Do you want—okay?
Hi everyone. My name is Omar Mejias, and I'm a research analyst at Wells Fargo Covered Media. Today we have Melissa Thomas, Cinemark CFO. Thank you for joining us.
Thank you for having me.
Maybe to start, can you talk about the current state of the industry and the level of consumer enthusiasm for movie-going today?
Yeah. Consumer enthusiasm for movie-going has remained strong, and we've seen a number of examples even more recently that demonstrate that continued enthusiasm for that cinematic experience. The 2025 slate, as we look at the holiday quarter door between now and end of the year, is probably one of the most robust and diverse since we've—that we've seen post-pandemic, which gives us optimism. When we look into 2026, and based on that sustained consumer enthusiasm, as well as our ongoing discussions with our studio partners in terms of their volume and release patterns, we're very much encouraged by the potential for the industry to continue to grow and Cinemark's position there within.
That's a great segue. Maybe touching on your point about, you know, release patterns and the supply side of the equation, we've seen a really nice recovery in the volume of films coming to market, and Paramount's new leadership recently shared plans to double their annual wide release schedule to 15 by next year with further expansion beyond that. What are you hearing from studios regarding their intentions to increase theatrical output? And what's your view on the potential number of films coming to market in 2026 and beyond that?
Yeah. We are having very positive conversations with our studio partners, and not only around their ongoing commitment to theatrical, but in addition to that, also about increases in volume going forward. As you mentioned, Paramount has stated that they intend to release 15 films next year, which compares to eight this year. A nice increase in output. Also, Amazon has publicly stated its plans to ramp to around 15 films per year. Also, while not entirely clear yet, Apple has had success recently with F1, and as we kind of look forward, they're certainly speaking positively about the theatrical space as well as potential for future releases. Then you have studios like A24 and Angel Studios who've been growing their content along with the non-traditional programming that has been expanding.
We feel good about the direction that volume is trending and those conversations that we're having with our studio partners. To your question regarding 2026 output, in terms of wide release volume, we've seen this year about 10% growth in volume. In 2024, we had about 110 titles. This year, we expect it to be around 120 titles. When we look into 2026, we expect to see continued growth in volume and starting to get closer to those pre-pandemic averages of 130 titles. At this juncture, we have line of sight to, call it, 103 titles for next year. That compares to about 100 titles at this time last year. We expect that the small and mid-tier films will continue to fill into the slate, as is customary, throughout the balance of this year as well as into 2026.
That's super helpful context. Maybe switching to, you know, average ticket price, I think you guys have delivered very impressive ATP growth of 4%-5% over the past few years, largely through a lot of strategic pricing actions that you guys have done internally. How should we think about ATP growth going forward? What pricing power do you believe Cinemark has overall? Curious to get your thoughts on PLF screens, especially around major titles.
Mm-hmm. For average ticket prices, we have seen nice success, as you mentioned, in growing our ATPs. In terms of what we expect, we do expect to moderately grow our average ticket prices for both fourth quarter of this year as well as full year of 2025 on a year-over-year basis domestically. The catalysts there are both our strategic pricing opportunities that we've been able to capture, as well as the premium format mix, which provides some lift, particularly as we think about fourth quarter, having Avatar being in the mix that tends to have higher 3D penetration and lend itself to higher ticket prices as a result. As you look beyond 2025 for average ticket prices, we do continue to expect to capture additional strategic pricing opportunities. We expect there to be some value there.
In addition to that, we continue to lean into premium formats like XD, ScreenX, D-BOX motion seats, which we would expect to benefit our average ticket prices. We do expect some catalysts there. I would also just mention that that will fluctuate quarter to quarter with film mix. In terms of pricing power, I mentioned we do believe we have opportunity there, but that is data-driven. We are looking at consumer elasticities, how those are changing over time, and that's helping inform our decisions 'cause overarchingly, our strategy is to maximize attendance and box office.
I think you just touched on the consumer, right? I just wanted to get your thoughts on, I think there's been a lot of chatter around, like, this potential weakness around the consumer. Are you guys seeing anything in the data or any slowdown in terms of attendance?
For our business, it tends to be more tied to film content than it is to economic cycles. We continue to see consumers come in and fully embrace the theatrical experience. They're upgrading to premium amenities, elevated food and beverage spend, so they really are, continuing, you know, to uptake on these premium items. We haven't seen at this stage impacts. Again, it's more tied to film content. The other point I would mention too is merchandise has done very well for us, despite, you know, economic conditions.
No, absolutely. Maybe I think we were talking about the premium formats. You guys have been very actively investing in PLF, including in-house brands like D-BOX and ScreenX, as well as your recent deal with IMAX.
Mm-hmm.
What opportunities do you see to expand PLF screens across your circuit, and how high a priority is this internally?
Yeah. We have consistently seen post-pandemic consumer demand increase for premium amenities. That continues to be something we view as a growth lever that we'll continue to lean into in 2026. PLFs, whether it be XD, IMAX, ScreenX, they're great ways to enhance the guest experience, and they also drive higher ticket prices. One of the things that, you know, is important to mention there is that they still do represent a relatively small percentage of the overall box office. We aim to strike a right balance. Our priority is making that overall experience, regardless of auditorium, feel premium. That can be through recliners, service, cleanliness, and elevated food and beverage. That allows us to build loyalty and value perception across really all audiences. Consumers can further enhance that experience by trading up to PLFs and other amenities.
I think it was on your third quarter call, you mentioned exploring PLF opportunities in Latin America. Can you elaborate on what that might entail?
Mm-hmm. We have been investing in PLFs in Latin America for quite some time. We do have XD screens. We also have D-BOX motion seats, and in fact, you know, we continue to invest in that regard. We announced recently that our intent is to add another 80 D-BOX auditoriums as well as 20 additional ScreenX locations. That does include, for both of those, Latin America locations. On the IMAX deal, we are looking to see if there's an opportunity to add another IMAX in a location in Latin America. Ultimately, it really comes down to where we see consumer demand and strong returns, we'll want to make those investments.
That's great. On concessions, you've also been growing concessions in F&B per caps at an impressive 6%-7% over the past couple of years. How should we think about growth going forward, and what are the biggest drivers there? I would also love to get your thoughts. I think you talked about it or touched on earlier around the opportunity to further drive merch sales.
Mm-hmm. Sure. On the food and beverage side, for this year, we do expect moderate growth in our food and beverage per caps. That is as we continue to execute on initiatives to drive incidence rates as well as optimize our pricing. Beyond 2025, we do have initiatives underway as well as additional opportunities identified that we believe will continue to support food and beverage per cap growth. That again, similar to our average ticket prices, will fluctuate quarter to quarter depending upon content mix. In terms of, you know, key drivers or levers that we have, really food and beverage growth is a game of singles and doubles.
We continue to look to improve throughput of our concession stands, making sure that we're tailoring our offerings to align with local preferences, driving or leaning into enhanced flavors, like the flavor trends that are out there, also expanded food offerings. As you mentioned, merchandise sales is an area where we do see opportunity, specific on the merchandise side, particularly movie-themed merchandise. Consumers love that. It's an area that we do believe, we've seen nice growth, and we believe there's further runway there. What's nice about merchandise is that not only is it driving an incremental sale, but in addition to that, it's also helping to eventize and promote the content because of the kind of recognition it gets in social channels, particularly when you have talent backing it and it goes viral. There's multiple benefits on that front.
That is great. I think just from my early, early research on this front, it's just, it's kind of hard to predict demand on the merch side. How do you guys internally manage that sort of balance between saying you gotta order it well ahead of time and then you still don't know how the movie's gonna perform or, you know, how is the tracking going? How do you guys manage internally that balance on merch?
It's an ongoing effort because you don't wanna overorder and have the inventory risk, but at the same time, you don't wanna miss out on an opportunity. That is an art that, you know, we continue to perfect. We test a lot in terms of what different titles lend themselves to merch, more so than others. That's an area that we continue to refine. We do think we have further opportunity.
Great. On the cost side, could you touch on the puts and takes of the underlying trends on some of your key expense categories in both domestic and international? I know there's a lot of inflationary pressures.
Mm-hmm.
I wanted to focus mostly on some of the incrementals from recent trends. Just what are you seeing lately? Anything that's changed in some of the key categories?
Yeah. So broadly, as box office scales, we do expect to get more leverage over our fixed costs. On the variable cost side, which is mainly our salaries and wages, our concession costs, film rental, and then in the case of international facility lease expense, that will fluctuate based on attendance, although not necessarily at the same rate. In terms of specific line items, we do continue to face inflationary pressure both on wage rates as well as certain concession costs. Some other items that I would highlight would just be film rental. It has been reflecting a higher concentration of tentpole films, which we expect may continue. Depending upon how small and mid-tier titles perform, that could balance out a bit. In addition to that, on utilities and other, that is one area where we have been working through some deferred maintenance costs.
You've seen us do that through the course of this year. We expect that to continue into the next year or two, as we work through those deferred expenses.
Are there still opportunities to reduce costs? I know you guys did a lot of work on that around the pandemic, and just curious on, is there still some more runway for you guys to get leaner and more efficient?
Yeah. We do continue to focus on driving productivity and operating efficiencies, particularly in the area of salaries and wages and concession costs amid inflationary pressures that we've seen. On the concession cost side, we have a number of initiatives underway to try to mitigate inflationary pressures, some of which would be strategic sourcing efforts. Consolidating suppliers, leveraging our scale, doing competitive bidding, and, in some cases, moving to different suppliers. We also are pursuing proactive category management, looking at assortment selection. Our pricing is another lever as well to mitigate those pressures. On the salaries and wages side, our theater labor, we do continue to look for ways to drive productivity. We have initiatives in place, both leveraging tools and technology, as well as streamlining our operational processes to mitigate some of the wage rate increases that we're seeing.
That's super helpful. You're already approaching pre-pandemic margins of 20% while attendance remains roughly 30% below pre-pandemic levels and overall box office still 20% below 2019. How should we think about Cinemark's margin structure going forward as the box office potentially gets back to $10 billion, and how much opportunity you see to drive margins higher?
Yeah. From a margin perspective, we're optimistic about our long-term margin potential, particularly in light of our expectations for continued box office recovery, as well as the value we anticipate to deliver from our strategic initiatives. Other factors that play a critical role, as you know, the primary factor is attendance and box office, given the leverage we do get as box office scales. Beyond that, market share, average ticket prices, food and beverage per caps, and the value we capture from our strategic initiatives are going to be key drivers that influence our margin profile. In addition to that, our ability to mitigate some inflation-inflationary pressures that may arise. On the international side, FX dynamics and broader inflation come into play there as well.
We continue to look for revenue-generating productivity driving initiatives, and we'll look to maximize margin, as best as we can.
That's great. You just mentioned market share. I think that's been one of the key drivers for Cinemark's performance and outperformance. We saw that in the 3Q results despite the softer box office. I understand that the box office continues to recover and that there might be some capacity constraints. How has Cinemark been able to continue to gain share, and how do you plan to manage your footprint with a busier release slate?
Mm-hmm. From, when we look at market share, we do believe our market share has benefited from our ongoing investments in our circuit amenities, as well as guest experience, as well as our initiatives around showtime optimization, marketing, and the strength of our loyalty programs. Now, post-pandemic, we have experienced outsized market share gains driven by fewer capacity constraints and a more spread-out slate. As we look at the volume and scale of films continuing to increase, we could start to approach capacity limits, in some cases going forward, which could temper our market share from these record levels that we've been seeing. In addition to that, content mix does play a key factor, and we'll have to see, you know, how the slate pans out to determine that.
All that said, we do believe that we can maintain at least 100 basis points of our market share gains that we've realized post-pandemic. Beyond that, we need to see a more normalized box office before we can see if the amount over that 100 basis points, to what extent that's sustainable.
That's great. And this year has been, it's been running above that 100 basis points.
Yeah.
It's always good to see that.
Yeah.
On non-traditional content, I think you touched on it. It's been really a great driver for you guys. Alternative content has seen a notable success recently. How's Cinemark leaning into this category, and what on-tap opportunities do you see within this vertical?
Yeah. We have enhanced our focus on non-traditional programming, and the results are really starting to show. As you look at even over the past three years, non-traditional content has represented over 10% of our box office. In fact, this past quarter, it represented 16%. That is not only indicative of our focus, but also the greater availability of content that is appealing to audiences. Some of the categories that are working best for us would be anime, faith-based, multicultural, and also repertory titles have been working well. We do believe, even prior to the pandemic, thought that alternative content, you know, was an untapped opportunity, and it is nice to see it really starting to get some legs.
It is an area that we do continue to emphasize in, and we do believe that it could drive incremental box office, and it also expands audiences.
No, that's super helpful. On the One Big Beautiful Bill, I always struggle saying that. I think we get a lot of questions from clients. What's the impact of the OBB to Cinemark? If you can quantify the benefit from the 100% bonus depreciation and the resulting reduction in tax liability?
We do stand to benefit meaningfully from the new tax legislation and in two key areas: 100% bonus depreciation, as well as the loosening of the interest expense limitations. In terms of the benefits, based on our current projections, we do expect the legislation to benefit our cash taxes by around $30-$35 million annually over the next few years. Once our interest expense carry forwards are fully utilized, we would expect that savings to temper down a bit. Overall, meaningful benefit.
Definitely meaningful. I think another area of focus for you guys has been capital allocation. There has been a lot of activity on the capital allocation front. You have repaid your warrants. You have announced a $300 million share buyback, raised your dividend by 12%-13%. What are your top priorities going forward? How does the board think about returning capital to shareholders via buybacks or dividends?
Mm-hmm. We have three key pillars to our capital allocation strategy. First is maintaining the strength of our balance sheet. Second is investing in accretive opportunities that will continue to position us well for the long term. Third is returning excess capital to shareholders. As we think about priorities, maintaining the strength of our balance sheet and pursuing growth opportunities are first and foremost our priorities, followed by returning capital to shareholders, provided that our net leverage ratio is within our target range of two to three times. Naturally, our cash and overall liquidity are also key considerations as we evaluate the extent and pace to which we return capital to shareholders. From a kind of dividend versus buyback, both we believe will play an important role in our capital allocation strategy going forward.
On the dividend side, our aim is to maintain a sustainable and growing dividend while still preserving flexibility. The dividend, combined with the recently authorized share repurchase program, allows us to kind of return excess capital to shareholders over time in a balanced and disciplined manner that aligns with our long-term objectives. That relative mix between dividends and buybacks, that's something that we'll evaluate over time based on facts and circumstances at any given time.
I think you talked about growth being a key priority, right?
Mm-hmm.
Could you maybe give us a, what's the internal view on some of the top priorities to drive that growth? I know you've been talking about growth CapEx. Is that expected to increase over the next couple of years? How, what are your focus areas on the growth side?
Mm-hmm. From a capital expenditure standpoint, this year we made a sizable step up in our CapEx, targeting $225 million. We do expect, while we're still in our budgeting process and have not provided a target there yet, we do expect, based on the ROI generating opportunities in front of us, that we will increase our capital expenditures next year. That would be to, again, increasingly pursue ROI generating opportunities, both concentrated in premium amenities, as well as, as our new build pipeline ramps up, we will start to see some increased CapEx there.
That's great. On M&A, you talked about being open and trying to actively capitalize on market opportunities and potentially adding new assets.
Mm-hmm.
What's your appetite for M&A? What do you look for in a target? From a financial capacity standpoint, how much cash do you feel comfortable holding now that you're generating healthy free cash flow and leverage is approaching that lower end of your target range?
With respect to M&A, kind of consistent with our overall capital allocation strategy, we maintain, as I mentioned, a balanced and disciplined approach. We target high-quality assets with minimal deferred maintenance needs. We're looking for accretive opportunities at attractive multiples. We like to look at assets that allow us to penetrate our existing markets more deeply. That way, we can leverage our established infrastructure, relationships, and market knowledge to create value. Naturally, there are other factors that we evaluate: scale, strategic importance, competitive positioning. Margin profile is also an important factor. We do look at all opportunities that come to market. They need to kind of fall within that investment criteria.
Sorry, I did not answer your question on cash. We feel really good now that we have the convertible notes, warrants, our pandemic-related debt behind us, about the strength of our balance sheet, and more specifically, to our cash. You know, we look to keep overall cash and liquidity enough on hand to have flexibility, not only to fund our operations, but also support our strategic priorities. That also includes having the flexibility to pursue ROI generating opportunities or tuck-in M&A as they may arise.
I am just curious, are there any changes, or have you seen any changes in the M&A market, or are there more? We just saw some competitors recently announced a deal. Has there been any underlying changes on trends in terms of more availability of assets coming to market?
Assets come to market from time to time. Like I said, we'll evaluate. I mean, there have been recent opportunities. We look at those opportunities as they come to market. I would not say kind of overall, kind of broad changes in the M&A landscape at this stage.
Got it. I think when we last met at Cinemarkon, there was a lot of talk on theatrical windows. That was a very popular topic at the time. I think things have quieted down a little bit, but I do not think the underlying problems have gone away, right? I think there is still a lot of, I would say, difference of opinions in terms of what is the right theatrical window. Are studios moving towards some consistency around? I just wanted to get your thoughts on minimum number of days or just any sort of changes on that front.
Yeah. Windows continue to vary by studio film release timing. Most of the major films are 45, at least a 45-day window, with Disney kind of consistently being at 60 days, which has been really productive. Smaller titles and those that do not resonate as well with audiences have had shorter windows. Those have had a wider range, call it 18-45+ day windows. As we, you know, look at the window strategy, I mean, we do believe that a flexible window is beneficial for both studios as well as exhibitors. That said, we do need sufficient window between when a film is released theatrically and when it ultimately enters the home.
It's not really the window that is on theaters. The one that really matters is the one after, until they pay one window.
Yeah. For our, our ideal scenario would be a 45-day window. Yes. With, you know, some flexibility.
Right.
Yeah.
Noted. Also, on release schedules, we've seen crowding around summer and some of the holiday periods. Could studios and exhibitors benefit from just spreading releases more evenly throughout the year? Has there been any work done on this front? I think it would benefit everybody in the industry. Just curious your thoughts on this.
Yeah. There are a number of examples of films that have worked, and it, we believe it has been proven that 12 months out of the year, you can have a successful release with quality content. So we do believe that that consistent cadence of releases is really important, given this is a momentum business where movie going begets movie going. So we do think there is an opportunity to spread out the slate more, rather than just having that key concentration in, you know, the summer months and the holiday period at year end.
Absolutely. I think maybe on the last question for you would be, I think you guys just recently launched this comprehensive brand campaign. It is showtime.
Yeah.
Can you share more about this initiative and any early feedback or results?
Yeah. We're excited about our recent campaign that we launched. It's really our first comprehensive brand campaign, and it's meant to showcase what differentiates Cinemark and provides kind of more of that totality, what differentiates the totality of seeing a movie at Cinemark and our experience. It's meant to target or drive loyalty and connection, which we think the campaign does a nice job of. I think it complements well our existing marketing assets around our XD brand as well as Movie Club. It really rounds that out. We are in market testing the campaign now. We're still early days, don't have feedback to share with you yet, but we really like how the campaign turns out, and we think it really does a nice job of showcasing kind of why go to Cinemark to see a movie.
Thank you so much, Melissa. Go to Cinemark, everybody. And thanks for coming and joining us today.
Yeah. Thank you for having us.