Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cinemark Holdings Inc (CNK, Financial) reported strong box office performance, outpacing the industry and peers by over 300 basis points domestically and in Latin America.
- The company achieved a record high domestic food and beverage per-cap of $7.95, driven by enhanced concession offerings and strategic pricing.
- Cinemark Holdings Inc (CNK) saw a 10% growth in its movie club membership, reaching over 1.3 million subscribers.
- The company generated $142 million of adjusted EBITDA with a 19.4% adjusted EBITDA margin and $161 million of free cash flow.
- Cinemark Holdings Inc (CNK) successfully reduced its debt by redeeming $150 million of senior secured notes and repricing its term loan, resulting in annual cash interest savings of $3.2 million.
Negative Points
- Year-over-year attendance declined by 22%, impacted by strike-induced headwinds.
- The company faced inflationary pressures on certain concession categories and higher shrink, leading to an increase in concession costs as a percentage of revenue.
- Foreign currency devaluation, particularly in Argentina, remained a headwind to international adjusted EBITDA.
- Salaries and wages as a percentage of total revenue increased due to wage rate inflation and less operating leverage from the decline in attendance.
- Facility lease expenses increased as a percentage of total revenue, driven by lower percentage rent associated with the decline in revenue and theater closures.
Q & A Highlights
Q: Your average ticket price has increased for several years in a row now. How are you thinking about the ability to drive prices higher in '24 and '25 given the anticipated slate and your pricing initiatives?
A: (Melissa Thomas, CFO) We continue to see opportunities to modestly grow our average ticket prices using data and analytics to find optimal pricing that maximizes attendance and box office. We expect modest growth in 2024, though ATPs may fluctuate quarter to quarter based on film mix.
Q: Consumers appear to have a greater appetite for premium large formats. Can you talk about the opportunity to expand that across your circuit?
A: (Sean Gamble, CEO) We've been pleased with the performance of premium amenities post-pandemic. We're looking for opportunities to deploy more XD and D-BOX motion seats, especially in new theaters. We see plenty of opportunities for further premium amenities.
Q: Your market share gain this quarter looks outsized. Can you segment out the performance between film mix and factors under your control?
A: (Sean Gamble, CEO) We benefited from a content mix that resonated well with our circuit and solid execution by our team. We also saw fewer seating capacity constraints due to reduced film volume. We expect about 100 basis points of improvement in market share as more content returns.
Q: How do you view the sustainability of cost efficiencies as box office ramps up?
A: (Melissa Thomas, CFO) We flex labor hours based on projected attendance and operating hours. We expect labor hours and salaries to increase with higher attendance but will still benefit from productivity gains. Wage rate inflation will continue, but we are always looking for further efficiencies.
Q: How well do you think consumers are aware of the strong content slate for the next two years, and what can you do to improve that awareness?
A: (Sean Gamble, CEO) We rely on marketing campaigns by studios and exhibitors, as well as the steady cadence of releases to build awareness. More films in the marketplace help expose audiences to upcoming titles through trailers and other marketing efforts.
Q: Can you provide an update on your plans for non-traditional content and its impact on box office performance?
A: (Sean Gamble, CEO) We've seen building success in non-traditional content like anime, faith-based films, and concert films. We expect non-traditional content to represent around 5% of overall box office, up from the historical 1-2%.
Q: Can you talk about the key drivers of your concession per-cap growth and how much room for improvement you see ahead?
A: (Melissa Thomas, CFO) Our per-cap growth is driven by strategic pricing actions and higher incidence rates. Initiatives like self-service capabilities, mobile ordering, and enhanced hot food offerings have been successful. We see plenty of opportunities to grow per-caps further.
Q: What are your thoughts on the recent acquisition of Alamo Drafthouse by Sony?
A: (Sean Gamble, CEO) Sony's acquisition underscores their support for the theatrical experience. It aligns with their strategy to monetize their IP through experiential opportunities. We see it as a positive indication of their commitment to the industry.
Q: Can you update us on your appetite for acquisitions and your preference for larger portfolios versus smaller tuck-ins?
A: (Sean Gamble, CEO) We focus on high-quality assets that deliver solid returns. We evaluate all opportunities but favor accretive investments that don't strain our balance sheet. We prefer going deeper in existing markets rather than broader.
Q: Can you discuss the operating environment in your international markets, particularly regarding inflationary pressures?
A: (Melissa Thomas, CFO) Argentina continues to face FX devaluation and inflation. We saw some pressure in Q2 due to promotional activity. However, our experienced local teams are adept at navigating these challenges, and we remain optimistic about our performance in Latin America.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
