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Cinemark (NYSE: CNK)
Q4 2023 Earnings Call
Feb 16, 2024, 8:30 a.m. ET
Key Highlights from Earnings Call
Operator
Hello and welcome to the Cinemark Holdings fourth quarter 2023 earnings call and webcast. [Operator instructions] A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Chanda Brashears, senior vice president, investor relations.
Please go ahead.
Chanda Brashears — Senior Vice President, Investor Relations
Good morning, everyone. I would like to welcome you to Cinemark Holding Inc.’s fourth quarter and full year 2023 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 annual report on Form 10-K. Also, today’s call may include non-GAAP financial measures.
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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. With that, I would now like to turn the call over to Sean Gamble.
Sean Gamble — President and Chief Executive Officer
Thank you, Chanda, and good morning, everyone. We appreciate you joining us today for our fourth quarter and full year 2023 earnings call. 2023 represented another year of meaningful post-pandemic progression for our industry and our company, and I thought I’d start today’s call by providing a summary of the significant achievements we made advancing our key priorities throughout the year.
The Bright Year
First and foremost, we continue to effectively navigate the fluid dynamics of our industry’s ongoing recovery, putting an emphasis on near-term revenue and margin generation, strengthening our balance sheet, and actively maneuvering through varied fluctuations in film release volume, as well as inflationary cost pressures.
Once again, I’m pleased to share that our phenomenal Cinemark team produced sensational results across all of these focal points.
For the full year 2023, we entertained 210 million guests worldwide and generated $3.1 billion of revenue. That was up 25% year over year and included our highest concession sales of all time, which were 3% higher than 2019. Our adjusted EBITDA grew 77% from 2022 to $594 million, with a 19.4% margin rate that represented 570 basis points of margin expansion.
Moreover, during the year, we delivered our second-highest quarterly adjusted EBITDA in the history of our company in 2Q and our highest third quarter adjusted EBITDA in 3Q. In total, our 2023 adjusted EBITDA recovered to within 20% of 2019 on 25% less attendance, a clear sign that our many ongoing strategic growth and productivity initiatives are delivering significant impact. Furthermore, our strong operating results yielded free cash flow of $295 million, with positive full year net cash generation of $175 million after paying down more than $100 million of COVID-related debt. In addition to outstanding operational execution and sound financial discipline throughout the year, these tremendous results also benefited from our continued drive to expand content and build audiences through marketing actions, loyalty programs, pursuit of new content sources, and heightened guest service standards.
Throughout 2023, we strengthened and took full advantage of our extensive marketing and communication reach, amassing more than 8 billion media impressions, increasing web and app traffic over 30%, doubling audience engagement on social media, and growing our global addressable customer base to nearly 30 million consumers while enhancing personalization. We also continued to advance our global loyalty programs, increasing membership by nearly 20% in the U.S. and by more than 45% in Latin America. Furthermore, Movie Club, our paid U.S.
subscription tier, grew 13% during the year to over 1.2 million members as moviegoers continue to highly value and embrace the meaningful benefits included in this program. During the year, Movie Club drove 24% of our domestic box office, and our data continues to demonstrate that the program stimulates increased moviegoing frequency and food and beverage consumption. In tandem with our marketing and loyalty actions, we continue to actively collaborate with our traditional studio partners to drive the successful releases of their films while also working closely with Amazon, Apple, and an increasing number of nontraditional content creators to help establish and grow their foothold within theaters. To that end, we were thrilled to see North American industry box office grow to $9.1 billion in 2023, driven by a diverse array of studio hits, including “Barbie,” “Super Mario Bros.,” “Spider-Man: Across the Spider-Verse,” “Guardians of the Galaxy 3”, and “Oppenheimer,” to name just a few.
Furthermore, Amazon and Apple collectively generated almost $0.5 billion of domestic box office last year, which was also a highly encouraging sign considering they are still in the early stages of their theatrical distribution expansion. Also encouraging was 2023’s wide range of record-breaking international, concert, and faith-based films that approached $0.75 billion of North American box office and included the remarkable successes of Taylor Swift’s “The Eras Tour” and “Sound of Freedom.” For Cinemark, nontraditional content accounted for 14% of our U.S. admissions revenues during the year as we worked aggressively to pursue these supplemental box offic
Bringing Curtain Up on Cinemark’s Theatrical Triumphs in 2023
Setting the Stage with Enhanced Guest Experiences
As the curtains rose on 2023, Cinemark focused on delighting audiences and enhancing their unique entertainment experiences, with a sharp eye on service protocols and sustaining an industry-leading 99.97% screen up time, minimizing disruptions. The company’s tireless efforts were not in vain, earning guest satisfaction scores over 95% and maintaining market share gains, surpassing pre-pandemic results, and delivering box office results that outperformed 2019 by a notable margin of 700 basis points domestically and 600 basis points internationally.
Redefining Cinema through Innovation and Strategy
Cinemark’s journey towards future success involved a series of strategic endeavors, including enhancing cinematic experiences, developing diversified revenue streams, increasing productivity gains, and optimizing their circuit. This comprehensive approach resulted in substantial positive impacts throughout 2023, setting the stage for further growth and market leadership in the coming years.
Premium Amenities and Revenue Surge
The integration of premium amenities, notably recliners across 70% of their U.S. circuit, D-BOX motion seats, and unmatched XD presentations, proved to be significant drivers of Cinemark’s box office success. The deployment of Barco laser projectors and attention to concessions offered a well-rounded and enhanced experience to moviegoers, resulting in record-high food and beverage sales and per caps, reflecting a surge in consumer demand.
Embracing Change and Consumer Trends
In an industry marked by fluid dynamics, Cinemark made strategic exits, reactivated development pipelines, and added new family entertainment center concepts to their theater designs, reinforcing their commitment to adaptability and growth. The year 2023 not only highlighted Cinemark’s individual success, but also underscored positive trends within the theatrical exhibition industry, reflecting a sustained enthusiasm for the big screen experience and a diverse range of content that resonated with various audience demographics.
Film Industry Evolution and Future Projections
The year 2023 witnessed a resurgence in film outputs, with 110 wide releases reaching 85% of pre-pandemic levels, reflecting a concerted effort by studios to rebuild their slates and reaffirm the value of theatrical releases. While the industry weathered challenges such as the Hollywood strikes, the future outlook remains promising, with the expectation of film volume in 2025 springing back to pre-pandemic levels, underpinned by current production activity and expressed plans at major studios.
The Glowing Financial Outlook for Cinemark: A Look at Q4 Results
Strong Q4 Performance
Overcoming the challenges of the past year, Cinemark shines brightly with robust operating and financial results for the fourth quarter. CEO Sean Gamble, expressed immense pride in their global team’s execution as they capitalized on the box office and demonstrated nimbleness in a dynamic environment. The company served over 40 million guests worldwide, marking a 4% increase year over year, and saw a 7% growth in total revenue to a staggering $638.9 million.
Domestic Success
In the US, Cinemark welcomed 26.2 million guests, an increase of 4% from the previous year. The company outpaced the North American industry’s box office growth by 140 basis points, driven by robust market share. This was bolstered by a mix of family and horror content that resonated well with audiences and the successful execution of strategic initiatives.
Record-Breaking Figures
The average ticket price hit an all-time high of $10.21 during the quarter, growing 2% year over year. Furthermore, the domestic concession revenue surged by 8%, reaching a record high of $7.67 per cap. These impressive figures were predominantly driven by strategic pricing initiatives and favorable product mix, including merchandise sales related to the “Taylor Swift: The Eras Tour” concert film.
International Landscape
In the international segment, Cinemark entertained 14.4 million guests, marking a 2% increase year over year. Although the international adjusted EBITDA margin was impacted by headwinds, including the expiration of pandemic-related temporary rent relief and FX devaluation, the company remains confident in its ability to maneuver through the tough economic and political landscapes it faces.
Expense Management
Cinemark has exhibited prudence in managing its expenses. Despite challenges such as inflationary pressures and higher product costs, the company has maintained resilience, with film rental and advertising expense reduced by 330 basis points from the previous year’s fourth quarter. Cinemark also experienced an 80 basis points decline in salaries and wages as a percentage of revenue, demonstrating its focus on labor productivity.
Financial Resilience
On the financial front, Cinemark generated a net income of $188.2 million for the full year and closed the year with nearly $850 million of cash on the balance sheet. The company showcased its prowess by reducing debt by over $100 million while maintaining robust free cash flow of $295 million for the year, with $49 million generated in the fourth quarter alone.
In conclusion, Cinemark’s fourth-quarter results reflect resilience, agility, and innovation. With a strong balance sheet, prudent expense management, and a strategic focus on audience experience, the company stands poised for long-term success. As the film industry reinvigorates, Cinemark remains at the vanguard, ready to seize the opportunities that lie ahead.
Blockbuster Entertainment Outlines Optimistic Recovery and Growth Strategies
Blockbuster Entertainment, a global circuit, invested approximately $150 million into its global circuit, with a fourth-quarter investment of $60 million. The company is pleased to have ended the year with a net leverage ratio within its target range of two to three times. As they stride into the year 2024, their capital allocation priorities remain balanced and disciplined. They aim to address 2025 maturities and invest in the long term while managing through content volume headwinds. This year, they intend to redeem the remaining $150 million of 8.75% notes with cash on hand in May as they step down to par. Additionally, they expect to spend about $150 million in capital expenditures during 2024.
Facing Setbacks with Optimism
Although film volume and box office are likely to decrease due to the Hollywood strikes, Blockbuster Entertainment plans to maintain flat capital expenditures, demonstrating their optimism regarding the industry’s recovery. The company intends to prioritize capital deployment toward long-term strategic opportunities in 2024, including new builds and other ROI-generating initiatives, mainly premium amenities. They anticipate 2024 to be a near-term setback in their recovery trajectory while remaining encouraged about the exhibition industry’s recovery in 2025 and beyond.
Discussion on Financial Performance
During a question-and-answer session, Eric Handler from ROTH MKM inquired about Blockbuster Entertainment’s free cash flow and its conversion from adjusted EBITDA. Melissa Thomas, the Chief Financial Officer, acknowledged the record-high 50% conversion rate for the year. She emphasized that the conversion rate was bolstered by moderated capex levels, which are expected to ramp up as industry box office resumes its recovery, despite believing that their peak capex years are behind them. She also pointed out that factors to consider going forward include debt levels, corresponding interest payments, and any working capital dynamics.
Expanding Business Horizons
Sean Gamble, the President and Chief Executive Officer, discussed the company’s plans to introduce new concepts. He mentioned that the company is exploring a new format for some of their theaters, particularly a family entertainment center with larger-scale gaming, bowling concepts, and an expanded bar-restaurant facility. He highlighted their positive experience with this concept and the potential for diversification and growth. Sean also mentioned ongoing projects in El Paso, Texas, and Merriam, Kansas City.
Positive Outlook for 2025
Regarding the 2025 wide release volume, Sean Gamble expressed the company’s optimism based on information from their studio partners and ongoing production plans. He anticipates a bounce back to the recovery path they had been on before the disruptions caused by the Hollywood strikes. Melissa Thomas also provided insights into the company’s expectations for average ticket prices and per cap levels in the coming year, emphasizing their strategies for growth and optimization.
Growth Prospects and Industry Trends: A Deep Dive into the Cinematic World
A Glimpse into the Cinematic Universe
The Chief Executive Officer of a leading entertainment company has provided a detailed insight into the growth drivers and potential challenges that lie ahead in the cinema industry. In a recent analyst call, Sean Gamble, the President and Chief Executive Officer, engaged in an in-depth discussion around the company’s growth prospects and strategic approach to mitigate potential obstacles.
When asked about the company’s strategy to achieve a projected film count of 95 by 2024, Gamble acknowledged the ebb and flow of film additions throughout the year. He illuminated the substantial impacts of Hollywood strikes on film scheduling in the fourth quarter, which led to the inclusion of smaller films that were previously under the radar. The company currently anticipates a lineup of around 90 titles and foresees the addition of approximately five more films in the foreseeable future. Gamble highlighted the unique circumstances of the current calendar year, emphasizing a concentration of larger films at year-end due to underlying effects of production disruptions. Although optimistic, he cautioned about the potential for fluctuations in this schedule.
Capital Allocation and Dividend Reinstatement
The discussion then shifted to the reinstatement of dividends, a decision contingent upon the ability to sustain the net leverage ratio within the target range of two to three times. The Chief Financial Officer, Melissa Thomas, articulated the interplay between cash flow generation and box office performance, both of which are anticipated to face headwinds due to reduced content volume in the current fiscal year. While reinstating the dividend remains a focal point for management and the board, the timing hinges on the net leverage ratio. Active dialogues are ongoing to deliberate over the potential reinstatement, reflecting a balanced approach to capital allocation.
Bearing the Brunt of Economic Measures
Further insights emerged on the economic challenges posed by the sharp devaluation and inflationary environment in Argentina. Melissa Thomas highlighted the significant devaluation and projected further turbulence in the economic landscape, recognizing the need for ongoing vigilance and prudent navigation. With a focus on closely monitoring the evolving situation, the company has demonstrated a resilient stance bolstered by its experienced international teams. Although the outlook remains fluid, the company is determined to navigate through these challenges adeptly.
Strategic Expansion and Network Optimization
The subsequent line of inquiry centered on the scope of product volume, considering the repercussions of labor strikes and the readiness of studio partners to restore film output to pre-pandemic levels. Drawing on pre-strike industry dynamics and the subsequent disruptions, Sean Gamble provided an intricate analysis, foreseeing a potential return to pre-pandemic levels by 2026. The discussion also touched upon the company’s domestic network restructuring, acknowledging a deliberate 10% contraction in theater count. While the optimization is positioned to be accretive, the company remains open to exploring innovative concepts and potential expansion, reflecting a dynamic approach to network development.
This in-depth analyst call offered a comprehensive narrative of the cinematic industry’s trajectory, encapsulating potential growth drivers, strategic capital allocation, economic headwinds, and network optimization. As the entertainment landscape continues to evolve, this candid discussion provides a vantage point for investors seeking insightful perspectives in an industry poised for transformation.
The Rebuilding of the Film Industry: A Look Ahead
Paving the Way for the Future
The film industry is in the midst of a revamp, as evidenced by the strategic moves made by dominant players such as Amazon and Apple. The shift is not just a hasty patchwork, but a carefully constructed blueprint that seems destined to bear fruit.
Optimism Amidst Adversity
Despite the tumultuous ride through the pandemic and the resultant strikes, studios are resolutely marching forward, their ambition unscathed. Sean Gamble, President, and CEO, expressed his unmitigated delight at the unwavering tenacity of the studios, despite the setbacks.
Gamble candidly acknowledged the increase in theater closures over the past few years, a trend that seems to be counteracted by the entry of new players into the market. In a calculated maneuver, the company has exited lower-performing theaters, creating space for a bottom-line lift, and added 16 new theaters with exceptional results.
Visualizing the Rebirth
Gamble exuded confidence in the company’s plan to reinvigorate its development pipeline, anticipating a surge in real estate activity to counterbalance the closures and bolster recovery. The envisioned trajectory is one of careful growth, mindful of the ongoing cash flow generation and debt actions.
Shaping the New Norm
When quizzed about the changing dynamics of the film-streamer relationship, Gamble highlighted a shift towards traditional film releases. He emphasized the efficacy of theatrical releases in enhancing the value and consumer interest in streaming platforms, brushing away any skepticism about the symbiotic future of theatrical and streaming releases.
Gamble provided insights into the merchandise aspect of the theatrical experience, with a focus on the varying inventory risk and the expansion of e-commerce opportunities. The prudent risk management and careful navigation of merchandise expansion indicate a measured yet assertive approach.
Dipping into a light anecdote, Jim Goss from Barrington Research pondered the idea of incorporating kiosks as an avenue for merchandise browsing, a proposition that met with keen interest in Gamble’s response.
The conversations unveil a forward-looking industry, clearly aware of challenges but resiliently marching forward, with careful and calculated footsteps towards a vibrant future.
Movie Theater Financial Insights: Expanding Revenue Streams and Market Potential
In a recent earnings call with industry analysts, executives from Cinemark Holdings provided valuable insights into the company’s strategy for leveraging nontraditional content, optimizing workforce efficiency, and managing capital expenditures amidst evolving market dynamics, subtle nuances that witnessed exponential growth in 2023 and poised to alter the shape of box office revenue streams moving forward.
Shifting Revenue Streams: The Influence of Nontraditional Content
Highlighting the influence of nontraditional content in the company’s revenue mix, Sean Gamble, President, and CEO, attributed a significant portion of the box office results to this unconventional category. While traditional Hollywood content has historically dominated the box office, the paradigm shift induced by nontraditional content was magnified during the narratives presented for 2023. Gamble pinpointed that they had achieved a substantial 14% of their total North America box office from nontraditional content, thereby illustrating its potent market appeal. The buoyant sentiment for this arena was further underscored by his forecast, postulating a potential 5% or more of box office revenue stemming from nontraditional content in the foreseeable future.
Capitalizing on Market Potential: An Era of Unprecedented Growth
Emphasizing the significance of diversifying offerings, Gamble recounted a pivotal example showcasing the enormous success of the Scream popcorn tubs that swiftly garnered a colossal fan following, establishing a compelling consumer luxury market. This triumph seamlessly extended into an online offering, demonstrating the power of evolving sales channels and the future potential they hold for the company. Melissa Thomas, the company’s Chief Financial Officer, further added to this narrative, elaborating on the profitability brought about by the “Taylor Swift: The Eras Tour” concert film, elucidating a benefit of $0.50 in the average ticket price and $0.14 in the concession per cap, emphasizing the direct correlation between innovative content and financial performance.
Efficiency and Structural Adaptation: Margins and Capital Expenditure
Gamble then underscored the company’s unwavering commitment to operational effectiveness, expounding on the insights gleaned about variable workforce efficiency during 2023. This enduring focus on workforce management, predating the pandemic, had thrived amidst volatile market conditions, exemplifying the resilience of the company’s structural adaptations. As they tread forth, Cinemark aims to continuously enhance productivity and streamline operations, collaborating a structural balance between efficient labor management and strategic capex optimization.
Thomas went on to verbalize the intricacies underlying their capex expectations, offering a comprehensive framework while balancing the company’s ambitious growth outlook and prudent capital allocation. With the impending box office recovery, Cinemark is poised to navigate an illustrious trajectory, harnessing this period of revival not just as a resurgence but an opportunity to redefine the dynamics of the entertainment market, weaving a tapestry of nontraditional content convergence and robust operational frameworks, redefining the very essence of cinema experience.
Cinemark’s Bright Future: A Review of Q4 2023 Earnings Call
Seismic Shifts in Content and Box Office Potential
As Cinemark Holdings discusses its Q4 2023 results, it’s evident that the company is navigating a landscape marred by seismic shifts in content and impending reduction in box office potential. The impact is set to reverberate well into 2024, adding a layer of complexity to an already turbulent industry. The company is poised to face these headwinds, ensuring that its line items are adeptly positioned to weather the storm.
Future Capital Expenditures and Historical Investment
Clearly, Cinemark’s historical capex investments have proven to be advantageous, serving as a key differentiator for the company. Looking ahead, despite the anticipation of escalating capital expenditures following an industry-wide rebound in ’25 and beyond, the company emphasizes a shift toward focusing on ROI-generating opportunities. Furthermore, the ongoing conversion of projectors to laser projectors encapsulates the company’s commitment to staying ahead of the curve in an evolving market.
A Bright Ending
As President and CEO Sean Gamble wraps up the call, he acknowledges the challenges that the company is set to encounter in 2024. However, he underlines his unwavering pride in the results achieved by the Cinemark team in 2023 and expresses an optimistic outlook for the company’s potential. Despite the anticipated headwinds, the fundamental drivers of the theatrical exhibition industry remain intact, leaving the company highly enthusiastic about the road ahead.
Q4 2023 Earnings Call Participants
Chanda Brashears — Senior Vice President, Investor Relations
Sean Gamble — President and Chief Executive Officer
Melissa Thomas — Chief Financial Officer
Eric Handler — ROTH MKM — Analyst
David Karnovsky — JPMorgan Chase and Company — Analyst
Ben Swinburne — Morgan Stanley — Analyst
Mike Hickey — The Benchmark Company — Analyst
Jim Goss — Barrington Research — Analyst
Omar Mejias — Wells Fargo Securities — Analyst
Stephen Laszczyk — Goldman Sachs — Analyst
All earnings call transcripts
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