a lot of puts and takes on films and.
And buyers.
Curious the momentum here youre seeing in your business.
Within your expectations or exceeding expectations.
Obviously, we thought creed.
John Wick here to close out the quarter and also wondering if you're seeing similar strength.
Despite some consumer I have a follow up.
Sure Hi, Mike.
Yes, it's interesting <unk>.
As I mentioned, it's kind of the profile for the year earlier is another similar scenario to 2022 and that the year gets off to getting off to a little bit slower start from a total volume perspective, Fortunately, though as you called out the actual box office results have been quite favorable with significant growth year over year.
Despite the limited volume.
Your question on expectations has certainly exceeded our expectations. Thus far in terms of the results with things the strong play through of Avatar. The continued run of pushing boots, Megan performed exceptionally well in Colorado is doing it right and then open to a great start and as you pointed out now we're really starting.
To get into more of a steady stream of releases week to week.
So we're very encouraged about what we see looking ahead. So so far the year's off to a we think off to a better than expected start for sure and as far as food and beverage sales go. Similarly, it's interesting as we haven't seen any impact from.
Inflation over the course of 'twenty two on sales.
Deterred.
People upgrading the premium amenities and it certainly hasnt deterred people's consumption of food and beverage which continues to be.
Going in a really strong direction. That's continued on through the first quarter to date so.
It's something something that we've been we've often wondered debated internally like what we see a bit more of a normalization at some stage just in terms of consumer overall wellbeing consumer consumption in the marketplace post pandemic, but to date. It seems like that has yet to slow within our space.
Alright, Thanks John .
Second question here kind of wide ranging but.
You gave sort of Europe .
Qualitative perspective on the box on 23, I'm curious if you can.
Way to quantify that I know that can be a challenge obviously.
I guess within that question, we look at 'twenty, two and sort of the relationship of wide releases too where they are at.
<unk> as a percentage that sort of came in pretty close to where the box office did.
Versus 19.
So when you look at 'twenty, three thinking about sort of 80%.
Wide releases versus 19 that would sort of imply a box office.
Sort of plus 9 billion, which I think is.
Above most people's expectations for the year. So just curious one if you can kind of quantify your expectations for 'twenty three.
If there is any substance to sort of the correlation of wide releases versus 19th you open the box office.
And then last one just curious your view on dynamic.
Thank you price Shaun.
That can be incrementally positive.
To your ATP and 23, thank you.
Sure.
As far as 23 goes obviously, we don't we don't give guidance on box office, but we are certainly encouraged our estimates suggest 23 would be higher than 22, clearly as you pointed out just the relationship between volume and box office compared to 2000 2019, so that in 'twenty to think most consensus has.
Box office around $8 5 billion for the year and at least when we look at volume getting somewhere between 75% to 80% of 2019 levels pre pandemic levels. It would seem to support that clearly with the first quarter getting off to a better than expected.
Like we talked about we're hopeful there could be some some upside on that over the course of the year, but clearly a big part of that will depend on just the overall quality of the titles that get released.
Paper, there's a lot of promise in terms of the movies that are coming up and hopefully it'll flow through in terms of just.
The overall quality at the end of the day.
Pricing wise dynamic pricing, it's an interesting thought I'd say.
We have.
We have gone, we clearly have a wide range of varied price points.
Across.
Our days across.
Our weeks, we try to make sure we've got lots of accessible pricing options too.
To make ourselves available to a wide range of consumers.
Flexing things, we got a little bit of that going on here and there it's something we're going to be careful about just.
All the moves we make we use a lot of data to try to drive our decision, making on that and look at the responses of consumers. So.
Something that we're going to continue to explore will.
We will do it gingerly, because we are very sensitive to adverse reaction from consumers, especially as we're trying to continue to encourage them to come back to the movies with greater frequency.
Yeah.
But we do think there's opportunity over time in that space for sure.
Thanks, Thanks, John Thanks, Mike.
Yes.
Thank you. Our next question is coming from the line of Omar <unk> with.
Wells Fargo. Please proceed with your question.
Good morning, guys. Thank you for taking my questions.
Maybe maybe some first.
With regards to Latin America.
And the recovery continues to lag the U S.
Can you give us an update on Latin American trends and as you expect.
Drove that gap to narrow in 'twenty three as things stabilize down there that I have a follow up.
Sure. Thanks for the question Omar actually when we look at the data for Latam. There was a there was a while there was a decent period of time, where Latin America was lagging.
The U S.
In box office performance and reopening of theaters.
At this point, what we're seeing is things are pretty well caught up.
In terms of.
Vaccination rates in many countries they exceed the U S.
Are we going in general has been really strong.
Some of that some of that you've got to consider mix.
Certain titles as they always historically have will fare a little bit better or worse, there action horror family tends to over perform in the region relative to the U S where things like SIFI tend to skew a bit below so that can influence things in the fourth quarter the fourth quarter.
Eric Lee in Latam has been the it's the winter there. So that historically has been the slowest period of the year in the fourth quarter of this year. In particular, there was also the World Cup, which is always a big a big focal point for folks there. So we can events in the World Cup can affect movie going and a lot of times Studios will also.
<unk> manage their released times around that so that dampened things a bit in the quarter, but when we look at the full year.
The whole.
You look at the results of Latam being quite comparable to.
Two north American movie going we've got plenty of phenomenal examples in the region of great success Avatar for instance, avatar the way of water. It's the sixth biggest film ever in the region and it's significantly higher than the first installments. So we look at Latam as being.
A relatively comparable place to the U S now.
That was helpful color. Thank you and most of the maybe.
All the work you guys have been doing around improving operational efficiencies and lowering our cost structure.
So the way you guys have been doing with dynamic pricing in per caps maybe.
Maybe can you unpack how are those actions sort of benefiting your margin structure and maybe update us on any new initiatives you guys are working on 423.
Sure the key the key items I would call out there Omar one of the biggest would be on our theater labor.
The team has done a lot of work on optimizing our operating hours as well as driving efficiencies within our labor hours. So that has been benefiting our cost structure now that said that's been overshadowed by the wage rate pressure.
For that we've experienced now we do expect while we expect some ongoing wage rate pressure, we don't expect it to be at the same extent that that we've seen over the past couple of years, but I would say theater labor is one of the biggest areas where we've seen some.
On the cost side, and it's an area where as we go forward similar to as we do across all our expense line items that were continuing to look and pursue additional productivity initiatives on to try to offset some of the pressures that we've been facing again strategic pricing.
<unk> is another area that helps offset some of those inflationary pressures.
Productivity improvement are certainly an area that we're focused on I think the other item that I would mention is just our ongoing discipline on G&A.
Again that one's been overshadowed a bit by some of the dynamics with wage rate inflation as well as our shift to cloud based software, but we've been controlling pretty tightly our discretionary spending in our staffing levels being below 2019. So we continue to look to to run the company.
In a very disciplined way from a cost structure standpoint.
Thank you.
Thanks Omar.
Thank you there are no further questions at this time I would now like to hand, the call back over to Sean Gamble for any closing remarks.
Alright, well. Thank you all for joining the call. This morning, we appreciate you taking the time to.
To meet with US and we look forward to speaking with you again following our first quarter 2023 results have a great day.
This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Joining the rest of your day.