Earnings Call Transcript - CNK Q1 2024

Operator, Operator

Greetings, and welcome to Cinemark Holdings Inc. First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Chanda Brashears, Senior Vice President, Investor Relations. Thank you, Ms. Brashears, you may begin.

Chanda Brashears, Senior Vice President, Investor Relations

Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.'s First Quarter 2024 Earnings Release Conference Call hosted by Sean Gamble, President and Chief Executive Officer; and Melissa Thomas, Chief Financial Officer. Before we begin, I would like to remind everyone that statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may materially differ from forward-looking projections due to a variety of factors. Information concerning the factors that could cause results to differ materially is contained in the company's most recently filed 10-K. Also, today's call may include non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's most recently filed earnings release, 10-Q and on the company's website at ir.cinemark.com. With that, I would now like to turn the call over to Sean Gamble.

Sean Gamble, President and CEO

Thank you, Chanda, and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2024 results. Over the past three years, the theatrical exhibition industry has seen meaningful year-over-year increases in attendance and box office as film volume has been rebounding following the shutdown of moviemaking during the pandemic. As we indicated last quarter, while this year, we'll likely experience a dip in that recovery trajectory due to over six months of Hollywood strikes last year that disrupted film production, 2024 kicked off to a better-than-expected start. First quarter North American industry box office declined only modestly versus 2023 on account of a wide range of films that delivered outsized results. Examples include Sci-Fi sensation Doom Part 2 that outgrows its first installment by more than 2.5 times with over $275 million of domestic box office. Animated hit Kung Fu Panda 4, which became the second biggest installment in its franchise history with over $180 million domestically and more than $0.5 billion worldwide. Biopic Bob Marley: One Love, which captivated audiences and generated nearly $100 million of domestic box office. Musical Comedy Mean Girls and action thriller The Beekeeper, which each delivered close to $70 million domestically, and megadventure Godzilla xCom: The New Empire that opened to a monstrous $80 million in North America at the end of the quarter and has since delivered over $500 million worldwide. The first quarter also benefited from strong continued play-through of December's whimsical family spectacle, Wonka, which has now exceeded $215 million domestically and nearly $415 million globally, as well as Anyone By You that proved audiences are still craving romantic comedies and theaters, having generated close to $90 million of domestic box office over its impressive run. Furthermore, we continued to witness strength of nontraditional content during the quarter, such as the successful releases of Cabrini and the complete fourth season of the faith-based series The Chosen. The solid results of all these diversified titles once again provide strong validation that consumer enthusiasm for experiencing compelling content in an elevated cinematic theatrical setting remains vibrant. We certainly experienced that enthusiasm within our Cinemark theaters during the first quarter as we entertained nearly 40 million guests across our global circuit with results that once again outpaced the industry. Relative to 2019, our admissions recovery continued to sizably exceed that of our industry by 700 basis points domestically and 600 basis points internationally. To that end, we also continue to maintain the most significant market share gains compared to prepandemic results of all major exhibitors. While Melissa will cover our financials in greater detail in a moment, during the first quarter, we generated nearly $580 million of total revenue, more than $70 million of adjusted EBITDA and a healthy 12% adjusted EBITDA margin. These results once again demonstrate our team's resilience and outstanding ability to skillfully navigate a dynamic operating environment pressured by strike-induced headwinds. Yesterday, we also successfully retired another $150 million of our COVID-related debt, given our sustained confidence in our team, financial position and positive long-term outlook for our company and industry. That positive outlook was further reinforced a few weeks ago during CinemaCon, our industry's annual trade show event as studios and filmmakers provided glimpses into their upcoming film lineups for the next 1.5 years. One key message that was emphasized again and again by studios during CinemaCon, as has been consistently conveyed to us during our one-on-one conversations, is the significant enhanced value that a theatrical release provides their films and their companies. As we've highlighted on previous earnings calls, the clear consensus is that a theatrical release delivers unparalleled levels of promotional impact and quality perception which strengthens consumer interest to see films, bolsters long-term recall value and leads to elevated lifetime financial results throughout all distribution channels. It's also very important for consumers who want to experience these films on the big screen as well as for attracting top-tier talent. In light of this context, as well as what has been further communicated by the studios with regard to their future film development plans, we continue to remain bullish about the resurgence of film volume over the coming years. Production is now fully up and running again, following last year's strikes. New significant entrants like Amazon and Apple are meaningfully scaling into theatrical exhibition, and nontraditional content like concerts, faith-based films, multicultural titles and anime is also growing. Along these lines, the major studios took the opportunity during CinemaCon to showcase an increased number of titles relative to prior years, and what they shared about the quantity of films as well as the quality of materials presented created a buzz of optimism that permeated the convention all week. A diverse range of highly anticipated films slated for the rest of this year appear primed to fully deliver, including a resurgence of family films like IF, the Garfield movie, Inside Out 2, Despicable Me 4, Moana 2, and Muthoot Lion King; action-adventure sagas such as Kingdom of the Planet of the Apes, Furiosa, Bad Boys 4, Twisters, Venon, The Last Dance, and Glade; thrilling rides like the Falcon, Deadpool and Wolverine, Borderlands, Beetlejuice, RedOne, and Sonic the Hedgehog 3; suspense sellers, such as A Quiet Place Day 1, Alien Romulus, Joker 2, Speak No Evil, and Smile I; and the fantastical world of Wicked Part 1. Next year's lineup is already coming together in a big way with a wide array of spectacle films that includes Wicked Part 2, another Jurassic World, Superman Legacy, the next installment of Mission Impossible, a reboot of the Fantastic Four, Ballerina from the John Wick Universe, a live-action version of How to Train Your Dragon, Captain America: A Brave New World, Snow White, Zootopia 2, Minecraft, Megan 2, Tron Ares, and of course, Avatar 3, whose prior installments represent the #1 and #3 biggest global films of all time. So again, based on strong sustained consumer interest in moviegoing, numerous indicators that point to a continued resurgence of film volume, and the highly encouraging slate of upcoming titles on the horizon, we maintain a positive future outlook for the theatrical exhibition and our company. We believe that Cinemark, in particular, is uniquely positioned to prosper as we move forward on account of several key differentiators. To start, our consistent investment in maintaining and enhancing our theaters over time has positioned our company with the largest collection of high-quality assets in our markets. In addition to a more favorable overall condition of our theaters, we have the highest penetration of luxury seats among the major operators with almost 70% of our domestic circuit reclined. We have the best site and sound technology and overall film presentation in the business, including 99.97% screen uptime. We have the number one private label premium large format in the world with our XD auditoriums, as well as the largest footprint of D-Box motion seats, and we now offer enhanced food and beverage menus in more than 80% of our U.S. theaters. We also have a distinctive global footprint across the U.S. and Central and South America with a concentration in both suburban and Latin markets that have strong moviegoing cultures, which tend to over-index in theater visitation frequency. With one of the highest market shares in North America as well as the highest share across our Latin American region, our global footprint also provides valuable scale. Furthermore, it provides attractive diversification across 42 states in 14 countries, beneficial best practice sharing and access to varied pockets of growth in underpenetrated markets. Beyond the quality of our assets and our favorable geographic profile, we also have a solid financial position with a healthy balance sheet, industry-leading adjusted EBITDA margins and cash flow generation, and results that consistently outperform our industry. Our disciplined and balanced approach towards capital allocation over the years has positioned our company with an outsized advantage to both effectively navigate periods of reduced film volume as well as actively capitalize on market opportunities as they materialize. Our solid financial position is further supported by our advanced operating capabilities. These capabilities are the byproduct of deep experience, domain expertise and skill of our sensational global team, as well as years of deploying strategic initiatives. Examples include our heightened levels of customer service that consistently earn high satisfaction ratings from nearly 95% of our guests in our domestic surveys, sophisticated social and digital marketing platforms and tools that deliver billions of media impressions annually, driving increased film awareness and demand to visit Cinemark, and planning and execution rigor that has a consistent track record of optimizing showtimes and staffing, fine-tuning operating hours theater-by-theater based on fluctuating weekly demand and driving efficiencies to help offset varied inflationary and supply chain-oriented headwinds. Our debt operating abilities and consumer-minded actions have also helped us to develop a loyal and extensive consumer base. We have over 21 million members in our global loyalty programs, and in the U.S. alone, Movie Club, our paid subscription tier, now accounts for 25% of our domestic box office. These members are frequent and dedicated Cinemark moviegoers as well as our most satisfied guests. Moreover, our marketing reach extends to a total addressable customer base of nearly 30 million consumers and continues to grow. Finally, we are also well positioned to drive incremental value creation on account of the numerous levers we have that go above and beyond our industry's continued recovery and our singular competitive advantages. From continuing to extend premium amenities more broadly across our circuit to enhancing our food, beverage, and merchandise offerings as well as distribution methods even further to taking our pricing sophistication to the next level while executing a wide range of additional productivity initiatives to further optimizing our circuit, including adding attractive new assets while addressing lower-performing properties. The opportunities before us to drive incremental growth and prosperity that are fully within our control are plentiful. Those opportunities, combined with the positive direction our industry is headed as well as our advantaged market position underpin our optimism about the future of Cinemark and our ability to create meaningful long-term value for our shareholders. I'll now turn the call over to Melissa for a deeper look at our first quarter financials. Melissa?

Melissa Thomas, CFO

Thank you, Sean. Good morning, everyone, and thank you for joining the call today. We were pleased that the first quarter box office surpassed our expectations. Our team once again demonstrated our agility in the fluid environment and achieved healthy operating and financial outcomes by capitalizing on the box office and diligently executing our strategic initiatives. Globally, we welcomed 40 million guests to our theaters and generated $579.2 million of worldwide revenue in the first quarter. We delivered $70.7 million of adjusted EBITDA, yielding a solid adjusted EBITDA margin of 12.2% despite the pressure on operating leverage given the attendance decline due to the impact of the Hollywood strikes. Domestically, we entertained 23.6 million moviegoers in the first quarter and maintained strong market share. We generated $231.8 million in admissions revenue, and we grew our average ticket price 1% year-over-year to $9.82. The growth in average ticket price was driven by our strategic pricing initiatives, partially offset by ticket type mix with more family content in the first quarter of this year as well as format mix due to the lapping of strong 3D penetration on Avatar from the prior year period. We generated $178.6 million of domestic concession revenue, and our U.S. concession per cap achieved a first quarter record of $7.57. Our concession per cap grew 2% in the quarter, fueled primarily by strategic and inflationary pricing measures and a shift in product mix towards higher price concession items, partially offset by lower incidence rates due to film content. Other revenue was $46.6 million, down 2% year-over-year, primarily due to the decline in attendance. Collectively, our Domestic segment generated $457 million of total revenue and $49.1 million of adjusted EBITDA, yielding an adjusted EBITDA margin of 10.7%, reflecting the relatively fixed nature of our domestic cost base. Shifting to our international segment. We hosted 16.1 million guests during the quarter, a decline of 9% versus the first quarter of 2023 as the film slate did not resonate as well in the Latin American region year-over-year; though we did benefit from an increase in local content in Brazil. Similar to the U.S., we maintained strong market share across the region. As reported, our Latin American operations delivered $58 million of admissions revenue, $45.6 million of concessions revenue and $18.6 million of other revenue. Altogether, we generated $122.2 million of total international revenue and $21.6 million of adjusted EBITDA, yielding a 17.7% adjusted EBITDA margin. Foreign currency devaluation, particularly with respect to the Argentinian peso, resulted in a year-over-year headwind to international adjusted EBITDA in the quarter that was largely offset by inflationary dynamics. Our seasoned and knowledgeable local teams continue to skillfully maneuver through the fluid economic and political environment in the region. Turning to our global expenses. Film rental and advertising expense was 53.2% of admissions revenue, down 40 basis points year-over-year due to a lower concentration of box office and the mix of films during the quarter, partially offset by higher marketing spend. As I mentioned in our earnings call last year, industry box office in the first quarter of 2023 meaningfully exceeded our expectations, resulting in marketing expense as a percentage of admissions revenue that was somewhat lower than we had planned, creating a tougher comparison. Concession costs as a percent of concession revenue were 19.6%, up 110 basis points compared with the first quarter of 2023, driven by ongoing inflationary pressures on certain core concession items as well as a shift in product mix towards lower-margin products such as movie-themed merchandise. Strategic pricing measures partially offset these impacts. Global salaries and wages were $86.9 million, relatively in line with the first quarter of 2023. As a percent of total revenue, salaries and wages increased 90 basis points, primarily due to reduced operating leverage associated with the decline in attendance, wage rate pressure, and expanded operating hours. Benefits from our ongoing focus on labor management drove a partial offset. Facility lease expense was $77.3 million, a modest decline of 3% year-over-year, primarily due to theater closures. As a percent of total revenue, facility lease expense increased 30 basis points. Utilities and other expenses were $100.4 million, down 3% from the first quarter of 2023, primarily driven by variable costs that declined with attendance and foreign currency impacts, partially offset by inflationary pressures. As a percent of total revenue, utilities and other increased 30 basis points. G&A was $48.9 million in the first quarter, an increase of 5% year-over-year, primarily due to wage and benefit inflation, one-time severance costs, and higher share-based compensation, partially offset by lower professional fees and the impact of foreign currency fluctuations. We continue to exercise prudence in our discretionary spending and staffing decisions, maintaining headcount below 2019 levels. As a percent of total revenue, G&A increased 80 basis points. Globally, we generated net income attributable to Cinemark Holdings, Inc. of $24.8 million in the first quarter, resulting in earnings per share of $0.19. Net income for the quarter included a $27.7 million tax benefit, primarily due to the release of valuation allowances in certain foreign jurisdictions. Moving to the balance sheet, we ended the quarter with a strong cash position with $789 million of cash on hand. As expected, our free cash flow was negative $46 million for the quarter, given the softer box office environment, the timing of our semiannual interest payments, seasonal working capital headwinds, and our ongoing investment in our circuit. In the near term, we remain focused on further strengthening our balance sheet while deploying capital towards strategic investments that position the company well over the long term. To that end, yesterday, we used cash on hand to redeem the remaining $150 million of our 8.75% senior secured notes at par, reflecting our confidence in our companies and the industry's recovery. Furthermore, we invested $23 million in capital expenditures to further enhance our global circuit. Looking ahead, we continue to anticipate deploying $150 million this year towards capital expenditures, aligning with our commitment to prudent financial management. At the end of the quarter, our net leverage ratio stood at 2.8x for the trailing 12 months, which is at the high end of our target range of 2x to 3x. While our objective is to sustain this leverage ratio within our target range, we may face some pressure this year due to the Hollywood strike impact. I would like to reiterate that at this juncture, our capital allocation decisions are prioritizing a dual focus: refortifying our balance sheet and strategically positioning ourselves for long-term success. In closing, as we face complexities associated with the Hollywood strikes, our commitment to sound operating and financial practices remains steadfast. At the same time, as Sean highlighted, we are laser-focused on maintaining our distinctive market position and further advancing our company, which gives us optimism regarding our future prospects and the value we can provide to our shareholders.

Operator, Operator

That concludes our prepared remarks, and we would now like to open up the line for questions.

Eric Handler, Analyst

Sean, we've seen a number of companies this earnings season talk about the consumer being more conservative with their spending decisions. I'm curious, are you seeing anything notable in terms of how they purchase tickets or food and beverage decisions that may suggest there's some selectiveness going on here, too?

Sean Gamble, President and CEO

Thanks for the question. It's a good question. Interestingly, to date, we have not seen a significant impact from the macro economy on our business. Consumers continue to come out to the theaters when movies are showing. We noted in our prepared remarks the number of films that have exceeded expectations, which contributes to upgrades to premium formats and concession purchases. We had another record first quarter per capita this quarter. So far, we haven't observed any decline. This is similar to past recessionary periods, during which our industry has grown in six of the last eight major recessions in North America. Going to the movies remains a practical form of entertainment. While consumers may cut back on other expenses, they still choose to indulge when they visit the theaters. We continue to see this trend in the current environment.

Eric Handler, Analyst

Great. And then just as a follow-up. From what I see in your press release, there really isn't much of a backlog at this point with new build theaters. Are you seeing anything change in the market that may allow you to expand beyond what you're currently planning?

Sean Gamble, President and CEO

Sure. Well, I think there's probably twofold. One, I think much like the whole of the industry, during the course of the pandemic, our development process was more or less put on hold. We have reactivated that development pipeline process. So we're out there kind of scouting to get sites. So there's a bit of a delay on account of that. And then beyond that, as we've talked about, we're still in that mode of just refortifying our balance sheet and being tempered in the amount of CapEx we're deploying as our cash flow continues to recover. So I think those two things are a bit of regulators over just the speed of new build activity. But there are still plenty of markets where we see opportunities. I think some of that will start to ramp to a certain degree over the coming years. It's just going to take a little bit of time.

David Karnovsky, Analyst

Sean, I wanted to see if you could expand a bit more on your conversations in CinemaCon. What are you hearing from legacy studios in terms of output? Is there anything incremental to share regarding some of the streamers? And then with Amazon, we've seen them achieve some success recently with exclusive streaming films. Does that create any concern from your end about their output ramping over time? And for Melissa, just your staffing costs were nearly flat year-over-year. I wanted to see if you could just speak a bit more to the initiatives you're deploying to control expenses there? And how should we think about the rest of the year kind of just given natural labor inflation and likely improvement in film supply by Q4?

Sean Gamble, President and CEO

Thank you for the questions. Overall, the sentiment coming out of CinemaCon was very positive. It was interesting to see the upcoming materials, and generally, everyone is quite optimistic about what they observed. The showcased titles were extensive, and discussions with our studio partners indicate a strong focus on replenishing production. Many studios are aiming to rebuild their slates to pre-pandemic levels, with some planning to surpass that. However, this process will take time. They were already in the midst of ramping back up after the pandemic when the strikes caused some delays. Overall, we remain hopeful that in the coming years, we will see volume return to or exceed pre-pandemic levels. Regarding Amazon, we have direct conversations with them, and they are very optimistic about theatrical opportunities. They are planning several films for release this year and are eyeing 2025 as a significant year for theatrical releases. This doesn't mean they will stop producing direct-to-platform films, as the industry has a history of studios releasing both types of content. We expect that there will still be direct-to-streaming films, but those with considerable scale and potential are likely to be seen in theaters, and Amazon is committed to expanding in this area.

Melissa Thomas, CFO

And then, David, on the labor front. So we do continue to scale our labor hours up and down based on projected attendance levels that we're seeing. And we are working on a range of initiatives to drive further labor productivity. So a couple of examples for that would be continuing to rightsize our staffing at the wing, so opening and closing, being even more nimble between slow and peak periods with a focus on our most profitable service hours, optimizing operating hours and scheduling for expanded food and beverage offerings. And those are just some of the ways that we're looking to drive efficiencies. With respect to salaries and wages more broadly, it is reasonable to assume going forward that we'll continue to flex our labor hours based on anticipated attendance levels, albeit at a rate that is less than the change in attendance. I will say, on the wage rate side, we do continue to face some pressure there. Now fortunately, what we're seeing now is more in line with prepandemic increases. And then as I mentioned, we do expect to continue to see some productivity benefits as we lean in there. The one call I would make though in 2024 in particular, especially in the first half of the year, we do expect to be more impacted by minimum staffing levels, just given the reduction in content volume is more concentrated in that period this year. But overarchingly, we're leaning into data, assessing our profitability on a per theater per hour basis to determine operating hours and our corresponding staffing requirements. And we'll continue to balance our revenue-generating opportunities with cost-mitigating initiatives.

Ben Swinburne, Analyst

Two questions really around some debates, I think, on your business and the stock. Your market share gains have persisted now for a while coming out of the pandemic, as you know. And I guess, one question I'd be curious to hear about is just the role that your loyalty programs you think play in driving share. I mean I thought the slide in the deck that you have is interesting. You've got a million-plus people in Movie Club, but $20 million plus in a rewards program. I guess the question is, do these have a measurable tangible benefit to your share and returns that you could share with us? And then secondly is around kind of capital allocation. I know it's leverage ticked up as expected. I'm just wondering, Sean, if you could talk about how you guys look at M&A. How do you think about valuing assets out there relative to your own stock? How do you think about deploying capital and M&A relative to resuming the dividend? I think it would be helpful to hear your approach to those trade-offs as you guys move through this year.

Sean Gamble, President and CEO

Thank you for the questions, Ben. Regarding market share, we believe our loyalty programs contribute to our market share, although it's challenging to quantify the exact impact attributable solely to these programs compared to our Showtime strategies and general marketing efforts aimed at driving demand for Cinemark. Additionally, the level of service and experience we aim to provide, including our maintenance standards, plays a role in this. Movie Club now consistently accounts for about 25% of our box office, and these moviegoers tend to be our most satisfied, showing a strong loyalty to our theaters. Therefore, we believe this program is a factor in our increasing market share. We're continually exploring ways to enhance value through this channel and leverage the data we have to benefit our guests, as they visit Cinemark more frequently and express high satisfaction with their experiences. On the topic of M&A, we view it as a key avenue for growth while optimizing our footprint. We're focused on identifying high-quality assets that promise solid returns over time, evaluating everything with that perspective. We're not pursuing growth for its own sake; we've successfully maintained a disciplined and balanced approach to capital deployment, investing only in opportunities with a strong probability of success. Currently, the marketplace is somewhat distorted, influenced by various factors such as the state of debt markets, interest rates, borrowing costs, and seller expectations regarding margins and multiples. Additionally, we consider the potential need for further investment to properly maintain any assets we might acquire, particularly if there have been years of deferred maintenance. We remain vigilant in assessing opportunities in the market and are optimistic that some may develop over the next year. However, we will continue to prioritize a disciplined and balanced approach in our strategy.

Melissa Thomas, CFO

And in terms of our near-term capital allocation priorities, as I mentioned, as we stated on the call, those do remain centered around strengthening balance sheets and making those right investments to position us well for the long term. Ultimately, our decisions, as Sean mentioned, are return-driven by returns. In terms of the dividend though, we do believe our approach is prudent right now, maintaining conservatism around our cash, given the box office headwinds this year, coupled with the back-end weighting of the box office, which we do believe may pressure our net leverage ratio in the near term. All that said, though, dividends are a significant aspect of our capital allocation strategy prior to the pandemic and will remain a key consideration for us going forward.

Robert Fishman, Analyst

One for Sean and then one for Melissa. Sean, maybe taking a different angle on the CinemaCon takeaways. I'm wondering how you'd characterize Cinemark's relationship with your studio partners more as it relates to the recent or maybe even upcoming renewals around windowing strategies? And do you see an opportunity to improve film rental split going forward? Maybe let's start there, and I'll come back with my other one.

Sean Gamble, President and CEO

Sure. Well, I'd say overarchingly our relationships are very positive with our studio partners. Specific to windows, there's clearly been quite a bit of evolution in the window throughout the pandemic and following up on the pandemic. I think with a lot of experimentation, there was clearly quite a bit of learning that an exclusive window definitely creates more value for these film assets, particularly for the studios. It's the best way to fully gain that revenue opportunity in the theatrical space. It helps to create that bigger cultural moment. It helps to create more lift in downstream impact on all those subsequent channels. So that has clearly been tested and learned again, and it is something we're seeing now. By and large, in the practice of windows, I would say one of the changes, which we actually view as a net positive while the window reduced a bit coming out of the pandemic and has become more dynamic, what that has led to, in our view, is something that improves the risk equation for the studios. So in success, the movie can run long and they can extract more value out of the window, whereas if a movie they go for it and the movie just doesn't work, they've got an opportunity to get into the home quicker and manage their downside, which net-net is a good thing, especially as we're looking for more volume to come back through. So it's one of the things we look to as a positive that plays into that resurgence of volume. And the reality is when movies aren't working, generally, we're moving on to the other films that are working stronger to begin with. So it works collectively both ways. And we think that we can lead to the CEOs taking more risks on films like the mid-tier films and the romantic comedies and the Rosheen. Some of the stuff that we haven't seen as much as of late because that was a tougher financial decision prior to the pandemic. So we're very positive. Over the course of discussions, there has been economic consideration that has been factored into the equation with regard to some of the evolution of windows. I think more on the go forward, it's just back to that typical back and forth from any supplier customer relationship in terms of the splits. I wouldn't say there is any heightened degree of pressure or ease relative to the norm. It's that traditional relationship where sometimes one party is a little bit stronger and other parties, and things just kind of flow in the aggregate; the overall film rental rates tend to stay relatively stable.

Robert Fishman, Analyst

Great. Melissa, if I can do a little bit more detailed follow-up on CapEx. Spending levels have hovered around the $100 million, $150 million range you mentioned guidance again for this year coming out of the pandemic. But back in '19, you were at an elevated $300 million level. And I understand that included the core maintenance spend in that $80 million range. But there was more significant spending levels around the new builds that you already touched on and these cash flow-generating projects. So just maybe a long way of asking, should we expect to see more investment in cash flow-generating projects or anything else in the pipeline to call out to get back to more of an elevated level in '25 and beyond, even if it remains below '19 levels?

Melissa Thomas, CFO

So thanks for the question, Robert. So we do believe our history of proactively maintaining and investing in our theaters is a key differentiator for the company. As you think about CapEx beyond 2024, I would expect us to maintain, again, a balanced and disciplined approach to our capital expenditures, but to ramp our CapEx levels up as the box office rebounds. While our peak CapEx years are behind us, from where I sit today, what I would say is we expect CapEx to grow to around $200 million to $250 million annualized on a normalized basis. So that will be contingent upon, obviously, the ROI-generating opportunities that are available to us, but that $200 million to $250 million annually is where we think CapEx should shake out relative to that kind of $300-plus range that you saw at our peak years in the pandemic. And remember that included that heavy push for recliner penetration that's behind us largely at this stage. We would still expect around $80 million to $100 million of that spend to be earmarked towards maintenance CapEx to maintain a high-quality circuit. The remainder will be dedicated towards new builds and other theater enhancements, including laser projector conversions.

Omar Mejias, Analyst

Sean, regarding market share performance, it was impressive this quarter, particularly as the display was favorable for your demographics. Can you discuss the impact on due 2 and DLF performance compared to ongoing organic share gains? Additionally, you recently extended your Summer Movie Clubhouse program in response to strong consumer demand. Can you explain the benefits of such programs and any other opportunities you have to optimize capacity utilization during off-peak times?

Sean Gamble, President and CEO

Sure, thank you for your questions, Omar. Regarding our market share, we are very pleased with our results in the first quarter. We experienced significant benefits from several strong film releases. Movies like Kung Fu Panda 4, Godzilla xCom: The New Empire, and Bob Marley: One Love performed very well for us and contributed to our market share growth, more than compensating for some challenges. Doom Part 2 was our highest-grossing film of the quarter, but as a heavy sci-fi film, it didn't resonate as strongly with our audience, which slightly affected our share for that title. Overall, the success of these other films really drove our performance. Additionally, the overall box office environment was softer due to the strikes, and we didn't face capacity constraints. In peak box office times, we can only sell as many tickets as there are seats, which can limit market share. Thankfully, we avoided these issues this quarter, allowing us to fully capitalize on the potential of these titles. As for the Summer Movie Clubhouse, we believe it’s a fantastic initiative. Its aim is to encourage younger families and audiences to develop a moviegoing habit by offering access to legacy films at a low price. The program runs for a few weeks, with one morning showing each week, which helps attract audiences during slower times on early Wednesday mornings. However, this program is primarily focused on engaging future moviegoers rather than merely filling gaps during low-capacity periods. We have other programs as well, such as re-releasing classic films and fan favorites, which we introduce during slower business days to help boost attendance, especially on weekdays. We actively pursue various strategies to enhance our attendance during these lulls.

Aaron Lee, Analyst

This is Aaron on for Chad. One more for you around CinemaCon. Was there anything you saw from a tech standpoint that you believe could enhance or change the experience for your moviegoers or help you from a productivity standpoint?

Sean Gamble, President and CEO

There are many developments continuously occurring in technology, impacting productivity and presentation. Recently, Barco announced their new HDR light steering projection technology, which we have been discussing and collaborating on for several years. This innovation represents a more advanced level of laser projection, which already improves the quality of light on screen. Additionally, laser projection is more energy-efficient and requires less frequent bulb changes and maintenance, contributing to productivity. The light steering feature could further enhance this advantage. Similarly, in the food and beverage sector, new types of equipment could improve productivity. Although these aren't specific to CinemaCon, we observe trends in the market, such as unattended retail, which could boost labor productivity and generate additional revenue in theaters. Our teams are continually assessing these advancements across various areas of our business, including presentation, labor management, and food and beverage equipment, to drive productivity benefits and enhance the overall experience.

Aaron Lee, Analyst

That's great. And then just regarding concession per cap. So you just hit a domestic record in the U.S. for the first quarter. Are you seeing more engagement in terms of incidence of purchase, bigger basket size or price increases? How would you break that down?

Melissa Thomas, CFO

I'll take that one, Aaron. So on the domestic per cap side, our per cap was up 2% year-over-year, and that was driven by strategic pricing actions to offset some of the inflationary cost pressures that we've been seeing as well as a shift in product mix towards higher-priced items, merchandise being one example of that. That was partially offset by lower incidence rates due to the content mix in the quarter. And so that's really the breakdown of the drivers there. As you think though about our per cap on a go-forward basis, we do continue to believe that we can moderately grow our concession per cap for full year 2024 domestically. We continue to lean into various initiatives to maximize our incidence rates. So mobile order, ordering adoption self-service capabilities, modifying the flow of concession traffic as well as leaning into enhanced food offerings, merchandise sales and scaling third-party delivery. We also continue to look to find optimal pricing that will maximize our per caps while maintaining high incidence rates. But as you saw in the first quarter, our per cap will fluctuate ultimately quarter-to-quarter with film mix.

Michael Hickey, Analyst

Great job on the quarter. Just two questions from us. Obviously, you don't forecast the box office, Sean, for obvious reasons. But given what you know, I guess, about Q2 and the rest of the year and maybe just in terms of wide releases, do you feel like, obviously, Q1 outperformed; do you feel like you can sort of build on the strength of Q1 sequentially through the remainder of the year? Or any sort of, I guess, insight on phasing on the box office? It seems like Q2 would be higher than Q1, Q3 higher than Q2, Q4 higher than Q3. But curious what you think there. And then any update, I guess, on wide release product in '25, how that would compare to '24 and pre-pandemic?

Sean Gamble, President and CEO

Sure. Thanks for the questions, Mike. Specific, I guess, starting with this year, yes, we saw a little bit of lift in the first quarter. There have been some title shifts like we know, just like Karate Kid just moved out a year. So when we look at the totality of 2024, we still, at least from our vantage point, think it probably looks pretty consistent to what we were seeing at the onset of the year. Overall, volume of wide releases, we're still counting at around 95 or so films, which is down a touch from last year's 110, again, relative to about 130 from pre-pandemic time frames. That's all a byproduct of the six-plus months of Hollywood strikes last year. So as you mentioned, the year is definitely back-end loaded. More of that impact is playing through in the first part of the year. As you get towards the fourth quarter, that's when things really start to ramp up, particularly the scale of the releases because those larger films that have more complex productions, more complex visual effects, like those are the things in particular that were most impacted. So I'd say at this stage, at least, again, from our vantage point, things we're seeing we still think the year is kind of looking comparable to what we were anticipating three months ago. As we look out to '25, it's still a bit early per normal practice to try to get a full handle on that. We're optimistic that we're going to see overall volume. I mean, our viewpoint was you saw a nice progression from '21 to '22, '22 to '23. Prior to the strikes, we were anticipating '24 would continue that trajectory, and then we had this little hiccup from the strikes. We think '25 will likely spring back to that trajectory curve that we've been on of recovery. So it will be somewhere likely in line or above 2023, between 2023 and pre-pandemic levels. Prior to the strikes, we thought there could be the potential for '25 or '26 to get back to pre-pandemic levels; with the strikes, we think that pushes out a little bit further. But again, we think that we'll see some nice lift in improvement next year once we're fully past the effects of the strikes last year. And I'd just say, I know there's been a lot of questions on CinemaCon. At least the materials that were shared during that convention for the films that are going to be releasing in '25 look incredibly promising. I mean, we're really optimistic about what we saw and really pleased just with the quality of the presentation of those titles that are up and coming.

Melissa Thomas, CFO

Mike, in terms of your question on domestic concession cost rate, the change that you saw year-over-year in Q1 was primarily driven by two key factors: one, a shift in product mix towards lower margin rate items such as merchandise, as well as candy. And then in addition to that, we did see some increases in the cost of some of our core concession items, so fountain beverages, bottled drinks, and T&D. And then partially offsetting that were benefits that we realized from the strategic pricing actions that we've been implementing. As you look forward, we do expect concession costs as a percentage of concession revenue to begin to moderate over the next few quarters. Now that said, we do still anticipate that our COGS rate will reflect a modest step up for full year 2023 levels due in part to product mix as we continue to look to grow merchandise sales, expand enhanced food offerings, as well as scale third-party concession delivery, which have lower margins than our overall core concession offerings. Now while we do expect ongoing inflationary pressure to continue in 2024, particularly in transportation, packaging, and certain commodities, namely cocoa, we expect these pressures to be somewhat offset by corn, canola oil, and buttery topping prices moderating. So we also continue to execute on strategies to offset inflationary impacts wherever possible, including through strategic sourcing efforts, our pricing strategies, and proactive category management to really drive incidents.

Jim Goss, Analyst

You discussed earlier your caution about new builds. But I was also sort of interested in looking at the screen count reduction you've had over the past five years, I think, since the pandemic. I imagine the screen count reduction has had less of a revenue impact because of the nature of the screens you have been cutting out and also less of a profit impact. But can you talk about the headwind or drag that might have posed on you over those years and what it's doing right now? And are you mostly through the process of screen count rationalization? Or should we expect somewhat more?

Sean Gamble, President and CEO

Thanks, Jim. Good question. I'd say on the whole, the industry has probably seen slightly in excess of 10% screen rationalization since the pandemic. On a total net basis of those that we've closed relative to those that we've opened, we're slightly below that. Certainly, in the U.S., we're about 7% or so of our screens down versus prepandemic. The majority of those screens that have closed for us are ones that were lower-performing screens. They were older theaters, more on the cost of just breakeven performance. So from an overall impact on financials, net-net between what we've closed and what we've opened, that's a net positive in terms of the bottom line. So I'd say we've been very, very particular in that. There have been many theaters we've been able to go back and make modifications to leases and things like that and improve and in certain cases, it just made sense to rationalize a bit. As we look ahead, yes, I mean, I'd say we're kind of in that normal phase now where it was always part of our practice of as older theaters come to the end of their leases. We're looking at how they're performing, and does it make sense to continue with those or does it make sense to look for newer opportunities. So there could certainly be some incremental closures that we see over the coming years, but I wouldn't say that's necessarily a byproduct of the pandemic at this point. That's just more of our normal practice. As I mentioned earlier, we have reinvigorated our development pipeline with regard to new builds and looking at new assets to bring into the fold. So that could also offset that.

James Goss, Analyst

Okay. And one other one. In recent calls, you've talked about alternative content, and it seems like it's a lot of the trends are talking about this a little bit more. I'm wondering what type of content are you thinking might resonate best with your audiences? Would it be concerts or sports, if you can get the right or other smaller genres like the faith base that you brought up? Are there other things? And also IMAX, and this call was talking about using other days, which seems to be the conventional wisdom as to when you might both net-net ahead with alternative content. Can you talk about any plans along those lines?

Sean Gamble, President and CEO

Sure. Look, definitely, overall, we've been thrilled to see a burst of life with alternative content. Historically, it just kind of hovered around 1% to 2% of box office. We always felt there was a lot more potential in these types of titles, and we're finally seeing that. For our circuit, I wouldn't say there's any one particular category that is necessarily the driver. It's really across the board. So you named a few of them, whether it be concerts, faith-based films, multicultural titles, anime, we're seeing great success across all of these different categories. We're thrilled just to see more and more titles of significance coming into theaters in that area. Again, for the first quarter, nontraditional content represented about 14% of our box office. So it's definitely inflated again, similar to last year, which was a banner year for nontraditional films. We’re certainly leaning into that. I'd say the key is there's often work to be done in this space, so finding those types of products that lend themselves to scale. Sports, as you mentioned, is an area of opportunity. It's a complicated one just due to the way the licenses work. And then also the question becomes how can you get scale because those tend to be singular events on a singular show time versus something like a concert or something like a faith-based film that can run throughout the week or weeks, really. There are some questions there. So it's all about finding those properties with scale. Looking for things that could be more unique opportunities to also fill in slower periods during the week, there is also the potential for that. I mean, we were talking about that earlier with some of the other kinds of event types of products that we bring into our theaters. So we'll have to see. But I do think what's been wonderful to see is that the potential of these types of titles is being realized. What's also nice is that these types of films can also bring new types of audiences into theaters who then get exposed to the films, get exposed to the recliner seats, folks who may not have been industry-inclined, and then they start a moviegoing practice. So it can kind of expand beyond this type of content. Again, we remain really optimistic about continued growth in this space, and it really cuts across a range of categories.

Stephen Laszczyk, Analyst

Sean, you mentioned earlier the resilience you're seeing on the consumer front. Maybe just given that, could you update us on your latest thoughts on taking ticket price, especially from some of the more in-demand stretches and the law coming up here over the next few quarters? And then one for Melissa. Just on facility lease expense. Sean, I think you mentioned it in your prior response, but there might be some opportunity to negotiate on rent. I'm curious how much opportunity you think there is to move the needle there over the next few years?

Sean Gamble, President and CEO

Okay. Thanks for the question, Stephen. Look, I mean, the question on pricing is an important one. I mean, obviously, we were talking about the environment that we're in right now. It's an area that we need to be careful about, and we are very careful about. We use a lot of data to drive our decision-making on what's the right price point. So while consumer resilience has certainly been there, demand has been strong, we got to be careful that we don't go too far and push things that could change that dynamic, right, especially in a high inflationary type of environment where people may be starting to be a bit more discretion in what they select. We've seen that over the years. Again, we use a lot of data. We have a team that focuses heavily on this to make sure that we're trying to capture as much opportunity as we can, which basically cuts both ways. It's not unilaterally up. It can go both ways to really maximize attendance, maximize box office, maximize incidents with regard to food and beverage sales and overall food and beverage revenues. So again, it's something that we believe there's ongoing opportunity with further analytics. It constantly is evolving, but it's a dynamic that we'll just continue to stay on top of, and it isn't utilized early one way.

Melissa Thomas, CFO

And then with respect to facility lease expense, so it's important to note that leases are contractual obligations. So unless there's an event such as the end of a lease term or a landlord needs our consent for their redevelopment, there isn't much of a catalyst to renegotiate a lease, particularly given the strength of our financial position. That said, we're actively working to renegotiate leases as their expiration and our renewal dates approach. We have seen some success in that regard, particularly as it relates to more challenged theaters. But keep in mind that only about 10% to 15% of our leases are up for renewal in any given year, so it's a fairly small percentage.

Operator, Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Sean Gamble for closing comments.

Sean Gamble, President and CEO

Thank you, operator, and thank you all for joining this morning. I'd just like to emphasize again that we remain highly encouraged as we look ahead based on the current dynamics related to consumer moviegoing behavior, the different forward-looking indicators we see pertaining to film releases, as we discussed, and also just the wealth of opportunities that we see before us to drive incremental value creation. We do think that Cinemark is particularly well positioned to prosper on account of our advantageous position and our exceptional team, and we look forward to speaking with you again following our second quarter results. So thanks again for the time this morning.

Operator, Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.