Cinemark Holdings, Inc. Q1 FY2022 Earnings Call

Good day and thank you for being here. Welcome to Cinemark’s First Quarter Earnings Call. At this moment, all participants are in a listen-only mode. Following the speaker’s presentation, there will be a question-and-answer session. I would now like to turn the conference over to our speaker today, Chanda Brashears, Senior Vice President of Investor Relations. Please proceed.

Good morning everyone. At this time, I would like to welcome you to Cinemark Holdings, Inc.’s first quarter 2022 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. In today's prepared commentary regarding revenue comparisons, we will be predominantly referring back to the first quarter of 2019 unless otherwise indicated as the first quarter of 2021 was impacted by COVID closures, government restrictions, and limited new film releases. From an expense standpoint, we are comparing to the prior quarter, the fourth quarter of 2021, and we believe it is the most relevant comparison in the current environment. I would now like to turn the call over to Sean Gamble.

Thank you, Chanda, and good morning, everyone. We appreciate you joining us to discuss our first quarter 2022 results. Following Spiderman No Way Home’s record-breaking success at year-end, we continue to be highly encouraged by the progress our industry and our company are making as we recover from COVID, which led to first quarter year-over-year revenue growth of over 300% for Cinemark. Nearly every film released in 2022 to date has performed in line or better than pre-pandemic expectations benefiting from favorable opening weekend results and strong week-to-week holds which in many cases exceed historic trends. Importantly, we're now seeing positive box office recovery across all categories of films and audiences. Blockbusters like Spiderman and The Batman not only appealed to younger male moviegoers, but their overall audience profiles were consistent with the pre-pandemic demographic mix for Marvel and DC Comics titles. Dog and The Lost City skewed older and more female while box office results for Sonic the Hedgehog 2 and The Bad Guys have been driven by families. Notably, Sonic delivered Paramount's biggest opening weekend in nearly a decade and the film's overall run to date already exceeds the first installment. We've also seen remarkable results with alternative content. First, the live-captured performance of BTS's Permission To Dance On Stage concert took screens by storm at the beginning of March and generated nearly $33 million at the box office around the globe and only two showtimes. As a result of our industry-leading technology, Cinemark showcased this live concert at more theaters than any other exhibitor worldwide, selling out auditoriums and meaningfully over-indexing in market share. Next came the global expansion of Jujutsu Kaisen 0, which has grown to become the second highest-grossing anime film of all time. In North America alone, this film generated nearly $30 million in box office. In closing out the first quarter was RRR, which set a new domestic opening day record for an Indian film and rounded out its domestic run at $11 million, the second highest result ever for an Indian title. With Cinemark’s consistent focus on multicultural films, we were the number one exhibitor for RRR and all Indian films throughout North America during the first quarter. Now that COVID has entered a transitionary phase from pandemic to endemic and government restrictions on theatrical exhibition throughout most of the world have lifted, our industry is well-positioned for sustained recovery. Moreover, consumer sentiment regarding movie-going continues to improve and just reached a new high. According to NRG, 87% of moviegoers are now expressing comfort returning to movie theaters today and 89% within one month from now. While these improvements clearly represent further steps in the right direction, the near-term film landscape remains dynamic with production timelines and associated release dates still being affected by COVID. Multiple film releases were impacted by Omicron in the first quarter and we've seen several titles intended for 2022 shift to 2023 due to production delays. As a result, we expect 2022 will remain below pre-pandemic levels due to reduced volume of films. That said, we have become well-versed in dealing with these types of shifts and we remain highly optimistic about the continued ramp-up of box office results as an increasing volume of high-quality films returns to theaters with a steadier release cadence over the course of the year. That optimism was certainly validated by Doctor Strange into the Multiverse of Madness’s massive opening box office last night, which clearly has set the stage for its sensational opening weekend result. Furthermore, last week we were exposed to a wide array of highly compelling first-look footage during our industry's annual trade convention CinemaCon, which brings together studios and exhibitors from around the world. During their presentations, our studio partners showcased what they have lined up over the next year, which includes a robust set of diverse films that are sure to delight all types of moviegoers. As expected, the 2022 slate of temple films appears poised to fully deliver. In addition to Doctor Strange, which is already off to an amazing start, we saw captivating first-time footage from Jurassic World Dominion, Black Adam, The Flash, and Shazam! Fury of the Gods. We also got to see Disney's first official trailer for Avatar 2, The Way Of Water in 3D. James Cameron consistently pushes the boundaries of movie-making technology in his storytelling. And based on what we saw, this film is no exception with extraordinary visuals that break new ground once again. One of the highlights of the conference was Paramount's first public screening of Top Gun: Maverick in its entirety. For those of you who've been anxiously awaiting the release of this film like me, all I can say is get your advance tickets now, you will not be disappointed. We were also shown several examples of highly encouraging footage in the mid-tier category of films, including Bullet Train starring Brad Pitt and Bad Bunny; Ticket to Paradise, a romantic comedy that reunites George Clooney and Julia Roberts; and Elvis, a biographical drama with a modern flair starring Austin Butler and Tom Hanks from Director Baz Luhrmann. CinemaCon attendees were also thrilled by glimpses of a wide range of horror and suspense films, including the final saga in the Halloween franchise, Halloween Ends; Stephen King's Salem's Lot; Jordan Peele's newest thriller, Nope; and Jason Blum’s The Black Phone, which also screened during the conference and generated significant buzz. On the other end of the spectrum, we saw spectacular footage from several family films that are coming in 2022, including Minions: The Rise of Gru, Puss in Boots, Paws of Fury, DC League of Super-Pets, and an extended look at the first 30 minutes of Pixar's Lightyear, which is sure to fully enthrall audiences young and old. Finally, we had an opportunity to see a series of compelling scenes from various specialty and art house films, including Downton Abbey: A New Era, Where the Crawdads Sing, Are You There God? It’s Me, Margaret, White Bird: A Wonder Story, and Don’t Worry Darling just to name a few. There was a shared excitement and enthusiasm at CinemaCon regarding the box office momentum that is well underway and the future prospects of theatrical exhibition. As stars and directors spoke about their upcoming films, they championed the magic of movie-going and emphasized that they make their films for the big screen and the shared cinematic experience. Furthermore, a key message we heard from every studio was the importance of a theatrical release and a theatrical window in the studio value equation. This does not necessarily mean that every film they produce will be released theatrically; however, there was a shared recognition and reaffirmation about the strategic benefits a theatrical release provides to varied genres and sizes of film. Multiple studios are now indicating that films released theatrically with a window are performing better on their streaming platforms than those without a theatrical release. This observation underscores how theatrical exhibition can be complementary and accretive to streaming, no different than it has been with VHS, DVD, Pay TV, and Free TV for years. As studios aimed to create bigger cultural moments, build larger brands and franchises, more effectively promote their streaming platforms, attract the creative community, and maximize revenue and profitability, a theatrical release with an exclusive window is a key enabler for doing so. Theatrical exhibition increases the awareness and value of films by eventizing them, enhancing their perceived quality, creating stronger emotional connections with stories and characters, reducing piracy, and providing multiple monetization opportunities which increases revenue across all distribution channels. Turning attention to our first quarter results. While the impact of Omicron created a drag on overall box office performance in the quarter, Cinemark once again far outpaced North American industry recovery by an impressive 650 basis points when comparing 1Q 2022 against 1Q 2019 and our performance trend we have maintained for 12 of the past 13 years. Similarly, our Latin American admissions surpassed their corresponding industry results by approximately 500 basis points and despite the challenging start to the quarter due to varied film releases, we delivered positive adjusted EBITDA both domestically and internationally in 1Q driven by our industry outperformance, strong concession sales, and stringent cost management. We've been asked multiple times about the drivers of our market outperformance and share gains over the last several quarters. In addition to meticulous planning and solid operational execution, we attribute those results to two key factors. First, is the lift we realized by being one of the first circuits to reopen during the pandemic. That enabled us to both capture new audiences and build tremendous goodwill with our guests. Second, is the combined benefits we have derived from our key strategic initiatives and investments over the years particularly in the areas of technology, premium amenities, food and beverage, marketing and loyalty programs, and guest service. Our industry-leading technological capabilities and presentation quality, content management, and our ability to simulcast live events across our global circuit provide us an advantaged position relative to our peers. For example, because of our integrated screen network, we are able to host live beyond the screen experiences that complement Hollywood content, such as exclusive talent Q&As, sessions, concerts, and sports and gaming events. These types of communal engagements offer fans unique, enhanced experiences that deliver guest satisfaction scores which are off the charts. A perfect example is the presentation of the live-captured BTS concert I mentioned earlier. Cinemark's consistent focus and investment in theater technology enabled us to seamlessly broadcast this global phenomenon and significantly over-index. And to ensure that our site, sound, and content management capabilities remain best in class, we have continued moving forward with the plans we announced back in 2019 to convert our entire global circuit to Cinionic laser projectors. This transition will elevate our Cinemark movie-going experience even further by delivering more vivid colors, sharper focus, and brighter on-screen imagery to showcase the incredible film content that is on the horizon as optimally as possible. While doing so, we will also derive meaningful cost savings and environmental benefits associated with laser projection. Our investments in premium amenities are also an important driver of our outperformance, especially with regard to our luxury lounger recliners, premium large-format auditoriums, and D-BOX Motion seats. Moviegoers resoundingly prefer the enhanced experience that our recliners provide, often driving past non-reclined theaters to enjoy the added comfort of this amenity. Additionally, we've seen how reclined theaters have been recovering faster than those that are not reclined over the course of the pandemic. With over 65% of our domestic circuit reclined, we continue to benefit from our luxury loungers, which is reflected in our outsized results. We've also seen an increase in consumers electing to upgrade to premium large formats and D-BOX Motion seats compared to pre-pandemic levels. While our nearly 300 premium large format auditoriums, which include our number one exhibitor branded PLF XD and IMAX, only represent 5% of our global screen count, they accounted for over 14% of our global box office in the first quarter alone. This box office contribution ratio is up a sizable 530 basis points over the first quarter of 2019, and it yielded an 8% increase in domestic PLF admissions revenue dollars versus the same period. Likewise, our domestic D-BOX revenues are up over 25% compared to 1Q 2019. Considering the high demand for these ultra-immersive premium experiences, we plan to expand our XD screens and D-BOX seats during the course of 2022, which we expect will provide further upside. We are also about to launch a new XD campaign ahead of this year's summer blockbuster season to drive even greater awareness and engagement. Our investments in food and beverage initiatives are also an important part of our comprehensive guest experience. Over the years, we have continued to place a strategic emphasis on our high-margin core concession offerings while expanding our menus to provide broader appeal to every moviegoer. These tactics have been paying off, as evidenced by consistent per cap growth we've achieved year after year. Along with increased indulgence as moviegoers returned to our theaters, our food and beverage initiatives helped deliver yet another record-setting per cap in the first quarter of 2022. We've also evolved how we offer food and beverage by reimagining the design of our concession stands and introducing a new convenient online ordering platform called Snacks in a Tap. In addition to providing improved transactional ease for our guests who take advantage of Snacks in a Tap, the platform simultaneously helps reduce lines in our theaters, thereby delivering a double benefit. We fully launched Snacks in a Tap less than a year ago, and we expect it will continue to provide benefits to our guest experience and concession revenues as more consumers discover the feature and we roll out future promotions and enhancements. Our market outperformance has also benefited from the advancements we've made in our marketing capabilities and loyalty programs, which have dramatically expanded our consumer reach, increased purchase conversion, and strengthened consumer engagement. For example, we now have the ability to dynamically customize the content we show consumers based on their location, loyalty status, film history, and numerous other factors. As a result, an average email we distribute typically has several thousand unique variations, which enables us to highly personalize our messaging and improve conversion rates. Our marketing and IT teams continuously work together to enhance our web, app, and online media platforms to improve our customer journey, remove transactional friction, and provide our guests a compelling digital experience that stimulates return visits to Cinemark. Our highly successful tiered loyalty program, Movie Rewards, also aims to increase moviegoing frequency and visits to Cinemark. Consumer enthusiasm for our paid tier Movie Club, the industry's first exhibitor-led subscription program, remains strong, and we currently have 980,000 members, which now exceeds our peak in 2019. We continue to add new members each week, and we are fast approaching one million subscribers. Our varied loyalty programs throughout the U.S. and Latin America provide direct communication channels to our guests and have a high perceived value, which in turn leads to incremental sales opportunities. Our collective marketing efforts have been highly successful, and we intend to continue leaning into our advertising, promotional, and loyalty campaigns throughout 2022 as we work to fully reignite theatrical moviegoing. And finally, we continue to drive sustained benefits from our long history of providing top-notch guest service. Exceptional guest service has been foundational to Cinemark's operating practices since our inception 35 years ago, and we consistently earn guest satisfaction scores in excess of 90%. That said, while we have ingrained the notion of guest service in our training and operational DNA, we continue to work on taking our service quality to the next level and doing so will remain a key focus of ours going forward. The combined impact of our investments and advancements in technology, premium amenities, food and beverage, marketing and loyalty programs, and guest service, along with solid operational planning and execution, drove our box office outperformance in the first quarter as well as our positive adjusted EBITDA results. Additionally, our adjusted EBITDA was further supplemented by the productivity and process efficiency initiatives that we've described on prior earnings calls, including our workforce management and continuous improvement programs. As we move ahead and we focus on positioning our company for ongoing success in the evolving media and entertainment landscape, we intend to continue to invest in all of these areas to support our five strategic priorities. As I described in February, these priorities are: providing our guests an extraordinary experience by delivering world-class guest service, quality, value, ease, and premium entertainment; building audiences via a wider range of content offerings and marketing sophistication; growing new sources of revenue by creating incremental sales opportunities; streamlining processes through additional simplification, productivity, and continuous improvement initiatives; and optimizing our footprint to ensure we are appropriately situated in the most advantageous locations to deliver sustained long-term results. In summary, I'd like to reinforce how pleased we are with the positive trajectory of industry box office recovery that is fully underway and our sustained optimism about its continued momentum going forward. Our studio partners and varied content providers are delivering must-see films and events that are intended for theatrical exhibition. And because of our consistent investments in and our focus on providing our guests an exceptional cinematic experience as well as all of our concentrated efforts to reignite theatrical movie-going, Cinemark is well-positioned to fully capitalize on surging demand as we head into the exciting summer movie season and beyond. I'd like to thank our incredible team for all they continue to do to keep Cinemark at the forefront of our industry. With that, I will now pass the call to Melissa, who will provide further information about our first quarter financial results.

Thank you, Sean. Good morning, everyone and thank you for joining the call today. We are encouraged by the recent box office recovery trend Sean mentioned, with momentum building in late February and March. Despite the impact of the Omicron variant and its effect on the film slate during the first half of the quarter, we were pleased with the results we delivered, which significantly exceeded our expectations. Starting with our worldwide results. Our attendance was 33.1 million patrons in the first quarter. We delivered $460.5 million of total revenue and $25.2 million of adjusted EBITDA. The first quarter represents our third consecutive quarter of positive adjusted EBITDA generation and underscores the resurgence in movie-going and our discipline around costs. Turning to our U.S. operations. We delivered attendance of 20.7 million patrons during the first quarter. Operationally, we sought to be as flexible as possible and reduced our operating hours during January and February in response to the impact of Omicron and the related content shift. Our domestic admissions revenue was $191.8 million in the first quarter with an average ticket price of $9.27. Our average ticket price was broadly in line with the prior quarter and remained elevated relative to the equivalent pre-pandemic period due to three key factors: first, a favorable ticket type mix driven by the strong performance of alternative content in the quarter, which tends to have a higher average ticket price as well as fewer matinee and weekday show times and a lower mix of child tickets; second, strategic pricing actions; and third, a higher mix of premium large format box office. Our domestic concessions revenue was $141.1 million in the first quarter on another record high per cap of $6.82. We were particularly pleased with the growth we saw in our incidence rates for core concessions like popcorn, candy, and beverages, which were up 250 basis points quarter-over-quarter. When compared with 1Q 2019, our concession per caps continue to benefit from heightened indulgence in food and beverage consumption and audience mix that tends to skew higher in purchase incidents and our operating hours which, while reduced, are concentrated in time frames that are more conducive to concession purchases. Furthermore, we benefited from the strategic initiatives that Sean mentioned as well as our value-oriented approach to pricing. Domestic other revenue was $39.1 million in the first quarter and reflects the impact of lower attendance levels on screen ads and transaction fees both versus the prior quarter and the pre-pandemic period. Altogether, in the first quarter, we delivered $372 million of total domestic revenue and $14.4 million of adjusted EBITDA with an adjusted EBITDA margin of 3.9%. Turning to our international segment. It too was impacted by the Omicron variant. We welcomed 12.4 million patrons during the first quarter despite certain government-imposed restrictions in place on operating hours and capacity due to the pandemic. It's worth noting that restrictions in place on operating hours and capacity have since been lifted, the vast majority of them have. Overall, we generated $88.5 million of total revenue from our international operations, comprised of $44 million of admissions revenue, $31.9 million of concessions revenue, and $12.6 million of other revenue. International adjusted EBITDA was $10.8 million with an adjusted EBITDA margin of 12.2%. Turning to global expenses. Film rental and advertising expense was 54.1% of admissions revenue, representing a decline of 340 basis points versus the fourth quarter of 2021. This decline was primarily driven by a lower concentration of blockbuster films during the first quarter, which skew higher on our revenue share agreements with our studio partners. As a reminder, this line item will also reflect our step-up in marketing expense as we continue to lean into investments to reignite movie-going, strengthen loyalty, and build our audiences. Concession costs were 17.3% of concession revenue and decreased 30 basis points quarter-over-quarter. While the team did a fantastic job offsetting the cost pressures in the first quarter, costs are rising and we are seeing some impacts, particularly on our key concession supplies. For example, as you may have read in the headlines, commodity prices have been rising for items like canola and soy, which impact the cost of key staples in our business such as canola oil and butter topping. First quarter global salaries and wages were $79.8 million and decreased 4.7% quarter-over-quarter, driven by reduced labor hours associated with the decline in attendance, somewhat offset by higher average hourly wage rates. Facility lease expense was $73.7 million and represented a decline of 6.9% quarter-over-quarter. While largely fixed, lease expense will fluctuate as percentage rent and common area maintenance move directionally with volume. Worldwide utilities and other expenses were $86.9 million and decreased 4.3% from the prior quarter, driven by variable costs such as credit card fees that declined in line with volume. Finally, G&A for the fourth quarter was $40.7 million and decreased 17.4% quarter-over-quarter due primarily to lower share-based compensation. Excluding the impact of share-based compensation, G&A was down $1 million. Altogether, we generated a net loss attributable to Cinemark Holdings, Inc. of $74 million, resulting in a loss per share of $0.62. Capital expenditures were $18.7 million during the first quarter, including $6.6 million for new builds that we committed prior to the pandemic and $12.1 million for investments to maintain or enhance our existing theaters, such as luxury lounger reclining seats, laser projectors, and XC conversions. We continue to anticipate spending approximately $125 million on capital expenditures for the full year 2022 as we balance investing to position the company for the long-term while strengthening our balance sheet. Turning to cash, we ended the quarter with $569 million of cash on the balance sheet. Free cash flow was negative $138 million for the first quarter. As expected, our free cash flow was impacted by lower adjusted EBITDA, semiannual interest payments, and working capital headwinds, which were primarily driven by the change in box office performance from December to March and the timing of employee bonus payments. As we look forward, we continue to anticipate positive free cash flow generation for the full year 2022 based on our current industry recovery expectations and trends. Moreover, we expect to continue to outperform the industry in terms of box office recovery and are working diligently to maintain our market share gains. And between our strategic initiatives and evolving pricing tactics, we believe we can maintain a meaningful portion of the upside we've experienced with both ticket pricing and concession per caps as the film slate diversifies and a broader range of moviegoers return to the theaters. It's also important to keep in mind the inflationary pressures we are facing, particularly around labor rates and concession costs. Of course, we will continue to pursue initiatives and evaluate strategic pricing actions to offset these cost pressures wherever possible. In closing, Cinemark has consistently demonstrated its ability to adapt and evolve in this dynamic environment and continues to do so in order to fully capitalize on the box office momentum and the opportunities that lie ahead. Even in high inflation and recessionary periods, theatrical movie-going has historically proven to be a recession-resistant industry. People still want and need to get out of their homes for entertainment and going to the movies provides a reasonably priced means to escape reality and enjoy a shared cinematic experience. We remain bullish on theatrical movie-going and especially on our ability to continue to excel and deliver industry-leading results for all of our key stakeholders, including guests, employees, and shareholders. Operator, that concludes our prepared remarks, and we'd like to now open up the line for questions.

We have our first question from Mike Ng with Goldman Sachs. Your line is open.

Hey, good morning. Thank you very much for the questions. I was just wondering if you could expand a little bit more on your strategy in live events. I know you mentioned the success of the BTS concert for the industry. Are you mostly relying on things like Fathom? Are you planning to invest more in the IMAX Live Events experiences? Thank you very much.

Thanks for the question, Mike. I would say it’s a range of scenarios. So certainly, what you mentioned events through Fathom, the BTS concert came through another company that's in the space called Trafalgar, IMAX is getting into this area. Additionally, we've hosted several of our own events through our own network, live Q&A sessions with talent ahead of movie releases, which have proved to be received very, very well by consumers. So it could come through numerous channels. There are other categories of events too, like live sporting events and live gaming events. We just look at this particular area as one that has a lot of future potential. And now that our capabilities are in place to be able to broadcast these types of events, it just opens up new opportunities. So it’s something that we’re going to be looking into and leaning into. The key is finding things that have appropriate scale because the events typically require a bit of work to put together. So you have to make sure that the time is worth the effort at the end of it. But we’re optimistic about the opportunities that lie ahead in that space.

Great, thank you very much. And just as a separate question, I was just wondering if you could talk a little bit about your views on the normalization of average ticket price and concession per caps just as the box office recovers and we get a more normal mix of moviegoers that include matinee, weekday, and children tickets? Thank you very much.

Hi, Mike, I’ll start with that. We do expect to see some normalization in average ticket prices and per caps as our film content and audience mix diversify, along with an expansion in operating hours. As I mentioned in my prepared remarks, we are exploring opportunities that we believe will help us maintain a significant portion of the substantial growth we experienced in both average ticket prices and per caps during the pandemic. Regarding the average ticket prices, we have previously discussed strategic pricing actions, which we see as an opportunity, although we intend to approach this carefully as we aim to regain movie-going interest. Based on our testing so far, we see potential there. Additionally, we are promoting our premium large-format screens, and as Sean noted, we have observed a positive increase in the number of people choosing to watch movies in XD, which has been favorable for us. We will continue to focus on this, and you can expect to see more marketing efforts to raise awareness. On the per cap side, while we anticipate some normalization, we have experienced significant growth in incidence rates, with a quarter-over-quarter increase of 250 basis points from Q4 to Q1 domestically. We believe that our proactive category management and initiatives like Snacks in a Tap will positively impact our ability to maintain much of the benefit we've seen. Pricing on the concession side also presents another opportunity. However, we plan to proceed cautiously and utilize data and analytics to guide those decisions.

Great. Thank you, Melissa. Thank you, Sean.

Thanks, Mike. Operator, do we have another question?

Yes, we do have a question from David Karnovsky with JPMorgan. Your line is open.

Good morning. This is actually John Cardoso on for David. Thanks for taking my questions. I guess just very quickly piggybacking on that ticket question from earlier, is consumer inflation at all affecting any of what you're seeing right now or any of your planned pricing actions going forward? And then I have a follow-up.

Sure, I can take that one, John. Thanks for the question. So on the pricing side, inflation is certainly something that we're cautious about and we're going to monitor closely. But if you think about the approach that we're taking to pricing. As I have said previously, we're looking to get more sophisticated with our approach to pricing. We're increasingly leveraging data and analytics to evolve to more of a dynamic pricing model over time. We're still in early days, but we're not taking a blanket approach to price changes. We're leveraging our data and models and our test results to determine where we have that opportunity. And with our testing and learning, we're doing that on a continuous basis, and we implement the opportunities we identify along the way through our testing. So understand we're in an inflationary environment; that's something we absolutely are taking into account. But we do see pricing as one of the many levers that we have to offset the inflationary pressures that we're seeing both on the labor side as well as on the COGS side.

Great. And then just switching gears a little bit. Do you mind giving us some color, just commentary on what current trends look like internationally, maybe framing it as how much ahead or behind the international scene it is compared to what we're seeing here in the domestic market, particularly maybe as it relates to attendance momentum? Thank you.

Absolutely. Thanks for the question, John. Internationally, particularly in Latin America, we had been recovering from COVID a few months later than the U.S. However, I can say that it has caught up significantly at this point. There might still be a slight lag, but we’ve observed great progress and improvement in movie attendance as well as in easing restrictions. One issue that persisted until the first quarter was the capacity restrictions that were still in effect, but those have largely been lifted, with the exception of Peru, where some social distancing measures remain. Now, that issue has been resolved, and consumer enthusiasm is quite positive. Additionally, while vaccine distribution was delayed compared to the U.S., accessibility has improved, and vaccination rates in Latin America are now actually higher than in the U.S. for both single and double doses, as well as boosters. This has also contributed to notable progress. When we analyze the box office gains from the end of last year into the first quarter of this year, we saw gains comparable to those in the U.S. Furthermore, as reflected in our results, we achieved our second consecutive quarter of positive EBITDA in our Latin American business in the first quarter of 2022.

Great, super helpful. That’s it for me. Thanks again and congrats on the quarter.

Thanks, John, very much appreciate it.

Your next question is from Eric Handler with MKM Partners. Your line is open.

Thank you. Good morning and appreciate the questions. Two things; first, I wondered if you could talk about Movie Club, specifically providing some stats that you guys used to give, what percentage of ticket purchases were for Movie Club, how much are they spending versus non-Movie Club people, how often they're going, any stats you can give around Movie Club would be great?

Sure. Thanks for the question, Eric. Let me throw out a couple that I just have top of mind. As I mentioned in the prepared remarks, we have now 980,000 members. So we've grown from our peak at the end of 2019 of 950,000, which represents more than 3,000 members per theater. Actually, our percent of box office generated by our Movie Club members in the first quarter was also high at 20% of our first quarter box office. To date, since the inception of the program in December of 2017, we've sold over 77 million tickets through the program. So it's been highly successful in terms of the volume that we've sold. And I think those are some of the key stats that we've provided historically that I put out there from memory.

Great. And then secondly, wondering if you could talk about what the construction environments look like in the U.S. and in Latin America in terms of power center development, mall development. Are you seeing anything there that could allow you to maybe accelerate new theater developments?

Sure. Our perspective on development is that it's gradually improving, but it's certainly still slower than it was before the pandemic. We are being cautious as we work to understand what the new normal will be and how the current dynamics will settle. That said, we are still progressing on some projects. We have opened a few theaters and have more planned. Overall, while things are picking up, the pace of new mall development and construction remains significantly slower than before the pandemic, particularly for new builds.

Thank you.

Thanks, Eric.

Your next question is from Jim Goss with Barrington Research. Your line is open.

Thanks and good morning. I wanted to ask a little about staffing and the whole concept you've touched on in a couple of areas, but attracting employees, the wage levels that are necessary or the quality level of the people, a lot of businesses are having trouble getting what they want at the right price. In your case, it's got to be in sufficient numbers to guarantee that good customer experience, so maybe if you can talk about those challenges?

Sure thing, Jim. I'll start with that and if Melissa has anything to add, she's welcome to. It's an interesting one. We certainly had quite a bit of staffing challenges at year-end when we were trying to ramp up the volume of employees coming into the holiday period when we saw demand growing. And it was a struggle, partly just due to the labor market, partly due to the state of the virus at that point with Omicron. So we were definitely understaffed pretty significantly at year-end both because of those two factors. We couldn't hire as many people, and we also had a lot of people calling in sick. That normalized in the first quarter as volume came down. We've been in a position right now where we have the volume of staff that we need. We are starting to ramp that up again as we head into the summer season. So I would say the full answer to that question still remains to be seen a bit in terms of are we going to continue to hit another challenge in getting the full volume of staff we need. So far, things are progressing well. There has been some improvement in terms of the labor market, at least in our world. We also rely very heavily on students, college students, and high school students in the summer months when volume grows. It tends to work well because they're off from school and looking for a source of income and looking for part-time work, and that fits very well with our model. And we're heading into that period as well so we'll see what the dynamics are there. All that being said, wage rates definitely have been a challenge, and Melissa touched on that in her prepared remarks. We've certainly seen the need to increase hourly wage rates, which is commensurate with what's happening everywhere at this stage or everywhere across the U.S. We've had to do that in order to be able to attract and retain employees in this environment.

Yes. And Jim, just to add on the wage rate side. So in the first quarter, given that we had limited hiring needs coming off of that peak period in Q4, as Sean mentioned, any wage pressure that we saw in Q1, labor was really just realizing the full quarter's impact of wage rate pressure and increases that we did in the fourth quarter. So we'll know more as we progress through our summer hiring in terms of whether any additional wage rate pressure is coming.

Okay, thank you. And one other thing, the softer film release schedule in the first quarter wasn't ideal for the U.S., but it also coincided with basically summer in Latin America. I was wondering if that was a key challenge there and I was wondering how you looked at the upcoming pretty robust films release slate and as to how it might play in the Latin American markets.

Sure. The overall volume of content and the associated challenges we experienced in the U.S. were also present in Latin America. The content we produced performed quite well, and the recovery there has made good progress. However, there simply weren't enough films available in the first quarter, which also impacted Latin America. Looking ahead, we are very optimistic about the films we believe will succeed both in the U.S. and Latin America. There are certain nuances where some titles may perform better in Latin America while others may not do as well compared to their performance in the U.S. A notable piece of data is that we had our fourth largest preshow opening ever last night with Dr. Strange, which is off to a great start in the U.S. and is also doing exceptionally well in Latin America. This is a prime example of a title that is performing strongly across both regions, especially following the record-breaking preshow opening of Spiderman just a month ago. Looking toward the rest of the year, we anticipate that films like Black Panther: Wakanda Forever, Elvis, and Top Gun will perform well in Latin America, but not to the same extent as in the U.S. Conversely, titles like Lightyear, Jurassic World, and Minions: The Rise of Gru are expected to perform particularly well in Latin America due to their family-oriented nature. Overall, we are equally optimistic about the film lineup for Latin America as we are for the U.S.

Okay, thanks very much for the color.

Thanks Jim, appreciate the questions.

Your next question is from Ben Swinburne from Morgan Stanley. Your line is open.

Good morning, Sean and Melissa. I hope you're both doing well. I have two questions for you. First, it seems that after CinemaCon, there's a stronger alignment between studios and exhibitors than in the past. However, there still appears to be a shortage of supply and perhaps demand for smaller and midsize non-blockbuster films. Sean, do you have any expectations for normalization in that area, or is it likely that we are in a new reality post-COVID with a more concentrated blockbuster market? This was already a trend before. Second, Melissa, regarding marketing, I believe your marketing expenses are reflected in film rentals. Please correct me if I'm wrong. Should we consider the impact of rising marketing costs in that category as we look ahead for the rest of the year? Thank you.

Alright, thanks for the questions, Ben. Really appreciate it. I'll start with the first question on volume of content for the smaller films. My sense is over time we will see recovery in those categories of films. I mean we're already seeing how some of those films are doing well even in this environment now as a broader category of moviegoers come back. Some of the impact on those films that we've been experiencing this year and will experience throughout this year have obviously been COVID-related just in terms of the timing of dating of releases as well as films affected by production cycles that got delayed due to just COVID in terms of coming together. As well as what's been going on with the advent of these streaming platforms where, in certain circumstances, because of COVID there were gaps in content and studios looked to some of these smaller films to fill those gaps. As well as they were being used as marketing channels to help try to drive new subscription growth. As that dynamic normalizes, I believe and I think that some of that will shift back. As we've talked about, there clearly is an overall economic and promotional value in releasing these types of films theatrically because they provide a range of lift across those films in terms of how they're perceived, economically, the brand building, just the creative community, desire to have those films released. So I tend to think things will shift back. Another thing that I would just flag is with a more dynamic and flexible window, which isn't as rigid as it was at 72 days prior to the pandemic, these films have a better financial model. There's a better economic equation on these titles for the studios by being able to get into homes earlier. So just by virtue of having less risk and a better financial model, that too, I think, could lead to more of those movies being released theatrically and help to perhaps transition some of that behavior you mentioned where everything was moving more towards really big blockbusters and more micro-budget films, and we'll see some of that mid-category come back over time.

Regarding your question about marketing, you are correct that our film rental line includes our marketing expenses. Looking ahead, this involves two aspects. First, as we anticipate a stronger lineup of films for the rest of the year, we expect changes in film rental rates, especially with blockbuster content, which tends to impact rates more significantly. Therefore, we expect film rental to align more closely with pre-pandemic levels. On the marketing front, we plan to continue making substantial investments. Depending on your modeling approach—either quarter-over-quarter or compared to pre-pandemic periods—it is reasonable to expect our marketing expenditure to remain consistent with Q1 levels, if not a bit higher, as we move into a strong film release schedule.

That's great to hear. And it sounds like Avatar is really a movie, and it's really coming out?

We don't control that decision, but it seems like that is very, very much the case based on what was communicated to us, and it looks absolutely amazing.

That is great to hear. Thank you.

Thanks, Ben.

Your next question is from Mike Hickey with Benchmark Company. Your line is open.

Hey Sean, Melissa, Chanda. Good morning guys. Great results. Thanks for taking my questions. I've got two. The first one, Sean, on Latin America, just curious when you think through your time and capital spend in that region if you feel like the sort of historic strategic rationale for operating there still holds in the sort of new normal environment that we're entering here and if you sort of thought through strategic alternatives or reducing your footprint from that region, sort of reallocating your time and capital to U.S. network, your balance sheet and capital return to shareholders, is the first question? Thanks.

Thanks for the question, Mike. Obviously, yes, we're continuing to keep a look on the entirety of our company from our overall footprint and optimizing our footprint as we get a better handle on the new norm. I would say specific to Latin America, we do like the diversification it provides our company and the long-term growth prospects that still remain within that region. It also does provide us increased scale and strategic importance with our global partners. Latin America, in particular, has a very strong movie-going culture. It's a very social, family-oriented activity, and many markets throughout the region remain under-penetrated. So over time, there is growth potential. Clearly, there have been challenges with some of the recent economic, political, and foreign exchange dynamics that have been underway. But again, we think the long-term fundamentals are positive. And we've got a great team there, strong teams with tremendous domain expertise. We've got excellent market share, and all our operations there are fully self-sufficient. So we're not in a position of having to put new capital into the region. We're largely circulating and using capital for growth that already exists there. So obviously, we'll continue to monitor over the course of the next couple of years as things further evolve, but that's our general feeling on LatAm.

Alright, thanks Sean. Appreciate the color. Second question, on the product volume disconnect. I think it seems like it's primarily fewer wide releases. I mean, is this sort of an issue that we're going to be dealing with for multiple quarters, multiple years? I mean, is it sort of an impairment here or is it something that you think can sort of fix itself, obviously, a lot of film development got compromised, some of it got sent to streaming. But just curious if you think what the fix is? And then tying into that, you and your team have been very forward and sort of leaning into the opportunity to work with OTT providers and I think you've tested several films, Chanda, correct me if I'm wrong, but I think several films with Netflix. And so curious, I think there's sort of the idea that we can start to see some OTT films come in and fill the gap. And really, that would be extraordinary moving from day and date box office is dead; it's all now streaming, coming into the theatrical experience and using a theatrical window. So just is that something that can happen this year? Is it next year? Is it still a pipe dream or should we be encouraged? Thanks guys.

It's a great question, Mike. Thanks for bringing it up. I believe the potential is certainly there, and it’s not just a distant hope. These are real opportunities that we expect to see play out over time. Regarding the timing aspect of your question, you're correct. Our biggest challenge this year appears to be the volume of films, especially since several movies have shifted into 2023, particularly in the smaller categories we've discussed. We anticipate that this will be a challenge throughout the year. While there may be some adjustments, which is typical in our industry, we don't expect to fully fill those gaps this year. Timing makes it difficult to do so. Moving forward, I believe some of these issues will resolve in 2023, though I don’t foresee a significant gap in that year, and we are likely to return to more normal levels by 2024. This expectation is based on the hope that by then, the lasting effects of COVID will be minimized, and streaming platforms will have matured. As that occurs, I believe the value of theatrical releases as a promotional tool for streaming platforms, enhancing content perception, and being a complementary addition to streaming, will return to a vital role in studio decision-making. Regarding the OTT content, yes, we have indeed been experimenting and learning with films in collaboration with Netflix. We are in discussions with all providers, and we remain optimistic about securing additional films later this year. However, we shouldn't expect that this will completely fill any existing gaps in our 2022 slate. Over time, we believe this strategy could help cover gaps from traditional studios or even lead to an increase in volume as those studios revert to their historical production levels. Overall, we are very encouraged and optimistic about how this will all develop.

Nice, thank you, Sean.

Thanks, Mike.

Your next question is from Eric Wold with B. Riley Securities. Your line is open.

Thanks. Good morning. Two questions, hopefully one is relatively quick. I guess, how do you think about the price elasticity of your customer base kind of from what you've seen in the past, I guess, when there's been prior periods of recession or maybe just concerns on the economy? Do you tend to see consumers still come to the theater going spend less on the concession so that ratio kind of moves or that mix moves or do they just stay away kind of altogether? Is it one or the other, is it both?

Eric, I'll take that one. Thank you for the question. So historically, theatrical exhibition has proven to be a recession-resistant industry. So box office actually grew during many recessionary periods over the past 30 years. So consumers still want and need entertainment and movie-going remains one of the most affordable and convenient forms of out-of-home entertainment. And I think the other thing that I would call out too is despite the current inflationary environment, we are continuing to see consumers choose premium amenities like XD, coupled with outsized food and beverage purchases relative to the pandemic period. So we're certainly still seeing them trade up in this environment.

And I would just add, one of the things I found fascinating being around this business for a while now is the same dynamics play out in the U.S. and Latin America that Melissa was just describing. Even in moments where there's been more challenged economic situations in Latin America, what I've always found amazing is we've continued to see consumers basically upgrade to more premium options for food and 3D and XD and things of that sort. So that while they may tend to cut back on bigger types of expenses like vacations and sporting events, more costly things, going to the movies still remains relatively affordable, and they continue to choose the more premium options when they come to the movies.

Perfect. And then just thinking about the recovery of both the U.S. and Latin America, kind of assuming both get back to pre-pandemic levels over the near term, how do we think about the relative margins between the two versus where they were in pre-pandemic, is there more opportunity for Latin America, U.S. to expand versus pre-pandemic or does one face more risks on the other way?

Yes. So on adjusted EBITDA margin, so historically, our international adjusted EBITDA margins have been slightly below our domestic adjusted EBITDA margins. As you think about kind of the go forward, I think one thing to keep in mind is there's a lot of puts and takes right now across the business globally, box office and attendance certainly the biggest drivers, but also you've seen big outperformance from us from a market share perspective as well as elevated ATPs and per caps. And then the dynamic on the cost side that we have with inflation right now. So I think there's too many puts and takes right now to call where that's going to shake out. But certainly, we're going to be striving to continue to deliver on our historical track record of achieving industry-leading adjusted EBITDA margins. And that would be what we're shooting for.

Got it, thank you.

Thanks, Eric.

Your next question is from the line of Meghan Durkin with Credit Suisse. Your line is open.

Hi, thanks. I heard a lot of talk at CinemaCon about finding the right audience and cutting through the clutter, particularly around those mid-tier films. So I wondered if Melissa could expand a little bit on the marketing efforts and what exactly you're doing that's new and innovative on that front. And is the data that you have on your attendance and loyalty, is that helping in the negotiations with the studios?

Sure, I'll start with that, Meghan. From a marketing perspective, we benefit from having access to customer data through our loyalty programs, whether they are free or paid. This allows us to target our customers effectively, providing them with a personalized experience and presenting relevant content. As a team, we are certainly focusing on this strategy, and we've broadened our reach over time by growing the number of members in both our free and paid programs. Additionally, our marketing efforts span various paid channels as well as free avenues, particularly through direct email outreach. Overall, we employ broad tactics across multiple channels, utilizing significant first-party customer data to enhance our marketing process.

And I would just add, Meghan, like we're fortunate that we had been leaning into this over four years ago, building a very comprehensive omni-channel network that is now in place that we're fully taking advantage of. So we're in great shape with where we already are today and we're continuing to enhance it. And we're directly connected to over 20 million unique addressable guests that we can communicate to, and we're serving out billions of impressions every single month via social media engagement, personalized email, earned media stories just highlighting the benefits of the Cinemark movie-going experience and attracting people to buy a ticket with great conversion success. Your question specifically on the studios, too. I mean, I think the studios have recognized that. We have a lot of great partnerships and collaboration with the studios because it's a very efficient channel for marketing to consumers that has a high conversion rate. So, we've had great success in joint campaigns to drive more movie-going, create more awareness. We've done specialized trailers that celebrate the cinematic movie-going experience and XD experience specifically. So we're having really strong success in that. We think there's a lot more to benefit from over time.

And if I can just get one last one in. Can you remind us of your approach to acquisitions? AMC took on new theaters, including my local bow tie locations here in Connecticut. I assume you looked at those as well. So can you discuss your level of interest in taking on new theaters, what your ROI threshold would be and what areas would be most attractive?

Sure. We evaluate everything in the market, including potential opportunities long before they become available. As we focus on optimizing our operations, this includes expanding, adjusting, and reinforcing our presence where it makes sense. We are definitely open to mergers and acquisitions and are keen on high-quality assets that promise reliable returns over time. However, the current market environment remains somewhat complex, with uncertainties about settling into a new normal and varying expectations from sellers. Many of the opportunities we’ve explored in the past haven't aligned with the returns we seek. Also, we are not pursuing M&A solely for the sake of growth; we maintain a disciplined approach to our capital deployment and aim for financially beneficial investments. This strategy has proven effective for us, and we believe it will continue. We anticipate that more suitable opportunities that align with our model will emerge in the near future. While I'm not signaling anything specific, I do believe we will see more possibilities in the coming year or two, and this is how we are approaching M&A.

Thanks.

Thanks, Meghan, very much appreciate it.

There are no further questions at this time. I'd like to turn the call back to management for closing remarks.

Okay. I'd just like to thank you all again for joining us this morning, and we very much look forward to speaking again following our second quarter results. See you at the movies.

Thank you, speakers. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.