Cinemark Holdings Inc.

Good day and thank you for standing by. Welcome to Cinemark's third quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, press star 0. I would now like to hand the conference over to your speaker today, Chanda Brashears, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Thank you, Stephanie, and good morning, everyone. At this time, I would like to welcome you to Cinemark Holding, Inc.' 's third quarter 2021 earnings release conference call, hosted by Mark Zarate, Chief Executive Officer and Board Director, as well as Sean Gamble, President and Chief Financial Officer. In accordance with the safe harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that are addressed by members of management during this call may constitute forward-looking statements. Such statements are subject to risk uncertainties, and other factors that may cause Cinemark's actual performance to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company's SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast may include non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures can be found in today's press release, within the company's quarterly filing or Form 10-Q, or on the company's website, investors.cinemark.com. I would now like to turn the call over to Mark Zarate.

Thank you, Chanda, and good morning, everyone. We appreciate you joining us to discuss our 2021 third quarter results. I'm very pleased to start off by saying that our industry and our company continue to make significant progress in recovering from the effects of the pandemic. We're highly encouraged by the continuing positive trends with increasing consumer demand for the cinematic theatrical experience and growing momentum at the box office. This favorable progress was demonstrated in our third quarter's 61% growth in worldwide attendance since last quarter in 2Q21. Importantly, that growth in attendance flowed through to our bottom line results in the third quarter, which included positive adjusted EBITDA of $44 million, Our 3Q results marked a significant milestone for Cinemark as it represents our first quarter since the pandemic began with positive total company adjusted EBITDA. Furthermore, every month in 3Q delivered positive EBITDA, which tangibly underscores our company's resurgence. Strength in the domestic box office was a key driver of our third quarter performances. as the North America industry delivered $1.4 billion of gross proceeds on a larger volume of more sizable commercial releases. Top hits in the quarter included Shang-Chi and the Legend of the Top Rings, Black Widow, Jungle Cruise, Free Guy, Space Jam, and the carryover from 2Q's highly successful release of Fast and Furious 9. And consistent with last quarter, I'm thrilled to report that Cinemark once again over-indexed the North America industry box office performance relative to 3Q19 with a substantial outperformance of 700 basis points. This outperformance helped us capture an approximate 15% market share of North America box office, which significantly exceeded our historic average of just under 13%. Our 15% market share achievement is particularly meaningful this quarter as the vast majority of theaters in the U.S. and Canada had reopened. During our last several calls, we've talked about four key factors that impact theatrical exhibition recovery, all of which continue to experience noteworthy progress. First is the status of the virus. Driven by vaccine penetration to date, as well as impacts from the virus beginning to subside, COVID rates have plunged 73% since the Delta variant peaked in September. Vaccination rates continue to rise across the U.S., especially with the recent approval of inoculation for children five and older. Moreover, vaccination rates are also rapidly progressing throughout Latin America. The second factor is government restrictions, which have largely gone away in the U.S. and at this juncture and continue to reduce in Latin America. Third is consumer sentiment. While the Delta variant threw us a curveball during the third quarter and caused a meaningful dip in consumer comfort regarding visiting theaters, that sentiment has since recovered to 77% of U.S. moviegoers expressing comfort in going to the theater in the current environment. This level of positive response is in line with the peak levels of sentiment we witnessed in early July of 78%. And the final key factor in this exhibition recovery is the consistent flow of new film content with broad consumer appeal, which clearly is now underway. Of course, these recovery factors not only apply to the U.S., but are also applicable on a global basis. And while the domestic market is further along in its rebound cycle, we're also seeing positive trends in Latin America. Currently, 100% of our theaters have reopened across the region. And even though certain capacity and operating hour restrictions persist in Central and South America, consumer demand to return to the theaters is very strong. There is no question that theatrical exhibition is meaningfully recovering around the world. And Cinemark is extremely well positioned to benefit during this comeback on account of the many operational advancements we made during the pandemic, as well as our ongoing efforts to maximize attendance and drive new ancillary revenue opportunities. Some examples include improved operating efficiencies, enhanced marketing programs and capabilities, and our recently implemented online food and beverage platform, new alternative content possibilities, and ongoing impact of our premium amenities. In terms of operational efficiencies, we've made some significant strides over the course of the pandemic. For instance, We're optimizing operating hours and showtime schedules through utilization of enhanced data management analytics. We have simplified and streamlined numerous theater practices, such as ticket issuance, inventory procedures, and ushering routines to be leaner and more efficient. And we've refined the degree of staffing that is required to operate our theaters, including enhanced planning and management controls. We also continue to significantly advance our digital and social marketing capabilities, utilizing proven best practices from retail, travel, and technology industries. Examples include leveraging iterative A-B testing to identify and scale winning concepts, simplifying consumer touchpoints to drive a more frictionless experience, and applying advanced analytics against our highly valuable customer database to drive improved targeting, accuracy, and contextually relevant messaging. These actions and capabilities are focused on increasing movie-going frequency and overall consumer spend, and we believe they will be highly valuable in navigating the competitive landscape ahead and maintaining our increased market share. In tandem with our digital and social marketing actions, we continue to leverage our unique industry-leading transaction-based subscription program, Movie Club, to drive attendance. During the third quarter, we completed billing reactivation on all Movie Club accounts that were proactively paused for the past year and a half during the pandemic. In doing so, we have been extremely pleased by the minimal amount of churn we've experienced, which represented only a modest 6% dip in our pre-pandemic membership base. that was largely driven by credit cards that expired during that time frame. This dip was better than expected due to our member first approach and we're already seeing new net positive movie club additions as we actively work to reattain those expired members as well as attract new ones. We've also continued to further enhance movie club and recently introduced movie club platinum an earned premium tier that provides our most frequent moviegoers with even bigger incentives. We expect this heightened tier will serve to further increase loyalty of our most active customers, as well as stimulate incremental transactions. Since we announced the launch of Movie Club Platinum just over a month ago, 64% of Movie Club members familiar with the program stated that they have been incentivized to achieve Platinum status this year. Another foray into simplifying and enhancing our customer experience while driving ancillary revenues is Snacks and a Tap, our recently launched online food and beverage ordering platform. This platform enables guests to skip the line and have their concessions ready for pickup upon arrival or delivered to their seats for a nominal fee. The added convenience and time savings provided by Snacks and a Tap have been extremely well received by our moviegoers and we look forward to continuing to grow the program's awareness and utilization in the months ahead. We're also continuing our reintroduction of select expanded food and beverage options as a more consistent release cadence of stronger film content takes hold and moviegoer attendance increases. Another exciting new business venture that we announced last week is our heightened focus on gaming initiatives, including our plan to hire a new vice president to forge strategic relationships and pursue content and licensing agreements in the gaming realm. Gaming is the latest evolution in our ongoing focus to secure alternative content, further utilizing our auditoriums to supplement Hollywood film content. And we have seen several promising indicators with regards to consumer interest in both spectator and participatory gaming events. Additionally, we're continuing to explore other alternative content offerings and have seen similar positive results from events such as professional wrestling with AEW and WWE, boxing with Triller Fight Club, movie premieres, special live Q&A sessions with talent, and concerts, all in addition to ongoing events provided by Fathom Entertainment. We're also continuing to reap benefits from investments we've made in premium amenities that enrich the movie-going experience, which movie fans continue to seek out, including reclining seats with approximately 65% of our entire domestic circuit featuring luxury loungers, the highest recliner penetration among the major theater operators, premium large format auditoriums, led by our XD, our proprietary brand, which ranks number one in the world, which delivered 12% of our box office in the third quarter alone on only 4% of our screens. And an increase in D-Box motion seats, which are synchronized with the on-screen action. And finally, Cineotic laser projectors. In line with our previously announced partnership, we are featuring laser projections, crystal clear picture in all of our new built theaters, and continue to upgrade our existing theaters with laser technology, which lasts longer and operates more efficiently. We're happy to share that in addition to other locations across the U.S., we have completely converted all of our Dallas-Fort Worth theaters and screens, our home city, delivering consistently bright, colorful, and sharp images on laser. Speaking of new theaters, strategic new builds are a cornerstone of our strategy, and we are thrilled to have opened six new theaters and 67 screens already this year, all of which were committed to prior to the onset of COVID. These new build theaters are all in high-growth areas with significant opportunities to capture movie-going attendance. While it's still early days, we're highly encouraged by the results to date. We have opened three locations in the U.S., Kirkland, Washington, just outside of Seattle, Jacksonville, Florida, Waco, Texas, and three in Latin America, Guatemala, Chile, and Peru. We also have one more theater open to open later this year in Roseville, California, just outside of Sacramento. Based on everything I've just shared, I hope it's clear that we are pleased with our performance trend in the third quarter and the advancements we made to continue to make our business more vibrant through business development. While we're cognizant, there's still a long road ahead. Over the course of the coming months, we continue to expect an ongoing ramp-up of box office and overall financial results. The fourth quarter has already started out strong. As October delivered our best monthly box office results since the onset of COVID. Notably, our cash generation during the month of October was significant enough to more than cover all of our variable and all of our fixed costs. Looking ahead, upcoming film content for the balance of the year includes highly anticipated blockbusters, appealing to families and adults alike, such as Eternals, which opened with previews last night to outstanding results, Ghostbusters Afterlife, Encanto, House of Gucci, West Side Story, Spider-Man No Way Home, Matrix, Resurrections, and Sing Too to highlight just a few. And the slate next year looks absolutely tremendous with broad range of highly promising films for all movie-going audiences. Importantly, these films were made to be experienced in a cinematic, out-of-home entertainment environment that only a movie theater can provide. We're also optimistic about the future of exclusive theatrical windows as it's such a meaningful contributor to the overall media landscape, as we've witnessed with the positive box office results generated most recently. I have been a significant proponent of the longevity of the theatrical exhibition industry, and especially for Cinemark, as the company is uniquely positioned and poised for long-term success. Before I turn it over to Sean this morning, I'd like to take a brief moment to comment on the upcoming executive transition. As previously announced, this is my last earnings call as CEO of Cinemark before I hand over the reins to Sean at the end of this year. It has been an honor serving as CEO and leading the incredible people of Cinemark the past six and a half years. I would like to first thank the global team for their hard work, camaraderie, willingness to change and evolve, and for their industry-leading results. I would also like to thank the investment community, It has been tremendous getting to know so many of you over the years, and we appreciate your ongoing support. I, along with the rest of the board, am highly confident in Sean and his ability to lead Cinemark going forward. His operational background and strategic mindset, along with his keen eye for efficiencies and business opportunities, will be especially advantageous as Cinemark continues to emerge from the effects of the pandemic. I look forward to watching the company thrive under his direction as I continue in a strategic capacity through my position on the board. With that, I'd now like to turn the call over to Sean.