Cinemark Holdings Inc.

Greetings and welcome to the Cinemark Holdings fourth quarter and full year 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Chandra Brashears, Senior Vice President of Investor Relations Thank you. You may begin.

Good morning, everyone. I would like to welcome you to Cinemark Holding, Inc.' 's fourth 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 the statements or comments made on this conference call may constitute 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-K, and on the company's website at ir.cinemark.com. In today's prepared comments regarding comparisons, we will be referring back to the fourth quarter of 2019 unless otherwise indicated. As we typically do, we filed our 10-K this morning in conjunction with our earnings release. Please note that similar to last quarter, The filing represents a combined Cinemark Holdings and Cinemark USA filing. While the differences between the two sets of financials are minimal, I wanted to point out this change once again. With that, I would like to turn the call over to Sean Gamble.

Thank you, Chanda, and good morning, everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2022 results. As we recently turned the corner from 2022 to 2023, we thought it would be constructive to share some of our key observations from the past year. First, and perhaps most importantly, people still love going to the movies. Sustained consumer enthusiasm for moviegoing was validated time and again throughout 2022 across all genres of films, all segments of audiences, and all periods of the year. Last quarter, I highlighted a wide range of films that outperformed relative to pre-pandemic results, in many cases setting new all-time records. Some examples include blockbusters like The Batman, Doctor Strange in the Multiverse of Madness, and Top Gun Maverick, family films like Sonic the Hedgehog 2 and Minions The Rise of Gru, horror titles such as The Black Phone and Smile, adult-skewing dramas like Elvis and Where the Crawdads Sing, and specialty content such as Everything Everywhere All at Once, the live captured BTS music concert, Permission to Dance on Stage, and multicultural films like Triple R. And consumer passion to experience content in an immersive, larger-than-life theatrical setting has only been reinforced since our last call. Over the past three months, we've seen Black Panther Wakanda Forever deliver the biggest November domestic box office opening ever with a $181 million launch. Global phenomenon Avatar The Way of Water crested $2.2 billion worldwide to become the third largest movie in history. Family film Puss in Boots The Last Wish is well on its way to over $170 million of domestic box office, which is 14% higher than its first installment. Horror film Megan is quickly approaching $100 million of domestic box office. Adult drama A Man Called Otto has eclipsed $60 million following its initial platform release on December 30th. And this past weekend, Ant-Man and the Wasp, Quantumania, delivered the third largest February opening ever, with its over $100 million domestic debut. Furthermore, we've continued to witness strong interest in specialty titles and events, such as Baton, which just set the largest North American opening of all time for a Bollywood film. The Chosen Three, which generated unprecedented demand from faith-based audiences selling out auditoriums across the country, and filmed concerts including Billie Eilish Live at the O2 and BTS Yet to Come in Cinemas, which continue to generate overwhelming enthusiasm from music fans. The impressive performance of this expansive range of titles clearly demonstrates that consumers are as excited as ever to experience compelling movies and events in theaters. if these examples over the past year aren't proof enough, ongoing demand for Cinemark Movie Club, our monthly subscription program, further reinforces the point. After we fully reactivated Movie Club in July of last year, it quickly reverted back to growth and now surpasses 1.1 million members, well in excess of our 950,000 pre-pandemic membership base. Moreover, Movie Club members drove 22% of our domestic ticket sales in 2022, which is up a sizable 800 basis points compared to 2019. Movie Club's continued growth and positive impact on moviegoing is a testament to the many exceptional attributes of the program, as well as sustained consumer enthusiasm for theatrical moviegoing. And that brings me to our second key observation from 2022, which is Movies perform better when they are released theatrically, particularly when they have an exclusive window. A theatrical release enhances a film's promotional impact and overall asset value. While this observation is not a new phenomenon, it has been reinforced with growing frequency by all of our traditional studio partners over the past year. Consistent with the relationship that has existed for decades with VHS, DVD, pay TV, and free TV, the movies studios are releasing theatrically with a window are not only generating lucrative box office proceeds, but also providing greater impact for their streaming platforms with regard to subscriber acquisition, retention, and engagement in an increasingly competitive in-home environment. And that is because when marketed sufficiently, a theatrical release increases consumer awareness of and interest to see movies, and all forms of filmed entertainment by eventizing them and elevating their perceived quality. This perception leads to a greater sustained recognition, remembrance, and longevity of theatrical titles. Furthermore, experiencing films in a shared cinematic environment develops stronger emotional bonds with stories and characters that helps build bigger brands, franchises, and cultural moments. It also satisfies the desires of filmmakers and talent who aspire to see their films on the big screen. Now that theaters are fully operational again and moviegoing is rebounded, our traditional studio partners are expressing intentions of returning to pre-pandemic levels of release volume, with a few indicating they plan to scale up even further. While our industry is still facing a near-term headwind from a reduction in films being released, which was a by-product of the pandemic's impact on the production cycle of movies, overall volume continues to improve. Last quarter, we mentioned 85 wide releases had been announced for 2023 to date. As of today, that figure now exceeds 95 and is well on its way to reach our expectation of 100 to 105 wide releases for the full year. Although still short of the approximate 130 titles released annually prior to the pandemic, This improvement represents a meaningful 30% increase from 2022. A noteworthy addition to the 2023 film slate since our last call is Ben Affleck's and Matt Damon's upcoming movie, Air, that Amazon will release exclusively in theaters on April 5th. Over the past year, we've indicated that a significant opportunity for our industry is the prospect of streaming companies releasing their more commercial films theatrically. To help build momentum in that direction, we've been testing limited releases with various streamers for several quarters, and we're thrilled that Amazon has now elected to amplify their theatrical ambitions in a big way with air, including the captivating ad they ran during the Super Bowl. We believe Amazon's move could represent the start of a more substantive entry into theatrical exhibition by streaming companies. In light of this potential shift, as well as the anticipated ramp up of film production by our traditional studio partners, we remain highly optimistic about the continued recovery of film volume over the next couple of years. The third key observation from 2022 that we'd like to share is Cinemark remains strong, stable, and resilient as a result of our consistent financial and operating discipline and ongoing focus on continuous improvement. 2022 marked a series of important results and milestones for our company that exemplify our outsized recovery relative to our industry and peers, our improved financial stability, and our advantaged market position. For the full year, we generated $336 million of adjusted EBITDA, which was up more than 320% versus 2021 and had an adjusted EBITDA margin of 13.7%. We also delivered positive free cash flow of $25 million, even after paying down substantially all of our pandemic-related deferred rent. Achievement of these results required active planning, prioritizing, and flexing throughout the year to effectively navigate a wide range of shifting content, supply chain, labor, and inflationary dynamics. Fortunately, we benefited from a solid operating foundation and the many process improvements we have pursued since the onset of the pandemic with regard to workforce management, showtime planning, and overall cost controls. Those same enhanced operating disciplines, coupled with our sustained focus on guest service, sophisticated marketing capabilities, and varied promotional content and pricing strategies, yielded box office and attendance results that far outperformed industry benchmarks. Compared to 2019, our full-year domestic box office recovery surpassed North American industry results by 500 basis points, with both our domestic and international market share up more than 100 basis points. Part of our box office strength was propelled by the tremendous continued success of Movie Club that I described a moment ago. We also benefited from a significant uptick in consumer demand for premium amenities. Despite the inflationary environment we encountered during 2022, consumers continued to actively upgrade to premium large formats and DBOX motion seats at levels well above pre-pandemic norms. We leaned into this trend through a series of new XD and DBOX campaigns that helped grow our 2022 domestic XD revenues by almost 6% versus 2019 and domestic DBOX revenues by almost 48%. Furthermore, even though PLFs only represent 5% of our screens, they accounted for 13.6 of our global box office, an increase of nearly 400 basis points from 2019. Akin to premium amenities, we also maximize food and beverage opportunities throughout the year, maintaining our significant concession per patron growth trend. Through a range of promotional, pricing, and category management strategies, we achieved an all-time high domestic per cap of $6.98, which was up more than 30% compared to 2019. Our international per cap also grew a sizable 65% in constant currency over the same timeframe. Our outperforming results and industry-leading recovery are a direct result of the positive experiences we provide our guests, our ongoing financial and operating discipline, and the perseverance, dedication, and skill of our extraordinary Cinemark team. I'd be remiss if I didn't take a moment to commend our entire global organization for all of their hard work, commitment, and resourcefulness to deliver these tremendous results and put us in an advantage position to capitalize on future growth potential as our industry further recovers. And that brings us to our final key observation from 2022, which is Cinemark maintains a strong competitive position with an abundance of opportunities ahead. As I just described, the disciplined approach by which we've managed Cinemark over the years, including the way we've prudently invested capital, actively focused on revenue and margin generation, and aggressively pursued process improvements, has provided us with a financial and operating position that is a strategic differentiator for our company. Moving forward, We intend to maintain our discipline as we focus on effectively navigating this fluid period of recovery, expanding our pipeline of content and audiences, and evolving our company to ensure ongoing success within a dynamic media and entertainment landscape. To that end, we are confident in the capabilities we've developed to quickly flex and adapt to shift in the marketplace, and we are highly optimistic about our ability to capture an outsized portion of our industry's recovery and the myriad of growth and productivity opportunities that remain in our purview. Examples include continuing to strengthen the experience and value we provide our guests through premium amenities like XD, D-Box, and laser projectors, as well as enhanced concession offerings, increasing movie-going frequency through our omnichannel marketing platforms, extensive consumer reach, highly impactful loyalty programs, and data-driven promotions, expanding our strategic relationships with content creators, retail partners, in-home delivery services, and new e-commerce sales channels, scaling up our recently launched Snacks in a Tap online food and beverage ordering platform while reducing friction in theater with improved floor designs and planograms, and deriving meaningful additional efficiencies and cost savings through our ongoing workforce management, continuous improvement, and sourcing initiatives. These varied actions will strengthen our core business, grow new sources of revenue, further streamline the way we operate, and enhance our ability to capture maximum box office and attendance upside as compelling content hits our screens. And we look forward to doing just that as we consider the promising array of diverse titles that lie ahead in 2023, which are primed to excite all audiences. From action films like Indiana Jones and the Dial of Destiny, Fast 10, John Wick 4, and Mission Impossible Dead Reckoning Part 1, to family films like The Little Mermaid, Super Mario Brothers, and Elemental, to superhero spectacles including Guardians of the Galaxy 3, The Flash, Spider-Man Across the Spider-Verse, and The Marvels, to suspenseful horror films like The Nun 2, Evil Dead Rise, and Scream 6, to intriguing adult dramas such as Oppenheimer, The Next Chapter, and My Big Fat Greek Wedding 3. The plentiful list of promising titles in 2023 goes on and on and extends across all genres and demographics. So, to summarize our key observations from 2022, The theatrical exhibition industry continues to follow a positive recovery trajectory with regard to consumer enthusiasm for moviegoing, the value a theatrical release provides studios, and content volume. Within that backdrop, Cinemark is poised to excel on account of our advantaged financial position, sophisticated operating capabilities, and sensational team, and we remain highly optimistic about our many opportunities ahead. Before I turn the call over to Melissa, I'd like to take a moment to personally acknowledge and thank our founder, Leroy Mitchell, who announced his retirement from our board of directors last week. Leroy has been a cornerstone, not only for Cinemark, but the entire theatrical exhibition industry over his influential tenure of nearly four decades. Many of you have had the opportunity to meet Leroy over the years at various industry and investor events. and I'm sure you can attest to his captivating energy, engaging personality, and entrepreneurial spirit. He is a pioneer who consistently challenged the status quo, growing Cinemark from only a handful of theaters to the global leader in theatrical exhibition we are today. We are abundantly grateful to Leroy for his leadership and the tremendous value he has provided over the years, and we will all continue to work diligently to position the company that he and his wife Tandy founded for long-term success. With that, Melissa will now provide further information about our fourth quarter results.