Greetings, and welcome to the Cinemark Holdings Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chanda Brashears, Senior Vice President, Investor Relations. Thank you. You may begin.

Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.'s third quarter 2023 earnings release conference call hosted by Sean Gamble, President and Chief Executive Officer; and Melissa Thomas, Chief Financial Officer. Before we begin, I'd like to remind everyone that statements or comments made by this conference call 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 and 10-Q. 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'd now like to turn the call over to Sean Gamble.

Thank you, Chanda, and good morning, everyone. We appreciate you joining us today for our third quarter 2023 earnings call. Consistent with our commentary over the past year, as we assess the fundamental drivers of our industry's and company's long-term health and prosperity, namely consumer behavior, new release volume and the impact of our strategic initiatives, key trends and indicators across all three categories continue to provide a positive outlook for the future. First and foremost, we have now witnessed a steady stream of record-setting results quarter after quarter across all genres of films for more than two years that demonstrate consumer enthusiasm for shared, larger-than-life cinematic experiences remains strong and vibrant. That trend has certainly been evident in 2023, as a diverse range of films delivered first half box office results that bested expectations, and those results have remained strong throughout the summer and fall. The third quarter epitomized the positive appeal and impact of a diverse slate of films. During the quarter, Barbie, an adventure comedy based on an iconic toy, and Oppenheimer, an R-rated adult drama about the invention of the atomic bomb, collectively generated nearly $2.5 billion of global box office, as Barbenheimer became a global cultural phenomenon. The faith-based sensation Sound of Freedom reached almost $185 million domestically, as positive word of mouth propelled the film to broad audiences. And new installments from action-adventure franchise favorites like Mission Impossible, Indiana Jones, Teenage Mutant Ninja Turtles and The Meg as well as suspense horror sequels, including Insidious: The Red Door and The Nun II all accumulated significant results. For Cinemark, sustained consumer enthusiasm to experience these varied and compelling films in an elevated theatrical setting yielded our biggest month of gross box office in our company's history in July, as well as domestic box office results in the third quarter that was in line with our biggest third quarter ever. And in the fourth quarter, we've already seen that trend continue, as Gen Z came together in droves this past weekend, in many cases, dressed up as their favorite characters to experience Five Nights at Freddy's on the big screen, a horror film based on an indie video game franchise which just delivered the fourth largest domestic October opening ever, with almost $80 million of box office. And that achievement happened only a few weeks after Taylor Swift produced the second largest October opening ever with her Eras Tour film, a record-breaking title in event cinema that has now eclipsed $150 million domestically and is by far the largest concert film of all time. And a steady stream of diverse films appealing to a wide range of audiences is slated to continue through year-end, including heroic blockbusters, The Marvels and Aquaman The Lost Kingdom; epic sagas, Napoleon and Hunger Games: The Ballad of Songbirds & Snakes; animated family features, Trolls Band Together, Wish and Migration; and musical productions, Wonka and The Color Purple, just to name a few. People continue to seek out theatrical experiences because the shared communal environment coupled with premium sight and sound technologies delivers heightened levels of fun, impact and engagement that just can't be replicated at home. Consider the difference in excitement and energy of watching Taylor Swift's extraordinary Eras Tour at home on the couch versus viewing it on a 50 to 80-foot screen with crystal clear ultra-premium sound, together with fellow fans singing and dancing as everybody felt like they had a front row seat at the concert. There is simply no comparison. So as we examine box office results and consumer movie-going trends over the past two plus years, we remain highly encouraged about what they suggest for the future of theatrical exhibition. Likewise, we also remain encouraged about prospects for the recovery of new film release volume based on progress made to date, and input we continue to receive from our studio partners. Last year, new releases recovered to approximately 65% of pre-pandemic levels, and this year they are tracking to approximately 80%. Growing film production momentum at the start of the year also had 2024 volume on pace to recover even further. However, the writers and actors strikes in Hollywood over the past six months have caused a temporary disruption to that recovery trajectory, and updated expectations for 2024 are still evolving. That said, the writers concluded negotiations with the studios and have been back at work for the past month, and we're hopeful the actors and studios will follow suit soon. Furthermore, it's important not to lose sight of longer-term indicators and what they imply with regard to a positive rebound of volume over time. First, our traditional studio partners continue to reinforce their intentions of rebuilding annual theatrical film output to pre-pandemic levels over the next two to three years and we've received no indication that those plans have been altered by the strikes. Movies are a core component of content mix, distribution strategies and financial results for these entertainment companies, and the material benefits that a theatrical release provides a film's promotional impact and overall asset value have been clearly validated over the past few years. Next, Amazon and Apple are also stepping up their theatrical ambitions and have expressed plans to develop theatrical slates that would approach levels comparable to our traditional studio partners by 2025. Doing so would effectively add two new major studios into the mix. Amazon has continued to maintain MGM's traditional level of theatrical output since acquiring the company in 2022, and also enjoyed the successful release of Air in April. In the fourth quarter, they're releasing the psychological thriller Saltburn, the smart satirical comedy American Fiction, and an uplifting true underdog story about the 1936 U.S. Olympic rowing team called The Boys in the Boat. Apple is in the midst of a meaningful increase in their theatrical scale as well with the launch of Martin Scorsese's critically acclaimed Killers of the Flower Moon a couple of weeks ago, and upcoming releases of Ridley Scott's epic spectacle Napoleon in November, and Matthew Vaughn's star-studded spy thriller Argylle in February. Finally, non-traditional content in events cinema continues to grow in popularity, and has been performing remarkably well at the box office. A wide range of multicultural titles, anime, faith-based films, and concerts have delivered impressive results this year, which is a trend we expect to continue. In the third quarter, non-traditional content accounted for almost 14% of our domestic box office results at Cinemark, driven by the breakout hit Sound of Freedom and a sustained series of multicultural titles. And the fourth quarter is already benefiting from Taylor Swift's highly successful Eras Tour, as well as After Death, which just delivered the second best opening ever for a documentary. And still to come this year is Renaissance, a film by Beyoncé, faith-based title The Shift, and an array of additional alternative programming. Altogether, these collected data points regarding new release volume and consumer movie-going behavior provide highly encouraging signs that bode well for the future prosperity of our industry and company, even if product flow faces some near-term headwinds as a result of the Hollywood strikes. Moreover, specific to Cinemark, we remain well situated to capitalize on our industry's ongoing recovery and deliver long-term shareholder value on account of our solid financial position, outstanding team, industry-leading operating capabilities, and the significant benefits we are deriving from our strategic initiatives. Our team's skilled operating discipline and the meaningful advancements our initiatives are having in shaping Cinemark for the future were evident in our second quarter results and further exemplified in 3Q. Following last quarter's delivery of our company's second highest quarterly adjusted EBITDA of all time, this quarter, we achieved a third quarter record high adjusted EBITDA of $197 million on third quarter record high revenue of $875 million. Furthermore, on worldwide attendance that was 16% lower than the third quarter of 2019, we generated 6% more revenue and 16% higher adjusted EBITDA than our 3Q '19 results. And beyond that, this quarter's adjusted EBITDA margin of 22.5% exceeded 3Q '19 by 180 basis points, and was our highest third quarter margin rate since 2016. As we've highlighted on previous calls, our top priorities this year remain focused on effectively navigating the dynamic ups and downs of our industry's extended recovery, while driving actions to set ourselves up for future growth and efficiency. As such, we continue to emphasize near-term revenue and margin generation, staying diligent on expense and cash management and nimbly flexing based on fluctuating demand forecasts, while at the same time actively working to refortify our balance sheet and investing in opportunities to grow, drive incremental productivity, and further strengthen our circuit. While we are realizing material upside from the many actions we've already executed, as demonstrated by our results year-to-date, what really excites me is the wide array of additional opportunities that remain before us and that are fully within our control to further enhance the experience we provide our guests, build audiences, generate new and diversified revenue streams, streamline processes, and opportunistically optimize our footprint. Some examples include continuing to expand premium offerings through new enhanced food, beverage and merchandise options, as well as proven amenities like recliners, D-BOX motion seats, and Cinionic laser projectors; leveraging our sophisticated Showtime planning strategies, marketing capabilities, loyalty programs, and global reach to over 30 million addressable consumers to stimulate incremental movie-going frequency; further enhancing our concessions distribution practices to expedite in-theater purchases; growing e-commerce transactions and extending availability across varied third party sales channels; and driving additional workforce management refinements, forecasting improvements, operating optimization, and process automation to strengthen efficiencies. So as we look ahead, and as we consider pertinent developments in the fundamental drivers that impact our industry and company, we remain highly optimistic about our future health, growth, and prosperity. Throughout unprecedented disruption in our industry, consumer enthusiasm for movie-going and theatrical experiences has held strong. The financial and promotional value that a theatrical release provides content remains significant. A growing number of film studios and new content providers are leaning more actively into theatrical exhibition, and the range of opportunities to further grow and strengthen Cinemark are plentiful. With that, I'll turn the call over to Melissa who will provide additional information on our third quarter results.

Thank you, Sean. Good morning, everyone, and thank you for joining the call today. We were exceptionally pleased with the third quarter's box office performance as well as our team's ability to deliver another quarter of strong results by further advancing our strategic growth initiatives, while maintaining discipline around cost management and driving productivity. Across our global circuit, we served nearly 62 million patrons during the third quarter, an increase of 28% year-over-year, and we grew revenues 35% to 874.8 million. With heightened attendance and revenue, we realized meaningful operating leverage over our fixed costs in the quarter growing our worldwide adjusted EBITDA 98% year-over-year to 196.8 million and delivering a healthy third quarter adjusted EBITDA margin of 22.5% with margins expanding 720 basis points year-over-year. Turning to our domestic segment. We entertained 37.5 million moviegoers during the third quarter, an increase of 27% year-over-year, and we grew our admissions revenue 36% to 350.4 million. Our average ticket price grew 7% year-over-year to $9.34 driven primarily by inflationary and strategic pricing initiatives and favorable ticket type mix as the third quarter film slate skewed more adult. As anticipated and as discussed on our last earnings call, the third quarter film mix wasn't as strong for our circuit as the content in the first half of the year. As a byproduct of the film mix, our market share declined slightly year-over-year, although it remained well above pre-pandemic levels. While our market share will fluctuate quarter-to-quarter based on the film mix, we continue to focus on driving initiatives to sustain, if not grow, our share. U.S. concession revenue increased 34% year-over-year to $268 million and concession per cap grew 5% to $7.15 for the quarter, driven by inflationary and strategic pricing initiatives. As expected, our per cap growth rate moderated during the third quarter, given the more adult skewing film slate. That said, our third quarter 2023 domestic per cap was up nearly 40% versus the third quarter of 2019 and concession revenue surpassed that of Q3 2019 by 16%. Our ability to continue to improve the monetization of the attendance we drive to our theaters has been a key driver of our results. Other revenue was 64.1 million, an increase of 20% year-over-year, primarily due to our attendance growth in the quarter. In total, our domestic operations generated 682.5 million of revenue, up 33% year-over-year and delivered 151.2 million of adjusted EBITDA, a sizable 114% increase over the third quarter of last year. Our domestic adjusted EBITDA margin of 22.2% expanded 840 basis points year-over-year and 130 basis points relative to the third quarter of 2019. Shifting to our international operations. We welcomed 24.4 million guests during the third quarter, an increase of 29% year-over-year. We delivered 93.4 million of admissions revenue, 71.8 million of concession revenue, and 27.1 million of other revenue. Altogether, our international revenue increased 39% to 192.3 million. Through disciplined operational execution, our team grew adjusted EBITDA 58% year-over-year to 45.6 million. And we delivered a 23.7% adjusted EBITDA margin, which represents 290 basis points of margin expansion versus the third quarter 2022 and 390 basis points compared with the third quarter of 2019. Turning to global expenses. Film rental and advertising expense was 55.9% of admissions revenue, 20 basis points higher than the third quarter of 2022 as we stepped up our marketing spend to capitalize on the box office strength in the quarter and the outsized returns we've been seeing on our investments. Lower film rental rates were driven by the content mix in the third quarter, and partially offset the heightened level of marketing spend. Concession costs as a percent of concession revenue were 18.5% in the third quarter, up 20 basis points year-over-year, driven by ongoing inflationary pressures and an uptick in strength, partially offset by inflationary and strategic pricing initiatives. Global salaries and wages were 107.9 million, an increase of 11% year-over-year. As a percent of revenue, salaries and wages declined 260 basis points driven by operating leverage due to the higher attendance levels and the benefits realized from our consistent focus on labor productivity, which was partially offset by wage rate pressure and expanded operating hours. Facility lease expense was 84.4 million, an increase of 9% year-over-year. As a percent of total revenue, facility lease expense decreased 230 basis points compared with the third quarter of 2022, as we gained leverage over our lease costs, namely in our domestic segment, where lease costs are largely fixed in nature. Utilities and other expenses were 129.5 million, up 17% compared with the third quarter last year, primarily due to the growth in attendance, which increased our variable costs such as credit card fees, janitorial costs, and repairs and maintenance. Higher property and liability insurance costs also contributed to the increase year-over-year. G&A was 48.2 million in the third quarter, an increase of 7% year-over-year. Excluding stock-based compensation, G&A was up 5% in the quarter driven by incremental headcount to support business recovery in our strategic initiatives, wage and benefit inflation, and our ongoing shift to cloud-based software, which was partially offset by lower professional fees. As a percentage of revenue, G&A declined 140 basis points to 5.5%. Globally, we generated net income attributable to Cinemark Holdings, Inc. of 90.2 million in the third quarter, resulting in diluted earnings per share of $0.61. Moving to the balance sheet, we continue to strengthen our financial position, generating 50 million of free cash flow in the third quarter and 246 million of free cash flow in the first nine months of the year to end the quarter with 806 million of cash. We achieved a meaningful milestone in the third quarter, with our net leverage ratio reaching our target range of 2x to 3x for the first time since the pre-pandemic period. Our capital allocation priorities remain focused on strengthening our balance sheet, including delevering, and investing in the long-term success of our company. We consistently invest in our global circuit to maintain and enhance the theatrical movie-going experience, with 35 million in capital expenditures in the third quarter and a full year 2023 target of 150 million. We continue to expect roughly half of our capital investment this year will be allocated towards sustaining a high-quality circuit and the remainder to laser projector installations, ROI generating opportunities, mainly premium amenities, and new build theaters. As we look forward, we will remain flexible regarding our capital expenditures, targeting investment opportunities that meet our disciplined return thresholds while factoring in our box office recovery and free cash flow expectations. As a result of the strength of our balance sheet, coupled with our strong execution capabilities, we are well poised to withstand potential near-term impacts due to the Hollywood strikes. We expect to remain appropriately conservative with our cash and capital allocation in the interim, as we await a better understanding of the strike implications on the box office, while at the same time making prudent investments to ensure we continue to position the company for ongoing success. While our post-pandemic recovery may be a bit more prolonged than we had hoped, we remain encouraged that the long-term fundamentals of the industry remain intact. In closing, I'm incredibly proud of the entire Cinemark team for the strong results they continue to deliver. Given our performance over the last few quarters and the ongoing execution of our strategic initiatives, we are optimistic about the future potential of our business once industry recovery stabilizes. Operator, that concludes our prepared remarks. And we would now like to open up the line for questions.

Thank you. The floor is now open for questions. Today's first question is from David Karnovsky of JPMorgan. Please go ahead.

Thank you. Sean, I know the actor strike is still ongoing, but assuming production didn't start until early next year, how do you gauge at this point the impact to '24 or even '25 supply? And what kind of strategies do you think the industry has to deal with shortfalls of supply?

Sure. Thanks for the question, David. Clearly, it's a big topic on everybody's mind. I think, unfortunately, at this point, there's still a lot to be clarified in terms of what '24 looks like, to a certain degree '25, but I think more the focus right now is on 2024. Assuming we get some near-term closure with the strikes, which hopefully some of the news over this past week has been optimistic, cautiously optimistic in terms of where things may be headed, we'll see. I would say in general, it's always a little bit challenging even this close to 2024 to fully gauge the slate because a lot of the dating is still taking place. So our line of sight in just a normal year is limited. We're usually basing it on estimates and how much we think things are going to further fill in. So that's the norm. And with the strikes, obviously, that's created a little bit of a further challenge as we try to predict what's going on. We do know, in our conversations with the studios, they're clearly focused on trying to minimize the disruption as much as they possibly can. I think for everybody's benefit, they're trying to do whatever they can to do that. And that's clearly going to be a big focal point as all the production schedules get sorted out once the strike is resolved. But at this point, I'll say we're still a bit in a waiting game here just to see when things ultimately conclude and then how those schedules play out and what it ultimately means for next year.

And maybe just one more. With your net leverage now in the target range, wanted to see if you could update on capital allocation, thoughts on the dividend, and I guess how the strikes maybe complicate that?

Sure. Thanks for the question, David. So in terms of capital allocation, so we did achieve, as you mentioned, our net target leverage ratio 2x to 3x for the trailing 12 months ended 9/30. But I would expect for us to continue to be conservative regarding capital allocation in the near term while we await better insight into the implications of the Hollywood strikes on the 2024 box office. Near term, our priorities will continue to remain centered around strengthening our balance sheet which includes delevering and then making the right investments to position the company well for the long term. Now, that said, with respect to your question on the dividend, we do expect to remain conservative at this stage. But it is worth pointing out that those are active conversations that we have around capital allocation, around our balance sheet with our Board. Those are ongoing conversations, including potential timing of reinstating the dividend. But ultimately, the dividend was a significant aspect of our capital allocation priorities prior to the pandemic and will remain a key consideration as our box office and cash flows continue to recover.

Great. Thank you.

Thanks, David.

Thank you. The next question is coming from Eric Handler of ROTH MKM. Please go ahead.

Good morning, and thanks for the question. You talked about your revenue-generating CapEx, premium amenities remains at the forefront. Where do you still have opportunities with premium amenities? Are there new initiatives? Are there still a lot of backfilling going on with theaters? Where are you there?

Sure. Thanks for the question, Eric. We still see a range of opportunities. Improvement involves continuing to pursue initiatives we've been working on for some time. This includes further installation of D-Box motion seats, different screen formats, laser projectors, and to a degree, recliner seats, although we are not close to the levels we had before since almost 70% of our circuit currently has reclined seating. There are also opportunities in enhancing our food offerings. We are testing and finding success with new options in our theaters, including technologies that simplify food purchases. Additionally, we are looking at other opportunities for expansion related to broader capital expenditures. This is a balancing act as we work on recovering our cash flow levels and other objectives while reinforcing our balance sheet. However, it's definitely a focus for us as we aim to strengthen our circuit going forward.

Great. And just as a follow-up, when I look at your international recovery, particularly Brazil, it seems like it's been a while since we've seen a resilient local language movie actually break out and do well. And we've seen that a number of times in the past. I'm curious, sort of what's the state of the movie industry in Latin America right now?

It's a great question. Overall, the state of the movie industry has been positive, particularly in the theatrical space. Exhibition has recovered to levels comparable to the rest of the U.S. and the world. In Latin America, there are places like Argentina where movie-going has returned to pre-pandemic levels and even exceeded them in some cases. Although the region lagged behind during the pandemic, it has caught up. However, local production is still lagging. Regarding content in Brazil, we've noticed a slower return in some other countries as well. While Hollywood studios in the U.S. are working to replenish their film backlogs and restore overall volume to pre-pandemic levels, the recovery internationally across Latin America has been slower. We're beginning to see signs of improvement, especially in Brazil, where there's a focus on revitalizing local production. This has drawn the attention of the government as well. This could potentially lead to a resurgence of local films in the near future, but local content in Latin America remains an area that is still lagging in its recovery from the pandemic.

Great. Thanks, Sean.

Thanks. I appreciate the questions, Eric.

Thank you. The next question is coming from Eric Wold of B. Riley Securities. Please go ahead.

Thank you. Good morning. So a quick numbers question. What was the impact in the quarter on ticket price per cap and maybe just per cap from National Cinema Day?

From a year-over-year standpoint on both per cap and average ticket prices, National Cinema Day was actually a bit of an uptick because the offerings changed a bit. So on the average ticket price last year, National Cinema Day ticket price was $3. This year, it was $4. So we had about a $0.04 benefit year-over-year related to that on the average ticket price side. Excluding National Cinema Day, our average ticket prices would have been $9.50 in the U.S. As you look at per cap, again slight benefit, about one point benefit year-over-year attributed to National Cinema Day. And then excluding National Cinema Day, our per cap would have been $7.19.

Thank you. And then just to follow up on concessions. If you drill down into concessions a bit during the quarter maybe even so far into Q4, maybe excluding National Cinema Day, just kind of normal times, I guess are you seeing any indications at all that would give you an indication that the consumers are pulling back either during normal show times or during kind of discount show times to give you some impact there or you're just not seeing that at all?

As you look more broadly, despite the current economic environment, we continue to see consumers trade up to premium amenities. We also see them spend more on food and beverage, so they are electing into that full theatrical experience when they are coming to the theaters. Now something we're certainly monitoring closely, but we have many initiatives in place to drive premium amenities, drive our F&B incidents forward. The dynamic that you saw play out in the third quarter was really a function of the mix of films that resulted in a sequential dip in our per caps, particularly that July, August kind of slates. But then as you've seen more recently, September, October, we've seen that kick up again. And we do believe despite having a tough comparison in Q4 of last year in our per caps, that we have the opportunity to continue to grow per caps in the fourth quarter, particularly as we lean into our proactive category management initiatives, as well as merchandise opportunities associated with the slate, namely on the Taylor Swift side of things.

Yes. I would just add that this is a dynamic we have observed across our global company for years. Even in Latin America, which experiences more fluctuations in economic cycles, we find that during tough times, consumers may reduce spending on other activities. However, when they visit our theaters, it's fascinating that we generally do not see a decline in the consumption of premium amenities. They continue to upgrade to premium formats and purchase food and beverages at higher levels. We continue to observe this today, both in Latin America and the U.S., in terms of merchandise purchases, food purchases, and upgrades. It reflects a trend in our industry where people cut back on other things, but view their cinema visits as moments to treat themselves.

Got it. If I can ask a broader question, how do you assess the health of the circuit domestically compared to the period before the pandemic? I don't want to make too much of one quarter, but this is the first quarter in two years without any closure impacts. Have we moved past most of the rebalancing of the circuit after the pandemic? How do you view the current health of the circuit compared to 2019? Should we expect to continue seeing an increase in box office performance and attendance? How are you positioned to potentially outperform and exceed industry trends compared to a few years ago?

We feel very positive about the health and strength of the business. To break that down, we are actively working on strengthening our balance sheet and reducing the COVID-related debt we've accumulated. Operationally, we've made significant progress in improving efficiencies and achieving incremental revenue growth, thereby capturing more value from our current attendance levels. As we noted in our prepared remarks, despite having 16% less attendance compared to the third quarter of 2019, we generated 6% more revenue and a 16% increase in adjusted EBITDA, which reflects the excellent work our team has done to fortify the business. Looking ahead, we see numerous opportunities for future growth and efficiency to further enhance our operations. Regarding our theater footprint, we anticipate some ongoing adjustments, which are a normal part of our process. We experienced some additional closures coming out of the pandemic, particularly with older theaters that were struggling. However, we have opened 16 new theaters since 2020, and those have been performing exceptionally well overall. While there may be more calibration in the future, I am confident about our current position as we navigate the near-term recovery and look ahead to what lies beyond.

Perfect. Thank you, both.

Thanks.

Thank you. The next question is coming from Robert Fishman of MoffettNathanson. Please go ahead.

Thanks. Hi, Sean. This is Michael for Robert. Thanks for taking the question. I have a couple for you. One is you mentioned the word diverse a few times in describing the box office success. I wonder, do you think your biggest studio partners understand this and maybe will pivot away from their playbook of franchises? And then with that said, do you see any genres that have not returned post-pandemic and maybe more structurally challenged and how people are dealing with that? And then another one is just quickly on day and date. You mentioned Five Nights at Freddy's. You did very, very well for you and for Peacock. Is this the beginning of maybe a change in your rethinking perhaps can we coexist with day-and-date releases in certain genres? Thanks.

Thank you for the questions, Michael, and it's great to have you on the call. Regarding content diversity, our studio partners definitely acknowledge it. There is clearly a focus on major tent-pole films and franchises due to their substantial financial benefits and the reduced risk they offer. Once a film becomes a hit, it tends to have prolonged success, serving as a strong brand driver for many studios, which can leverage these successes across their business. However, studios also continue to maintain diverse offerings. As we witness more of these films succeed, we expect studios to be encouraged to produce more. Additionally, the development of more flexible release windows has improved risk management for these titles. Studios now understand that successful films can maintain longevity, while those that do not connect with audiences can reach home viewers more quickly, allowing them to mitigate some risks. This flexibility may even encourage studios to take more creative risks than they did pre-pandemic. In terms of genres that may be struggling, it's difficult to pinpoint a specific one. We've noticed that films resonating with audiences tend to have a longer lifespan post-pandemic, while those that don't connect lose traction more quickly. This trend appears across all types of films, making it challenging to categorize one area in particular. There seem to be fewer specialty films released since the pandemic, and as we see more content on a consistent basis, consumer interest tends to increase, fostering excitement. The lack of content can make it harder to reignite that enthusiasm, so we hope to see a greater volume of films moving forward, as that segment has lagged somewhat. Regarding day-and-date releases, our stance hasn't changed. We do not support it, and the industry seems to reflect this view. While it has been tested, it hasn't proven successful. Our studio partners understand that the best way to maximize value and marketing impact is through a traditional theatrical window. So far this year, there have been 89 wide releases, with Five Nights at Freddy's being the only day-and-date release, which indicates a lack of movement towards that model. This situation was unique, as no one anticipated it to become such a significant phenomenon among Gen Z. While there might be occasional day-and-date releases for smaller niche films or content designed for streaming that show potential, we do not foresee a shift back to that model. All evidence indicates that the most effective way to maximize the value of these assets is through exclusive theatrical releases.

Thanks, Sean. I appreciate it.

Thanks, Michael.

Thank you. The next question is coming from Ben Swinburne of Morgan Stanley. Please go ahead.

Thank you. Good morning, guys. Hope everyone's well. A couple of questions. Sean, normally there's sort of a calendar and timing thing with the slate. As we get closer to the next year, the dates sort of fill in. And this is sort of a prediction within a prediction. But what do you think happens once the strikes are over and production resumes? Like do you think we see a slower cadence of the calendar being popular, maybe a faster cadence because there's movies that are like 90% finished but haven't been dated yet? Just wondering since you have probably more conversations with all the studios than we do if you had a view on that? And then I had a couple of follow-ups?

I'm just thinking about that question. I'm not sure it will necessarily be slower or faster. I do know just based on conversations, there's going to be a period, perhaps a month or so once things are resolved where all the shuffling is going to take place of sorting out the production schedule. So everything needs to be refigured out, how they're going to kind of put all those pieces together? I think once they get a better line of sight through that as to when things will get completed, then things will start getting dated. There's generally a desire by the studios to plant their stakes in the ground on dates sooner versus later to kind of claim that spot. So there's clearly motivation to get that information out there. But they'll be in some regards hesitant to do that until they have a clear sense for where that's going to be. So I'm not sure it will be accelerated or slower than normal. It will just be a matter of having line of sight to how everything's shaking out once things get a little bit further along.

Got it, okay. Yes, fair enough. And then alternative content is something that you guys have talked about. I don't think investors focus that much on it, but it does seem just to keep the Taylor Swift momentum going that that is becoming a real part of your business. Do you think that grows in total dollars for you, either next year or just generally over the next couple of years because it's becoming a not insignificant part of the business? And then I'll just finish up moving back to capital allocation to push you guys a little bit. Understand the strikes create uncertainty, but you guys have done over $2 a share of free cash flow year-to-date, you'll generate free cash flow in the fourth quarter. The conservatism around capital allocation, does that apply to everything? So will you be thinking about CapEx next year more conservatively? Is that specific to the dividend? And would you be willing to help us figure out when the dividend decision might get revisited if we assume these labor strikes are done here in the next couple of weeks? Thanks.

Sure. I'll start with the question about alternative content. It's interesting that alternative and non-traditional content has always shown great potential, but it has been frustrating that it never really took off. Typically, it accounts for about 1% to 2% of the overall box office. Fortunately, we're beginning to see some real momentum building now. We've noticed significant growth in multicultural titles and anime films. Certainly, with the recent success of Taylor Swift's concert film, we can see that change. Until now, we had seen some promising hints with concert films featuring artists like BTS, Coldplay, Billie Eilish, and Metallica, but those releases were quite limited. Taylor Swift really broke through with the tremendous success of her Eras Tour film, providing fans with a unique opportunity to relive the experience in theaters, almost like having a front-row seat at the concert. If I were a music artist, I would definitely want to pursue something similar in the future to provide fans with that experience and to maximize the value of the tours they’ve worked so hard on. We are optimistic about this trend continuing, as we have seen its potential, and others are recognizing it as well. Additionally, faith-based films have seen significant success with titles like Jesus Revolution, Sound of Freedom, and The Chosen. We're consistently seeing strong results in that segment as well. I also mentioned the growth in multicultural content, particularly with Indian and South Asian films. Overall, we are witnessing an increase in this area, with year-to-date tracking around 10% of our box office. This increase is partly due to the overall recovery in volume. As traditional films continue to recover, we expect that percentage may decrease, but we could see it rise to 5% or slightly more over the coming years with ongoing growth.

And then I'll take your question, Ben, around the conservatism on cash and kind of how we're thinking about capital allocation. So I'll start with the CapEx side. So as we look forward, this is an area where we will continue to be flexible with our capital expenditures. We're certainly going to factor in our expectations around box office recovery and cash flow generation. But at the same time, we're going to be targeting ROI generating opportunities to make sure we're positioning the company well for the long term. So it's really a balance that we're trying to strike there. And even as you think about both CapEx as well as dividends, we also need to keep in mind that we do have 2025 maturities that we also are looking to proactively address, so really looking to balance those dynamics but we feel really good about the cash we have on hand. We do want to see the implications on the box office, as we mentioned, and we will be flexible from a capital expenditure standpoint and from a dividend standpoint. It's just too early really to say at what point that would be reinstated, but I think it's fair to say that need to see more sustained achievement of that target leverage ratio before we will look to do so.

Okay, fair enough. Thank you.

Thanks. I appreciate the questions.

Thank you. The next question is coming from Mike Hickey of Benchmark. Please go ahead.

Hi, Sean, Melissa, Chanda. Good morning, everyone. Congratulations on another successful quarter. I have two straightforward questions. It’s great to see not just your success, Sean, but the entire industry bouncing back, and I’m eager to see how the fourth quarter unfolds. I’m interested in your thoughts on reaching approximately 2.6 billion for the year in the domestic box office, which still leaves a significant recovery gap of about 3 billion compared to pre-pandemic levels. This represents a substantial growth opportunity for both you and the industry. How confident are you, Sean, about crossing that recovery threshold and optimizing the model, especially considering film product is crucial? I’m also curious about your margin opportunities once you reach pre-pandemic levels, as it appears your margin profile could potentially improve. My second question is about the streamers entering the market with new content, which seems to be on the rise. I’d like to know what kind of feedback you’re receiving from Apple, Amazon, and Netflix regarding your collaborations. They seem somewhat cautious at this point, although they have put out a lot of content, so maybe that will shift in the future. What are Apple and your other streaming partners saying about their box office success? Some films aren't generating huge numbers, but I'm interested in how they view the theater's role within their overall ecosystem. Furthermore, over time, Sean, do you think that as streamers ramp up their content offerings and we begin to see alternatives like concert films coming into play, you'll be in a position to have more wide releases compared to pre-pandemic? Thank you.

Sure, thanks, Mike. I appreciate the questions. To start with confidence in recovery, two major factors are consumer behavior and the overall volume of content. The focus is likely more on consumer behavior, and what has been incredibly encouraging for us is the strong performance of many films over the past two years across various genres. We've observed both large and small films breaking records consistently. This indicates that consumers from all demographics return when compelling content is available. We haven't experienced any disruptions in this regard, which is crucial for our business; consumer interest is fundamental. I believe we've moved past the initial challenges. There was a hold-up for a while due to health concerns related to COVID, but we're now well beyond that. It’s just a matter of content fully recovering, and all signs suggest this is on the horizon, although it’s taking some time. The entire production process was initially disrupted by the pandemic, and studios are still navigating through those challenges, compounded by recent strikes creating additional issues. However, all indicators and plans point towards getting content back to previous levels. Looking ahead to Apple and Amazon joining the market and the rise of other non-traditional films, we foresee a scenario in two to three years where there will be more content and releases than ever before due to these factors. Regarding Apple and Amazon specifically, our discussions with them have indicated they are pleased with their results so far. Amazon, for instance, with MGM earlier this year had notable successes like Creed III, which has been the highest grossing in the Rocky franchise. They were also satisfied with Air and are gradually working to build their slate. They’ve expressed intentions to produce 8 to 12 films annually. Apple is just starting to ramp up; they had been at a smaller scale and are now engaging with major filmmakers. They have three significant releases coming up in the next five months, including Killers of the Flower Moon, which has already launched. They recognize the value in this market.

Yes. Mike, I'll hit the margin point. So our performance over the last couple of quarters combined with the potential benefits we see of the strategic initiatives that we're pursuing. With that, we certainly have optimism about the potential of our business over the long term once the industry recovery stabilizes. We do have many revenue-generating as well as cost-mitigating initiatives that we are pursuing to try to return to pre-pandemic margin levels on a full year basis and we're certainly working diligently to try to do so. As you know, the primary drivers of go-forward margins are going to be attendance in box office. But there are other factors beyond that, like market share per caps and average ticket prices that we'll need to see, whether those remain at elevated levels as well as our ability to offset further inflationary headwinds that we may see and the overall value that we're able to deliver from our strategic initiatives. But certainly optimistic based on what we've been able to deliver over the past few quarters.

Thank you.

Thanks, Mike.

Thank you. The next question is coming from Jim Goss of Barrington Research. Please go ahead.

Thank you. Sean, you mentioned earlier Showtime planning capabilities among some of the other operating efficiency efforts you might make. And I was wondering, are you looking at, say, fewer screenings per day when attendance is light, or more screen allocation when movies are hot? I know, traditionally, you've done that quite a lot. But I wonder if you've been able to sort of condense the time the platform is in use if that's necessary? And how are those decisions influenced by studio agreements and mandates? And what is the perceived value creation on either revenue or cost side from such efforts?

Great question, Jim. The short answer is yes, we are doing all of those things. We continue to enhance our capabilities in this area. We are analyzing a substantial amount of data at a detailed level, by theater and by time of day, to determine the optimal showtime window and how to fit more overall showtimes into that period. In discussions with studios, even if we have shorter windows based on demand during certain weekdays, we are able to schedule more shows within that timeframe, which can still lead to success. This is one of several strategies we are implementing to improve efficiency and margins while targeting profitability by the hour and by day part. This allows us to better forecast demand and attendance, helping us decide whether to stay open or adjust the schedule for a given day. We are continually working on improvements in this area, having made significant advancements over the last few years. This initiative contributes to our overall operational efficiency. The discussions with studios have been very positive, and they recognize the benefits. Additionally, our market share growth over the last three years demonstrates our ability to outperform the industry and provide greater value to studios through not only Showtime optimization but also various other initiatives, including our marketing strategies aimed at increasing attendance and frequency.

Thank you. I have another question. It seems that you might have less carryover opportunity coming into January and February compared to last year with Avatar. Do you have any specific plans to address this? Additionally, is there streaming content that didn't have theatrical releases that could fill the gap created by the strikes?

I think we'll have to wait and see. January received a significant boost this year from Avatar and Puss in Boots. Initially, we had high hopes that Avatar would have a strong carryover, but we weren't certain, and Puss in Boots turned out to be an unexpected success in terms of its continued performance. Therefore, I wouldn't overlook the potential of the films set to release at the end of this year and their impact. The outcome really hinges on the quality of those films and their appeal to audiences. We may witness some of that reflected in our results. Our usual approach when evaluating the total number of releases in the market is to consider if there are alternative campaigns or opportunities to fill gaps if we anticipate a slower period. We have several such strategies in place for the entire year, and we plan to utilize them depending on the situation. Additionally, there's a possibility for schedule adjustments. We've already seen a lot of that in the fourth quarter, where certain faith-based films and smaller titles moved into slots that opened up when some of the larger films shifted to the next year due to the strike. We could expect similar rearrangements in the schedule for other films based on overall performance trends.

All right. Thanks.

Thanks, Jim.

Thank you. The next question is coming from Steve Cahall of Wells Fargo. Please go ahead.

Hi. Good morning, guys. This is Omar. Just a quick one. Maybe, Sean, first, in the event that several films move out of 2024, and this is a hypothetical scenario, and box office is down year-on-year, what levers can you pull to lower your fixed cost structure? And how are you better positioned now to deal with production disruptions versus pre-pandemic? And Melissa, you alluded to market share in the U.S. being down sequentially. I know you talked about just the film slate didn't resonate with your audiences? How should we think about this slate in 4Q? And how does that sort of align with your demographics and your footprint? Any color there would be helpful? Thank you.

Thanks for the questions, Omar. As far as next year goes, I guess you're kind of talking about a scenario where in the event box office is down, how would we react to that from a fixed structure in general? I would say, we've certainly developed and enhanced our ability to flex and adapt to a more dynamic environment over the course of the pandemic. We've just seen a lot of the ups and downs month-to-month, quarter-to-quarter, and that's necessitated a lot of flexing in order to maintain operating efficiencies and maximize cash flows and margins. So I think we've definitely strengthened and honed our muscles in that regard. And we've continued to operate that way. It's another reason I'd say for the types of results that we've been able to deliver this year in terms of our financial performance. So I feel pretty confident in our ability to navigate through a scenario like that, if it should play forward. To be candid, for our own internal planning purposes, like we always do, we're running a range of scenarios of how things could play out so that we're well ahead of that and ready to respond to next year. So in terms of varying degrees of volume, and then we'll hone those in as we have more definitive information on how that plays out. So I feel really good about our capability to navigate through, deal with those headwinds and prosper long term. Clearly, part of the effort in that also goes. We want to make sure that we're not just cutting way back only to add right back again, as things ramp up. So another element to that is what are we looking at over the horizon? Is this just really a short-term blip or do we think it could be a little bit more extended? So that also will come into play in terms of some of the decision making we go through in that process.

And then in terms of market share, Omar, we feel really good about the share we were able to deliver in the quarter. And as you know, our market share will fluctuate quarter-to-quarter based on film mix. And if you look on trailing 12-month basis, as we said previously that we're looking to maintain 100 basis points of share gains relative to pre-pandemic and we're still on track in that regard. So we feel really good about where we're at from a share perspective. As you look into Q4 and that film slate, we are already seeing through October share that our market share has picked back up. So we do think that that Q4 film slate lends itself a bit better to our circuit than what we saw in the third quarter.

Great. Thank you, guys. I appreciate it.

Thank you.

Thank you. The next question is coming from Stephen Laszczyk of Goldman Sachs. Please go ahead.

Great. Thank you for taking the questions. Maybe just a follow up on the earlier question on consumers continuing to trade up and what feels like some price and elasticity amongst the consumer base. Could you perhaps update us on your thoughts on the opportunity to take increase ticket prices? I appreciate it's a little bit of a balance. But it seems like there might be some incremental opportunity there just as the success we're seeing elsewhere in the business could potentially translate. And then on Cineworld and Regal, I'm curious if you talk about any change in the competitive environment you've seen since they've emerged from bankruptcy, and perhaps how that's factored into any expectations for market share into next year? Thank you.

Thanks, Stephen. I'll take the ticket price question. So as we think broadly looking forward, we are going to continue to leverage data and analytics to find the right ticket price that maximizes overall attendance in box office. But we do see further opportunity on the strategic pricing front. Now the extent of which that opportunity will be, that will be based on our analytics and how consumer elasticity has evolved over time. But we do feel good about the opportunity there. The one thing to keep in mind is that film mix will also always play a role in our reported average ticket prices going forward. So the extent of child tickets, premium formats, especially content such as multicultural films and concerts that have higher ticket prices associated with them, we'll have to keep that in mind as well.

And just real quick, I don't think there's too much to say there. Obviously, it's still pretty early since their emergence from bankruptcy. I imagine they're still getting their arms around everything. And tough to kind of predict how that will affect share next year. I think our focus is just continue to look at how do we continue to drive our business and drive growth of our circuit? Overall, really that will lend itself to our overall performance on a go-forward basis. Obviously, there's vary dynamics that can affect overall share results, but it boils down to our attendance growth and our overall efficiencies in terms of our results and potential.

Got it. Thank you very much.

Thank you.

Thanks, Steve.

Thank you. At this time, I'd like to turn the floor back over to Mr. Gamble for closing comments.

All right. Well, thank you all again for joining us this morning. In closing, I just like to say that I am incredibly proud of our Cinemark team and the tremendous progress we've made over the past few years navigating our industry's recovery and advancing our strategic initiatives. As we've talked about, the significant impact of which is reflected in our financial results. We are well-positioned at Cinemark to handle any near-term headwinds in product flow that had been caused by the Hollywood strikes. And we believe our performance year-to-date provides a window into our strong growth potential as film volume fully recovers over the coming years. So with that, we look forward to speaking again following our fourth quarter results. Thank you.

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