Cinemark Holdings Inc.

Good morning, everyone. At this time, I would like to welcome you to Cinemark Holding, Inc.' 's first quarter 2022 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 10Q, and on the company's website at ir.cinemark.com. In today's prepared commentary regarding revenue comparisons, we will be predominantly referring back to the first quarter of 2019, unless otherwise indicated, as the first quarter of 2021 was impacted by COVID closures, government restrictions, and limited new film releases. From an expense standpoint, we are comparing to the prior quarter, fourth quarter of 2021, as we believe it is the most relevant comparison in the current environment. Now I'd like to turn the call over to Sean Gamble.

Thank you, Chanda. Good morning, everyone. We appreciate you joining us to discuss our first quarter 2022 results. Following Spider-Man No Way Home's record-breaking success at year end, we continue to be highly encouraged by the progress our industry and our company is making as we recover from COVID, which led to first quarter year-over-year revenue growth of over 300% for Cinemark. Nearly every film released in 2022 to date has performed in line or better than pre-pandemic expectations, benefiting from favorable opening weekend results and strong week-to-week holds, which in many cases exceed historic trends. Importantly, we're now seeing positive box office recovery across all categories of films and audiences. Blockbusters like Spider-Man and the Batman not only appeal to younger male moviegoers, but their overall audience profiles were consistent with a pre-pandemic demographic mix for Marvel and DC Comics titles. Dog in Lost City skewed older and more female, while box office results for Sonic the Hedgehog 2 and The Bad Guys have been driven by families. Notably, Sonic delivered Paramount's biggest opening weekend in nearly a decade, and the film's overall run to date already exceeds the first installment. We've also seen remarkable results with alternative content. First, the live captured performance of BTS's Permission to Dance on Stage concert took screens by storm at the beginning of March and generated nearly $33 million of box office around the globe on only two show times. As a result of our industry-leading technology, Cinemark showcased this live concert at more theaters than any other exhibitor worldwide. selling out auditoriums, and meaningfully over-indexing in market share. Next came the global expansion of Jujutsu Kaisen Oh, which has grown to become the second highest grossing anime film of all time. In North America alone, this film generated nearly $30 million in box office. And closing out the first quarter was Triple R, which set a new domestic opening day record for an Indian film, and rounded out its domestic run at $11 million, the second highest result ever for an Indian title. With Cinemark's consistent focus on multicultural films, we were the number one exhibitor for Triple R and all Indian films throughout North America during the first quarter. Now that COVID has entered a transitionary phase from pandemic to endemic, and government restrictions on theatrical exhibition throughout most of the world have lifted, our industry is well positioned for sustained recovery. Moreover, consumer sentiment regarding moviegoing continues to improve and just reached a new high. According to NRG, 87% of moviegoers are now expressing comfort returning to movie theaters today and 89% within one month from now. While these improvements clearly represent further steps in the right direction, the near-term film landscape remains dynamic with production timelines and associated release dates still being affected by COVID. Multiple film releases were impacted by Omicron in the first quarter, and we've seen several titles intended for 2022 shift to 2023 due to production delays. As a result, we expect 2022 will remain below pre-pandemic levels due to a reduced volume of films. That said, we've become well-versed in dealing with these types of shifts, And we remain highly optimistic about the continued ramp-up of box office results as an increasing volume of high-quality films returns to theaters with a steadier release cadence over the course of the year. That optimism was certainly validated by Dr. Strange into the multiverse of Madness' massive opening box office last night, which clearly has set the stage for a sensational opening weekend result. Furthermore, last week we were exposed to a wide array of highly compelling first-look footage during our industry's annual trade convention, CinemaCon, which brings together studios and exhibitors from around the world. During their presentations, our studio partners showcased what they have lined up over the next year, which includes a robust set of diverse films that are sure to delight all types of moviegoers. As expected, 2022's slate of tentpole films appears poised to fully deliver. In addition to Doctor Strange, which is already off to an amazing start, we saw captivating first-time footage from Jurassic World Dominion, Black Adam, The Flash, and Shazam! Fury of the Gods. We also got to see Disney's first official trailer for Avatar 2, The Way of Water, in 3D. James Cameron consistently pushes the boundaries of movie-making technology in his storytelling, and based on what we saw, this film is no exception, with extraordinary visuals that break new ground once again. And one of the highlights of the conference was Paramount's first public screening of Top Gun Maverick in its entirety. For those of you who have been anxiously awaiting the release of this film, like me, all I can say is get your advance tickets now. You will not be disappointed. We were also shown several examples of highly encouraging footage in the mid-tier category of films, including Bullet Train, starring Brad Pitt and Bad Bunny, Ticket to Paradise, a romantic comedy that reunites George Clooney and Julia Roberts, and Elvis, a bio-drama with a modern flair, starring Austin Butler and Tom Hanks, from director Baz Luhrmann. CinemaCon attendees were also thrilled by glimpses of a wide range of horror and suspense films, including the final saga in the Halloween franchise, Halloween Ends, Stephen King's Salem's Lot, Jordan Peele's newest thriller, Nope, and Jason Blum's The Black Phone, which also screened during the conference and generated significant buzz. On the other end of the spectrum, we saw spectacular footage from several family films that are coming in 2022, including Minions, The Rise of Gru, Puss in Boots, Paws of Fury, DC League of Super Pets, and an extended look at the first 30 minutes of Pixar's Lightyear, which is sure to fully enthrall audiences young and old. Finally, we had an opportunity to see a series of compelling scenes from various specialty and art house films, including Downton Abbey A New Era, Where the Crawdads Sing, Are You There, God, It's Me, Margaret, White Bird, A Wonder Story, and Don't Worry, Darling, just to name a few. There was a shared excitement and enthusiasm at CinemaCon regarding the box office plus momentum that is well underway and the future prospects of theatrical exhibition. As stars and directors spoke about their upcoming films, they championed the magic of moviegoing and emphasized that they make their films for the big screen and the shared cinematic experience. Furthermore, a key message we heard from every studio was the importance of a theatrical release and a theatrical window in the studio value equation. This does not necessarily mean that every film they produce will be released theatrically. However, there was a shared recognition and reaffirmation about the strategic benefits theatrical releases provides to varied genres and sizes of film. Multiple studios are now indicating that films released theatrically with a window are performing better on their streaming platforms than those without a theatrical release. This observation underscores how theatrical exhibition can be complementary and accretive to streaming, no different than it has been with VHS, DVD, pay TV and free TV for years. As studios aim to create bigger cultural moments, build larger brands and franchises, more effectively promote their streaming platforms, attract the creative community, and maximize revenue and profitability, a theatrical release with an exclusive window is a key enabler for doing so. Theatrical exhibition increases the awareness and value of films by eventizing them, enhancing their perceived quality, creating stronger emotional connections with stories and characters, reducing piracy, and providing multiple monetization opportunities, which increases revenue across all distribution channels. Turning attention to our first quarter results, while the impact of Omicron created a drag on overall box office performance in the quarter, Cinemark once again far outpaced North American industry recovery by an impressive 650 basis points when comparing 1Q22 against 1Q19, an outperformance trend we have maintained for 12 of the past 13 years. Similarly, our Latin American admissions surpassed their corresponding industry results by approximately 500 basis points. And despite the challenging start to the quarter due to varied film release shifts, we delivered positive adjusted EBITDA both domestically and internationally in 1Q, driven by our industry outperformance strong concession sales, and stringent cost management. We've been asked multiple times about the drivers of our market outperformance and share gains over the last several quarters. In addition to meticulous planning and solid operational execution, we attribute those results to two key factors. First is the lift we realized by being one of the first circuits to reopen during the pandemic. That enabled us to both capture new audiences and build tremendous goodwill with our guests. Second is the combined benefits we've derived from our key strategic initiatives and investments over the years, particularly in the areas of technology, premium amenities, food and beverage, marketing and loyalty programs, and guest service. Our industry-leading technological capabilities in presentation quality, content management, and our ability to simulcast live events across our global circuit provide us an advantage position relative to our peers. For example, Because of our integrated screen network, we are able to host live beyond-the-screen experiences that complement Hollywood content, such as exclusive talent Q&As, sessions, concerts, and sports and gaming events. These type of communal engagements offer fans unique, enhanced experiences that deliver guest satisfaction scores which are off the charts. A perfect example is the presentation of the live captured BTS concert I mentioned earlier. Cinemark's consistent focus and investment in theater technology enabled us to seamlessly broadcast this global phenomenon and significantly over index. And to ensure that our sight, sound, and content management capabilities remain best in class, we've continued moving forward with the plans we announced back in 2019 to convert our entire global circuit to Cineonic laser projectors. This transition will elevate our Cinemark moviegoing experience even further by delivering more vivid colors, sharper focus, and brighter on-screen imagery to showcase the incredible film content that is on the horizon as optimally as possible. While doing so, we will also derive meaningful cost savings and environmental benefits associated with laser projection. Our investments in premium amenities are also an important driver of our outperformance, especially with regard to our luxury lounger recliners, premium large format auditoriums, and D-box motion seats. Moviegoers resoundingly prefer the enhanced experience that our recliners provide, often driving past non-reclined theaters to enjoy the added comfort of this amenity. Additionally, we've seen how reclined theaters have been recovering faster than those that are not reclined over the course of the pandemic. With over 65% of our domestic circuit reclined, we continue to benefit from our luxury loungers, which is reflected in our outsized results. We've also seen an increase in consumers electing to upgrade to premium large formats and D-box motion seats compared to pre-pandemic levels. While our nearly 300 premium large format auditoriums, which includes our number one exhibitor-branded PLF XD and IMAX, only represent 5% of our global screen count, they accounted for over 14% of our global box office in the first quarter alone. This box office contribution ratio is up a sizable 530 basis points over the first quarter of 2019, and it yielded an 8% increase in domestic PLF admissions revenue dollars versus the same period. Likewise, our DBOX revenues, our domestic DBOX revenues are up over 25% compared to 1Q19. Considering the high demand for these ultra immersive premium experiences, We plan to expand our XD screens and D box seats during the course of 2022, which we expect will provide further upside. We are also about to launch a new XD campaign ahead of this year's summer blockbuster season to drive even greater awareness and engagement. Our investments in food and beverage initiatives are also an important part of our comprehensive guest experience. Over the years, we've continued to place a strategic emphasis on our high margin core concession offerings, while expanding our menus to provide broader appeal to every moviegoer. These tactics have been paying off as evidenced by consistent per cap growth we've achieved year after year. Along with increased indulgence as moviegoers return to our theaters, our food and beverage initiatives help deliver yet another record-setting per cap in the first quarter of 2022. We have also evolved how we offer food and beverage by reimagining the design of our concession stands and introducing a new convenient online ordering platform called Snacks in a Tap. In addition to providing improved transactional ease for our guests who take advantage of Snacks in a Tap, the platform simultaneously helps reduce lines in our theaters, thereby delivering a double benefit. We fully launched Snacks in a Tap less than a year ago, and we expect it will continue to provide benefits to our guest experience and concession revenues as more consumers discover the feature and we roll out future promotions and enhancements. Our market outperformance has also benefited from the advancements we've made in our marketing capabilities and loyalty programs, which have dramatically expanded our consumer reach, increased purchase conversion, and strengthened consumer engagement. For example, we now have the ability to dynamically customize the content we show consumers based on their location, loyalty status, film history, and numerous other factors. As a result, an average email we distribute typically has several thousand unique variations, which enables us to highly personalize our messaging and improve conversion rates. Our marketing and IT teams continuously work together to enhance our web, app, and online media platforms to improve our customer journey, remove transactional friction, and provide our guests a compelling digital experience that stimulates return visits to Cinemark. Our highly successful tiered loyalty program, Movie Rewards, also aims to increase movie-going frequency and visits to Cinemark. Consumer enthusiasm for our paid tier, Movie Club, The industry's first exhibitor-led subscription program remains strong, and we currently have 980,000 members, which now exceeds our peak in 2019. We continue to add new members each week, and we are fast approaching 1 million subscribers. Our varied loyalty programs throughout the US and Latin America provide direct communication channels to our guests and have a high perceived value, which in turn leads to incremental sales opportunities. Our collective marketing efforts have been highly successful, and we intend to continue leaning into our advertising, promotional, and loyalty campaigns throughout 2022 as we work to fully reignite theatrical moviegoing. And finally, we continue to derive sustained benefits from our long history of providing top-notch guest service. Exceptional guest service has been foundational to Cinemark's operating practices since our inception 35 years ago, and we consistently earn guest satisfaction scores in excess of 90%. That said, while we have ingrained the notion of guest service in our training and operational DNA, we continue to work on taking our service quality to the next level, and doing so will remain a key focus of ours going forward. The combined impact of our investments and advancements in technology, premium amenities, food and beverage, marketing and loyalty programs, and guest service along with solid operational planning and execution, drove our box office outperformance in the first quarter, as well as our positive adjusted EBITDA results. Additionally, our adjusted EBITDA was further supplemented by the productivity and process efficiency initiatives that we've described on prior earnings calls, including our workforce management and continuous improvement programs. As we move ahead and we focus on positioning our company for ongoing success in the evolving media and entertainment landscape, we intend to continue to invest in all of these areas to support our five strategic priorities. As I described in February, these priorities are providing our guests an extraordinary experience by delivering world-class guest service, quality, value, ease, and premium entertainment. Building audiences via a wider range of content offerings and marketing sophistication. Growing new sources of revenue by creating incremental sales opportunities. Streamlining processes through additional simplification, productivity, and continuous improvement initiatives. And optimizing our footprint to ensure we are appropriately situated in the most advantageous locations to deliver sustained long-term results. In summary, I'd like to reinforce how pleased we are with the positive trajectory of industry box office recovery that is fully underway and our sustained optimism about its continued momentum going forward. Our studio partners and varied content providers are delivering must-see films and events that are intended for theatrical exhibition. And because of our consistent investments in and our focus on providing our guests an exceptional cinematic experience, as well as all of our concentrated efforts to reignite theatrical moviegoing, Cinemark is well-positioned to fully capitalize on surging demand as we head into the exciting summer movie season and beyond. I'd like to thank our incredible team for all they continue to do to keep Cinemark at the forefront of our industry. With that, I will now pass the call to Melissa, who will provide further information about our first quarter financial results. Melissa?

Thank you, Sean. Good morning, everyone, and thank you for joining the call today. We are encouraged by the recent box office recovery trend Sean mentioned, with momentum building in late February and March. Despite the impact of the Omicron variant and its effect on the film slate during the first half of the quarter, we were pleased with the results we delivered, which significantly exceeded our expectations. Starting with our worldwide results, our attendance was 33.1 million patrons in the first quarter. we delivered $460.5 million of total revenue and $25.2 million of adjusted EBITDA. The first quarter represents our third consecutive quarter of positive adjusted EBITDA generation and underscores the resurgence in moviegoing and our discipline around cost. Turning to our U.S. operations, we delivered attendance of 20.7 million patrons during the first quarter. Operationally, we sought to be as flexible as possible and reduced our operating hours during January and February in response to the impact of Ovocron and the related content shifts. Our domestic admissions revenue was $191.8 million in the first quarter, with an average ticket price of $9.27. Our average ticket price was broadly in line with the prior quarter and remained elevated relative to the equivalent pre-pandemic period due to three key factors. First, A favorable ticket type mix, driven by the strong performance of alternative content in the quarter, which tend to have a higher average ticket price. As well as fewer matinee and weekday show times, and a lower mix of child tickets. Second, strategic pricing actions. And third, a higher mix of premium large format box office. Our domestic concessions revenue was 141.1 million in the first quarter. on another record high per cap of $6.82. We were particularly pleased with the growth we saw in our incidence rates for core concessions like popcorn, candy, and beverages, which were up 250 basis points quarter over quarter. When compared with 1Q19, our concession per caps continue to benefit from heightened indulgence in food and beverage consumption, an audience mix that tends to skew higher in purchase incidents, and our operating hours. which, while reduced, are concentrated in timeframes that are more conducive to concession purchases. Furthermore, we benefited from the strategic initiatives that Sean mentioned, as well as our value-oriented approach to pricing. Domestic other revenue was $39.1 million in the first quarter and reflects the impact of lower attendance levels on screen ads and transaction fees, both versus the prior quarter and the pre-pandemic period. Altogether, in the first quarter, we delivered $372 million of total domestic revenue and $14.4 million of adjusted EBITDA, with an adjusted EBITDA margin of 3.9%. Turning to our international segment, it too was impacted by the Omicron variant. We welcomed 12.4 million patrons during the first quarter, despite certain government-imposed restrictions in place on operating hours and capacity due to the pandemic. It's worth noting that restrictions in place on operating hours and capacity have since been lifted. The vast majority of them have. Overall, we generated 88.5 million of total revenue from our international operations, comprised of 44 million of admissions revenue, 31.9 million of concessions revenue, and 12.6 million of other revenue. International adjusted EBITDA was 10.8 million, with an adjusted EBITDA margin of 12.2%. Turning to global expenses, film rental and advertising expense was 54.1% of admissions revenue, representing a decline of 340 basis points versus the fourth quarter of 2021. This decline was primarily driven by a lower concentration of blockbuster films during the first quarter, which skew higher on our revenue share agreements with our studio partners. As a reminder, this line item will also reflect our step up in marketing expense as we continue to lean into investments to reignite moviegoing, strengthen loyalty, and build our audiences. Concession costs were 17.3% of concession revenue and decreased 30 basis points quarter over quarter. While the team did a fantastic job offsetting the cost pressures in the first quarter, costs are rising and we are seeing some impacts, particularly on our key concession supplies. For example, as you may have read in the headlines, commodity prices have been rising for items like canola and soy, which impact the costs of key staples in our business, such as canola oil and butter topping. First quarter global salaries and wages were $79.8 million and decreased 4.7% quarter over quarter, driven by reduced labor hours associated with the decline in attendance, somewhat offset by higher average hourly wage rates. Facility lease expense was $73.7 million and represented a decline of 6.9% quarter over quarter. While largely fixed, lease expense will fluctuate as percentage rent and common area maintenance move directionally with volume. Worldwide utilities and other expense was $86.9 million and decreased 4.3% from the prior quarter, driven by variable costs such as credit card fees that declined in line with volume. Finally, G&A for the fourth quarter was $40.7 million and decreased 17.4% quarter-over-quarter, due primarily to lower share-based compensation. Excluding the impact of share-based compensation, G&A was down $1 million. Altogether, we generated a net loss attributable to Cinemark Holdings Inc. of $74 million, resulting in loss per share of $0.62. Capital expenditures were $18.7 million during the first quarter, including $6.6 million for new builds that we committed to prior to the pandemic and $12.1 million for investments to maintain or enhance our existing theaters, such as luxury lounger reclining seats, laser projectors, and XC conversions. We continue to anticipate spending approximately $125 million on capital expenditures for the full year 2022, as we balance investing to position the company for the long term while strengthening our balance sheets. Turning to cash, we ended the quarter with $569 million of cash on the balance sheet. Free cash flow was negative $138 million for the first quarter. As expected, our free cash flow was impacted by lower adjusted EBITDA, semi-annual interest payments, and working capital headwinds, which were primarily driven by the change in box office performance from December to March and the timing of employee bonus payments. As we look forward, we continue to anticipate positive free cash flow generation for the full year 2022 based on our current industry recovery expectations and trends. Moreover, we expect to continue to outperform the industry in terms of box office recovery and are working diligently to maintain our market share gains. And between our strategic initiatives and evolving pricing tactics, we believe we can maintain a meaningful portion of the upside we've experienced with both ticket pricing and concession per caps as the film's slate diversifies and a broader range of moviegoers return to the theaters. It's also important to keep in mind the inflationary pressures we are facing, particularly around labor rates and concession costs. Of course, we will continue to pursue initiatives and evaluate strategic pricing actions to offset these cost pressures wherever possible. In closing, Cinemark has consistently demonstrated its ability to adapt and evolve in this dynamic environment and continues to do so in order to fully capitalize on the box office momentum and the opportunities that lie ahead. Even in high inflation and recessionary periods, theatrical moviegoing has historically proven to be a recession-resistant industry. People still want and need to get out of their homes for entertainment, and going to the movies provides a reasonably priced means to escape reality and enjoy a shared cinematic experience. We remain bullish on theatrical moviegoing and especially on our ability to continue to excel and deliver industry-leading results for all of our key stakeholders, including guests, employees, and shareholders. Operator, that concludes our prepared remarks, and we'd like to now open up the line for questions.