Q1 2023 Cinemark Holdings Inc Earnings Call
Greetings and welcome to the Cinemark Holdings first quarter 2023 earnings call. At this time, all participants are in a listen only mode.
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.
A reminder, this conference is being recorded I would now like to turn the call over to Chanda per shares senior Vice President Investor Relations. Thank you you may begin.
Good morning, everyone I would like to welcome you to Cinemark Holdings, Inc. First quarter 2023 earnings release Conference call hosted by Sean Gamble, President and Chief Executive Officer, and Melissa Thomas Chief Financial Officer, before we begin I would like to remind everyone that statements or comments made on this conference call may be forward looking statements forward.
Looking statements may include but are not necessarily limited to financial projections or other statements of the company's plans objectives expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may materially differ from forward looking projections due to a variety of factors information concerning the factors that could cause.
Our results to differ materially it can't 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 Cinemark Dot com with that I'd like to turn the call over to Sean.
Thank you Chanda and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2023 results.
Over the past year, we've expressed our optimism about the future of theatrical exhibition based on positive sustained trends in consumer moviegoing behavior, and improving volume of wide releases and forward looking commentary by our existing and emerging studio partners regarding the value of theatrical release provides their film assets.
We've also highlighted the advantage position cinemark maintains within our industry on account of our stable financial health resilient operating capabilities and plentiful opportunities ahead.
As we're now four months into 2023, we could not be more encouraged by the ongoing strength of these trends as well as our companies and industries continued recovery.
During the first quarter North American box office grew by almost 30% versus 2022 propelled by strong carryover from the global sensation Avatar, the way of water and animated success pushing boost the last wish as well as a diverse range of crowd pleasing hits.
Top performing films included create three screen six and John Wick, four which each broke records delivering all time high results for their franchises horror film, Meghan, which far exceeded expectations generating over $95 million of domestic box office.
Adventure Saga, Dungeons and Dragons honor among thieves, the highly successful faith based film Jesus Revolution, the well received adult drama a man called auto comedy thriller cocaine bear.
And ant man and the wasp quantum mania, which drove over $200 million of domestic box office with close to half a billion dollars worldwide.
They're truly with something for everyone in the first quarter.
And better than anticipated box office performance during <unk> continued right into April which yielded the third largest result in history for that month APRA.
April box office was up almost 55% year over year and within approximately 5% of 2017 to 2019 as pre pandemic average, which included two of the highest grossing movies of all time with Avengers Endgame Avengers Infinity War.
Along with positive flow through from the first quarter titles, new releases that helped drive April's success included the critically acclaimed error, which was Amazon's first full scale wide release under their Amazon Studios label since they began making a larger push into theatrical exhibition this year.
Horror film Evil did rise a title originally produced for streaming that is now on pace to deliver over $60 million in domestic box office, a wide range of small to mid tier titles, such as rent field, the Pope's Exorcist, and the covenant, which helped drive april's overall content volume to a level consistent with pre pandemic.
<unk> output and of course, the record setting supermarket brothers, Universal and Illuminations biggest animated title ever which has already become the second largest domestic animated film of all time.
Year to date results continue to validate that consumer enthusiasm to experience movies and varied forms of content in a shared larger than life theatrical setting is as strong as ever there is simply no better way to amplify excitement and cultural relevance for films than with an exclusive.
Patrick will release.
Perfect illustration of this sentiment is the myriad of fans, who dressed up like Mario Luigi and Princess Peach to come see Super Mario brothers over the past four weeks.
I happened to be touring a range of our theaters during the films opening in love not only seeing but feeling the shared energy of our guests enjoying that moment, together, which lifted the entire audience to a heightened level of engagement.
A similar energy was present at Caesars Palace in Las Vegas last week during cinema Khan, our industry's annual trade show event, when exhibitors studios vendors and various members of the creative community congregate to view highlights of upcoming films as well as discuss pertinent industry matters.
The consistent message delivered by studio executives filmmakers and movie stars during that convention could not have been clear. It was one of overwhelming belief in and commitment to theatrical exhibition as the best way to present films delight fans and maximize promotional and.
Financial value for movies.
Importantly that belief is now backed by data analysis feedback and financial results.
Moreover, there was a collective recognition that a movie theaters immersive communal environment creates a magic and inspiration and meaningful connection to stories that is unlike any other form of content distribution.
Personally I was overwhelmed by the adamant commentary from our studio partners as well as the overall strength of material that was showcased which is some of the best collective content I've seen over the past decade cinema Khan.
Cross every genre of film every demographic every studio the movies on display for the next year and a half look sensational.
In the family category, we were shown spectacular footage from the little Mermaid and wish as well as a full 20 minutes of Pixar as upcoming release elemental, which looks fantastic. We also saw stunning scenes from wonka Barbie and haunted mentioned as well as exciting early glimpses of migration trolls band together.
Other and teenage mutant Ninja turtles mutant man just to name a few.
Superhero films were well represented with compelling first time reveals for blue beetle Aquaman and the loss Kingdom. The marvels craving, the Hunter and Guardians of the Galaxy three which opens this weekend at Cinemark near you.
We also got an extended 15 minute preview of spiderman across the Spider verse, which looks absolutely tremendous and we had the opportunity to screen the flash in its entirety.
While we've been asked not to provide any specifics about that film I can tell you that studio commentary, suggesting the flash is by far the best D. C. Moving to date is very well justified.
Action audiences are also shorter be thrilled based on the extended sequences, we saw of Indiana Jones and the dial of Destiny and mission impossible dead Reckoning part, one which suggest these franchises have been taken to an entirely new level.
Likewise, new trailers for fast X Transformers rise of the beef hunger games, the ballad of songbirds, and snakes, Granturismo and the equalizer three appear set to fully captivate movie goers.
Along those lines suspense and horror fans are bound to be cleaning to their luxury loungers based on the terrifying Reals. We were shown for the none to the exorcist and our hunting in Venice as well as the full screening that was presented of the bogeyman, which received rave reviews for the intensity of its scare factor.
And the list doesn't end there we saw a diverse range of riveting footage from high scale spectacle films, including Christopher Nolan Oppenheimer than even the news June two and two epic saga from Apple films, which include Martin Scorsese's killers of the flower mood, starting Leonardo Dicaprio and release.
Scott's Napoleon's starring Joaquin Phoenix Alright.
Our rated comedies are back with Joy right no hard feelings in strange starring will Ferrell and Jamie Foxx, Theres, a new sequel to my Big Fat Greek wedding coming ample specialty films inspirational stories and a phenomenal looking musical adaptation of the color purple that was presented by Oprah Winfrey.
And whats truly remarkable is all of the films I. Just described are releasing this year in 2023 I haven't even touched on the wealth of material that was shared for 2024, which was equally as promising.
Our entire team walked away from cinema Con as encouraged as we've ever been about the pipeline of films that lies ahead.
In addition to the positive news coming out of Las Vegas last week as well as this year's solid box office results that had been exceeding expectations. We're also pleased to report that 2020 Three's total volume of film releases is tracking better than anticipated.
Our previous estimate of 100 to 105 wide releases for the full year has already been surpassed with 110 titles now dated and second quarter volume resembling pre pandemic levels.
While film volume in the third and fourth quarter is still down approximately 15% to 20% that gap is also narrowed thanks to support from the recently data Apple films, I mentioned, a moment ago as well as multiple new additions from various studios.
Based on indications, we continue to receive from our traditional studio partners regarded regarding their targeted levels of production as well as Amazon's expressed intention to ramp to 10 to 12 films per year and apples growing theatrical aspirations. We remain highly optimistic about film volume recovery close to or <unk>.
Other than pre pandemic levels over the next couple of years.
Our enthusiasm regarding our industry's ongoing rebound also holds true for cinemark and our first quarter results certainly reinforced that perspective.
We entertained 43 million moviegoers worldwide, and <unk>, which was up 30% year over year, we generated total revenue growth of 33% and a sizable increase in adjusted EBITDA of over 240% to $86 million within adjusted EBITDA margin of 14, 1%.
<unk>.
Furthermore, we continue to be the only major U S. Exhibitor to have achieved and maintained a meaningful increase in market share since reopening which remains up approximately 100 basis points compared to our pre pandemic average.
As a result of our improving financial strength, our strong first quarter results and our positive outlook regarding the remainder of 2023 and beyond we are pleased to report that on Monday, we paid down a further $100 million of the incremental that we secured during the pandemic.
Our solid first quarter results and subsequent retirement of debt. This quarter is a direct byproduct of the continued improvement of our industry is making in its recovery combined with the positive impact we are deriving from our strategic actions to maximize attendance and box office drive overall top line growth and improve our.
Productivity, while delivering top notch entertainment for our guests.
These actions include a wide range of initiatives, beginning with enhancing various experiential aspects of our business such as making further advances in our guest services practices simplifying the transactional ease of ticket and food and beverage purchases and expanding our premium offerings like luxury seating large format audits.
Forums, and elevated sight and sound technologies.
Our strategic actions also include efforts to expand our audiences, which range from utilizing sophisticated targeted marketing techniques to leveraging highly valued and engaging loyalty strategies like our industry, leading movie club program to identifying and growing new sources of content that capture a broader base of consumer interests to further strengthen.
Our utilization of data analytics, as we optimize our pricing and Showtime planning decisions.
We also continue to place a significant emphasis on growing new and existing channels of revenue.
Examples include further scaling up our online food and beverage ordering platform optimizing the range and assortment of products, we offer growing merchandise sales in theater and online developing new 33rd party distribution partnerships and increasing monetization of unused physical spaces in our theaters.
And while we are pursuing all of these varied revenue generating opportunities. We are also actively working on productivity measures to do more with less.
Initiatives in this regard include further enhancing our workforce management tools and processes, simplifying and strengthening inventory management.
Spanning our continuous improvement and automation projects more extensively across our organization and leveraging more advanced sourcing and procurement strategies.
We are already realizing material benefits from these wide ranging initiatives and we are highly enthusiastic about the positive incremental impact they will provide going forward.
Furthermore, as a result of these enhancements and a disciplined way we have operated our company and managed and invested capital over the years Cinemark remains situated to capture an outsized portion of our industry's ongoing recovery.
Disadvantage position would not be possible without the resourcefulness skill determination and diligence of our remarkable global team that is second to none in this business.
With that I'll turn the call over to Melissa who will provide further information about our first quarter results.
Thank you Sean good morning, everyone and thank you for joining the call today.
We were pleased with the strength of the first quarter box office, which far exceeded our expectations as.
As well as our ability to fully capitalize on that strength through operational excellence and the ongoing execution of our strategic initiatives to grow revenue while mitigating cost.
Across our global footprint, we welcomed approximately 43 million guests to our theaters and increase of 30% from the first quarter of last year.
And we grew total revenue nearly 33% to more than $610 million.
With a meaningful increase in revenue, we were able to gain operating leverage over our fixed cost and grow adjusted EBITDA at 242% year over year to $86 million, resulting in a healthy adjusted EBITDA margin of 14%.
These results are a testament to the hard work and strong execution of our team.
Turning to our domestic segment, we serve $25 2 million patrons, an increase of 22% year over year, and we generated $244 7 million in admissions revenue.
Our average ticket price was $9.71 in the quarter.
Up 5% relative to the first quarter of last year, driven by strategic pricing initiatives and the ongoing strength of premium formats, particularly three D penetration.
Partially offset by ticket type mix.
Domestic concession revenue continue to demonstrate.
Strength in the quarter growing 32% year over year to $186 8 million.
Our concession per cap increase 9% to $7 41.
In line with the all time high we delivered in the fourth quarter of last year.
Strategic and inflationary pricing initiatives, coupled with our ability to maintain elevated incidents rates were key drivers of our per cap strength.
Other revenue was $47 6 million, an increase of 22% which was in line with our growth in attendance.
Overall, our domestic segment generated total revenue of $479 1 million and adjusted EBITDA of $63 4 million, yielding an adjusted EBITDA margin of 13, 2%.
An increase of 930 basis points compared with the first quarter of 2022.
Turning to our international segment, the first quarter film slate resonated well with Latin audiences.
The recovery in the region continued to take hold.
Were $17 7 million patrons visiting our theaters in Q1, an increase of 43% relative to Q1 of last year.
Our international segment delivered $66 3 million of admissions revenue $49 million of concession revenue and $16 3 million of other revenue.
Altogether total international revenue increased 49%.
$231 6 million.
<unk> EBITDA increased to 112% to $22 8 million, yielding a 17, 3% adjusted EBITDA margin or 510 basis points of margin expansion from Q1 of 2022.
Shifting to global expenses.
Film rental and advertising expense was 53, 6% of admissions revenue down 50 basis points year over year, due primarily to lower marketing spend.
As we flex our investments to align with our expectations around box office and returns.
This benefit was somewhat offset by the content mix in the quarter.
Regarding our marketing spend with the first quarter box office meaningfully exceeding expectations, we spent somewhat less than we would have otherwise.
We continue to see meaningful returns on our marketing investments as we seek to grow our customer base.
Increased visit frequency.
And strengthen loyalty.
Concession costs as a percent of concession revenue were 18, 5% up 120 basis points compared with the first quarter of 2022.
Driven primarily by inflationary pressures and mix impacts parse.
Partially offset by strategic pricing actions.
It's worth noting that the year over year comparison is impacted by one time benefits to the Cogs rate in the first quarter of 2022.
Global salaries and wages as a percent of total revenue declined 320 basis points.
Due to operating leverage associated with the growth in attendance.
The unexpected strength of the box office.
And our ongoing focus on labor management.
While we continue to face some wage rate pressure during the quarter. It was mostly government mandated rather than market driven.
Facility lease expense as a percent of total revenue declined 300 basis points compared with the first quarter of 2022, as we gain more leverage over our lease costs, which are largely fixed in nature, particularly in our domestic segment.
Utilities and other expense was $103 8 million up 19% from the first quarter of 2022.
Primarily driven by variable costs that grew with attendance and rising utility rates.
DNA was $46 5 million in the first quarter, reflecting incremental head count to support business recovery and strategic initiatives.
Wage and benefit inflation, a shift towards cloud based software and higher stock based compensation.
We remain disciplined around discretionary spending and staffing with head count below 2019 levels.
Globally, we generated a net loss attributable to Cinemark Holdings, Inc of $3 1 million in the first quarter.
<unk> and a loss per share of <unk>.
Moving to the balance sheet.
We ended the quarter with $650 million of cash and we generated positive operating cash flow and only modestly negative free cash flow in the quarter, Despite working capital headwinds.
Our balance sheet remains a key differentiator.
The strength of our cash position earlier this week, we redeemed $100 million of our 875% senior secured notes scheduled to mature in 2025.
Underscoring the health of our company and our optimism regarding the industry's recovery potential.
We also continue to invest in the long term health of our fleet.
With approximately $150 million of capital expenditures anticipated for this year.
Roughly half of the spend is allocated towards maintaining our high quality circuit and the remainder to ROI generating initiatives, including Newbuild theaters and premium amenities, such as recliner conversions premium large format screens and D box motion seats.
Our near term capital allocation priorities remain centered around strengthening our balance sheet and making investments to position the company for long term success.
As the box office and our free cash flow continue to rebound.
De levering is a priority for us.
As is extending maturities as capital market conditions warrant.
Of course, we intend to remain balanced and disciplined when it comes to our capital allocation.
With a target net leverage ratio of two to three times.
In closing we remain highly optimistic regarding the ongoing recovery of theatrical exhibition and our company.
We expect to gain further operating leverage as the overall box office rebound.
And we continue to realize the benefits from the execution of our strategic priorities.
We remain focused on maintaining our ongoing financial strength delivering industry, leading results and.
And driving long term shareholder value.
Operator that concludes our prepared remarks, and we would now like to open up the line for questions.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for your questions.
Our first questions come from the line of Eric Handler with <unk>. Please proceed with your questions.
Good morning, and thanks for the question Sean.
Forgive me if I missed this on the call but.
What percentage of your <unk>.
Box office revenue was premium and how does that compare to the prior year and then now that you're you've seen some improved depth of <unk>.
Moving product I wonder if that's having any positive impact on movie movie Club and Wonder if you could talk about where the.
<unk> numbers are and also a while back you guys used to talk about.
Credit redemption, and you know maybe you could give a little update there.
Sure. Thanks for the questions, Eric and good morning, as far as are our premium box office as a percent of total for the quarter. We were about 12, 5% or so in the U S and about 12% overall, it's pretty consistent with where we were last year, we continue to see an over <unk>.
<unk> and by the way that's just of our XD screens that doesn't include other premium formats. When you include everything else. It probably takes it up a bit closer to 15%.
What I was saying is that that continues to over index versus where we've been historically pre pandemic terms, we continue to see consumers electing to upgrade not only for premium formats are viewing but also with regard to their food and beverage consumption.
By the way movie club to I would say it is sustained trends that movie club are very positive we continue to add members and a consistent pattern to what we saw prior to the pandemic. Our membership levels are continuing to exceed $1 1 million members in our consumption has been consistent I would say if anything.
Assumption in terms of the utilization of credits is perhaps down a slight tick from where we were pre pandemic, but.
Just on our assessment is largely just due to the content recovery cycle akin to what we're seeing with overall attendance trends. So we can continue to be very encouraged by the dynamics of movie club and even our our newest members that we continued to add into that program are consuming at a level consistent.
With some of the earliest members who joined which gives us ongoing optimism about trying to get people into that program, we see the value as we get people in the program their consumption.
As to tends to be at a higher level with regard to the number of movies that go to the amount of upgrading they do and the amount of food and beverage they consume.
Thank you very much thanks.
Thanks I appreciate it.
Yes.
Okay.
Thank you. Our next question comes from the line of David Karnofsky with J P. Morgan. Please proceed with your question.
Alright, thank you.
Market share your numbers look pretty similar to Q1 last year.
Despite the Canada market fully open and so it does seem like you are continuing to gain share on an underlying basis I guess how.
How sustainable should we think about your share at current levels is there anything about film mix that maybe helped in the quarter.
Or can you sustain or even grow your position here.
And then my second question is just on the film rent and advertising. It seems like that helped you deliver better margin relative to Q4. Despite lower box can you just discuss a bit how you think about flexing that investment up and down I would assume some of that spend does come back to you in the form of market share gains.
Sure. Thanks for the question David I'll take the first one Melissa will take the second as far as market share goes we certainly benefited from content that resonated very well across our global business domestically and within Latin America.
You had films like a family films like a push in boots horror films like Megan and screen six in faith based like Jesus Revolution, which we all tend to over index on so that that certainly helped us in market share, we will see ebbs and flows quarter to quarter in share. However, as we've kind of indicated on some past calls we we tend to think that.
Somewhere around 100 basis points of increase relative to our pre pandemic levels is reasonable to expect going forward certainly our aim will be to expand that but we think that's a good good.
A good target to hold.
And in terms of film rental and advertising right.
Do you think about those in the near term similar with 2022, it's reasonable to assume that our film rental and advertising rates will continue to be impacted by a higher concentration of larger tentpole film with some offsets from the modifications to film rental terms commensurate with the shortened theatrical window.
With respect to marketing, while our marketing spend will continue to vary based on our expected attendance and ROI, we are expecting a meaningful step up year over year in our marketing spend as a percentage of admissions revenue.
Thanks.
Thanks, David.
Thank you. Our next question comes from the line of Omar by Harris with Wells Fargo. Please proceed with your questions.
Okay.
Good morning, guys and thank you for taking my questions.
Can you just talk about the impact from the Writers' strike and the potential for the directors and actors will follow suit, we know that the immediate impact that.
Let me just and just given the lifecycle of the production for movie films, but.
At what point is the length of a slight would begin to impact future production and just any color that you guys can provide would be helpful. Thanks.
Sure. Thanks for the question Omar.
Something we'll all be watching very closely and it's unfortunate it has come to this because it certainly has a meaningful impact on a lot of people.
That's probably still a bit too soon to speculate and we can talk about the the writers Guild hard to really say what ultimately comes.
With other guilds down the line and the ultimate impact as you know it really depends on how long the strike glass.
Lengthier, one poses more risk than a shorter one.
While TV tends to feel more of an immediate impact from these types of strikes at least to the positive thing for our industry in the short run as the majority of films scheduled for this year and next are unlikely to be materially affected based on the stage of production there in to hit those dates and we know from our studio partners that they have been they've been.
In planning for this and trying to accelerate where they can and given the long lead time of making films are often able to recuperate some of that time down the line depending on how it goes in the past some of the longer strikes like what we saw in 2007 to 2008 with the 100 day writers Guild strike had had perhaps some impact on.
The industry, but the overall disruption to the flow of films was fairly limited as.
Has the studios they were able to pull forward and work around that.
Because of the lead times of their productions to try to minimize the overall impact. So we're going to have to see how things progress and and hard to say you know at what point, there's a tipping point in terms of impact I know, it's something that we're watching and our studio partners are very very focused on is.
They certainly don't want to have a major disruption in their flow of content.
That's very helpful and Melissa maybe on the cost side U S concessions as a percentage of revenue were a little bit higher than expected, but on the other hand salaries and labor seems to be much improved can you give us a little bit of color on it.
Just an update on what's the inflationary.
Questions.
How should we think about.
How should we be thinking about it for the balance of the year. Thank you.
Sure so yeah.
Couple of things worth calling out here Omar so starting with the Cogs side of things. It's important to note when youre looking at the year over year comparison in our Cogs rate that <unk>.
Q1 of 2022 benefited from some one time cost savings, including purchase of generic popcorn bags and things like <unk> and our ability to use <unk>.
Inventory on hand in Q1 of 2022 that was purchased at lower prices in late 2021 in anticipation of future price increases as well as supply chain challenges. So if you look at our Cogs rate for the last nine months of <unk>.
2022, you can see that we're only slightly up from the Cogs rate perspective.
Q1 of 2023.
As we think about balance of year on the Cogs side, we still do see some inflationary pressure, particularly on commodities, while we've seen some easing in canola and corn prices that has been offset by rising sugar prices. So as we think about.
Full year 2023, Cogs rate expectations, we are expecting to continue to see some modest pressure in our cogs rate relative to 2022.
On the labor side in particular with Q1, our labor benefited from our outperformance on the box office versus our expectations and as you may know the way that we staff. Our theaters is based on projected attendance and with that outperformance.
We werent staffed at the levels that we typically would be stopped at to service that level of attendance. So that did benefit us on the salaries and wages side in the first quarter of this year.
As you think about that going forward on labor there.
You can expect is on.
On the OE side, our labor hours, we would expect to step up as attendance further recovers, albeit that's not going to grow at the same rates per se as attendance, we will gain some operating leverage there and then on the wage rate side, which is where we felt quite a.
If pressure over the past few years, we have started to see that pressure subside, particularly on the market driven pressure. So as we think about going forward for salaries and wages.
What we expect to see there more more so is going to be government mandated increases, which we've seen in pre pandemic times as well.
Thank you.
Thanks for the question Simon.
Yes.
Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Please proceed with your questions.
Hi, This is Aaron on for Chad, Thanks for taking our questions.
Regarding pricing.
No movie going is still much more affordable than other entertainment options can you talk about.
Further opportunities for just organic price increases thank you.
Certainly look pricing is a very important factor in our industry as it is in many.
<unk> on a whole tend to be relatively price sensitive. So it's something that we keep a close watch on our general strategy as we've been recovering from the pandemic is to be careful with pricing as we've certainly been trying to reignite moviegoing and encourage increased frequency of our moviegoers.
We use a tremendous amount of data in our decision, making process with regard to pricing and it really becomes a very discrete theater by theater based exercise in terms of what that in each individual market can bear and what each individual theater can bear as we look forward in terms of where opportunities lie we believe there is.
Quite a bit of opportunity. It's one of the upsides areas of potential we have not just necessarily from taking prices up but really finer tuning our pricing and optimizing that as we continue to see it I'd say some of the techniques. We're doing are relatively new and we believe we're seeing.
Results on account of that we've talked about market share earlier, we used to fully attributed.
Our positive benefits in market share to the pricing strategies that we've been utilizing and we think theres quite a bit more opportunity as we look ahead.
And I think the one point that I would add on there. That's important context is that if you look at our our pricing and how that changed since.
Q1 of 2019, right, we've seen big lift on the concession side, we've seen nice lift on Etp's, but are from a price standpoint, our prices have actually increased below inflation. So we do think there's room there.
Okay Awesome Thats very helpful.
Can you also talk about any opportunities to expand beyond the current portfolio and what your appetite is or how this ranks among your priorities. Thank you.
Sure look we're constantly looking at what is.
The right profile for our portfolio of theaters and circuits, and where there may be opportunities to expand them and which one of the focal areas you've talked about optimizing our footprint, which is a combination of looking for new opportunities in existing markets or new markets as well as.
Trimming down in areas, where perhaps we have underperforming theaters, we've been doing that so I would say, we kind of look at all the opportunities out there, obviously theres a lot of moving pieces in our industry right now with certain theaters coming back to market different levels of health of different circuits. So it's something that we're just going to continue to look at we do.
There could be opportunities there.
We are going to be careful as we're looking to re strengthen our balance sheet as.
As we go ahead and pursue a lot of organic opportunities that we have on hand that we think have rich rois against them.
But.
But yes, I mean, we're look we're optimistic about further opportunities coming to the table here over the next year or two.
Awesome. Thank you very much congrats on the quarter. Thanks, Larry I appreciate it.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Jim Goss with Barrington Research. Please proceed with your questions.
Good morning.
Speaking of optimizing the portfolio.
If we turn to Latin America in particular.
I know the ability to grow organically.
Depending on.
Shopping center.
Development has been a problematic, but I wonder if you're seeing more M&A potential there versus the U S. As a way to increase your penetration of those markets.
Sure. It's a great question Jim.
I would say particular to M&A.
We would look at the U S is likely having more potential there than perhaps lat am not to say there couldnt be opportunities in Latin America, but the different dynamic you have is the U S tends to be far more fragmented market. One lat am generally the top two or three circuits drive.
80% of the box office and they tend to be one of our peers tend to be owned by well.
Finance organizations. These are very wealthy families <unk> institutions that arent any type of financial risks, so because of that and many times they own malls themselves or the theaters are part of an enterprise that they have that fits in strategically. So we think it is unlikely that there are many.
<unk> to come to market in that.
Area, just because of that again not to say that there couldn't be some.
Okay and.
Coming out of cinema can I'm wondering if any of the discussions.
The role of <unk>.
Theaters in persuading the studios to fill the schedule in a way that would benefit all stage blockbusters for example, or.
Good windows usage and counter programming.
As things are developing them back towards normal.
Normalization.
I think.
As I've mentioned in prepared remarks, I think we all were really encouraged by the.
The collective materials that we saw at <unk> and I would say it was a very wide ranging and diverse set of films.
So the good news is there certainly were plenty of large tent pole blockbuster on.
On the horizon, but quite a range of romantic comedies and R rated comedies and as I mentioned faith based adult dramas. I mean, there was really a range of product for all types of audiences, which we think is very healthy for the industry.
It's <unk> the studios tend to highlight some of their their larger content that is more on the helm, we have been having plenty of conversations about other forms of alternative programming as well.
Things like concerts, and anime and things of that sort of anime I should say as part of some of the studios Sony has a relationship with crunchy role.
But when you talk about concerts, and multicultural and things like that there's a lot of that has been starting to ramp up and increase that we're encouraged about we have been talking to the studios about how do we also tap into some of the serialized content that they have been producing and look for opportunities with premier events and things of that sort we've done a handful of those.
Already with a lot of success in a lot of fan base fan based excitement. So I expect there to be more and more of that overtime I would say alternative content as <unk>.
Category has been an area that we've always felt had a lot of potential and unfortunately never really seem to scale materially over the past couple of years. We've finally seen that start to get a little bit of momentum.
As an example alternative content for US was a little over 8% of our box office in the first quarter and historically that is typically around 2% or so so we've definitely seen that start to scale up and we think somewhere around 5%.
An area of opportunity for it to hold that into the future.
Okay, and then one last one.
And I know this.
This would be tough to measure precisely, but I wonder if.
Theres any perceived slippage.
Dreaming that you might have experienced.
Absent the pandemic.
It's a theme that there could have been some slippage in the past.
It's possible that some some of those potential.
Potential customers might return less frequently if at all.
Do you have any sense of that.
We haven't seen any data to suggest that's happening in fact.
Tend to think that theres been a false narrative painted in the media that.
Streaming and theatrical compete with each other when in reality they tend to be very complimentary, it's not to say that there might not be some really compelling piece of content on TV that causes somebody to elect to stay home versus not go out in a particular evening, but what we know from a lot of analytics.
Multiple analytics.
That had been performed is the most active moviegoers are the most active streamers and Conversely, those who don't go to the movies are the people who consume the least amount of content on streaming services. It's just not their thing they do what they do other forms of entertainment.
Probably one of the biggest data points, we tend to look to historically is the biggest weekend of moviegoing ever in the U S, which was the opening weekend of Avengers Endgame was also the biggest night in television history.
With with the.
The climax episode of game of Thrones on HBO and both of those two things co existed on the same weekend. So there certainly is the ability for these things to play together and what if anything what we're seeing is the opportunity for things to build off of each other I mean, you look at all of the the series on streaming.
Platforms that have come out of movies, we think some of that is kind of going to play it back into the play off of each other and so we think these are just great opportunities for complementary programming that builds.
In total and we're not seeing any data to suggest that.
That we've lost consumers or there has been slippage obviously the pandemic was a unique period, where there was a health concern that could have affected that during that period, but now that we've gotten beyond that and content has been coming back to theaters and theres a more sustained momentum of moviegoing, we're not seeing any data to suggest that that's the key.
Case.
Alright, thanks, very much thanks, Tim really appreciate it.
Our next question.
Omar <unk> with Wells Fargo. Please proceed with your question.
Yes, Thanks for taking my follow up just a quick question as it relates to long term margins.
With a sense of.
ACP and per caps and all the work that you guys have been doing on the cost side and working with the operational efficiencies.
Do you think.
You can return to pre pandemic margin levels.
Yes.
Or without the <unk>.
Similar attendance levels.
At the box office is just your thoughts on the future.
Margin.
For the business. Thank you.
Happy to take that one Omar so.
We generated in Q1, a healthy adjusted EBITDA margin of 14, 1% globally and that was despite attendance only recovered to around 70% of 2019 levels. So clearly our goal over the longer term is to get back to pre pandemic adjusted EBITDA margin level.
<unk> in the low 20% range, even without the dividend income, we historically received from MTN in D C, but our ability to do so is going to be dependent upon a number of variables primary driver as you know our go forward margin is going to be and to the extent to which attendance and box office.
Recover however, there are a number of other variables, whether tailwind from market share elevated per caps and in app.
Average ticket prices continue and then how inflationary pressures evolve from here as it relates to 2023, we definitely believe that we can continue to.
Expand our margin based on our expectations of further recovery.
<unk> office as we gain more leverage over that fixed cost base, but clearly over the longer term.
We're striving to get back to those pre pandemic adjusted EBITDA margins and we do have initiatives both on the top line as well as on the productivity side.
To do so.
That's great. Thank you thanks Omar.
Thank you there are no further questions at this time I would now like to hand, the call back to Sean Gamble for any closing remarks. Thanks.
Thanks Darryl.
As we wrap I just like to emphasize again that we could not be more encouraged by the positive momentum progress and performance of our industry and company have realized year to date as we look forward. We believe all of our key stakeholders, including investors partners and employees have much to be excited about our consumers continue to them.
Constraint there is strong enduring demand for the types of experiences. We provide studios are definitively recognizing the enhanced promotional and financial value that an exclusive theatrical release delivers their films the pipeline of future content volume continues to recover towards pre pandemic levels and the array of opportunities that remain well within our control.
<unk> to grow and strengthen cinemark are significant.
Thank you all again for joining us this morning, and we look forward to speaking with you again following our second quarter results have a great day.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.