Greetings. And welcome to Cinemark Holdings First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Chanda Brashears, Senior Vice President, Investor Relations. Thank you. You may begin.

Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.’s first quarter 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 maybe 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-Q and on the company’s website at ir.cinemark.com. With that, I’d like to turn the call over to Sean.

Thank you, Chanda, and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2023 results. Over the past year, we have expressed our optimism about the future of theatrical exhibition based on positive sustained trends in consumer movie-going behavior and improving volume of wide releases, and forward-looking commentary by our existing and emerging studio partners regarding the value a theatrical release provides their film assets. We have also highlighted the advantaged position Cinemark maintains within our industry on account of our stable financial health, resilient operating capabilities and plentiful opportunities ahead. As we are now four months into 2023, we could not be more encouraged by the ongoing strength of these trends, as well as our company’s and industry’s continued recovery. During the first quarter, North American box office grew by almost 30% versus 2022, propelled by strong carryover from the global sensation Avatar: The Way of Water and animated success Puss in Boots: The Last Wish, as well as a diverse range of crowd pleasing hits. Top performing films included Creed III, Screen 6, and John Wick 4, which each broke records delivering all-time high results for their franchises. Horror film, M3GAN, which far exceeded expectations, generating over $95 million of domestic box office. Action adventure saga Dungeons & Dragons: Honour Among Thieves; the highly successful faith-based film Jesus Revolution; the well-received adult drama, A Man Called Otto; comedy thrillers, Cocaine Bear and Ant-Man and the Wasp: Quantumania, which drove over $200 million of domestic box office with close to $0.5 billion worldwide. They are truly was something for everyone in the first quarter. And better than anticipated box office performance during 1Q continued right into April, which yielded the third largest result in history for that month. April box office was up almost…

Thank you, Sean. Good morning, everyone, and thank you for joining the call today. We were pleased with the strength of the first quarter box office, which far exceeded our expectations, as well as our ability to fully capitalize on that strength through operational excellence and the ongoing execution of our strategic initiatives to grow revenue while mitigating costs. Across our global footprint, we welcomed approximately 43 million guests to our theaters, an increase of 30% from the first quarter of last year, and we grew total revenue nearly 33% to more than $610 million. With the meaningful increase in revenue, we were able to gain operating leverage over our fixed costs and grow adjusted EBITDA 242% year-over-year to $86 million, resulting in a healthy adjusted EBITDA margin of 14%. These results are a testament to the hard work and strong execution of our team. Turning to our domestic segment. We served 25.2 million patrons, an increase of 22% year-over-year and we generated $244.7 million in admissions revenue. Our average ticket price was $9.71 in the quarter, up 5% relative to the first quarter of last year, driven by strategic pricing initiatives and the ongoing strength of premium formats, particularly 3D penetration, partially offset by ticket-type mix. Domestic concession revenue continued to demonstrate strength in the quarter, growing 32% year-over-year to $186.8 million. Our concession per cap increased 9% to $7.41, in line with the all-time high we delivered in the fourth quarter of last year. Strategic and inflationary pricing initiatives, coupled with our ability to maintain elevated incidence rates were key drivers of our per cap strength. Other revenue was $47.6 million, an increase of 22%, which was in line with our growth in attendance. Overall, our domestic segment generated total revenue of $479.1 million and adjusted EBITDA of…

Thank you. [Operator Instructions] Our first questions come from the line of Eric Handler with ROTH MKM. Please proceed with your questions.

Good morning and thanks for the question. Sean, forgive me if I missed this on the call, but what percentage of your box office revenue was premium and how does that compare to the prior year? And then now that you are seeing some improved depth of movie product, I wonder if that’s having any positive impact on Movie Club and I wonder if you could talk about where the subscription numbers are? And also, a while back, you guys used to talk about credit redemption and maybe you can give a little update there?

Sure. Thanks for the question, Eric, and good morning. As far as our premium box office as a percent of total. For the quarter, we were about 12.5% or so in the U.S. and about 12% overall. That’s pretty consistent with where we were last year. We continue to see an over-indexing and by the way, that’s just of our XD screens. That doesn’t include other premium formats. When you include everything else, it probably ticks it up a bit closer to 15%. What I was saying is that, that continues to over index versus where we have been historically on pre-pandemic terms. We continue to see consumers electing to upgrade not only for premium formats of viewing, but also with regard to their food and beverage consumption. By the way, Movie Club to, I’d say, the sustained trends at Movie Club are very positive. We continue to add members in a consistent pattern to what we saw prior to the pandemic. Our membership levels are continuing to exceed 1.1 million members and our consumption has been consistent. I’d say if anything, consumption in terms of the utilization of credits is perhaps down a slight tick from where we were pre-pandemic, but based on our assessment, it’s largely just due to the content recovery cycle, akin to what we are seeing with overall attendance trends. So we continue to be very encouraged by the dynamics of Movie Club and even our newest members that we continue to add into that program are consuming at a level consistent with some of the earliest members who joined, which gives us ongoing optimism about trying to get people into that program. We see the value as we get people in the program, their consumption tends to be at a higher level with regard to the number of movies they go to, the amount of upgrading they do and the amount of food beverage they consume.

Thank you very much.

Thanks appreciate it.

Thank you. Our next questions come from the line of David Karnovsky with JPMorgan. Please proceed with your questions.

Thank you. Just on market share, your numbers look pretty similar to Q1 last year, maybe despite the Canada market fully open and so it does seem like you are continuing to gain share on an underlying basis. I guess, how sustainable should we think about your share at current levels? Was there anything about film mix that maybe helped in the quarter or can you sustain or even grow your position here? And then my second question is just on the film rent and advertising. It seems like that helped you deliver better margin relative to Q4 despite lower box. Can you just discuss a bit how you think about flexing that investment up and down, I would assume some of that spend does come back to you in the form of market share gains?

Sure. Thanks for the question, David. I will take the first one and Melissa will take the second. As far as market share goes, we certainly benefited from content that resonated very well across our global business domestically and within Latin America. You had films like family films like a Puss in Boots, horror films like M3GAN and Scream 6 and faith-based like Jesus Revolution, which we all tend to over index on. So that certainly helped us in market share. We will see ebbs and flows quarter-to-quarter in share. However, we -- as we have kind of indicated on some past calls, we tend to think that somewhere around 100 basis points of increase relative to our pre-pandemic levels is reasonable to expect going forward. Certainly, our aim will be to expand that, but we think that’s a good target to hold.

And in terms of film rental and advertising rates, as you think about it those in the near-term, similar with 2022, it’s reasonable to assume that our film rental and advertising rates will continue to be impacted by a higher concentration of larger tent-pole films with some offsets from the modifications to some rental terms commensurate with the shortened theatrical window. But with respect to marketing, while our marketing spend will continue to vary based on our expected attendance and ROI. We aren’t expecting a meaningful step-up year-over-year in our marketing spend as a percentage of admissions revenue.

Thanks.

Yeah. Thanks, David.

Thank you. Our next questions come from the line of Omar Mejias with Wells Fargo. Please proceed with your questions.

Good morning, guys, and thank you for taking my question. Maybe first can you just talk about the impact from the writer strike and the potential for the directors and actors to follow to. We know that the immediate impact that is basically non-existing just given the life cycle of the production for movie films. But at what point of length of the strike would be into impact future production and just any color that you guys can provide us that would be helpful? Thanks.

Sure. Thanks for the question, Omar. Certainly, something we will all be watching very closely, and it’s unfortunate it’s come to this, because it certainly has a meaningful impact on a lot of people. It’s probably still a bit too soon to speculate. When we can talk about the writer skill, it hard to really say what ultimately comes with other guilds down the line. The ultimate impact, as you know, it really depends on how long the strike lasts. A lengthier one poses more risk than a shorter one and while television tends to feel more of an immediate impact from these types of strikes, at least the positive thing for our industry in the short run is the majority of films scheduled for this year and next are unlikely to be materially affected based on the stage of production they are in to hit those dates. We know from our studio partners that they have been in planning for this, trying to accelerate where they can and given the long lead time of making films are often able to recuperate some of that time down the line depending on how it goes. In the past, some of the longer strikes like what we saw in 2007 to 2008 with the 100-day Writers Guild Strike had perhaps some impact on the industry, but the overall disruption to the flow of films was fairly limited as the studios. They were able to pull forward and work around that because of the lead times of their productions to try to minimize the overall impact. So we are going to have to see how things progress and hard to say at what point there’s a tipping point in terms of the impact. But I know it’s something that we are watching and our studio partners are very, very focused on as they certainly don’t want to have a major disruption in their flow of content.

That’s very helpful. And Melissa, maybe on the cost side, U.S. concessions as a percentage of revenue were a little bit higher than expected. But on the other hand, salaries and labor seems to be much improved. Could you give us a little bit of color on, just an update on what the inflationary cost pressures and how should we think about -- how should we be thinking about it for the balance of the year? Thank you.

Sure. So there are couple of things we are calling out here, Omar. So starting with the COGS side of things, it’s important to note when you are looking at the year-over-year comparison in our COGS rate, that Q1 of 2022 benefited from some one-time cost savings, including purchase of generic popcorn bags from bankrupt cinemas and our ability to use inventory on hand in Q1 of 2022 that was purchased at lower prices in late 2021 in anticipation of future price increases, as well as supply chain challenges. So if you look at our COGS rate for the last nine months of 2022, you can see that we are only slightly up from a COGS rate perspective in Q1 of 2023. As we think about balance of year on the COGS side, we still do see some inflationary pressure, particularly on commodities, while we have seen some easing in canola and corn prices. That has been offset by rising sugar prices. So as we think about the full year 2023, COGS rate expectations, we are expecting to continue to see some modest pressure in our COGS rate relative to 2022. On the labor side, in particular, with Q1, our labor benefited from our outperformance on the box office versus our expectations. As you may know, the way that we staff our theaters is based on projected attendance and with that outperformance we weren’t staffed at the levels that we typically would be staffed at to service that level of attendance. So that did benefit us on the salaries and wages side in the first quarter of this year. As you think about the going forward on labor, there what you can expect is on the hour side, our labor hours, we would expect to step up as attendance further recovers, albeit that’s not going to grow at the same rate per se as attendance. We will gain some operating leverage there. And then on the wage rate side, which is where we have felt quite a bit of pressure over the past few years, we have started to see that pressure subside, particularly on the market driven pressure. So as we think about going forward for salaries and wages, what we expect to see there more so is going to be government mandated increases, which we have seen in pre-pandemic times as well.

Thank you.

Thanks for the questions, Omar.

Thank you. Our next questions come from the line of Chad Beynon with Macquarie. Please proceed with your questions.

Hi. This is Aaron on for Chad. Thanks for taking my questions. Regarding pricing, where movie going is still much more affordable than other entertainment options. Can you talk about the further opportunities for just organic price increases? Thank you.

Certainly, look pricing is a very important factor in our industry as it is in many. Moviegoers on a whole tend to be relatively price sensitive. So it’s something that we keep a close watch on. Our general strategy as we have been recovering from the pandemic is to be careful with the pricing, as we have certainly been trying to reignite movie going and encourage increased frequency of our moviegoers. We use a tremendous amount of data in our decision making process with regard to pricing and it really becomes a very discrete feeder-by-feeder based exercise in terms of what that -- in each individual market can bear and what each individual theater can bear. As we look forward in terms of where opportunities lie, we believe there’s actually quite a bit of opportunity. It’s one of the upside areas of potential we have, not just necessarily from taking prices up, but really finer tuning our pricing and optimizing that as we continue to-date. I’d say some of the techniques we are doing are relatively new and we believe we are seeing great results on account of that. We talked about market share earlier, we attribute some of our positive benefits in market share to the pricing strategies that we have been utilizing and we think there’s quite a bit more opportunity as we look ahead.

And I think the one point that I would add on there, that’s important context is that, if you look at our pricing and how that’s changed since Q1 of 2019, right? We have seen a big lift on the concession side. We have seen nice lift on ETPs. But our -- from a price standpoint, our prices have actually increased below inflation. So we do think there’s room there.

Okay. Awesome. That’s very helpful. And can you also talk about any opportunities to expand beyond the current portfolio and what your appetite is or how this ranks among your priorities? Thank you.

Sure. Look, we are constantly looking at what is the right profile for our portfolio of theaters and circuits and where there may be opportunities to expand. I mean, one of the focal areas we have talked about optimizing our footprint, which is a combination of looking for new opportunities in existing markets or new markets, as well as trimming down in areas where, perhaps, we have underperforming theaters. We have been doing that. So I would say we kind of look at all the opportunities out there. Obviously, there’s a lot of moving pieces in our industry right now with certain theaters coming back to market, different levels of health of different circuits. So it’s something that we are just going to continue to look at. We do think there could be opportunities there. We are going to be careful as we are looking to re-strengthen our balance sheet as we go ahead and pursue a lot of organic opportunities that we have on hand that we think have rich ROIs against them. But, yeah, I mean, we are optimistic about further opportunities coming to the table here over the next year or two.

Awesome. Thank you very much and congrats on the quarter.

Thanks, Aaron. Appreciate it.

Thank you. [Operator Instructions] Our next questions come from the line of Jim Goss with Barrington Research. Please proceed with your questions.

Good morning. And speaking of optimizing the portfolio, if we turn to Latin America, in particular, I know the ability to grow organically, depending on shopping center development has been problematic. But I wonder if you are seeing more M&A potential there versus the U.S. as a way to increase your penetration in those markets?

Sure. It’s a great question, Jim. I would say, particular to M&A, we would look at the U.S. as likely having more potential there than perhaps LatAm. Not to say there couldn’t be opportunities in Latin America, but the different dynamic you have is the U.S. tends to be a far more fragmented market, while in LatAm, generally, the top two or three circuits drive 80% of the box office. And they tend to be own or our peers tend to be owned by well-financed organizations. These are very wealthy families and/or institutions that aren’t at any type of financial risk. So because of that -- and many times, they own malls themselves or the theaters are part of an enterprise that they have that fits in strategically. So we think it’s unlikely that there are many opportunities to come to market in that area just, because of that, again, not to say that there couldn’t be some.

Okay. And coming out of CinemaCon, I am wondering if any of the discussions involve the role of the theaters and persuading the studios to fill the schedule in a way that would benefit all stage blockbusters, for example, or good windows usage and counter programming as things are developing back towards normalization?

I think, as I mentioned in the prepared remarks, I think, we all were really encouraged by the collective materials that we saw at CinemaCon. I would say it was a very wide ranging and diverse set of films. So the good news is there certainly were plenty of large tent-pole blockbusters on the horizon. But quite a range of romantic comedies and R-rated comedies and as I mentioned, faith-based, adult dramas. I mean there was really a range of products for all types of audiences, which we think is very healthy for the industry. CinemaCon, the studios tend to highlight some of their larger content that is more on the helm. We have been having plenty of conversations about other forms of alternative programming as well, like, things like concerts and anime and things of that sort. Anime I should say, is part of some of the studios. Sony has a relationship with country role. But when you talk about concerts and multi-culture and things like that, there’s a lot of that that has been starting to ramp up and increase that we are encouraged about. We have been talking to studios about how do, we also tap into some of the serialized content that they have been producing and look for opportunities with premier events and things of that sort. We have done a handful of those already with a lot of success and a lot of fan-based excitement. So I expect there to be more and more of that over time. I would say alternative content as category has been an area that we have always felt had a lot of potential and unfortunately never really seem to scale materially. Over the past couple of years, we have finally seen that start to get a little bit of momentum. As an example, alternative content for us was a little over 8% of our box office in the first quarter, and historically, that is typically around 2% or so. So we have definitely seen that start to scale up and we think somewhere around 5-plus percent, is an area of opportunity for it to hold that into the future.

Okay. And one last one and I know this -- I appreciate this would be tough to measure precisely. I wonder if there’s any perceived slippage to streaming that you might have experienced absent the pandemic. It seemed that there could have been some slippage in the past that it’s possible that some of those potential customers might return less frequently, if at all. Do you have any sense of that?

We haven’t seen any data to suggest that’s happening. In fact, we tend to think that there’s been a false narrative painted in the media that streaming and theatrical compete with each other. When in reality, they tend to be very complementary. It’s not to say that there might not be some really compelling piece of content on TV that causes somebody to elect to stay home versus not go out in a particular evening. But what we know from a lot of analytics, multiple analytics that have been performed is the most active moviegoers are the most active streamers, and conversely, those who don’t go to the movies are the people who consume the least amount of content on streaming services. It’s just not their thing. They do other forms of entertainment. I think probably one of the biggest data points we tend to look to historically is, the biggest weekend of movie going ever in the U.S., which was the opening weekend of Avengers: Endgame was also the biggest night in television history with the climax episode of Game of Thrones on HBO and both of those two things coexisted on the same weekend. So there certainly is the ability for these things to play together and if anything, what we are seeing is the opportunity for things to build off of each other. I mean you look at all of the series on streaming platforms that have come out of movies, we think some of that is kind of going to play back into play off of each other. So, we think these are just great opportunities for complementary programming that builds the pie in total and we are not seeing any data to suggest that we have lost consumers or there’s been slippage. Obviously, the pandemic was a unique period where there was a health concern that could have affected that during that period. But now that we have gotten beyond that and content has been coming back to theaters and there’s a more sustained momentum of movie going, we are not seeing any data to suggest that that’s the case.

All right. Thanks very much, Sean.

Thanks, Jim. Really appreciate it.

Our next questions come from the line of Omar Mejias with Wells Fargo. Please proceed with your questions.

Yeah. Thanks. Thanks for taking my follow-up. Just a quick question as it relates to long-term margins, with the sense of APPs and per caps and all the work that you guys have been doing on the cost side and working with the operational efficiencies. Do you guys think that you can return to pre-pandemic margin levels without -- or without just a similar attendance levels at the box office. Just your thoughts on just the future margins for the business? Thank you.

Happy to take that one, Omar. So we generated in Q1 a healthy adjusted EBITDA margin of 14.1% globally and that was despite attendance only recovering to around 70% of 2019 levels. So, clearly, our goal over the longer term is to get back to pre-pandemic adjusted EBITDA margin levels in the low 20% range, even without the dividend income we historically received from NCM and DCIP. But our ability to do so is going to be dependent upon a number of variables. Primary driver, as you know, as go-forward margins is going to be -- the extent to which attendance and box office recover. However, there are a number of other variables, whether tailwinds from market share, elevated per caps and average ticket prices continue and then how inflationary pressures evolve from here. As it relates to 2023, we definitely believe that we can continue to expand our margins based on our expectations of further recovery in the box office as we gain more leverage over that fixed cost base. But, clearly, over the longer term, we are striving to get back to those pre-pandemic adjusted EBITDA margins and we do have initiatives both on the topline, as well as on the productivity side to try to do so.

Perfect. That’s great. Thank you.

Thanks, Omar.

Thank you. There are no further questions at this time. I would now like to hand the call back to Sean Gamble for any closing remarks.

Thanks, Charles. As we wrap, I’d just like to emphasize again that we could not be more encouraged by the positive momentum, progress and performance our industry and company have realized year-to-date. As we look forward, we believe all of our key stakeholders, including investors, partners and employees have much to be excited about. Consumers continue to demonstrate their strong enduring demand for the types of experiences we provide. Studios are definitively recognizing the enhanced promotional and financial value that an exclusive theatrical release delivers their films. The pipeline of future content volume continues to recover toward pre-pandemic levels and the array of opportunities that remain well within our control to grow and strengthen Cinemark are significant. Thank you all again for joining us, this morning and we look forward to speaking with you again following our second quarter results. Have a great day.

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.