All righty. Well, thank you, everybody. Appreciate everybody being here today. For those that do not know me, my name is Eric Handler, Media and Entertainment Analyst here at Roth MKM. I have with me today from Cinemark, who we're very happy to have here, Melissa Thomas, the company's Chief Financial Officer. Melissa, welcome.
Thank you for having us.
So let's talk big picture first. As we look at this year, and everyone always looks at the box office slate and tries to forecast, and that's always a useless topic anyway. But, it does seem like this year is gonna be impacted just because of the six-month work stoppage in Hollywood. So as you look at the content slate, and you sort of try to plan for this year, can you talk about some of the puts and takes in how you think about not just revenue, but also how you think about cost management in a year like this?
Sure. So, as you mentioned, we do expect a temporary setback in content volume this year as a result of the six months of work stoppage from the Hollywood strikes. We have built many capabilities over the course of the pandemic and navigating through a more prolonged industry recovery that allow us to scale our business up and down. So we'll continue to leverage those tools in certain key areas, like labor, to make sure that we're open operating hour-wise during profitable times, and we're driving as much productivity, really across all areas of our business during this timeframe. But in addition to that, we're focused on what we can control, and we're really looking from a revenue-generating standpoint at how can we continue to drive the top line. We've improved monetization of our attendance that's coming through the door through per caps that are up over 40% versus 2019 levels. We're gonna continue to lean in there. We're also gonna continue to lean in on the market share front. We've had 100 basis points of share gains since the pandemic. We're gonna continue to lean in to maintain, if not try to grow, our market share. So we do believe that, we've got a lot of levers at our, our fingertips, both on the revenue side and on the cost side, to navigate through. But as you said, we do expect a temporary setback in 2024.
And fortunately, when you do look at 2025, a lot of movies moved in there, so it makes next year a bit of a loaded year. And then even when you look to 2026, you'll get carryover from Avatar, hopefully two Star Wars movies, Batman now-
Yeah.
An Avengers movie. So it looks like your two, two-year content cycle, it should be very good.
Yes. So, to the point you made, I mean, we first and foremost, the long-term fundamentals of this industry remain intact. And on the supply side, in particular, studios have confirmed their commitment to theatrical. They've also actively begun to ramp up their volume and intend to get back to pre-COVID levels. We also have the streamers getting into the game, so we're starting to see that slate build once we get beyond 2024. We're really excited about the slate that's shaping up for 2025 with Avatar Three. We've got Wicked Two, Captain America: Brave New World. You've got family content in there with Moana live action, Fantastic Four. I mean, it's just to name-
It goes on and on.
... a few. So a very compelling slate that we're excited about. And then, to your point on 2026, we do expect volume to continue to ramp. So 2025, we expect volume will recover further than 2023, and then we expect in 2026 that there's potential for volume to be even higher than it was in 2025, and then hopefully we normalize from there.
So when you think about the opportunities, hopefully, the box office plays out as we expect in, in 2025 and 2026. Cinemark has always been a very efficient company. The one operator who was pre-COVID was always above 20% A djusted EBITDA margin. COVID hit, obviously, that fell, but last year you came pretty close to 20%.
Yeah.
When you think about the increased revenue per patron that you're achieving now while staying very cost-efficient, how fast, you know, what do you need to sort of get back to your peak 23% level? And if you do sort of get close to old attendance levels, is there any reason why you shouldn't surpass that peak margin?
So we certainly feel good about our margin potential over the long term as the industry recovers. As you mentioned, in 2023, we delivered a 19% Adjusted EBITDA margin on 25% less attendance than 2019. We're executing on a series of revenue-generating and productivity-driving initiatives to look to try to get back to those pre-pandemic margins. That's definitely a focus of ours. Outside of attendance and box office, which is the primary driver of our margins, the other key factors are gonna include our ability to maintain, if not grow, our market share, to continue to grow our average ticket prices and per caps, and then offset any potential inflationary pressure that comes our way. We certainly feel good about where we're at, and the leverage we've been able to gain as attendance has returned.
Now, one thing we've seen with consumers since coming back post-pandemic is the people that are coming back seem to be. There's a willingness to spend more, particularly on premium amenities. You know, you guys have already always done well with your XD screens. Where else do you see opportunities to create a more higher-end type of experience for consumers?
Mm-hmm. Yeah, so premium amenities, as you mentioned, has been a key focus of ours, and we're already the highest recliner penetration among major circuits. We've got 70% of our circuit is reclined. We're actually seeing those theaters are recovering faster than the non-reclined theaters in our circuit, so we see those investments paying off. We also see consumers, when they're coming to the movies, they're upgrading and trading up into XD, D-BOX motion seats, as well as indulging on the food side. So as we think of further opportunities for premium amenities, we certainly do expect to continue to invest in premium large format, in D-BOX motion seats, and then equipment that will allow us to continue to enhance, particularly on the hot food side, that can drive further expansion of our per caps. We do expect to have, you know, some recliner conversions, but I'd say the heavy lift there is behind us at this point.
Now, when you think about out-of-home entertainment options, we've seen significant price inflation or increases with concert tickets with sporting events. I mean, everything has gone up. But, you know, when you look at your business, you're very hyper local. You the average visits per year is probably larger or a bit more significant than, so like a sporting event or a concert. How much price elasticity do you actually think there is among consumers at this point?
Yeah, so it's something that we monitor on an ongoing basis. And our approach just in general is, we're ultimately looking to maximize attendance that comes through our doors, so we ultimately can monetize from there. So we're very focused on making sure that we have the right price for consumers that maximizes that attendance. We've increasingly started using data and analytics to look at how consumer elasticities are changing over time, and that informs our decisions very much on a de-averaged basis, looking theater by theater, based on various inputs on ultimately what our pricing decisions should be. In some cases, that means we'll increase prices. In some cases, that means we'll decrease prices. But we do still believe there's opportunity on the whole, on, on the pricing front, but we approach it cautiously, and we'll let the data drive those decisions.
Great. Let's step back again and talk about your suppliers of content, the studios. You know, it, it's interesting, pre-COVID, it looked like studios wanted to just collapse windows. Nobody seems to be talking about that anymore. But, you know, you still have a lot of partners who have these streaming services that they're trying to grow and become more profitable. Can you talk about, like, what's the studio's view right now about windowing? And then also, as you're dealing with sort of your new suppliers you know, Apple, Amazon, a little bit Netflix maybe, how are they thinking, are they bringing new, let's say, ways of thinking to the business and how they wanna supply content that's different from the traditional major studios?
So I would say from both a traditional studio standpoint and streaming platforms, namely Apple and Amazon, we certainly have seen support for theatrical releases as well as the exclusive theatrical window, and in fact, the data has shown that the way to maximize the promotional value and overall financial impact of a theatrical-quality film is ultimately with a meaningful, exclusive theatrical release. So, I'd say that's, you know, that's a shared view across both the traditional studio partners as well as the streaming platforms, and what the streaming platforms see, and studios alike that have streaming platforms, they see that an exclusive theatrical window improves the performance of their streaming platform. So we feel good about where kind of volume recovery is trending, as well as where the exclusive theatrical window is settling out.
When you see a major studio or even, you know, the tech companies who are now in the business, take something direct to, pretty much direct to streaming, and I would say... I'll use as an example, my favorite movie in the last year was The Holdovers.
Mm.
Loved the movie. I think it was in theaters for a weekend, and a lot of people still aren't that familiar with it, probably because it wasn't in theaters. It probably had a lot of similarities in, you know, a smallish type of film, but it seemed like they left a lot of money on the table just to bring it direct to streaming. When you talk with Universal or anyone else who takes that direct-to-streaming path, what pushback do you get of why they don't wanna bring it to theaters first?
Yeah, so ultimately, what we're saying is, you know, you might see select instances where films do have those shorter windows. However, you know, the day-and-date, there was one day-and-date-
Mm-hmm
- film in 2023, and that happened to be Five Nights at Freddy's, which was a, I think, an anomaly where ultimately, I'm not sure, you know, folks expected that film to outperform as, and be the-
That's probably actually-
- phenomenon it was.
That's probably a good indication that the youthful market doesn't mind going to theaters, and they're willing to shut down their screens for a little while to actually go see a movie that's of interest to them.
Yes, and our point of view is based on what the data has shown, that in those circumstances, there's potentially money that's left on the table by not giving the film an exclusive theatrical release. So we, you know, we do see pockets where there are, you know, different windows, shortened, more flexible windows. But by and large, what we see is that the industry's coalescing around that 45-day window, with the larger, more successful films running longer than that in many cases, and smaller films, or in some cases, challenged films, having that shorter window. And we think that a flexible window is advantageous for the industry, by and large. But when there are quality films, having that meaningful exclusive theatrical window, we think, is the way to maximize the overall impact.
Great. Now, one thing that has always served Cinemark well over the years is a very conservative approach to the balance sheet. You guys are now—you've been sort of building up cash on your balance sheet. You said you're gonna prepay some debt this year, and then you've got a convertible note. So in total, about $600 million of debt coming due in the next 15 months or so?
Mm-hmm. Yes.
That will take you back to your pre-pandemic debt levels. How are you... You know, as you think about where you wanna be with leverage, as you think about investment projects now that you may wanna do, of course, a lot of people are curious about when a dividend might come back.
Yeah.
How are you thinking about the whole process of how you wanna manage your balance sheet and excess cash?
Sure. So in the near term, our capital allocation priorities have been centered around strengthening the balance sheet, including de-levering, as well as making sure that we're making the right investments to position the company for long-term success. We have taken a very conservative approach to managing our balance sheet and our cash position, just given the ebbs and flows that we've seen in the industry. And, you know, given the temporary step back that we expect in 2024, we expect to continue to do that, while at the same time, opportunistically addressing our 2025 maturities. As you mentioned, we do intend to repay $150 million of notes that are stepping down to par in May of this year. And then, in addition to that, we do have a convertible note that matures in August of 2025, that we, you know, we have ample time to address that, as well as a number of alternatives. So again, they're looking to be opportunistic and prudent with our approach. Our approach to addressing that will be dependent upon box office recovery and cash flow generation. But we're clearly evaluating our options and taking a look at, you know, things as you would expect on trading prices, our stock price today and in the future, as well as market conditions. But we'll look to make the best choice, obviously, for the company and our shareholders over the long term. All that said, you know, over the long term, as we think about capital allocation, we're in ongoing discussions with our board around our capital allocation priorities, including potential timing of reinstatement of a dividend. Dividends were certainly a meaningful part of our capital allocation strategy prior to the pandemic and are a key consideration for us as we look forward.
Now, given the strength of your balance sheet, it does seem like, you know, there you have the ability, if you so desire, and if the quality is there, to look at some acquisitions, or maybe think about accelerating a new build opportunity. What are you seeing in the market, you know, as you think about expansion? Are there... Everyone always hopes that there's M&A, but there really hasn't been a lot of M&A in the last 15 years. But it seems like the market probably could be ripe for some new builds and opportunities along there. What are you sort of seeing on both those ends?
Yeah. So a key priority for us is optimizing our footprint, and that includes growing, recalibrating, strengthening our circuit as appropriate. With respect to the M&A side, we certainly target high-quality assets that we believe will deliver us strong and assured returns over time, and we look at all opportunities that are out there. To that end, though, I think it's important to note we're not a company that's looking for growth for the sake of growth. We're very disciplined and balanced with our approach, and, you know, what we will look for is ultimately financial creative investments that don't overly strain our balance sheet. So, you know, we'll see if opportunities arise, you know, with a setback in box office this year. But to your point, there hasn't really been much on the M&A front, at least of larger scale. On the new build side, that's an area where, again, kind of, as companies have recovered from the pandemic, you haven't really seen a lot of activity on the new build front, just given the industry's prolonged recovery. But we are looking at opportunities there that we think will be accretive and meet our return threshold. And in fact, we have reactivated our acquisition pipeline. We have five theaters that are slated to open in this year and next year, including a family entertainment concept. So, we certainly are looking to get back into the new build side of things, but I think it is important to note that our pace is certainly gonna be balanced and take into account industry recovery dynamics as well as cash flow projections.
Now, what about Latin America? You know, can you talk about the recovery and how it's been doing relative to North America? And then what about, you know, is that still a market you wanna continue deploying capital into?
So Latin America, to your point, has been recovering faster than the U.S. It has a very—it's a very big movie-going culture. It's a social, family-friendly activity. We do like the diversification that that market provides, as well as the long-term growth potential, as many markets within the region are under-penetrated. In addition, we do have really strong market share in the region. We've got strong teams on the ground with deep local knowledge, and each country within our portfolio in Latin America is self-sufficient from a cash standpoint. So, we do like that market. Now, there are certain economic, political, and foreign exchange dynamics that can be challenging to navigate through, but over the long term, we do like the dynamics.
Any particular region in Latin America right now that if you saw some good opportunities, you think would be good versus, you know, any other market?
You know, I'd say it's return. It would be guided by the returns and the confidence that we would have in the returns that could be generated from those investments. So rather than kind of country-specific, we evaluate as we think about our global portfolio and the opportunities that present us or that are in front of us, we're using the same, you know, return hurdles across the board.
Okay. I know time's ticking here, but as you think about your CapEx for this year- how much, you know, do you need to play catch-up at all with maintenance on, on any of your, theaters, and how much can you deploy for revenue-generating CapEx?
Yep. So we're targeting, in 2024, $150 million of CapEx, and that's flat, flat to what we spent last year. As we think about how that's allocated, about 40% of that we expect to be earmarked towards maintaining a high-quality circuit, so the maintenance side of things. As we think about the balance, about 25% of that spend is earmarked for new build activity, so including the theaters, as well as family entertainment concept that I mentioned. We have about 15% is earmarked towards our multiyear laser projector conversion project, and then the balance is for other ROI-generating opportunities, and those are mainly gonna be focused on the premium amenities side that we talked about earlier.
Okay, so for the last question, I'm gonna put you on the spot here. So last year-
Mm-hmm
... nobody had their top, the top two movies of the year being Barbie and Oppenheimer. So what's gonna surprise this year?
Oh, I would say-
And you have to be right.
I think Wicked. I think Wicked. So that's our call for this year. It's Wicked.
Okay.
Yeah.
Well, thank you so much.
Absolutely.
This time goes fast, but Melissa, this has been great. Thank you.
Thank you so much.