Cinemark Holdings, Inc. (NYSE:CNK) Q1 2024 Earnings Call Transcript May 2, 2024
Cinemark Holdings, Inc. beats earnings expectations. Reported EPS is $0.19, expectations were $-0.21. Cinemark Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the Cinemark Holdings Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Miss Chanda Brashears, Senior Vice President, Investor Relations. Thank you Miss Brashears, you may begin.
Chanda Brashears: Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.’s first quarter 2024 earnings release conference call, hosted by Sean Gamble, President and Chief Executive Officer, and Melissa Thomas, Chief Financial Officer. Before we begin, I would like to remind everyone that statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company’s actual results may materially differ from forward-looking projections due to a variety of factors.
Information concerning the factors that could cause results to differ materially is contained in the company’s most recently filed 10-K. Also, today’s call may include non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company’s most recently filed earnings release, 10-Q and on the company’s website at ir.cinemark.com. With that, I would now like to turn the call over to Sean Gamble.
Sean Gamble: Thank you, Chanda, and good morning, everyone. We appreciate you joining us today for our first quarter 2024 results. Over the past three years, the theatrical exhibition industry has seen meaningful year-over-year increases in attendances and box office as film volume has been rebounding following the shutdown of movie making during the pandemic. And as we indicated last quarter, while this year will likely experience a dip in that recovery trajectory due to over six months Hollywood strikes last year that again disrupted film production. 2024 kicked off to a better than expected start. First quarter North American industry box office declined only modestly versus 2023 on account of a wide range of films that delivered outsized results.
Examples includes Sci-Fi sensation Dune Part Two that out grossed its first installment by more than 2.5 times with over $275 million of domestic box office. Animated hit Kung Fu Panda 4, which became the second biggest installment in its franchise history with over $180 million domestically and more than half $0.5 billion worldwide. Biopic Bob Marley, One Love, which captivated audiences and generated nearly $100 million of domestic box office. Musical comedy Mean Girls and action thriller The Beekeeper, which each delivered close to $70 million domestically. And mega adventure Godzilla x Kong, The New Empire that opened to a monstrous $80 million in North America at the end of the quarter and has since delivered over $500 million worldwide.
The first quarter also benefited from strong continued play through of December’s whimsical family spectacle Wonka, which has now exceeded $215 million domestically and nearly $415 million globally, as well as anyone but you that proved audiences are still craving romantic comedies in theaters having generated close to $90 million of domestic box office over its impressive run. Furthermore, we continue to witness strength of non-traditional content during the quarter, such as the successful releases of Cabrini and the complete fourth season of Faith-Based Series, “The Chosen”. The solid results of all these diversified titles once again provide strong further validation that consumer enthusiasm for experiencing compelling content in an elevated, cinematic theatrical setting remains vibrant.
We certainly experienced that enthusiasm within our cinema theaters during the first quarter as we entertain nearly 40 million guests across our global circuit with results that once again outpace the industry. Relative to 2019, our emissions recovery continued to sizeably exceed that of our industry by 700 basis points domestically and 600 basis points internationally. To that end, we also continue to maintain the most significant market share gains compared to pre-pandemic results of all major exhibitors. While Melissa will cover our financials in greater detail in a moment, during the first quarter we generated nearly $580 million of total revenue, more than $70 million of adjusted EBITDA, and a healthy 12% adjusted EBITDA margin. These results once again demonstrate our team’s resilience and outstanding ability to skillfully navigate a dynamic operating environment pressured by strike-induced headwinds.
Yesterday, we also successfully retired another $150 million of our COVID-related debt, given our sustained confidence in our team, financial position, and positive long-term outlook for our company and industry. That positive outlook was further reinforced a few weeks ago during CinemaCon, our industry’s annual trade show event, as studios and filmmakers provided glimpses into their upcoming film line-ups for the next year and a half. One key message that was emphasized again and again by studios during CinemaCon, as has been consistently conveyed to us during our one-on-one conversations, is the significant enhanced value that a theatrical release provides their films and their companies. As we’ve highlighted on previous earnings calls, the clear consensus is that theatrical release delivers unparalleled levels of promotional impact and quality perception, which strengthens consumer interest to see films, bolsters long-term recall value, and leads to elevated lifetime financial results throughout all distribution channels.
It’s also very important for consumers who want to experience these films on the big screen, as well as for attracting top-tier talent. In light of this context, as well as what has been further communicated by the studios with regard to their future film development plans, we continue to remain bullish about the resurgence of film volume over the coming years. Production is now fully up and running again following last year’s strikes. New significant entrance, like Amazon and Apple, are meaningfully scaling into theatrical exhibition, and non-traditional content, like concerts, faith-based films, multicultural titles, and anime, is also growing. Along these lines, the major studios took the opportunity during CinemaCon to showcase an increased number of titles relative to prior years, and what they shared, both the quantity of films, as well as the quality of materials presented, created a buzz of optimism that permeated the convention all week.
A diverse range of highly anticipated films slated for the rest of this year appear primed to fully deliver, including a resurgence of family films, like IF, the Garfield movie, Inside Out 2, Despicable Me 4, Moana 2, and Mufasa the Lion King, Action Adventure sagas such as Kingdom of the Planet of the Apes, Furiosa, Bad Boys Rider Die, Twisters, Venom the Last Dance, and Gladiator 2, comedic thrill rides like The Fall Guy, Deadpool and Wolverine, Borderlands, Beetlejuice, Red One, and Sonic the Hedgehog 3, Suspense thrillers such as A Quiet Place Day 1, Alien Romulus, Joker 2, Speak No Evil, and Smile 2, and the fantastical world of Wicked Part 1. And next year’s lineup is already coming together in a big way with a wide array of spectacle films that includes Wicked Part 2, Another Jurassic World, Superman Legacy, the next installment of Mission Impossible, a reboot of the Fantastic Four, Ballerina from the John Wick universe, a live action version of How to Train Your Dragon, Captain America, A Brave New World, Snow White, Zootopia 2, Minecraft, Megatru, Tron Aries, and of course Avatar 3, whose prior installments represent the number one and number three biggest global films of all time.
So again, based on strong, sustained consumer interest in movie going, numerous indicators that point to a continued resurgence of film volume, and the highly encouraging slate of upcoming titles on the horizon, we maintain a positive future outlook for the Atrovox [ph] exhibition and our company. And we believe that Cinemark in particular is uniquely positioned to prosper as we move forward on account of several key differentiators. To start, our consistent investment in maintaining and enhancing our theaters over time, which we have performed at sustained levels that significantly exceed our peers, has positioned our company with the largest collection of high quality assets in our markets. In addition to a more favorable overall condition of our theaters, we have the highest penetration of luxury seat of the major operators with almost 70% of our domestic circuit reclined.
We have the best sight and sound technology and overall film presentation in the business, including 99.97% screen up time. We have the number one private label premium large format in the world with our XD auditoriums, as well as the largest footprint of D-box motion seats, and we now offer enhanced food and beverage menus in more than 80% of our U.S. theaters. We also have a distinctive global footprint across the U.S. and Central and South America, with a concentration in both suburban and Latin markets that have strong movie going cultures which tend to over index in theater visitation frequency. With one of the highest market shares in North America, as well as the highest share across our Latin American region, our global footprint also provides valuable scale.
Furthermore, it provides attractive diversification across 42 states and 14 countries, beneficial best practice sharing, and access to varied pockets of growth in under penetrated markets. Beyond the quality of our assets and our favorable geographic profile, we also have a solid financial position with a healthy balance sheet, industry leading adjusted EBITDA margins and cash flow generation, and results that consistently outperform our industry. Our disciplined and balanced approach toward capital allocation over the years has positioned our company with an outsized advantage to both effectively navigate periods of reduced film volume as well as actively capitalize on market opportunities as they materialize. Our solid financial position is further supported by our advanced operating capabilities.
These capabilities are the byproduct of deep experience, domain expertise and skill of our sensational global team, as well as years of deploying strategic initiatives. Examples include our heightened levels of customer service that consistently earn high satisfaction ratings from nearly 95% of our guests in our domestic surveys. Sophisticated social and digital marketing platforms and tools that deliver billions of media impressions annually driving increased film awareness and demand to visit cinema. And planning and execution rigor that has a consistent track record of optimizing show times and staffing, fine tuning operating hours theater by theater based on fluctuating weekly demand, and driving efficiencies to help offset varied inflationary and supply chain oriented headwinds.
Our depth operating abilities and consumer minded actions have also helped us to develop a loyal and extensive consumer base. We have over 21 million members in our global loyalty programs and the U.S. and in the U.S. alone, Movie Club, our paid subscription tier now accounts for 25% of our domestic box office. These members are frequent and dedicated cinema moviegoers as well as our most satisfied guests. Moreover, our marketing reach extends to a total addressable customer base of nearly 30 million consumers and continues to grow. Finally, we are also well positioned to drive incremental value creation on account of the numerous levers we have that go above and beyond our industry’s continued recovery and our singular competitive advantages.
From continuing to extend premium amenities more broadly across our circuit to enhancing our food, beverage, and merchandise offerings as well as distribution methods even further to taking our pricing sophistication to the next level while executing a wide range of additional productivity initiatives to further optimizing our circuit including adding attractive new assets while addressing lower performing properties. The opportunities before us to drive incremental growth and prosperity that are fully within our control are plentiful. Those opportunities combined with the positive direction our industry is headed as well as our advantage market position underpin our optimism about the future of cinema and our ability to create meaningful long-term value for our shareholders.
I’ll now turn the call over to Melissa for a deeper look at our first quarter financials. Melissa?
Melissa Thomas: Thank you, Sean. Good morning everyone and thank you for joining the call today. We were pleased that the first quarter box office surpassed our expectation. Our team once again demonstrated our agility in the fluid environment and achieved healthy operating and financial outcomes by capitalizing on the box office and diligently executing our strategic initiatives. Globally, we welcomed 40 million guests to our theaters and generated $579.2 million of worldwide revenue in the first quarter. We delivered $70.7 million of adjusted EBITDA yielding a solid adjusted EBITDA margin of 12.2%. Despite the pressure on operating leverage given the attendance decline due to the impact of the Hollywood strikes. Domestically we entertained 23.6 million moviegoers in the first quarter and maintained strong market share.
We generated $231.8 million in admissions revenue and we grew our average ticket price 1% year-over-year to $9.82. The growth in average ticket price was driven by our strategic pricing initiatives partially offset by ticket type mix with more family content in the first quarter of this year as well as format mix due to the lapping of strong 3D penetration on Avatar from the prior year period. We generated $178.6 million of domestic concession revenue and our U.S. concession per cap achieved a first quarter record of $7.57. Our concession per cap grew 2% in the quarter fueled primarily by strategic and inflationary pricing measures and a shift in product mix towards higher price concession items partially upset by lower incidence rates due to film content.
Other revenue was $46.6 million down 2% year-over-year primarily due to the decline in attendance. Collectively our domestic segment generated $457 million of total revenue and $49.1 million of adjusted EBITDA yielding an adjusted EBITDA margin of 10.7% reflecting the relatively fixed nature of our domestic cost base. Shifting to our international segment. We hosted 16.1 million guests during the quarter a decline of 9% versus the first quarter of 2023 as the film slate did not resonate as well in the Latin American region year-over-year, though we did benefit from an increase in local content in Brazil. Similar to the U.S. we maintained strong market share across the region. As reported our Latin American operations delivered $58 million of admissions revenue $45.6 million of concessions revenue and $18.6 million of other revenue altogether we generated $122.2 million of total international revenue and $21.6 million of adjusted EBITDA yielding a 17.7% adjusted EBITDA margin.
Foreign currency devaluation particularly with respect to the Argentinian peso resulted in a year-over-year headwind to international adjusted EBITDA in the quarter that was largely upset by inflationary dynamics. Our seasoned and knowledgeable local teams continued to skillfully maneuver through the fluid economic and political environment in the region. Turning to our global expenses, film rental and advertising expense was 53.2% of admissions revenue down 40 basis points year-over-year due to a lower concentration of box office and the mix of films during the quarter partially upset by higher marketing spend. As I mentioned on our earnings call last year, industry box office in the first quarter of 2023 meaningfully exceeded our expectations resulting in marketing expense as a percentage of admissions revenue that was somewhat lower than we had planned creating a cover comparison.
Concession costs as a percent of concession revenue were 19.6% up 110 basis points compared with the first quarter of 2023 driven by ongoing inflationary pressures on certain core concession items as well as the shift in product mix towards lower margin products such as movie themed merchandise. Strategic pricing measures partially offset these impacts. Global salaries and wages were $86.9 million relatively in line with the first quarter of 2023. As a percent of total revenue salaries and wages increased 90 basis points primarily due to reduced operating leverage associated with the decline in attendance, wage rate pressure and expanded operating hours. Benefits from our ongoing focus on labor management dribble partial offset. Facility lease expense was $77.3 million a modest decline of 3% year-over-year primarily due to feeder closures.
As a percent of total revenue, facility lease expense increased 30 basis points. Utilities and other expense was $100.4 million down 3% from the first quarter of 2023 primarily driven by variable costs that declined with attendance and foreign currency impacts partially offset by inflationary pressures. As a percent of total revenue, utilities and other increased 30 basis points. G&A was $48.9 million in the first quarter an increase of 5% year-over-year primarily due to wage and benefit inflation, one time severance costs and higher share based compensation partially offset by lower professional fees and the impact of foreign currency fluctuations. We continue to exercise prudence in our discretionary spending and staffing decisions maintaining headcount below 2019 levels.
As a percent of total revenue, G&A increased 80 basis points. Globally, we generated net income attributable to Cinema Holdings Inc. of $24.8 million in the first quarter resulting in earnings per share of $0.19. Net income per the quarter included a $27.7 million tax benefit primarily due to the release of valuation allowances in certain foreign jurisdictions. Moving to the balance sheet, we ended the quarter with a strong cash position with $789 million of cash on hand. As expected, our free cash flow was negative $46 million for the quarter given the software box office environment, the timing of our semi-annual interest payments, seasonal working capital headwinds, and our ongoing investment in our circuit. In the near term, we remain focused on further strengthening our balance sheet while deploying capital towards strategic investments that position the company well over the long term.
To that end, yesterday, we used cash on hand to redeem the remaining $150 million of our 8.75% senior secured notes at par, reflecting our confidence in our companies and the industry’s recovery. Furthermore, we invested $23 million in capital expenditures to further enhance our global circuit. Looking ahead, we continue to anticipate deploying $150 million this year towards capital expenditures aligning with our commitment to prudent financial management. At the end of the quarter, our net leverage ratio stood at 2.8 times for the trailing 12 months, which is at the high end of our target range of 2 to 3 times. While our objective is to sustain this leverage ratio within our target range, we may face some pressure this year due to the Hollywood strike impacts.
I would like to reiterate that at this juncture, our capital allocation decisions are prioritizing a dual focus, re-fortifying our balance sheet and strategically positioning ourselves for long-term success. In closing, as we face complexities associated with the Hollywood strikes, our commitment to sound, operating, and financial practices remains steadfast. At the same time, as Sean highlighted, we are laser-focused on maintaining our distinctive market position and further advancing our company, which gives us optimism regarding our future prospects and the value we can provide to our shareholders. Operator, that concludes our prepared remarks, and we would now like to open up the line for questions.
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