Q2 2019 Earnings Call
At this time I would like to welcome everyone to Cinemark second quarter earnings call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If he would like to withdraw your question press the pound key. Thank you I would now like to turn the call over to Mr. Chanda Brashears.
Vice President of Investor Relations. Please go ahead ma'am. Thank you Shelby and good morning, everyone. At this time I would like to welcome you to Cinemark holding Inc.'s second quarter 2019 earnings release Conference call hosted by Mark <unk>, Chief Executive Officer, and Sean Gamble, Chief Financial Officer, and Chief operating officer in accordance with the Safe Harbor provision of the private Securities Litigation Reform Act of 1995 certain matters that are discussed by members of the management team. During this call may constitute forward looking statements.
Such statements are subject to risks uncertainties and other factors that may cause <unk> actual performance to be materially different from the performance indicated or implied by such statements.
Such risk factors are set forth in the company's FCC filings.
The company undertakes no obligation to publicly update or revise any forward looking statements today's call and webcast may include non-GAAP financial measures.
A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures can be found in today's press release within the company's quarterly filing on Form 10-Q or on the company's website investors dots to the Mark dotcom.
I would now like to turn the call over to marks are right.
Thank you Chanda and good morning, everyone. Thank you for joining us to discuss our 2019 second quarter results.
We're thrilled to report that during the second quarter, we delivered all time quarterly high global revenue net income adjusted EBITDA and earnings per share. These achievements were propelled by the strength across our global circuit.
A few noteworthy highlights include.
Domestic year over year box office results that surpassed the north American industry by over 300 basis points and extended our outperformance trend to 37 of the past 42 quarters double digit domestic food and beverage per cap growth of 11%, which produced another new all time high per cap.
A 17% increase in international attendance, which surged to over 30 million patrons, our highest quarterly international attendance since we sold our Mexico operation in 2013, and a 49% increase in international adjusted EBITDA.
We achieved all these results by capitalizing on the second quarter strong film lineup as well as continuing to execute our customer oriented strategic initiatives.
These initiatives centered on the guest comprehensive entertainment experience, which include.
Providing top notch customer service and amenities enhancing the quality and variety of our food and beverage offerings and strengthening our targeted and personalized interaction with guests both within and beyond our physical theaters.
To provide a better picture, let's dig into the status of several of our key initiatives starting with Cinemark movie rewards.
During the second quarter, we completed the rollout of a modification to the structure of our domestic loyalty program that modification involved enhancing in combining movie fan our free loyalty tier along with movie club are paid subscription tier under a singular movie rewards umbrella.
Following this change we've already seen a significant uptick in new enrollments to our free movie fan program with nearly 725000, new sign ups during the second quarter, which extends our global loyalty outreach to over 10 million members for whom we are developing more personalized and unique guest experiences to support current and upcoming film content.
Meanwhile growth in results of our paid movie club tier continue to exceed our expectations.
Since our since our prior earnings call in May movie Club membership has grown in excess of 20% to a cumulative 800000 members. This figure equates to more than 2003 hundred members per theater location.
Program satisfaction remains exceptionally high and members continue to cite movie clubs benefits value and convenience as key drivers which include.
The ability to rollover unused movie credits, a 20% food and beverage discount waived online fees add on tickets for companions as well as the ability to share unused movie credits and a straightforward monthly membership that doesn't require a long term commitment.
Since we launched movie club about a year and a half ago, we've sold over 24 million movie tickets through the program.
And during the second quarter alone movie club represented 14% of our domestic box office spanning all genres and sizes of film in fact, we saw an uptick in movie credit redemptions during the quarter from 75% to 80%, which is attributable to the strong appeal of the second quarter film slate the seasonality of summer movie going and movie clubs ease of use.
A fundamental objective of movie club is to stimulate incremental theater visits for both frequent and occasional movie goers, which we are witnessing in our ongoing industry box office and attendance outperformance.
The high sustained utilization of the program observed through credit redemption.
And the fact that 75% of our members report that they are attending our theaters more frequently since joining movie club importantly, this stat has held consistent since we launched the program.
Similarly in addition to incremental trips to the theater over half of our members report that they are visiting our concession stand more often and our purchasing more products during each visit.
We see this behavior validated in the transactional basket size for members that are comparable to nonmembers, even though movie clubs, 20% discount as well as our ongoing domestic per cap growth that is up over 12% year to date.
So we're thrilled with movie clubs continued growth and overall results.
When we evaluate our domestic circuits ongoing box office performance sustained ticket price growth and all time high food and beverage per caps, we see movie club along with other key strategic initiatives as a meaningful contributor to our success.
Another key success factor in our expansion in our expansion and enhancement is our expansion and enhancement of food and beverage offerings, which has led to a 50 consecutive quarters year over year and domestic per cap growth.
While this quarter's results were supercharged by a mix of film content that played right to the sweet spot of concession buyers. Our teams many efforts to stimulate incremental consumption was the core driver of sustained growth. Examples of these efforts include a continued focus on driving core popcorn fountain drinks and candy volume.
Our expanded our expanding pizza hut partnership new alcohol activations growth in multi cultural fair, new and increased volumes of merchandise and strategic concession stand designs that encourage incremental impulse purchases and accelerate throughput throughput to just name a few.
We are extremely pleased with the tremendous success, our food and beverage and theater operation teams have delivered and were continuously experimenting with deploying new innovations to sustain this growth trend into the future.
Two more initiatives that are enhancing our guest experience and also driving growth are the investments, we've made and luxury lounger recliner seats, and our XD premium large format auditoriums.
Luxury lounges are now featured 58% of our total domestic theaters, which is the highest penetration among the major exhibitors.
Our theaters that have been repositioned with recliner seats continue to yield sizeable benefits and customer satisfaction as evidenced by direct feedback from our guests as well as a willingness to drive further to enjoy this amenity.
Furthermore, we continue to realize sustained lift in attendance ticket pricing and concession purchases at these locations.
As we look forward to the rest of the year, we still anticipate approximately 60% of our domestic circuit will be reclined by year end.
Cinemark XT also continues to deliver outsized results as guest upgrade to the ultimate premium movie going experience. It provides with immersive sight and sound technology.
In the second quarter XT generated approximately 10% of our global box office on only 4% of the screens.
Moreover, XT achieved a new record generating more than $50 million in worldwide admission revenue during the second quarter XD remains the number one exhibitor branded premium large format in the world with 263, XD auditoriums across our global platform.
Overall.
Our ongoing efforts to enhance our guest comprehensive entertainment experience were a key ingredient to this quarter strong financial and operating performance.
Before I turn the call over to Sean I'd like to take just a moment to provide some additional context regarding the overall exhibition industry.
There has been quite a bit of negativity in the news regarding the North America industries second quarter box office results on account of a slight decline from last year and some over inflated expectation.
What seems to have been overlooked is the fact that Q2 delivered the second highest grossing quarter of all time with $3.2 billion in box office and a big reason for the modest decline is because to Q of last year generated the highest grossing quarter of all time with $3.3 billion in box office.
Furthermore, while certain films may have disappointed relative to lofty expectations, others, Overperformed and delivered stronger results and anticipated. We've seen this time and again that film performance is predominantly boils down to the quality and timing of each individual film.
That phenomenon clearly played out this quarter in Latin America after several quarters of challenging context mix.
That didnt resonate well with Latin audiences as well as other places in the world the second quarter experienced tremendous attendance growth across the region.
In fact vendors end game became the highest grossing film of all time in Latin America similar to the rest of the globe and toy story four became the highest grossing animated film of all time.
Second quarter growth throughout Latin America underscores the notion that box office more closely correlates to film content than economic or political cycles.
As for the remainder of 2019, we remain enthusiastic about the upcoming film lineup to third quarter kicked off with a bang as Spider man far from home and the Lion King have both delivered over $1 billion in global box office.
We've also had strong openings from last weekend's once upon a time in Hollywood and Hudson Shaw last night.
And we look forward to the much anticipated sequel to it still to come.
We expect third quarter Hollywood content will also perform well in Latin America, which will be which will further benefit from part two of the Brazilian local title not a predictor.
In the second quarter last year part one of not a per day are generated over $12 million in attendance with similar results anticipated for part two.
The fourth quarter slate also looks promising with frozen to star Wars, the rise of Skywalker jumanji too forward versus Ferrari, a beautiful day in the neighborhood and choker just to highlight a few.
I would like to remind you that both frozen two and jumanji two will not be released this year in our key Latin American territories. Instead. They are scheduled for January of 2020 to take advantage of school holidays, consistent with historical release patterns.
So again, considering the exasperated media coverage regarding the box office. This year, we thought it would be helpful to provide that slight drill down into the second third and fourth quarters that said, we continue to encourage you to take a longer term view when analyzing box office and attendance trends as it can be easy to misinterpret, the big picture when only focusing on specific films weekends quarters or even individually years.
North America industry attendance has held steady at approximately 1.3 billion patrons per year going all the way back to 2010 and Thats during mass adoption of over the top streaming services in the home for the past seven and a half years and excludes the full benefit that the industry is starting to realize from its many recent investments in recliner seats, new food and beverage concepts subscription services and advanced data and marketing tools.
Cinemark operates and excels within this stable industry and we believe some of our key distinguishing factors, our overall financial strength, our operating and investment discipline. The consistency of our results and an ongoing focus on creating long term shareholder value.
Our frontline theater teams around the world are dedicated to providing our guests a truly memorable movie going experience in the highest quality out of home environment, which will generate loyal patrons and continue to deliver consistent results.
That concludes my prepared remarks, I'll now turn the call over to Sean to address a more detailed discussion of our second quarter financial performance Sean.
Thank you Mark good morning, everyone.
Before diving into the details of our second quarter financial results I'd like to remind you once again that as of January Onest 2019, we have fully lapped our transition to assay six so sixes revenue recognition accounting standards that took place over the course of 2018.
And as discussed last quarter, beginning this year, we implemented accounting pronouncement assay 842, which impacts lease accounting.
Associated with the adoption of assay 842, we recorded a new operating lease rate of use asset and a corresponding operating lease liability of approximately one and a half billion dollars each.
Additionally, a small subset of capital leases have now been converted to operating leases. According to the new standards.
The transition to assay 842 has zero impact on net cash flow and minimal impact on net income. However, it does create a slight non operational drag on our adjusted EBITDA and operating cash flow metrics.
Additional information about these changes can be found in the footnotes of our 10-Q or in the 8-K, we filed on May seven 2019 in tandem with our first quarter earnings release.
It's important to emphasize that assay 842 is purely an accounting presentation change, which is largely intended to reflect all lease obligations on the balance sheet.
It does not impact cash rent payments obligations to landlords or any other underlying business or operating fundamentals.
Shifting now to our second quarter financials as Mark described during the quarter. Our global company generated all time quarterly records in total revenues of $957.8 million and consolidated adjusted EBITDA of $244.7 million.
Furthermore, our adjusted EBITDA margin reached a second quarter high of 25.6%.
Even though it was reduced by 60 basis points as a result of the AMC, a 42 accounting presentation changes.
In the U.S. admissions revenues of $407 million were relatively in line with last year's record setting results and declined by only half a percent.
As Marc already mentioned this result surpassed the North American industry box office by over 300 basis points and was driven by outperformance in both attendance, which declined 1% to 50.1 million patrons as well as ticket price, which increased half a percent to $8.12.
While a higher mix of child tickets and reduced three D associated with this year's heightened volume of family films created a drag on our average ticket price overall ATP growth came from strategic increases in core prices as well as incremental opportunities from recliner conversions.
Despite the modest attendance declined during the quarter total domestic concession revenues grew 10.1% to $274.9 million.
This growth can be attributed to our ongoing actions and promotions that are geared toward stimulating incremental consumption as well as a slate of films that worked particularly well with the most active concession consumers.
Collectively these factors drove concessions per patron.
Up 11.4% versus Two Q1 8 to another new all time high $5.49.
Similarly domestic other revenues also grew and were up 21% versus last year predominantly as a result of increases in promotional and transactional related income.
Overall, our U.S circuit delivered all time highs in both total revenues of $743 million and adjusted EBITDA of $195.3 million with an adjusted EBITDA margin of 26.3%.
Internationally admissions revenues were $114.1 million, which increased 14.1% versus last year as reported in 36.2% in constant currency.
International attendance grew 16.7% to 30.1 million patrons spurred by the favorable film content drivers that mark addressed earlier.
Our reported average ticket price of $3.79 translated to a constant currency increase of 16.5% that resulted primarily from inflationary price growth as well as an anomaly that lowered last year's overall average pricing associated with the local title not a per there.
International concessions revenues were $70.4 million, which increased 26.4% as reported in 48.1% in constant currency.
Our as reported international concessions per patron was $2.34 and grew 26.9% in constant currency as a result of inflation, our strategic food and beverage initiatives and a similar impact that not a per day or had on last year's per cap results.
International other revenues were $30.3 million, which increased 24.7% as reported and 52.3% in constant currency.
This increase was largely driven by favorable growth in screen advertising and promotional income.
Overall total international revenues grew 19.3% to $214.8 million as reported adjusted EBITDA increased 49% to $49.4 million and our adjusted EBITDA margin was up 460 basis points to 23%.
As expected foreign currency translation remained a headwind in the second quarter, leading to an approximate 17% drag on our reported financials.
And while future currency fluctuations are difficult to predict if current rates continue to hold we would expect that percentage headwind in the mid single digit range for the second half of the year.
As a reminder, the vast majority of our international operating expenses are transacted in local currency, including film rental and facility lease payment expenses.
So the impact of currency exchange is predominantly translation based and not transaction oriented.
Shifting back to our worldwide consolidated results second quarter film rental and advertising costs as a percentage of admissions revenues increased slightly by 20 basis points to 56.6% in comparison to the prior year.
Likewise concession costs as a percentage of total concessions revenues increased by 150 basis points predominantly as a result of product mix associated with expanded food offerings as well as merchandise opportunities that benefited from the second quarter's enhanced character driven lineup of films.
As mentioned on prior calls while these newer offerings tend to create a slight drag on our concessions margin rate. They continue to drive sizable growth in overall concessions revenues and income.
Salaries and wages were 11.4% of total revenues increased slightly by 10 basis points compared to the second quarter of 2018, predominately driven by wage inflation and incremental hours to support our varied concessions initiatives.
Facility lease expenses as a percentage of total revenues increased by 20 basis points, primarily due to new theaters and a $5.7 million year over year presentation change associated with the adoption of 42.
Conversely, utilities and other costs as a percentage of total revenues declined by 20 basis points as did GNS.
Collectively second quarter pre tax income was $140 million.
Our second quarter's effective tax rate was 27.3% and net income attributable to Cinemark holdings, Inc. was $101 million or 86 cents per diluted share.
With respect to our balance sheet, we ended the quarter with a cash balance of $511 million and a net debt position of $1.4 billion.
Our net debt improved by $107 million versus prior year as a result of reclassifying certain capital lease obligations to operating lease obligations connected to the NYU lease accounting guidelines.
Turning attention to our US footprint, we operated 344 theaters and 4630 screens in 41 States and 102 DMD is at quarter end.
During the quarter, we open two theaters and 24 screens acquired two theaters and 30 screens and closed two theaters with 20 screens.
We have signed commitments to open two theaters and 24 screens during the remainder of 2019 and nine theaters, representing 102 screens subsequent to 2019.
We expect to spend approximately $90 million in capex associated with these 126 screens.
Internationally, we operated 205 theaters and 1456 screens in 15 countries across Latin America.
As of quarter end, we had signed commitments to open six new theaters and 49 screens during the remainder of 2019 and eight theaters, representing 60 screens subsequent to 2019.
We anticipate spending approximately $62 million in Capex for these 109 screens.
Consistent with our prior comments, we continue to view Latin America as a long term growth opportunity and we anticipate adding on average 50 to 75 international screens per year in the near term.
Regarding overall Capex, we spent $57.6 million in the second quarter, including $14.2 million on Newbuilds and $43.4 million on existing theaters that was predominantly associated with recliner conversions in other revenue generating investments.
For the full year, we continue to anticipate spending between $300 million to $325 million of Capex.
Of which approximately one third is designated for Newbuilds, both domestically and internationally.
Another third is for core maintenance, including certain expenditures to satisfied varied regulatory requirements and the remaining third is budgeted for cash flow generating projects that include additional luxury lounger theater conversions and varied food and beverage initiatives that meet our balanced and disciplined investment thresholds.
We continue to expect annual depreciation and amortization will remain roughly in line with 2018 at approximately $260 million to $270 million as incremental growth associated with new capital expenditures is largely offset by the impact of ASV 42.
In closing we are thrilled with the many all time high record results, we generated during the second quarter.
Furthermore, we are highly encouraged by the continued progress of our strategic initiatives to help deliver this record performance along with the sustained pipeline of promising film content ahead.
We remain focused on making prudent investments to position ourselves for ongoing success and to deliver long term shareholder value, while maintaining the financial health of our company.
Shelley that concludes our prepared remarks, and we would now like to open up the lines for questions.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Again, Thats Star one if you would like to ask a question.
Your first question comes from Eric Handler of MKM partners.
Thank you very much and good morning, two questions for you guys.
First with alcohol sales what percentage of your theaters now sell alcohol and where can that go to over the next couple of years and I'll have a follow up after.
Hi, Eric Thanks for the question, Eric We're just under 50% now about 45% and by year end, we will be at about 50% of our theaters offering.
Our operating alcohol some.
Beer wine and frozen others with a full bar.
We will continue to grow that it's not it's not going to.
Theres not a a real steep addition to that because there are certain parts of the country that we operate in where we won't we're likely not to add alcohol for example, and in most of Utah parts of Idaho, where we won't other places have very restrictive alcohol policies.
Like the state of Washington, Some places alcohol licenses are just prohibitively expensive for example, some of the East Coast States. So we'll be at 50% for the end of the year and will continue to grow that.
In a modest way going forward.
Great and.
Now the.
You're increasing your free.
The movie fan.
The tier of.
Customers and you got good growth there.
To 800000.
So just for movie club can you talk about some of your push marketing initiatives and how thats been changing over the last couple of years and what you're capable of doing now with going through big data.
Well, let me, let me start with movie fan, which you asked about first.
Movie fans, we think has got tremendous growth opportunity since we just really re launch to this.
With our new format, we think over the next 234 quarters that we'll see that number continue to grow significantly domestically as well as as well as we'll continue to add loyalty programs throughout Latin America. Some countries have them some don't right now.
From a movie club standpoint, we have been very aggressive in marketing.
Acquiring a lot of our subs from our existing.
Members in our loyalty program, but also reaching beyond our walled garden with promotions with everyone from.
Coca Cola company too.
TNT to Amazon to Cosco. So there is a there is a strong marketing group on our team dedicated to loyalty, who will continue to market movie club that the way that we design movie club in the beginning was to appeal to a very very broad audience of movie goers. Most moviegoers in the United States go somewhere between six and 12 times a year. Obviously, there's some people that don't go at all but if you're a moviegoer that's best year in general that's the big audience and so we design movie club to really be able to attract those people make it very economically viable for them and the best value and I think thats why weve seen this consistent growth in movie club and we think we still have quite a runway to go on that.
Great. Thank you very much thanks, Eric.
Your next question comes from Alexia Quadrani of Jpmorgan.
Hi, Thank you so much two questions first just looking at the outperformance in the quarter.
Any sense, how much squeezed by the strategic initiatives that you went through.
First is really just the type of sound that may have better given where you're located what your theatres are located.
And then the second question I just want to thank you for the commentary you gave us around the overall health of the box office and the concerns around.
The second quarter industry performance.
Just staying on that topic I would love to hear.
If you think that you know that.
Some truth in what people are saying about maybe just too many sequels and maybe companies just really very very hard to make work.
Thanks for the questions.
This is Sean I'll take the first question the Mark will do the second.
Regarding our outperformance.
I would say, it's hard to precisely segregate how much came from each action, we're doing but I can tell you that we certainly see.
Benefit continuing to be derived from our recliner performance, we look at our recliner recliner theaters in our recently recliner theaters, we definitely saw some sizable outperformance relative to the industry for those theaters, obviously, our ticket pricing also was higher than the industry on a whole. So we got some lift there the content mix definitely did also help us there's a lot of of favorable family content, which does well across our circuit and then we also had the benefits of movie club, which as Mark mentioned in his prepared remarks, we continue to see stimulating movie going so those are what we look at when we kind of drill into it as some of the driving forces of what led to our outperformance I would say the only other thing we derived a small ticket benefit from as we had fewer closed screens for a reclining this year relative to last year. When we are in an act more active reclining mode.
Alexia relative to your question on the box office and a sequel I would say no I don't think Theres too. Many sequels I think it's a matter of what does the audience want and what are they willing to get out of their home and go pay there.
10 to 12 to $13 to go see and in the second quarter. There was really a mix of that clearly you had a vendors as dominating the second quarter and probably toy story four but.
Those were those were highly satisfying movies and.
Ventures was not only the massive box office success, but also a critical success and an audience. Please and the same goes with toy story four and then there was yesterday, which was really a fresh new movie that performed.
For pork performed very well and as we look as we are looking at the at the quarter that we're in right now.
You have once upon a time in Hollywood, which has come out and done and has it had a really good start and then of course Lion King which is a.
A C.G.I. sequel.
Follow up to the original hit from the nineties again extremely audience a satisfying so.
I think what the studios are trying to do is to try and look and say what are people wanting to go see and what are they willing to.
To to generate the desire to leave the home and go out and Thats, what they are providing and whether that's a a new movie or whether it's a sequel.
I don't think that really matters you looking into the fourth quarter bore you got forward versus Ferrari a beautiful day in the neighborhood along with the sequel to frozen. So a couple of new and a couple of of of sequels.
Thank you very much.
Thanks, Alex.
Your next question comes from Eric Wold of B. Riley.
Thank you good morning.
I will avoid asking any questions on domestic as we all know that the industry is going nowhere. So last one has to look elsewhere.
Great I appreciate we appreciate your comments, Eric and what you've written.
So a couple of hours on Latin America.
You've obviously had weakness there in attendance for for some time last year had the World Cup and the results are good luck in the second quarter, Sonora dwell too much on one quarter is doing extremely well, but you're starting this are you starting to see anything in attendance and spending patterns down there that would indicate that it was more than just an easy comp in Q2 were actually starting to see a pivot towards stronger trends in the region.
Eric I think I think that it's both things as you said I mean, clearly we had the truckers strike last year. So that was that was good relative to comparison, but the more important thing is that the movies just lined up well he was a strong content of family by family based product.
Toy story did incredibly well in the United States for you know what it was the biggest animated movie of all time in Latin America and in in Argentina, not only the biggest animated movie. It was the biggest movie of all time live action or animated so when you have movies that really lining up well.
With the desires of the people that that's the kind of thing you get and then of course, Aladdin Aladdin did very well there as well and have interest did very well. So you had action adventure and you had strong family content and that's what we're really seeing going into the third quarter as well. So I think it's very much content driven.
That drove the box office in Latin America, and I'll, just add to it marks Marc said, when we've kind of dug into some of the prior years. We've just seen softness in some of those core categories that really play to the Latin audiences and family and Har. Those clearly came back this year. The other thing too in particular, the last year a lot of the films that helped drive the U.S. box office and created this just this disconnect with Latin audiences. They just didnt resonate with with Latin audiences. They were just there were very kind of either us oriented or just non Latin oriented and that kind of propelled it whereas we've seen more of the types of mix that really speaks to that audience.
So just to reinforce what Mark said it boils down heavily to the play ability of the film content in that market and then there is the ebbs and flows of of local content to where we saw not upward air in the second quarter of last year, we got the benefit of that coming back in the third quarter of this year. So thats also going to be something that's going to really help prop up the region as we as we turn into this quarter.
Okay, and then I know, it's difficult down there given.
The variety of countries, you're operating in but what are your thoughts on on.
A movie club like offering down there are some kind of heightened loyalty program, that's amazing would work in that region.
You know Eric we actually we actually have a version of a movie club program currently up and running in Argentina, It's doing very well and we are actively looking at doing other forms of movie clubs subscription offer in our major territories down there.
One thing that that I learned a long time ago and the international business is there's a lot of right ways to do it. So we're going to take the concept of movie club and Argentina created their own version of it which is right for Argentina, and Brazil will adapt it a little bit to make it right for Brazil as well, so we're already active and up and running in Argentina, and Brazil is not far behind.
Perfect. Thank you guys.
Thanks.
Your next question comes from Jim Goss with Barrington Research.
Good morning.
First I'm trying to say this very often but I thought those were impressive results, especially in the context of challenging comps in the FX headwinds you are dealing with.
But I would ask with the you addressed a little of one of my questions have the average attendance per year I think it tends to be about three to four people that you said in terms of movie goers more like six to 12 and since you're stimulating incremental attendance.
I'm wondering where you think that.
Six to 12, Ken had from the experience you've had and do you think you are fairly far along.
The capturing the audience you think you get for the movie club itself.
Jim I'll take the second part of the question first.
I think we're we're we're probably at the very most in the middle innings I think we still have a long ways to go with movie club I mean, we've continued to see strength literally each and every week and each and every month.
To grow it and we've got significant marketing and promotional opportunities to continue to do so.
And we really have aimed at the big broad audience American movie goers with the concept of movie club. So I think we still.
Have a way to go and your first question was.
The average quarterly average.
Yes, I think we can take can continue to grow I mean, we're seeing in the research that.
Movie Club members are telling us over and over again, we do regular research that they are going to the movies more often since becoming a movie club member and we're seeing also.
That.
The movie club members are going upwards of three times more than non movie club members. So every time, we can get a movie club member and somebody has credits on their phone that they prepaid for and they can get their tickets with no online fees and they can bring a friend with them if that friends not to.
A member and they get there and they can get a 20% discount. We're just we've made it frictionless for the audience. So we think that that the incrementality of additional.
Ticket sales were seen specifically between members and nonmembers and members reporting that they are in fact going more since becoming movie club members.
Okay and I'm also wondering on the concession per patron.
The gains we've made what is what are the key drivers for us and international and and you were just talking about that a little bit the impact of the movie club, 20% discount and these metrics.
I'll take that when you kind of break apart at least this quarters growth in per cap I'll speak to domestic concentrate on that but it's basically it's directionally the same jen.
Yes, we look at about about half of the per cap growth came from volume this quarter.
About 35%, we kind of look at came from new categories and distribution techniques a lot of those new incidents driving initiatives that we're pursuing and about 15% came from price a lot of the volume and I'd say, even some of the support from the the initiatives based lift.
Was helped by what we talked about earlier on just the mix of content that mix was really really played well too.
To concession buying particularly with regard to merchandise, we were able to lean into that heavily so those are the things that down.
That had been kind of driving that both domestically internationally, we think this quarter, particularly boosted by just how well the content laid out but as you've seen we've had a pretty long track record of growing that per cap growth. Our CAGR has generally been in the 5% to 6% growth range.
And that's something that while it's a tough hurdle, we like to think that thats, probably a bit more of a.
Have a sustainable range.
Okay, and lastly screen advertising in Latin America, you talked about that in the past that you're developing your own program I'm wondering where you stand in that.
Judging by the comment you just made and.
To what degree are.
Are you able to involve competitors in terms of numbers of relationships or number of screens.
Jim relative our screen advertising company Latin America's called Flicks.
It actually has has been very successful, we're continuing to add independent theaters chains as affiliates.
We are the number one screen advertising company.
From.
South of Mexico down because we don't operate in Mexico. Obviously, we also have gained a synopsis as a as an affiliate.
In some of our.
So the fact that we have not only cinemark where were the dominant exhibitor in Argentina, and Brazil, and very strong in Chile. We've also added quite a few affiliates. So that we are the number one screen advertising company in Latin America.
I would just have a big a big driver of that other revenue growth to about 52% in constant currency for international is the effective what mark just talked about bringing those third parties into the the fleets flicks network, where that that gets reported in that line.
Okay. Thanks very much.
Thanks, Jim.
Our next question comes from Alan Gould of loop capital.
Thank you for taking the question I've got a few.
First on free cash flow and Capex and Capex is down 29%. The first half of the year yet the freak is the Capex guidance is not changed which implies capex sort of close to what it was second half last year, just want to confirm that that is as backend loaded this year that implies.
On the Capex, we still think that is the case is some of our newbuilds, which that's it those are heavy capex conns consumers.
Some of those have kind of shifted.
It's something we continue to look at there is the possibility for that to drift on the low end of that scale, perhaps a bit lower but at the time for the time being we're still optimistic that most of those are going to fall in year, so, but but yes.
And we just kind of look at things it it's definitely drifting towards the lower end of that range at the moment.
Okay and secondly.
Regal has now opened or is about to open a movie club.
In the US do you think that has a big impact on you.
So look anytime there's regals a good competitor and we've had movie club in the marketplace for since December of 2017. It was the first.
Exhibitor sponsored subscription program.
And there are some markets in which we compete head to head with Regal.
Not as many as AMC does.
The Regal program is much more in line and and similar to the AMC program than it is to movie club. So.
Anyway anytime you have a competitor come out with a big marketing plan of course is going to affect a little bit, but I don't think its going to be dramatic for the two reasons. One it's a different program. It's really centered on the Mega heavy movie goer those that are going three and four times a month, we're focused on the more general frequent moviegoers, who goes six to 12 times a year so.
I don't think it will have a big impact on us but of course, it will have a slight impact in a couple of the markets that we compete with.
Okay and my last question Mark appreciate your industry comments I know the strong the fourq looks like it has a strong lineup, but I'm just wondering what do you think the impact of Disney launching a toe TT service and what looks like the release of some of that Netflix is a larger films in the fourth quarter will have on you in the industry for Q.
Alan the one thing that that we have seen over and over again is it people who.
Watch a lot of television.
At home, whether it's streaming or network television. Those people also are people, who actually leave the house and enjoy out of home entertainment. The most.
So.
We think that.
Disney doing their Disney plus can be complementary to us it's clearly what we see in the research and.
So and from a Netflix standpoint, really this is business as usual for net Netflix they've got a couple of more high profile films this year, but Netflix bread and butter is serialized television and so we're not we're not concerned about that because at the end of the day people want to get out of their house and enjoy a.
A social environment in which to see movies and we've seen it very consistently.
As mentioned during all the streaming that's that's happened over the last 567 years, whether it was Hulu Amazon Netflix we've had a relatively consistent amount of attendance.
Overall in the business so with all the improvements that fit that we've made and certainly our competitors have made in improving.
The movie going experience, we think that we have that we're going to continue to operate in a in a relatively stable business and.
And Disney is going to be I think actually a good partner and continuing to promote.
The theatrical movie going experience they they have been.
The most consistent supplier for us and they continue to tell us that that's going to continue into the future. It's certainly is as we look forward to years 2000, 2021, they have announced that.
They are going to have a star wars or an avatar in each and each corresponding year theres going to be a couple of Pixar theres going to be Disney live action. So I think Disney is very very much committed to the theatrical business and now they're getting into the direct to home business as well.
Okay. Thanks, a lot mark.
Thanks.
Your next question comes from Meghan Durkin of credit Suisse.
Hi, Good morning, guys two questions for Mark I. Appreciate your comments on Regals New plan can you just remind us maybe what you saw in the movie clubs subscriber trends when AMC launched in Two Q1 8.
That's right yeah, Okay, and then I'll just give you my close now.
Can you talk a little bit about the impact you can see on the business long term.
Maybe release fewer movies over time, I think investors seem to be worried that Disney is cutting Fox out.
Others could reduce their output. So do you have any visibility on 2020 and how many films there will be in the market and overtime where that will go.
Okay, Megan let me take the first one relative to.
Effect on movie club when a list came out actually the the data shows that we continue to grow right through the introduction of a list and I I think one of the reasons why goes back to that it really is designed for a different movie going audience.
A list for unlimited are designed specifically for that Mega movie Goer, who wants to go.
Two and a half to four times, each and every month and that's a relatively small segment of the audience. The majority of people like I said go go six to 12 times a year and so we did we did not see a downturn in our growth pattern win win Aeolus came up so that that tells us that we I don't think were going to see it.
With Regals planned as as well.
Relative to the number of movies that are made this is this is not a numbers game.
I had the good fortune of I was at Disney when we were making 20 and 24 movies a year across all these multiple different labels and we cut we cut that.
It was really IGR strategy to cut down the numbers of movies, but concentrate on making really big high profile movies, and we're all seeing what what Disney and the.
Alan Horn in either team have been able to put forward. So this is not a numbers quantity game. This is a quality game and we continue to see that and as as we look to 2020.
So we think it's a we think it's a good strong lineup. It's it's hard to call and put a box office to it at this point, but Pixar as announced two really strong movies onward and soul.
Marvels come out with Black widow, and internal Disney's got three Big live action movies, plus untitled Disney animation and any of Wonder woman coming from Warner Brothers, and fast and furious some universal and minions from Universal in the next bond and the next top gun conjuring and birds uprate. So we're sitting here relatively early in 2020 and are optimistic. The one thing that you. Just never know is you never know what that big breakout is going to be.
Sitting in our chair none of US would have called Black Panther $2 million to $700 million and nor would have anyone called it to be the breakout hit that it was or even wonder woman to be the breakout hit that it was so.
We have a pretty good insight into the ones that are coming and we're optimistic about others, because there's always one or two surprises. It just is the movie business.
Okay got it thanks.
Thanks, Meg and welcome to the call.
Thank you. Thank you.
Your next question comes from Robert Fishman of Moffettnathanson.
Hi, good morning.
I have one for Mark and one for Sean Mark any updated thoughts on implementing dynamic or variable ticket pricing initiatives that youre theaters or are you just solely focused on the movie club at the moment.
Robert we're looking at that.
I can't tell you that I can't give you any plans for it but we're looking at it in and it all depends on how you define dynamic pricing right now we have a very steep variable pricing model. So that if you go on Friday, and Saturday night, usually theres, a little bump in the Friday and Saturday night price off of.
What it would have been on Sunday through Wednesday, So you could call that some form of dynamic pricing. We currently do it and then.
Obviously during the week, we also price.
Lower on Tuesdays, we give student discounts.
We give senior citizen discounts, so theres, a pretty steep variable pricing mode in order to get those who are price conscious the ability to.
Get in and see the movie either on a Tuesday or earlier in the day and if you want to come Friday or Saturday night currently you're already paying a little bit of a premium and as we go forward. We will continue to look at.
More directly dynamic pricing, but im not in a position to talk about or to announce anything forthcoming.
Okay fair enough and for Sean can you talk about whether you're seeing any improvements on the new screen development in Brazil, specifically.
Can you just clarify Robert you said you guys are in development.
Sorry, so so just in terms of the development pipeline in Brazil, and how the economic backdrop that is sure potentially improving sure.
I would say, we still have a healthy backlog of projects and again as you know those are all tied to malls. So it's really what's the backlog of mall development in the region.
So thats still exists I wouldn't say we've seen.
A meaningful change thus far driven by the.
The economy in terms of those projects.
Starting to.
Ramp up significantly so I think there is still a degree of you know.
Developers in waiting mode, just to kind of see how the health of the economy. Ultimately plays out. So the projects are there, but I'd say, it's still somewhat stalled just in terms of the development, particularly within Brazil.
Okay. Thank you both.
Thanks Robert.
Your next question comes from Ben Swinburne of Morgan Stanley .
Thanks, Good morning.
Hey, Mark.
I was wondering if you guys have done I mean, I'm sure you have but.
Are you willing to share any data.
On kind of cohort analysis of the movie club trends since you've launched it in other words when you look at some of these KP eyes.
That that you guys focus on like incremental visits or incremental attendance per member and basket size left what are those trend lines look like over the 18 months.
As you track people, who come in in the system I'm. Just wondering if is there some selection bias that thats sort of those with the highest propensity to go more Joe in first or if anything maybe it's the opposite because you're getting better and better at marketing just anything you can share there as we look at the sort of impact of this on your overall attendance continuing to grow that would be interested in any insights that you could share a benefit let me. Let me do two things one you didnt really asking about this and I am not going to give you a specific number but I do want to say I think one of the.
Real standouts for movie club and I think it's because of the rollover aspect, where you never lose the benefit of it. So if you don't use it for a month or two they.
They build up so they are.
Our sustainability has been very very high with very low churn rate lower than than what you would expect for this kind of program.
We're not we're not disclosing that exact amount, but but but you can you can just.
Take it that it's significantly on the low side.
Relative to a metric that I think is also.
Very important in the whole concept is people joining the club for a variety of reasons some people because of the rollover some people because they don't want to pay online ticket fees, but some people because they want the concession discount and definitely bull and when we when we researched movie club, we researched 10%, 15%, 20% 25%.
And and at the 20%.
That's when it became a needle mover and that's when people are really important to them. So thats. What we did we knew we are taking a risk but what we found is that the basket size.
Of a movie club member versus a non movie club member is is about the same so that means by definition movie club members are spending 20% more because they're getting a 20% discount.
And then the thing that's really made it pay off is that the the number of people that are going to the concession stand has increased so we have a higher incident rate with movie club members. So net net it has turned out to be a positive not only on attendance.
But net net.
A 20% discount has turned out to be positive on food and Bev as well.
So I think those kind of are a couple of the things you were looking for that that are that are really critical in the success and why we're we're so.
Enthusiastic about what what can come in the future as well.
That makes sense. Thank you and just following up on some of your industry comments.
Mark.
I know you said, it's not a numbers game and I appreciate that but I couldn't help but notice an interview with John Stankey. This week, where he talked about actually taking Warner brothers output.
Up to 30 films potentially year I Didnt know, if if that sounded familiar to you know a lot more about their plans and we do.
I'd just be curious if everyone's been talking about Disney potentially shrinking Fox, but there's also been a big change at Warner's for the new CEO I'm curious if you have any insights you'd be willing to share there and then I have to ask at least if you have any plans to distribute the Irishman in the later this year since that's obviously as you mentioned a high profile fell that want some distribution.
You know I really can't speak about Warner brothers strategy, because I don't have any particular insight there I think the only thing that they have said is Warner brothers has said that.
Because they've got a lot of outlets outlets that focusing on content and additional content for their multiple outlets is important and by the way Disney is doing the same thing they may only be making 10 or 12 or 13 or 15 titles for theatrical but they're going to increase their output for Disney plus the same way that fit Disney used to do direct to videos and direct to Dvds and directed the Disney channel.
Disney is actually going to be increasing their output is just among various channels. So so I think that in some ways.
Thats consistent it's just how you how you add it up as it relates to the Irishman We would we would welcome to play the Irishman and and we've we've stated that very congenial way multiple times to Netflix the only issue comes down to that Netflix is one potential supplier of theatrical motion pictures and so the only thing we ask is that they they play from a window standpoint, consistent with our major suppliers, whether that be Disney or Warner brothers, ATM tier Comcast Universal so to the extent that they are willing to do that we welcome them and all of our theaters.
Gotcha. Thank you very much.
As a reminder, if you would like to ask a question. Please press star one.
Again, Thats Star one if you would like to ask a question.
Your next question comes from Chad by none of Macquarie.
Hi, good morning, Thanks for taking my question.
Marshawn clearly your strategy is industry, leading given the results that you continue to disclose on a quarterly basis in your loyalty program as you.
As youve touched on today appears to be working really well so.
Does this make you think differently about M&A in the U.S. given your performance the potential uplift you could have on other screens and your current balance sheet, which.
Might provide some capital to some theaters that haven't been able to rollout strategic initiatives like you have or is that just harder given that the boxes won't have your your original DNA. Thanks.
Chad we are we are.
Literally every month open to M&A.
Historically.
We have been very disciplined.
Buyers relative to M&A, and so to the extent that a family circuit.
Came on the market or obviously, we are in contact with these people before they ever come on the market and it can be purchased.
At a price that that we're willing to pay we are more than willing to do it but we we don't see the strategic value of just rolling up.
If we have to pay a price that is at or above our current.
Multiple so we're we're very open to it not only in the United States, but also in Latin America, and we've done some small acquisitions.
But I don't think our strategy is going to change relative to being very.
Disciplined buyers relative to.
To the value of it Sean you may want to add something on that the only other thing I would add is along the same lines as Mark has talked about we also tend to prefer kind of quality assets, we find that it.
Rather than taking like a distressed asset in trying to apply some of our stuck to it. The challenge you get there is you never know how deep those problems go and they can become a huge distraction to the larger portion of the business. So when we go after M&A, it's got to be a strategic fit.
It's got to be financially accretive and we generally are looking for things that are.
Good assets. So we continue to look for that but I wouldnt say, we materially or changing our view on M&A because of these types of programs if anything to the extent, we do do some we did a small tuck in this past quarter. It will apply those to it and we just like to think that'll add some added benefit to it.
Okay, great. Thanks.
And then my follow up.
More short term just wanted to drill into the potential impact from not a pre there for the third quarter, which I believe is coming out in two weeks here.
Can you see any advance ticket purchase saying I don't know if that's readily available in that market just trying to understand the the pressure on pricing for the third quarter and in international and potentially the protect the pressure on margins because I believe in Twoq.
And there were a number of other things going on but.
There was definitely massive pressure on pricing in that kind of went down into the margin line as well. Thanks.
All pick this up and Sean may add some detail to it.
This is a great opportunity for us, but along with that great opportunity. These tickets many of them are actually purchased by the by the church entity for their members and in doing so they are buying them in big Bold group.
Purchases. So there is there is some lowering of price because they're being bought in such big quantities and then also when many of those people come we've seen that the per caps werent quite as high as per caps of normal moviegoers. So although the previous one did 12 million admissions and we expect this one to be very successful as well I don't know if it's going to do 12 million admissions, but we think it will be very successful, especially in Brazil, and also Argentina, there will be some lowering of the average ticket price.
On all those people.
And I would just just to give some context, obviously last year.
We saw in constant currency, we saw price.
Be a year over year modest negative as was concession per patron largely driven by Nada. We think we think this current film could perform at similar levels to the prior film and we will see.
I'd say the other thing that though will help offset that is when we just look at the the Hollywood content this year versus last year.
We believe it has stronger potential.
So while not a will clearly create a bit of a drag on certain metrics like pricing concessions right. It may not be as steep as last year because it.
The overall performance, we propped up by by the Hollywood content and keep in mind too from a margin standpoint, while creates a drag on those metrics. It adds a tremendous amount of tendons into the mix, which is very beneficial to to the overall margins of the company. The the lineup for the third quarter for Latin America strong Spiderman Lion King Hobson Shaw.
It too so we're optimistic about the third quarter in Latin America.
Okay. Thank you very much and congrats on a great quarter here. Thank you. Thanks.
We have no other questions in queue.
I'd like to turn the call back over to the speaker for closing remarks.
Thank you all very much for joining us this morning, and we look forward to speaking with you again during our third quarter earnings call.
Thanks again.
This concludes today's conference call you may now disconnect.