Q3 2023 Cinemark Holdings Inc Earnings Call
Greetings and welcome to the Cinemark Holdings third quarter 2023 earnings call. At this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Sandra Bashir Senior Vice President Investor Relations. Thank you you may begin.
Good morning, everyone I would like to welcome you to Cinemark Holdings, Inc. Third 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'd like to remind everyone that statements or comments made by this conference call maybe forward looking statements.
We're 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 results to differ material materially is contained in the company's most recently filed 10-K and 10-Q also today's call may include non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most of.
Comparable GAAP financial measures can be found in the company's most recently filed earnings release 10-Q and on the company's website at IR Dot Cinemark Dot com with that I'd now like to turn the turn the call over to Sean Gamble.
Thank you Chanda and good morning, everyone. We appreciate you joining us today for our third quarter 2023 earnings call.
Consistent with our commentary over the past year as we assess the fundamental drivers of our industries and companies long term health and prosperity, namely consumer behavior, new release volume and the impact of our strategic initiatives.
Key trends and indicators across all three categories continue to provide a positive outlook for the future.
First and foremost we have now witnessed a steady stream of record setting results quarter after quarter across all genres of films for more than two years that demonstrate consumer enthusiasm for shared larger than life cinematic experiences remains strong and vibrant.
That trend has certainly been evident in 2023 is a diverse range of films delivered first half box office results that bested expectations and those results have remained strong throughout the summer and fall.
The third quarter at <unk>, the positive appeal and impact of a diverse slate of films.
During the quarter Barbie and adventure comedy based on an iconic toy and Oppenheimer and R rated adult drama about the invention of the atomic bomb collectively generated nearly two and a half a billion dollars of global box office as Barb Manheimer became a global cultural phenomenon.
The faith based sensation sound of freedom reached almost $185 million domestically as positive word of mouth propelled the film to broad audiences.
And new installments from action adventure franchise favorites like mission impossible, Indiana Jones teenage mutant Ninja turtles in the Meg as well as suspense horror sequels, including in cities, the red door and the none too all accumulated significant results.
For cinemark sustained consumer enthusiasm to experience these varied and compelling films and an elevated theatrical setting yielded our biggest month of gross box office in our company's history in July as well as the domestic box office result in the third quarter that was in line with our biggest third.
Quarter ever.
And in the fourth quarter, we've already seen that trend continue as Gen. Z came together in droves. This past weekend in many cases dressed up as their favorite characters to experienced five nights at Freddy's on the big screen a horror film based on an indie video game franchise, which just delivered the fourth largest domestic.
October opening ever with almost $80 million of box office.
And that achievement happened only a few weeks after Taylor Swift produced the second largest October opening ever with her Arris tour film a record breaking title and events cinema that has now eclipsed $150 million domestically and is by far the largest concert film of all time.
And a steady stream of diverse films appealing to a wide range of audiences is slated to continue through year end, including heroic blockbusters, the marvels and Aquaman the last Kingdom epic saga, as Napoleon and hunger games, the ballad of songbirds and snakes animated family features trolls band together wish in migration.
<unk> and musical productions Wonka and the color purple just to name a few.
People continue to seek out theatrical experiences because the shared communal environment, coupled with premium sight and sound technologies delivered height delivers heightened levels of fun impact and engagement that just can't be replicated at home.
Consider the difference and excitement and energy of watching Taylor Swift's extraordinary Arris tour at home on the couch versus viewing it on a 50 to 80 foot screen with Crystal clear Ultra premium sound together with fellow fans singing and dancing as everybody felt like they had a front row seat at the concert.
There is simply no comparison.
So as we examine box office results in consumer movie going trends over the past two plus years, we remain highly encouraged about what they suggest for the future of theatrical exhibition.
Likewise, we also remain encouraged about prospects for the recovery of New film release volume based on progress made to date and input we continue to receive from our studio partners.
Last year, new releases recovered to approximately 65% of pre pandemic levels and this year they are tracking to approximately 80%.
Growing film production momentum at the start of the year also had 2020 for volume on pace to recover even further however, the writers and actors strikes in Hollywood over the past six months have caused a temporary disruption to that recovery trajectory and updated expectations for 2024 are still evolving.
That said the writers concluded negotiations with the studios and have been back at work for the past month, and we're hopeful the actors and studios will follow suit soon.
Furthermore, it is important not to lose sight of longer term indicators and what they imply with regard to a positive rebound of volume over time.
First our traditional studio partners continue to reinforce their intentions of rebuilding annual theatrical film output to pre pandemic levels over the next two to three years and we have received no indication that those plans have been altered by the strikes.
<unk> are a core component of content mix distribution strategies and financial results for these entertainment companies and the material benefits that a theatrical release provides a film's promotional impact and overall asset value has been clearly validated over the past few years.
Next Amazon and Apple are also stepping up their theatrical ambitions and have expressed plans to develop theatrical slate that would approach levels comparable to our traditional studio partners by 2025.
Doing so would effectively add two new major studios into the mix.
Amazon has continued to maintain mgm's traditional level of theatrical output since acquiring the company in 2022 and also enjoyed the successful release of air in April in.
In the fourth quarter, they are releasing the psychological thriller Saltburn, the smart city real comedy American fiction, and an uplifting true underdog story about the 1936 U S Olympic rowing team called the boys in the boat.
Apple is in the midst of a meaningful increase in their theatrical scale as well with the launch of Martin Scorsese's critically acclaimed killers of the flower Moon, a couple of weeks ago and upcoming releases of Ridley Scott's Epic's spectacle Napoleon in November and Matthew Vaughn Star studded spy thriller Argyle in February.
Yeah.
Finally, non traditional content and events cinema continued to grow in popularity and had been performing remarkably well at the box office.
A wide range of multicultural titles anime faith based films and concerts have delivered impressive results. This year, which is a trend we expect will continue.
In the third quarter non traditional content accounted for almost 14% of our domestic box office results at Cinemark driven by the breakout hits sound of freedom and a sustained series of multicultural titles.
In the fourth quarter is already benefiting from Taylor Swift's highly successful Erez tour as well as after death, which just delivered the second best opening ever for a documentary.
And still to come this year is Renaissance a film by beyond say faith based titled the shift and an array of additional alternative programming.
Altogether. These collective data points with regard to new release volume and consumer moviegoing behavior provide highly encouraging signs that bode well for the future prosperity of our industry and company, even if product flow faces some near term headwinds as a result of the Hollywood strikes.
Moreover, specific to cinemark, we remain well situated to capitalize on our industry's ongoing recovery and deliver long term shareholder value on account of our solid financial position outstanding team industry, leading operating capabilities and the significant benefits we are deriving from our strategic initiatives.
Our team is skilled operating discipline and the meaningful advancements our initiatives are having in shaping cinemark for the future were evident in our second quarter results and further exemplified in <unk>.
Following last quarter's delivery of our company's second highest quarterly adjusted EBITDA of all time. This quarter, we achieved a third quarter record high adjusted EBITDA of $197 million on third quarter record high revenue of $875 million.
Furthermore, on worldwide attendance that was 16% lower than the third quarter of 2019, we generated 6% more revenue and 16% higher adjusted EBITDA than our three Q19 results.
And beyond that this quarter's adjusted EBITDA margin of 22, 5% exceeded three Q19 by 180 basis points and was our highest third quarter margin rate since 2016.
As we've highlighted on previous calls our top priorities. This year remain focused on effectively navigating the dynamic ups and downs of our industry has extended recovery, while driving actions to set ourselves up for future growth and efficiency.
As such we continue to emphasize near term revenue and margin generation staying diligent on expense and cash management and nimbly flexing based on fluctuating demand forecasts, while at the same time actively working every fortify our balance sheet and investing in opportunities to grow drive incremental productivity.
<unk> and further strengthen our circuit.
While we are realizing material upside from the many actions we've already executed as demonstrated by our results year to date, what really excites me is the wide array of additional opportunities that remain before us and that are fully within our control to further enhance the experience we provide our guests build audiences.
Generate new and diversified revenue streams, streamline processes and opportunistically optimize our footprint.
Some examples include continuing to expand premium offerings through new enhanced food beverage and merchandise options as well as proven amenities like Recliners D box motion seats, and <unk> laser projectors, leveraging our sophisticated Showtime planning strategies marketing capabilities loyalty programs and globe.
Reached over 30 million addressable consumers to stimulate incremental moviegoing frequency.
Further enhancing our concessions distribution practices to expedite in Peter purchases grow e-commerce transactions and extend availability across varied third party sales channels and driving additional workforce management refinements forecasting improvements operating our optimization and process automation to strengthen efficiency.
Yes.
So as we look ahead and as we consider pertinent developments and the fundamental drivers that impact our industry and company, we remain highly optimistic about our future health growth and prosperity.
Throughout unprecedented disruption in our industry consumer enthusiasm for moviegoing and theatrical experiences has held strong.
The financial and promotional value that a theatrical release provides content remains significant.
A growing number of film studios and new content providers are leaning more actively into theatrical exhibition and the range of opportunities to further grow and strengthen cinemark are plentiful.
With that I'll turn the call over to Melissa who will provide additional information on our third quarter results Melissa.
Thank you Sean good morning, everyone and thank you for joining the call today.
We were exceptionally pleased with the third quarter's box office performance as well as our team's ability to deliver another quarter of strong results by further advancing our strategic growth initiatives, while maintaining discipline around cost management and driving productivity.
Across our global circuit, we serve nearly 62 million patrons during the third quarter, an increase of 28% year over year.
And we grew revenues, 35% to $874 8 million.
With heightened attendance and revenue, we realized meaningful operating leverage over our fixed costs in the quarter.
Growing our worldwide adjusted EBITDA, 98% year over year to $196 8 million and delivering a healthy third quarter adjusted EBITDA margin of 22, 5% with margins expanding 720 basis points year over year.
Turning to our domestic segment, we entertained $37 5 million moviegoers during the third quarter, an increase of 27% year over year, and we grew our admissions revenue, 36% to $354 million.
Our average ticket price grew 7% year over year to $9 and 34.
Driven primarily by inflationary and strategic pricing initiatives and favorable ticket type mix as the third quarter film slate skewed more adult.
As anticipated and as discussed on our last earnings call. The third quarter film mix wasn't as strong for our circuit as the content in the first half of the year.
As a byproduct of the film mix or market share declined slightly year over year, although it remained well above pre pandemic levels.
While our market share will fluctuate quarter to quarter based on the film mix, we continue to focus on driving initiatives to sustain if not grow our share.
U S concession revenue increased 34% year over year to $268 million.
Concession per cap grew 5% to $7 15 for the quarter.
Driven by inflationary and strategic pricing initiatives.
As expected our per cap growth rate moderated during the third quarter, given the more adult skewing film slate.
That said, our third quarter 2023 domestic per cap was up nearly 40% versus the third quarter 2019, and concession revenues surpassed that of Q3 2019 by 16%.
Our ability to continue to improve the monetization of the attendance we drive through our theaters has been a key driver of our results.
Other revenue was $64 1 million, an increase of 20% year over year, primarily due to our attendance growth in the quarter.
In total our domestic operations generated $682 5 million of revenue up 33% year over year and delivered $151 2 million of adjusted EBITDA.
Sizable 114% increase over the third quarter of last year.
Our domestic adjusted EBITDA margin of 22, 2% expanded 840 basis points year over year, and 130 basis points relative to the third quarter of 2019.
Shifting to our international operations, we welcomed $24 4 million guests during the third quarter, an increase of 29% year over year.
We delivered $93 4 million of admissions revenue.
$71 8 million of concession revenue.
$27 1 million of other revenue.
Altogether, our international revenue increased 39% to $192 3 million.
Through disciplined operational execution, our team grew adjusted EBITDA, 58% year over year to $45 6 million.
And we delivered a 23, 7% adjusted EBITDA margin, which represents 290 basis points of margin expansion versus the third quarter, 2022, and 390 basis points compared with the third quarter of 2019.
Turning to global expenses.
<unk> film rental and advertising expense was 55, 9% of admissions revenue.
20 basis points higher than the third quarter of 2022, as we stepped up our marketing spend to capitalize on the box office strength in the quarter and the outsized returns we've been seeing on our investments.
Our film rental rates were driven by the content mix in the third quarter, and partially offset the heightened level of marketing spend.
Concession costs as a percent of concession revenue were 18, 5% in the third quarter of 20 basis points year over year, driven by ongoing inflationary pressures and an uptick in shrink partially offset by inflationary and strategic pricing initiatives.
Global salaries and wages were $107 9 million, an increase of 11% year over year.
As a percent of revenue salaries and wages declined 260 basis points, driven by operating leverage due to the higher attendance levels and the benefits realized from our consistent focus on labor productivity.
Which was partially offset by wage rate pressure and expanded operating hours.
Facility lease expense was $84 4 million, an increase of 9% year over year.
As a percent of total revenue facility lease expense decreased 230 basis points compared with the third quarter of 2022, as we gained leverage over our lease costs, namely in our domestic segment, where lease costs are largely fixed in nature.
Utilities and other expense was $129 5 million up 17% compared with the third quarter last year, primarily due to the growth in attendance, which increased our variable costs, such as credit card fees janitorial costs and repairs and maintenance.
Higher property and liability insurance costs also contributed to the increase year over here.
G&A was $48 2 million in the third quarter, an increase of 7% year over year.
Excluding stock based compensation G&A was up 5% in the quarter driven by incremental head count to support business recovery and our strategic initiatives.
Wage and benefit inflation, and our ongoing shift to cloud based software.
Which was partially offset by lower professional fees.
As a percentage of revenue G&A declined 140 basis points to five 5%.
Globally, we generated net income attributable to Cinemark Holdings, Inc of $90 2 million in the third quarter, resulting in diluted earnings per share of <unk> 61.
Moving to the balance sheet, we continue to strengthen our financial position generating $50 million of free cash flow in the third quarter and $246 million of free cash flow in the first nine months of the year to end the quarter with $806 million of cash.
We achieved a meaningful milestone in the third quarter with our net leverage ratio, reaching our target range of two to three times for the first time since the pre pandemic period.
Our capital allocation priorities remain focused on strengthening our balance sheet, including Delevering and investing the long term success of our company.
We consistently invest in our global circuit to maintain and enhance the theatrical movie going experience with $35 million of capital expenditures in the third quarter.
Our full year 2023 target of $150 million.
We continue to expect roughly half of our capital investment this year will be allocated towards sustaining a high quality circuit and the remainder to laser projector installations.
ROI generating opportunities mainly premium amenities.
And Newbuild theaters.
As we look forward, we will remain flexible regarding our capital expenditures targeting investment opportunities that meet our disciplined return thresholds, while factoring in our box office recovery and free cash flow expectations.
As a result of the strength of our balance sheet, coupled with our strong execution capabilities, we are well poised to withstand potential near term impacts due to the Hollywood strike.
We expect to remain appropriately conservative with our cash and capital allocation in the interim as.
As we await a better understanding of the strike implications on the box office.
While at the same time, making prudent investments to ensure we continue to position the company for ongoing success.
While our post pandemic recovery, maybe a bit more prolonged than we had hoped we remain encouraged with the long term fundamentals of the industry remain intact.
In closing I'm incredibly proud of the entire cinemark team for the strong results they continue to deliver.
Our performance over the last few quarters and the ongoing execution of our strategic initiatives. We are optimistic about the future potential of our business once industry recovery stabilizes.
Operator that concludes our prepared remarks, and we would now like to open up the line for questions.
Thank you. The floor is now opened for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time.
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Again, Thats Star one to register a question at this time.
Today's first question is coming from David Karnofsky of J P. Morgan. Please go ahead.
Alright. Thank you John did I know the actors strikes to ongoing but assuming production didn't start until early next year. How do you kind of gauge at this point the impact of <unk> 24, or even 25 supply and what it what kind of strategies do you think the industry has to deal with shortfalls of.
Why.
Sure. Thanks for the question, David clearly, it's a big topic on everybody's mind.
I think unfortunately at this point, there's still a lot to be clarified in terms of what 24, it looks like to a certain degree 25, but I think more of the focus right now is on 2024.
Assuming we get some near term closure with the strikes, which hopefully some of the news over this past week has been optimistic cautiously optimistic in terms of where things may be headed.
We will see.
I would say in general it's always a little bit challenging even this close to 2024 to fully gauge the slate because a lot of the dating is still taking place. So our line of sight in just a normal year is limited we're usually be singing on estimates and how much. We think things are going to further fill in so that's the norm.
And with the strikes obviously that that's created a little bit of a further challenge as we try to predict what's going on we do know in our conversations with the studio.
<unk> focused on trying to minimize the disruption as much as they possibly can I think for for everybody's benefit. They are trying to do whatever they can to do that and that's clearly going to be a big focal point is all the production schedules get sorted out once the strike is resolved but at.
At this point I'd say, we're still in a waiting game here just to see when things ultimately conclude and then how those schedules play out and what it ultimately means for next year.
And maybe just one more with your net leverage now in the target range. We wanted to see if you could update on capital allocation thoughts on the dividend and I guess, how the strikes maybe maybe complicate that.
Sure. Thanks for the question David So in terms of capital allocation. So we did achieve as you mentioned, our net target leverage ratio of two to three times for the trailing 12 months ended 930, but I would expect for us to continue to be conservative.
Regarding capital allocation in the near term, while we await better insight into the implications of the Hollywood strikes on the 2024 box office.
Near term our priorities will continue to remain centered around strengthening our balance sheet, which includes delevering and then making the right investments to position the company well for the long term now that said with respect to your question on the dividend.
We.
We do expect to remain.
<unk> at this stage, but it is worth pointing out that those are active conversations that we have around capital allocation around our balance sheet with our board and those are ongoing conversations including.
Potential timing of reinstating the dividend, but ultimately the dividend was a significant aspect of our capital allocation priorities prior to the pandemic and will remain a key consideration as our box office and cash flows continue to recover.
Great. Thank you.
Thanks, David.
Thank you. The next question is coming from Eric Handler of Roth and Cam. Please go ahead.
Good morning, and thanks for the question.
You talked about your sort of revenue generating capex premium amenities remains at the forefront where do you still have opportunities with premium amenities are there new initiatives are there just there's still a lot of back filling going on with theaters where are you there.
Sure. Thanks, Thanks for the question Eric.
We still see a range of opportunities.
In <unk> I mean, some of it is continuing to pursue the types of initiatives that we've been pursuing for a while so looking at further installation of D box motion seats.
Screen formats laser projectors.
Even recliner seats to a certain degree although nowhere near where we were before given that our circuits almost 70% reclined at this point.
So theres a range of those types of things I would say also just investing in further enhanced food offerings and things of that sort and we continue to test and have success with just new types of of options in our theaters. So theres different even technologies in the sense of distributing that food to simplify purchase.
<unk> and things of that sort, which can help.
So theres a range of things like that I would say beyond that too.
With regard to broader Capex, we continue to look at what other opportunities there ultimately will be for expansion and things of that sort. So that does come into play clearly thats a bit of a balancing act right now with just where things continue to progress with recovery in our our cash flow levels and other objectives with referred to funding our balance sheet, but it's clearly.
The mind as we look to to continue to strengthen our circuit going forward.
Great and just as a follow up.
When I look at your international recovery, particularly in Brazil.
It seems like it's been a while since we've seen a.
Brazilian movie.
Local language movie actually breakout.
Do well and we've seen that a number of times in the past I'm curious sort of what's the state of.
The movie industry and.
Latin America right now.
It's a great question, Yes, I would say big picture on the state of the movie industry. It's been positive I think in terms of I'll just talk specific to the theatrical space.
Exhibition has recovered to a level I would say comparable with the rest of the U S for the rest of the world in terms of movie going there is theres, even pockets of Latam like like Argentina, where we're seeing moviegoing behavior match pre pandemic levels and even exceed that in certain circumstances, So I'd say, while the whole region lagged.
The rest of the world a bit in terms of its recovery during periods of the pandemic certainly has caught up.
One area that still is definitely lagging has been local production to your question on Brazil content, we've seen that in some of the other countries as well that has been slower to come back you know we know that here in the U S. In Hollywood Studios have been working to replenish their backlog of films.
Get overall volume back to where it was pre pandemic.
It's been a slower slog internationally throughout Latam now, we're starting to see some signs of that picking up.
Know that.
Particular to Brazil.
<unk> focus on trying to breathe some some more life into an activity into local production activity, it's something that even the government is focused on down there so that could lead to a resurgence of those types of films in the not too distant future but.
Local product in Latam is still an area that I would say is lagging a bit with regard to recovery from the pandemic.
Great. Thanks, Shawn Thanks appreciate the questions here.
Thank you. The next question is coming from Eric Wold of B Riley Securities. Please go ahead.
Thank you and good morning.
A quick numbers question, what was the impact in the quarter on ticket price per caps in Petersburg gaps from a national center today.
From a.
Year over year standpoint on boats per caps and average ticket prices National National Cinema day was actually a bit of an uptick because the.
Offerings changed a bit so on the average ticket price.
Yeah.
Last year National Cinema day ticket price was $3. This year. It was $4. So we had about a <unk> benefit year over year related to that on the average ticket price side, excluding national Cinema day, our average ticket prices would have been $9.50.
In the U S. As you look at per cap again slight benefit about one point benefit year over year attributed to National Cinema Day, and then excluding National Cinema day, our per cap would have been $7 and 19.
<unk>.
Thank you and then just a follow up on concessions if you drill down because.
Sessions.
During the quarter, maybe so far.
And into Q4.
You mean, excluding nursing preliminary just sort of normal normal times I guess.
Any indications at all that would.
Give you an indication of that.
Consumers are pulling back either.
During normal showtime's or during kind of discount Showtime's should give you. Some pause there is some impact there you're just not seeing that at all.
As you look more broadly despite the current economic environment and when we can.
To see consumers trade up to premium amenities, we also see them spend more on food and beverage. So they are electing into that full theatrical experience when they are coming to the theaters now something we're certainly monitoring closely but we have many initiatives.
In place to drive premium amenities drive.
Our F&B incidents forward dynamic that you saw play out in the third quarter was really a function of the mix of films that resulted in a sequential dip in our per caps, particularly.
At July August kind of slate, but as you've seen more recently in September October we've seen that tick up again, and we do believe despite having a tough comparison in Q4 of last year and our per caps that we have the opportunity to continue to grow per cap in the fourth quarter.
Particularly as we lean into a proactive category management initiatives as well as.
Merchandise opportunities associated with the slate, namely on the Taylor Swift side of things.
I'd just add that it's an interesting dynamic we've seen across our global company for for years, even in Latin America, which has more ups and downs of economic cycles.
Even in tougher times.
Find that consumers may cut back on other types of activities, but when they come to our theaters I've always found this fascinating like you don't even see it tick down generally in the premium amenity consumption and they continue to to upgrade to the premium formats. They continue to purchase food and beverage at heightened levels.
We continue to see that today, both in Latam and here in the U S with regard to merchandise purchases food purchases upgrading.
It's just the dynamic in our industry that people will trade off on other things, but when they come to the cinema, that's like their moment to splurge.
Got it if I could maybe squeeze wondering maybe if you can.
Broader question.
How do you think about kind of the health of.
So it gives me all focused domestically.
Health of the circuit versus kind of where you were pre pandemic.
A big deal in one quarter its first quarter domestically into your you didn't have you kind of closure impacts your screen closures and a net impact there.
We passed most of the rebalanced.
Rebalancing the circuit kind of post pandemic and how would you kind of think about the health of the circuit now versus where it was maybe 2019, we get back to continuous upswing in box office upswing in attendance.
How you're positioned.
Outperform benefit going over index, the industry versus maybe where you would have been a few years ago.
Well I think the.
The high level is we feel very good about the health and strength of the business.
Can you just kind of pick that often chunks, obviously, we're still working on re strengthening our balance sheet. So thats one piece that we're still working on.
And reducing the COVID-19 related debt that we took on so there's that piece, but operationally I'd.
Say, we've made great strides in further efficiencies and incremental revenue.
Growth, so capturing more value with the attendance that we have I mean, I think the comment that we made in prepared remarks that the fact that on 6% less or excuse me on 16% less attendance versus the third quarter of 19, we generated 6% more revenue and 16% higher adjusted EBITDA.
I think that speaks to all the great work. The team has been doing to strengthen strengthen the business and the industry have just look out.
We continue to see.
Many many opportunities for future growth future efficiency to further strengthen the circuit even more.
Particular to some of the just the the footprint.
And evolution there.
I'd say that there could continue to be some movement. There I mean, that's just to a certain degree part of that is just our normal process, we maybe had a little bit more closure activity coming out of the pandemic.
Simply because some of those theaters that had been on the cusp that were struggling a bit more older theaters struggling a bit more coming out of the pandemic. It just made sense to move on.
Or is it the same time, we've actually opened 16 theaters since 2020.
And those theaters have been forming exceptionally well on the whole so.
There could continue to be a little bit more of that calibration, but I feel really good overall with where we are at this point with our ability to kind of handle some of the.
The ongoing near term recovery, and where we're going to be coming out on the other side of that.
Perfect. Thank you both.
Thank you. The next question is coming from Robert Fishman of Moffett Nathanson. Please go ahead.
Thanks, Hey, Sean this is Michel for Robert.
Thanks for taking the question I have a couple for you. One is you mentioned the word diverse a few times in describing the box office success I Wonder do you think your biggest studio partners understand this and it will.
Pivot away from their playbook of franchises and then with that said do you see any genres that have not returned post pandemic and maybe more structurally challenge and how people deal with that and then and otherwise just quickly on day and date, you mentioned financial crisis did very very well for you and for Peacock is this the beginning of a maybe it.
Change and are you rethinking.
Perhaps can we coexist with day and date releases in certain genre. Thanks sure well thanks for the questions Michael and welcome.
I have you on the call.
Thanks, Sean.
As far as the diversity of content goes I do think that our studio partners recognize that.
Clearly there is a focus.
Those studios on some of the larger Tentpole films and franchises one because of the significant financial value. They can provide but also just from the overall with risk equation. Once you get a hit you can kind of ride that out for a while so those are great brand drivers for many of these companies they leak they extend further into their company with other parts.
The business that can contribute value, but at the same time I mean, we've generally seen them sustain their diverse offerings and as we continue to see a lot of those types of films work. We think it's just going to continue to encourage them to put more of that out I would also say.
The evolution of a more flexible window I think is also improved.
The risk management of those types of titles as the studios know know that hey in success those films can run really long.
And if it doesn't work and doesn't connect with audiences, there's a way to offset some of the downside and get into the home faster that flexing actually can also lead to them being willing to take more chances and some areas where the risk model had become a bit more challenged prior to the pandemic.
As far as any genres or segments in terms of content that that may be lagging its a tough one because tough one to say I think in some cases, we've seen films that resonate better with audience has run a little bit longer post pandemic and some of the ones that haven't resonated as well fall a bit faster, but we've seen that dynamic across all categories of titles.
So it's hard to necessarily pick out one area. If anything there may be fewer I'd say specialty films in that category that had been released post pandemic and one thing we find we've seen that recently as you get more of that volume on a steady basis than consumers tend to come out more because.
That momentum just sustains volume when you have less of that content is just harder to kind of get that to reboot that excitement. So hopefully we will just see a greater a greater amount of that content coming as we go forward. That's been one area of volume that has has lagged a bit as.
As far as the question on day and date goes.
I don't think we or the industry has really changed point of view on on day in day, I mean, it's not something that.
That we favor by any stretch, it's not something that we look to.
Clearly something that has been tested and.
Quite frankly, it didn't work you know I think our studio partners recognize that they've tried it.
They've seen that the best way to drive value for drive and maximize value for their financial assets and maximize promotional impact is with a theatrical window.
And there is no real indication of moving back in that direction. In fact, the 89 wide releases that have taken place. This year five nights at phrase was the only one thus far that has been Dan date. So there's really no movement in that direction. It's somewhat of a unique circumstance I'd say probably on that title and nobody thought this was going to be.
Come the Gen Z phenomenon that it became and be as big as it was and I believe it was kind of originally conceived as a as a streaming.
Day and date type of film.
So I'm not all that doesn't mean that we won't see an occasional day and date release, there could be some smaller niche films with limited audience breath or or content that was originally can see for streaming that shows some promise, which studios may elect to put out that way.
But we don't see that becoming a things shifting back in that direction again, because all the indicators all the data points to the best way to drive value of those assets is with a with a theatrical release with an exclusive theatrical release.
Thanks, John I appreciate it thanks Michael.
<unk>.
Thank you. The next question is coming from.
Swinburne of Morgan Stanley. Please go ahead.
Thank you good morning, guys hope everyone is well.
Couple of questions, Sean normally theres sort of a calendar and timing thing with the slate.
As we get closer to the next year the data sort of fill in.
And.
This is sort of a prediction within a prediction, but what do you think happens once the strikes are over and production resumes like do you think we see.
A slower cadence of the calendar being popular maybe a faster cadence because theres movies that are like 90% finished but haven't been dated yet I'm. Just wondering since you have probably more conversations with all the studios and we do if you had a view on that.
I had a couple of follow ups.
Just thinking about that.
Question, Yes.
I'm not I'm not sure it will necessarily be slower faster I do know.
Just based on conversations there's going to be a period, perhaps a month or so once things are resolved where all the shuffling is going to take place of sorting out the production schedule. So everything needs to be re figured out how theyre going to kind of put all those pieces together I think once they get a better line of sight through that.
That as to when things will get completed then things will start getting data I mean, there's generally a desire by the studios to plant their stakes in the ground on dates sooner versus later to kind of claim at that spot. So there's clearly motivation to get that informed.
<unk> out there, but there'll be.
In some regards hesitant to do that until they have a clear sense for where that's going to be so I'm not sure it'll be accelerated or slower than normal. It will just be a matter of having line of sight to how everything is shaking out once once things get a little bit further along.
Got it Okay fair enough and then alternative content something that you guys have talked about I don't think investors focus that much on it but it does seem just to keep the Taylor Swift momentum going that that is becoming a real part of your business do you think that grows.
Total dollars for you.
Either next year or just generally over the next couple of years, because it's becoming a not insignificant part of the business and then I'll just finish up.
Back to capital allocation push you guys a little bit.
Understand the strike as the strikes create uncertainty, but you guys have done over a two bucks a share of free cash flow year to date, you'll generate free cash flow in the fourth quarter.
The conservatism around capital allocation does that apply to everything so will you be thinking about capex next year more conservatively is that specific to the dividend and.
And would you be willing to help us think about when when the dividend decision might get revisited. If we assume these are these labor strikes are done here in the next couple of weeks.
Sure I'll start with.
The alternative content question.
You know it's interesting.
Alternative content and non traditional content was always showed tremendous promise and it was a frustrating that it never seem to really get going it.
Generally was a couple of percentage of 1% to 2% of the overall box office and to your point I'd say, Fortunately, we're starting to see some momentum now really build you know we've seen some some real scale start to kick in in multicultural titles in the anime films.
Certainly we've seen that now with with Taylor Swift I mean up until this point just to focus on the concert films for a moment.
We've actually seen hints of promise with concert films for quite some time with Bts, and Coldplay and Billy Irish and Metallica, but those have largely been released on a very limited scale.
And I think Taylor just blew the doors off.
The place with the.
The huge success that she just had with her era's tour and was.
Was phenomenal for fans in terms of having access and being able to relive the moment of that tour and theaters. It was like having again a front row seat at the concert.
Sure.
Music artist I've always wanted to hear music artist and you saw that I don't see how you could not want to do that going forward both to give your fans that opportunity and also just to extend the value of these tours that they poured so much time and effort into so we're definitely optimistic about more of that we've seen what they can do I think others have.
And what that can do and it's growing so I certainly do think that we could continue to see more and more success here faith based films, we've had some huge results there with.
Jesus Revolution, and sound of freedom and the chosen we've continued to see big results getting posted in that category I mentioned, the multicultural content with the Indian films and South Asian titles.
I think where we're definitely seeing that.
Part of the percentage of box office that we're seeing the uptick I mean year to date for us its been tracking about 10% part of that is just based on overall recovery of volume. So we think as more traditional films recover that may go down a bit but we could certainly see this starting to get to a place where we're looking at 5% maybe a little bit more of overall box office over the years.
Continued growth.
And then I'll take your question then around the conservatism on cash and kind of how we're thinking about.
Capital allocation, so I'll start with the Capex side. So as we look forward that this is an area, where we will continue to be flexible with our capital expenditures were certainly going to factor in our expectations around box office recovery in cash flow generation, but at the same time.
Gonna be targeting ROI generating opportunities to make sure we're positioning the company well for the long term. So it's really a balance that we're trying to strike there and even as you think about both capex as well as dividends. We also need to keep in mind that we do have 2025 maturities that we also are looking to <unk>.
Actively address so really looking to balance our balance those dynamics, but we feel really good about the cash we have on hand.
Do want to see the implications on the box off at box office, as we mentioned and we will be flexible from a capital expenditure standpoint, and from a dividend standpoint, just too early really to say at what point that would be reinstated, but I think it's fair to say that you need to see more sustained achievement of.
That target leverage ratio before we would look to do so.
Okay fair enough. Thank you.
Thanks appreciate the questions.
Thank you. The next question is coming from Mike Hickey with benchmark. Please go ahead.
Hey, Sean Melissa and good morning, guys. Congrats on another great quarter here, just a basic two questions pretty basic here.
<unk> definitely seen that just your success.
The industry coming back here and we'll see how far can you shakes curious excuse me out of you, but maybe we get.
$2 6 billion or so.
For the year domestic box office. So you still have this sort of $3 billion.
Call It recovery bridge to where we were.
Prepaid debit, which seems like a huge opportunity for you and the industry in terms of growth just curious your confidence.
<unk> products are a big piece of the equation, but just broadly speaking Shaun your confidence that you can kind of cross that.
Recovery bridge to where we were and.
Sort of the.
You can really optimize the model here just again curious your margin opportunity when you cross that recovery bridge sort of where you were pre pandemic because it looks like your margin profile could be higher.
Second question.
Great great to see the streams come in with a product it sounds like that's going to increase I'm just curious.
Feedback youre getting from Apple.
Amazon and maybe Netflix I know you've sort of experiment with those guys. They're hesitant for a moment I think to put a lot of product and maybe that will change over time.
Curious, what Apple and your other street partners are saying in terms of the success that we're getting from a box office you look at some of the.
It's not like we're putting up.
Massive numbers, but I think there is more than just that in terms of what's important for their ecosystem in terms of how they leverage that Peter.
And.
Curious over time Sean.
Think about as those dreamers scale up product.
And maybe we have alternative really taking shape for the first time with concert.
Do you think your position in the next couple of years to have more wide release product before you had versus pre pandemic. Thanks guys.
Sure. Thanks, Mike appreciate I appreciate the questions.
I guess, starting off on kind of confidence in recovery.
As we kind of talked about two of the big macro items are just consumer behavior and overall volume of content I think the question was probably more geared towards consumer behavior, which.
As we've mentioned like Oh, what's been incredibly encouraging to US is just the level of performance of so many films over the past two plus years across all different genres, we've seen large film small films.
In all different categories break records quarter after quarter, and we look at that and just look at the potential of films. We just we see consumers across all.
Demographics have come back when that compelling content is in the marketplace. So we haven't seen disruption in that which is obviously a key driver for our business. If the consumer interest is there. It's all starts with that right. So.
I definitely think we've kind of crossed the bridge on that I mean, clearly there was a hold back for a period of time because of the fears of the health environment with Covid, but we're we're well past that at this point and now it's just a matter of getting that content to fully recover which which again all signs point to that that happening.
It's just taking a little bit of time, you know clearly the whole production process was first disrupted by the pandemic. So.
We're still working through that the studios are still working through that and now the strikes have have caused another blip.
But all indicators all comments about plans are to the to the extent of getting content back to where it was and then like you said as we think about Apple and Amazon coming into the fold and we think about more of these other types of nontraditional films at least when we look at that we clearly see a scenario where two to three years out we could be looking at.
More content than ever more releases than we've ever seen in the marketplace, just just because of those dynamics.
Specific to it.
To answer your question as Apple and Amazon I mean, the conversations we've had with them they've been very pleased with the results thus far I mean Amazon.
You saw with MGM earlier this year <unk> three was a big film I mean that was the biggest in the whole rocky franchise to date. There. We're very pleased with are they are working on building their slate again sticking a little bit of time, just because of the dynamics, we talked about but they clearly have expressed and pensions of at least eight to 20 <unk>.
<unk> films per year, and Apple is really just getting going and they had been operating at a slightly smaller level and now they are in business with major filmmakers they've got three huge releases over the next five months, including killers of fire Moon, which is out now.
So they're just getting into it but the same thing there is real value they see in this space.
And then you want to talk yet Michael I'll hit the margin point.
Our performance over the last couple of quarters combined with the potential benefits, we see of the strategic initiatives that we're pursuing.
That we certainly have optimism about the potential of our business over the long term once the industry recovery stabilizes.
We do have many revenue generating as well as cost mitigating initiatives that we are pursuing to try to return to pre pandemic margin levels on a full year basis and were certainly working diligently to try to do so as you know the primary drivers certainly if go forward margins are going to be attendance and box office, but there are other factor.
Beyond that like market share per caps and average ticket prices that we'll need to see what are those remain at elevated levels as well as our ability to offset further inflationary headwinds that we may see in the overall value that we're able to deliver from our strategic initiatives.
But certainly optimistic based on what we've been able to deliver over the past few quarters.
Thank you.
Thanks, Mike.
Thank you. The next question is coming from Jim Goss of Barrington Research. Please go ahead.
Alright, thank you.
Sean you mentioned earlier Showtime planning capabilities amongst some of the other operating efficiency efforts you might make and I was wondering are you.
Are you looking at say fewer screenings per day, when attendance is light or more screen allocation when movies or hat I know traditionally you've done.
Quite a lot, but I wonder if you've been able to sort of condense. The times of platform is used in use if that's necessary.
How are those decisions influenced by studio agreements and mandates and what is the perceived value creation and either the revenue or cost side from such efforts.
Great question Jim.
I guess the short answer is yes, we are doing all all of those things.
What we've continued to do is just enhance our capabilities with that we were using a tremendous amount of data at a very low level theater by theater by day part to really hone in on what is the optimal overall window Showtime window throughout the day.
As well as talk about Showtime authorization, how do we pack more overall showtime's into that window. So conversation with the studios are they'll even if we may wind up having some shorter windows based on demand.
In a particular weekday we're able to get more shows within that timeframe, which still can deliver real success. So that's I think part of the it's one of the many things we're doing to help our overall efficiencies and margins as we're looking at profitability by really hour and day part. So we can kind of hone in on.
Forecast for demand forecast for attendance and whether or not we should be open or whether we should be condensing the schedule in any given day. So there is still.
Plenty more things were working on in that regard, but we have advanced it significantly over the last few years.
And it's one of the one of the.
Initiatives that I think is helping our overall operating efficiencies.
But as far as their conversation with the studios go.
It's been really positive and I think they understand the rationale for that they benefit from it and when you look at also.
The overall results of our market share growth over the course of the last three years to it's something else, we point to we're tending to outperform the industry and provide a greater value to the studios because of not only showtime optimization, but many of these other initiatives that we've been working on whether it's.
Our marketing focus in particular.
Many different ways that we're working on driving driving incremental tenancy attendants in frequency.
Okay. Thank you and one other than.
It seems like you'd probably have a little less carryover opportunity.
Coming into January and February than you did last year with the earlier this year rather with avatar.
Do you have any specific plans to provide something for your comp against that.
And also as their streaming content that did not have theatrical runs that might be candidates for.
For that void created by the strikes.
I think we'll have to see I mean clearly.
January got a huge lift this year from avatar and pushed in boots, I would say at the start.
Well, we all had hoped that avatar would be a huge carryover did.
It didn't fully know and puts in boots I would say it was a pleasant surprise in terms of just how that kept running so I wouldn't discount the potential for the films at the end of this year and what they might be able to do I think it really just depends on the quality of those films, how they resonate with audiences, we could see some of that play through I mean, our general practice when we look.
At the overall number of releases in the marketplace is to try to figure out are there other types of campaigns or bring backs or ways to to fill gaps.
If it looks like there could be a lighter period. So we've got a lot of those types of ideas in motion.
For the entirety of the year.
And looking to kind of call on those depending on how things are playing out I do think too. There's still has the potential for shifting around we saw a lot of that recently in the fourth quarter, even where some of these faith based films and some of these smaller titles actually moved in to spaces. When some of the larger films moved out into the.
Fourth quarter because of the strike, but moved out into next year because of the strike impact. So we could also see some shuffling around like that in this schedule opportunistically from some of the other types of films based on just how overall carry through is playing out.
Yeah.
Alright, thanks for it.
Thanks, Tim.
Thank you. The next question is coming from Steve <unk> of Wells Fargo. Please go ahead.
Hi, Good morning, guys. This is omar.
<unk>.
Just a quick one.
Maybe maybe Sean first in the event that.
Some of the films move out of 2024 in this hypothetical scenario and box office is down year on year.
What levers can you pull to lower your fixed cost structure and how are you better positioned now to deal with production disruptions versus keeping them.
Melissa.
You alluded to market share in the U S being down sequentially.
I know you talked about the film slate didn't resonate.
With your audiences.
Should we think about this late in <unk> and.
And how does that sort of aligns with what your demographics in your footprint any color there would be helpful. Thank you.
Thanks for the questions Omar.
As far as next year goes.
Yeah.
Yes, you were kind of talking about a scenario where in the event box office is down how would we react to that from a fixed structure in general I would say.
We've certainly developed and enhanced our ability to flex and adapt to a more dynamic environment over the course of the pandemic I mean, we've just seen a lot of the ups and downs.
<unk> quarter to quarter, and that's necessitated a lot of flexing in order to.
Maintain operating efficiencies and maximize cash flows and margins. So I think we've definitely.
Strengthened and honed our muscles in that regard and we continue to operate that way. It's another reason I would say for the types of results that we've been able to deliver this year in terms of our financial performance. So I feel pretty confident in our ability to.
To to navigate through a scenario like that if it should play forward I mean to be candid for our own internal planning purposes. Like we always do we're running a range of scenarios of how things could play out so that were well ahead of that and ready.
To respond to next year. So in terms of varying degrees of volume and then we will hone those in as we have more definitive information on how that plays out so I feel really good about our capability to to navigate through.
Deal with those headwinds and prosper long term clearly part of that too part of the effort in that also goes we want to make sure that we're not just cutting way back only to add right back again as things ramp up so another element to that is what are we looking at over the horizon is this just really a short term blip or do we think.
It could be a little bit more extended so that also will come into play in terms of some of the decision, making we go through.
In that process and then in terms of market share Omar we feel really good about this year, we were able to deliver in the quarter and as you know our market share will fluctuate quarter to quarter based on film mix and if you look on a trailing 12 month basis that as we said previously that we're looking to maintain a 100 base.
Points of share gains relative to pre pandemic and we're still on track in that regard. So we feel really good about we're at where we're at from a share perspective as you look at into Q4 and that film slate that we are already seeing through October share that our market share has picked up.
Back back up so we do think that that Q4 film slate lends itself.
A bit better to our circuit than what we saw in the third quarter.
Great. Thank you guys appreciate it thank you.
Thank you. The next question is coming from Stephen laws of Chicken of Goldman Sachs. Please go ahead.
Hey, great. Thank you for taking the questions maybe just a follow up on the earlier question on consumers continuing to trade up and what feels like some price elasticity amongst the consumer base.
Would you perhaps update us on your thoughts on the opportunity to take increased ticket prices.
I appreciate it's a little bit of a balance, but it seems like there might be some incremental opportunity there.
Just as a success.
What we're seeing elsewhere in the business could potentially translate.
And then on center rolled in Regal I'm curious if you'd talk about any change in the competitive environment, you've seen since they've emerged from bankruptcy and perhaps how that's factored into any expectations for market share enter into next year. Thank you.
Thanks, Stephen I'll take the ticket price question so.
As we think broadly looking forward, we are going to continue to leverage data and analytics to find the right ticket price that maximizes overall attendance and box office, but we do see further opportunity on the strategic pricing front now the extent of which.
And that opportunity will be that will be based on our analytics and how consumer elasticity has evolved over time, but we do feel good about the opportunity there. The one thing to keep in mind is that the mix will also always play a role in our reported average ticket prices going forward. So the extent of child tickets premium format.
Specialty contents such as.
Multicultural films in concert that have higher ticket prices associated with that we will have to keep that in mind as well.
And just real quick on <unk> I mean, I don't think there is too much to say there obviously, it's still pretty early.
Sir emergence from from bankruptcy I imagine there they are still getting their arms around everything and.
Tough to kind of predict how that will affect share next year I mean I think.
Our focus is just continuing to look at how do we continue to drive our business and drive growth of of our circuit.
Overall really that will lend itself to our overall performance on a go forward basis, obviously theres very dynamics that can can affect overall share results, but it boils down to roll our attendance growth in our overall efficiencies in terms of our results and potential.
Got it thank you very much.
Alright, Thanks, Steve.
Thank you at this time I'd like to turn the floor back over to Mr. Campbell for closing comments.
Alright, well. Thank you all again for joining us. This morning in closing I'd, just like to say that I am incredibly proud of our cinemark team and the tremendous progress we've made over the past few years navigating our industry's recovery and advancing our strategic initiatives as we've talked about the significant impact of which is reflected in our.
Results.
We are well positioned at cinemark to handle any near term headwinds and product flow that had been caused by the Hollywood strikes and we believe our performance year to date provides a window into our strong growth potential as film volume are fully recovers over the coming years. So with that we look forward to speaking again following our fourth quarter results. Thank you.
Ladies and gentlemen, thank you for your participation and interest in Cinemark Holdings. You may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
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