Greetings, and welcome to the Cinemark Holdings, Inc. Third Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Chanda Brashears, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.’s third 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 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-Q, and on the company's website at ir.cinemark.com. In today's prepared commentary regarding comparisons, we will be referring back to the third quarter of 2019 unless otherwise indicated as the third quarter of 2021 continued to have meaningful COVID-related impacts. As we typically do, we filed our 10-Q this morning in conjunction with our earnings release. Please note that this quarter, the 10-Q represents a combined Cinemark Holdings and Cinemark USA filings. While the differences between the two sets of financials are minimal, I wanted to proactively flag this change from prior periods. With that, I would like to turn the call over to Sean Gamble.

Thank you, Chanda. Good morning, everyone. We appreciate you joining us today to discuss our third quarter 2022 results. I thought I would kick things off by addressing four topics that appear to be front and center on investor's minds. First, industry box office recovery; second, the impact of inflation as well as a potential recession on movie going; third, our ongoing Cinemark operating strategy this year, and finally, our near-term priorities to drive operating success and shareholder value going forward. With regard to the first topic of industry box office recovery, there are several factors that we've been watching closely as we evaluate future prospects for returning to pre-pandemic levels. Of primary significance, our sustained consumer interest in movie going, availability of content, and the value that a theatrical release provides distributors of filmed entertainment. Based on consumer behavior over the past year, it is clear that movie going enthusiasm remains strong and vibrant across all categories of films and audiences. We've now seen this validated quarter-after-quarter, genre-by-genre as longstanding records have been broken and films have performed at levels comparable to or better than pre-pandemic expectations even during periods of heightened COVID concerns. Think back to Shang-Chi and the Legend of the Ten Rings that was released during Labor Day weekend last year and blew away historic results for that weekend subsequently going on to gross $225 million in domestic box office in the midst of a more challenged COVID setting. That success was followed in the fourth quarter by Venom: Let There Be Carnage, which matched the performance of its predecessor from 2018 as well as Spider-Man: No Way Home, which delivered the third highest box office result of all-time. In March of this year, the Batman opened to over $130 million domestically and became Warner Brothers'…

Thank you, Sean. Good morning everyone, and thank you for joining the call today. As Sean mentioned, we are highly encouraged by the sustained consumer interest in theatrical movie going. We benefited from strong attendance in July and adapted to a significant reduction of film releases in August and September, which is reflected in our third quarter results. We grew our worldwide revenue 50% year-over-year in the quarter and generated 125% more adjusted EBITDA, underscoring our ongoing recovery. Globally, we welcomed 48.4 million patrons in the third quarter. We generated $650.4 million of revenue and $99.5 million of adjusted EBITDA, yielding and adjusted EBITDA margin of 15.3%. The Cinemark team continued to effectively flex and adapt our operations in a dynamic environment with the varying ebbs and flows of content. Turning to our Domestic segment. We served 29.5 million guests in the quarter. We generated $257.6 million of admissions revenue with an average ticket price of $8.73. Our average ticket price was up 10% versus pre-pandemic levels. As we continue to benefit from strategic pricing actions, a favorable ticket type mix and a higher mix of premium large format box office. Relative to recent trends, our average ticket price somewhat moderated during the quarter, driven by two primary factors. First, a higher mix of family content in the quarter given the strength of Minions: The Rise of Gru, and second, the impact of National Cinema Day. A one day event designed to celebrate the magic of movie going that featured promotional ticket pricing of $3 along with concession deals. While National Cinema Day drove significant attendance during a non-peak timeframe with limited new releases. The promotional pricing created a headwind to our average ticket price for the quarter. Our domestic concession revenue was $200.8 million in the quarter. We delivered…

Thank you. [Operator Instructions] Today’s first question is coming from Ben Swinburne of Morgan Stanley. Please go ahead.

Thanks. Good morning. I’ll follow the rules with two questions. Sean, we’ve heard through earnings the season – this quarter from the media companies a clear pivot back to the studio – back to theatrical distribution. But as you point out, it’s a long production cycle for films. You probably have better info than we do. But when you look at the next year or two, do you have a sense in totality of kind of how big the slate is going to look from just quantity point of view? And when do you think you have line of sight on like what 2023 looks like? But I feel like the studios have had a bit of a strategic kind of whiplash here in the last six months and it’s a little hard to pin down exactly what we’ll see over the next year in change. I’d love to hear your thoughts on sort of the studio supply situation. And then I just wanted to ask Melissa, I don’t if you can give this to us. But how much did National Cinema Day impact maybe ATP in attendance or at least ATP, which I think you called that was pressured by that. I wasn’t sure how material that was? But that would be helpful. Thanks.

Sure. Well, thanks for the questions, Ben. Let start with the content question. We do see the different studios leaning back more heavily into theatrical. And as mentioned probably the limitation to how fast the volume overall recuperates is just the nature of how long it takes to make movies. So as we look at that, we see probably another couple years to get fully back to where it is. The other thing that we’re optimistic about is not only the traditional studios, but we do believe that in time and hopefully in fairly short order, that these streaming companies are also going to lean more heavily into theatrical. I mean, we’re getting that indication from them at the same value that a theatrical release provides to traditional studios. There’s no different for the streaming companies. It just provides greater awareness, greater promotional ability, greater interest when it hits those platforms. So we’re very optimistic that that’ll happen too, and it’s just another source of filling those volume gaps. Specific to next year, it’s interesting. I think I mentioned in the past, when we do our budget planning, we typically don’t even get too deep into the film slate until around now because even for next year, we don’t have full line of sight to the totality of the slate. Just to give you an example. On average between 2017 and 2019, there were about 130 wide releases each year. And at this point in time, we generally have line of sight to around 110 to 115 of them from the major studios. But we still lack full visibility to what’s coming out from the smaller and even mid-tier studios that tend to fill the gap. Then there’s also films like the Everything Everywhere All at Once or the Smile…

Ben, in terms of your question around National Cinema Day, on the domestic side, from an average ticket price perspective represented about a $0.17 headwind in the quarter. On the international average ticket price, it was about a $0.12 headwind. And then I would mention as well that per caps, while the impact was smaller, there was still an impact on our concession per cab from National Cinema Day. Probably most notably the point I would call out there is that for our domestic per cap. But for the impact of National Cinema Day, it essentially would’ve been in line with our second quarter per cap. And then in terms of attendance that we welcomed as a result of National Cinema Day, that was around 2 million.

Thank you, both.

Thanks, Ben.

Thank you. The next question is coming from Eric Handler of MKM Partners. Please go ahead.

Good morning and thank you for the question. Sean, so this year you expect to be free cash flow positive, next year we assume that the box office will increase. We would hope with that your free cash flow rises from 2022 levels. As you think about your excess cash, do you put that right into paying down debt? Do you put a little bit more into CapEx if possible? Where are your priorities within the excess cash?

Eric, I’ll let Melissa start on that and then I may round out.

Yes. So Eric, from a capital allocation standpoint, our current priorities remain centered around strengthening our balance sheet, which includes delevering as well as making the right investments to position the company for the long-term. So as you think about that on the first part in terms of strengthening our balance sheet, as we look at our current cash levels as well as box office and cash flow recovery expectations for 2023 delevering is certainly very much top of mind for us. As you think about capital expenditures, we do expect, while we’re still in our planning process for 2023 in light of the box office recovery, we would expect to step up our capital expenditure levels in 2023, albeit, we would expect to remain well below pre-pandemic levels. We do believe our peak CapEx years are behind us. But net-net and stepping back, I would say it’s going to continue to be a balanced approach both with strengthening our balance sheet in mind as well as positioning ourselves for the long-term.

Very helpful. And then as a follow-up. Just looking at your other revenue, which helped your numbers exceed expectations. Your $53 million of U.S. other revenue was down just 6% versus what we saw in 2Q, which when you think about the box office falling off quarter-to-quarter 17% that’s a really good number. Was there anything in other revenue that was unusual or one-time that allowed you to put a number like that?

And so from other revenue perspective, that is going to fluctuate quarter-to-quarter. Stepping back as we think about what other revenue has been benefiting from, there’s a few factors that I would call out to your point. Despite a 33% drop in attendance relative to 2019, our other revenue was actually up in the quarter. What we’re benefiting from is higher screen advertising revenue, also higher online sales penetration and promotional income recovering at a faster rate than attendance. As you think about going forward and how to think about other – the other revenue line item based on the dynamics that we’re seeing in that area, we do expect that the recovery of other revenue will continue to outpace our attendance recovery in the near-term. But as I said, you’re going to see that kind of bounce around from quarter-to-quarter with ebbs and flows and content and otherwise.

Thank you very much.

Thanks, Eric.

Thank you. The next question is coming from Mike Ng of Goldman Sachs. Please go ahead.

Good morning. Thank you for the question and also the very thoughtful discussion around the current industry dynamics, while we're in this period of transient reduced film output, I was just wondering if you expect to see return of shoulder periods where studios aren't scheduling tempo films or has the output recovered enough that we'll still see programming throughout the entire year, like we have in the last couple of years. And then secondly, I was just wondering if you could talk a little bit about the LatAm attendance strength in the quarter. Was that primarily due to a film mix with things like Minions and Thor or was there also a comp – easy comp thing that may have helped as well? Thank you.

Thanks for the questions, Mike. I do think that my sense is the studios will continue to take advantage of the full year. We've just seen too many examples now of movies doing really strong business outside of just summer and holiday period. I mean, even when we look today and things can still move around, but when you look at the slate for next year, you got a film like Ant-Man in February, John Wick in March, those films arguably may have historically been in the summer, but clearly they're taking advantage of the competitive land. You've got Shazam in March as well. I mean, they're taking advantage of spreading out a bit more. And we've certainly seen in this period of reduced volume how that is allowing some of these films to run. I mean, you just have people going, they're delivering, having smaller drops week to week to week and generating overall larger results. So I do think because of that, the studios will continue to take advantage of it. And as I said, when we look at the slate next year, we see that to a large degree already with how things are positioned. In terms of Latin America, there definitely was a component of an easier comp. When we look at the state of the business last year, there were many more restrictions in place in terms of capacity and I weren't even fully up and going at that point. So you do have more of that benefit LatAm relative to the U.S. in terms of attendance. So that was a piece. Some of that also is just the profile of the slate and certain markets are even rebounding, touch strong you look at Argentina, Argentina is really high. And then I'd say probably the final thing that they had benefiting from over the course of the quarter while there was a National Cinema Day in the U.S. In Latin America, this is something that has been going on there for a bit of time. They actually had more of a national cinema week in country to country, which was really successful. So that drove a tremendous amount of attendees that was over a million attendees from that week in and of itself. So when we look at all those things collectively together that's what was really a big factor in LatAm's strong results.

Excellent. Thank you very much for all the thoughts, Sean.

Appreciate it. Thanks for your questions.

Thank you. The next question is coming from Jim Goss of Barrington Research. Please go ahead.

Okay. Thank you. Not to bore too much in on some of the same subjects, but I was wondering if you feel that you need to achieve the same mix and number of titles to climb the mountain back to pass box office levels or do you just need enough of a mix so the people have a choice because they'd have a tendency to want to go and see something not just be driven by attraction to a certain title and what maybe movie club gives you enough of a dialogue with your consumers to get some sense of that. I know it's unanswerable in a lot of ways, but I'm curious of your thoughts.

Sure. Well, I appreciate, Jim. And look, I think – I certainly think there is a scenario for our company and for our industry to continue to be healthy and successful in an environment that perhaps had less total volume and to a certain extent, less mix. That said, clearly we feel having more variety that appeals to a wider range of audiences and overall more volume is just a better place to be. Especially when we just look at there's a demand for it, right. There are consumers, we've just seen that in how people are going out to the movies and they're looking for this, in all periods. So we think probably, there's bigger opportunity in this scenario of more variety and more volume, but that doesn't mean that there isn't an ability to be healthy and successful in an environment where there isn't. My personal belief is as we come through the next few years that we could actually find ourselves in a state where there's more volume than we've ever had as we look to the number of companies that are making movies and getting into the space of production, and ultimately will want to use that as a way to not only supplement their revenue, but as I mentioned in the prepared remarks earlier, just as a way to better promote that content and use that content to better promote these other distribution channels, which is very effective at doing.

Okay. Thanks. And my one other one was related to the downward skew in film rep margins, and I'm wondering where you think it should level off, because I was thinking the shortened windows should provide at least somewhat an offset to the blockbuster concentration. And I would think you do no less bad than you did before, but it seems like you're scaled down a little bit, and should you be able to get back a little higher this coming year as you do get more content?

So Jim, I'll take that one. In terms of the film rental, as you think about the rates going forward. As you stated, we have been successful in seeking economic consideration commensurate with the shortened theatrical window, but this will likely be offset by a higher concentration of larger tent pole films, at least over the near-term, as more of those small and mid-tier films start to return, that will naturally benefit our overall film rate. But as Sean mentioned, this may take some time. So, as you think about go forward, as the industry further recovers and films generate higher box office results, be reasonable to assume that our film rental rates may be more in line with those pre-pandemic levels. I think the other thing just to keep in mind, Jim, is that we have stepped up our marketing investment relative to 2019 due to the strong returns that we've been seeing there. So as we look forward, we'll continue to flex up our marketing spend up and down, depending upon box office expectations and returns. But that would certainly be a consideration point relative to 2019.

All right. Thank you both.

Thanks, Jim.

[Operator Instructions] The next question is coming from David Karnovsky of JP Morgan. Please go ahead.

All right, thank you. Sean, as you noted, some adult-skewing films as you turned it, like Elvis or Crawdads have performed pretty well at the box office. At the same time, I think this is the type of content that historically has proved maybe more risky or uneven in its performance. I guess my question is, while we've seen studios increasingly move back toward theatrical for tent poles and away from streaming, how do you kind of either willingness to bring more of the mid-range or small budget films to market which are the types of films where I think you are in a little bit better split. Thanks.

It's a great question and an interesting observation. I actually think this is one of the positive things that has come out of a bit of a more dynamic window. We still clearly see that an exclusive theatrical window is necessary for achieving all those different benefits I talked about for maximizing the impact that theatrical can have for creating value for an asset. That said, as you flagged, one of the challenges of some of this mid-tier and smaller content pre-pandemic was the cost to make them has just gone up and the cost to market them has gone up over the years. And having that long window actually created a more challenged model for those types of titles. Now if you're a studio and that you have the scenario where a film like Elvis, you put a movie like that out and it works, hey, I let it run like they did, right. that ran - they didn't put that on to HBO Max for some time and it generated a ton of theatrical proceeds. But for whatever reason a movie doesn't work, the knowledge that you can get into the home earlier and mitigate some of the downside you have on that, it actually de-risks those types of movies. So I think it's part of the volume conversation we have. I think that actually leading to studios being able to take more chances on those types of movies. And you're already seeing it, you're starting to see some more romantic comedies, which had just disappeared. Now they're creeping back in. I suspect we'll start to see some other types of comedies and other films, other dramas and things like that, that have gone away because of this new model. So I think it's a healthier place to be overall knowing that you've got the window there to be able to maximize the impact when films are working, but that there's a way to have a little bit of more flexibility in scenarios where it's down. So I see that that ultimately leading to more of this volume coming back.

Great. Thank you.

Thanks. Appreciate the questions.

Thank you. We're showing no additional questions in queue at this time. I would like to turn the floor back over to management for any additional or closing comments.

We'd like to thank all of you again for joining us this morning, and we very much look forward to speaking with you once more following our fourth order results. Have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day.