Greetings. Welcome to the Cinemark Holdings Second 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. At this time, I would like to hand the call over to Chanda Brashears, Senior Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.'s second 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 may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may materially differ from forward-looking projections due to a variety of factors. Information concerning the factors that could cause results to differ materially is contained in the company's most recently filed 10-K. Also, today's call may include non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's most recently filed earnings release, 10-Q and on the company's website at ir.cinemark.com. With that, I would now like to turn the call over to Sean Gamble.

Thank you, Chanda, and good morning, everyone. We appreciate you joining us today for our second quarter 2023 earnings call. We believe box office performance during the second quarter, combined with movie going results witnessed year-to-date and over the past 2 years, provide conclusive evidence that consumer enthusiasm to view compelling films in a shared larger-than-life cinematic environment is as strong as ever. Theatrical movie going enthusiasm has been largely undeterred by the impact of the pandemic and the evolution of in-home streaming offerings, and it continues to demonstrate resilience against macroeconomic inflationary and recessionary dynamics. Year-to-date through July, North American industry box office results are up 20% over 2022 and have improved to within approximately 85% of 2019 driven by further recovery in wide release volume and sustained consumer demand for an in-theater viewing experience. On par with box office results, wide release volume has also reached almost 85% of 2019, which represents a meaningful uptick from last year when volume had recovered to approximately 65% of pre-pandemic levels over the same time frame. An improved cadence of new diverse content this year has helped accelerate movie going momentum across all categories of audiences, leading to a continued extension of impressive and, in many cases, record-breaking results throughout the year. In the first quarter, a series of strong releases exceeded expectations, including franchise topping successes for Creed3, Screen 6 and John with Chapter 4, the outperforming horror thriller Megan, the long-running adult drama a man called auto and the highly successful fate-based film Gesa's Revolution. Then the second quarter kicked off with a bang as the Super Mario Brothers movie quickly became the industry's second biggest animated film of all time and our top-performing animated title ever at Cinemark. During the quarter, Amazon also expanded further into theatrical exhibition…

Thank you, Sean. Good morning, everyone, and thank you for joining the call today. We were pleased to deliver such solid results in the second quarter, which demonstrate the strength of Cinemark as well as the industry's ongoing recovery potential bolstered by steadfast consumer enthusiasm for the in-theater experience and a compelling film slate that resonated across our global footprint. Globally, we entertained 64.4 million guests during the second quarter, an increase of 24% year-over-year and the highest attendance level we've achieved post pandemic. With our worldwide revenue increasing 27% to $942.3 million, we drove significant operating leverage over our fixed costs, growing adjusted EBITDA 67% to $231.5 million and achieving a robust adjusted EBITDA margin of 24.6%. We -- this quarter's margins were a function of the heightened attendance levels, coupled with ongoing operational and strategic execution by our team that is second to none. Domestically, we served 38.8 million moviegoers during the second quarter, an increase of 14% year-over-year. Admissions revenue grew 21% to $373.4 million on an average ticket price of $9.62 for the quarter. Our average ticket price was up 6% versus the second quarter of last year, driven by strategic pricing initiatives and premium format penetration, somewhat offset by ticket type mix given the increase in family content during the quarter. The strength of the box office also flowed through to our concessions with domestic concession revenue increasing 26% year-over-year to $296.3 million. Our concession per cap reached a new all-time high of $7.64 driven by strategic pricing initiatives and higher incidence rates fueled by the content mix in the quarter. Notably, our domestic concession revenue in the second quarter exceeded that of Q2 of 2019 by 8% despite 23% lower attendance levels due predominantly to higher purchase incidents. Other revenue was $65.2 million, an…

Thank you. We will now be conducting a question-and-answer session. Our first questions come from the line of Ben Swinburne with Morgan Stanley.

Thank you, morning. I know it's impossible to predict how the labor strikes are going to impact everything, a lot of moving pieces. There seems to be at least some -- I don't really want to call it consensus, but some thought that maybe September is a realistic time for a ramp back up in production. So, if you -- I would love to hear your insights based on what you're hearing and what you think really 2 things. The impact on the production shutdown may have on 24 volumes if you still think tables can get this wrapped up by September that next year is higher than this year on supply? And then talent availability is the other thing that is causing some uncertainty more near term. And I'm wondering if you think that at this point, you have any line of sight on kind of the fourth quarter holiday impact from movies being moved around. So I know it's tough, but I wanted to hear from you because you know more than we do. And then I just had a quick one for Melissa. I think CapEx year-to-date is about $50 million -- $50 million, $55 million. Do you guys still think you can spend $150 million or so this year? Or are there some of the supply chain stuff maybe that makes the number coming lower? I wanted to get an update there.

Sure. Well, thanks for the question, Ben. I wish I had a better clarity of answers to provide you both on the effect on 2023 and 2024 film slates. What we do know just from conversations with our studio partners is they're obviously doing everything they can to minimize the disruption of product flow and their aim is certainly to avoid further shifts to the extent possible. A lot of that is going to really just depend on how long the ongoing negotiations take place. Obviously, there's been some reports that certain conversations with the WDA are going to be recommencing today. So hopefully, that can see some progress. I know sometimes these types of discussions have a way of coming together quickly when they appear far apart and other times, they can take a little bit longer. So -- at this stage, I'd say even year-end is a little tough to predict. Our typical cycle at this point even for next year when we consider -- we've been optimistic about continued recovery in volume year-after-year like we saw this year versus last and last year versus the year before. But typically, as is normal, we don't have full line of sight to what next year will be this far out. A lot of the slate is still coming together. And obviously, some of that may ultimately be affected by the duration of the strikes. But again, what we know is that our studio partners are working hard to formulate plans to try to minimize disruption, and we're just going to have to see how long these conversations continue.

So, just -- sorry, just a quick follow-up. Just to your comment on Amazon and Familjump in. But on Amazon and Apple -- is your comment about there ramping up of production and increase in enthusiasm or clarity from last quarter I couldn't tell. I know you've been expecting them to ramp up but it sounded like you were making maybe more of a emphatic point today.

No, I would say it's just more of a restatement of last quarter. I mean we're highly enthused by what we're seeing even the line of sight we had last quarter in terms of public comments made by Amazon and Apple oil, I guess since then, we've seen Apple date another significant film at the beginning of next year with Argyle. So nothing, I'd say, incremental to last quarter, just sustained enthusiasm about the direction that they're moving in.

Okay. And then with respect to CapEx, Ben, to your point, we did spend only about $55 million of CapEx in the first half of the year. However, we do expect to still hit $150 million of CapEx for full year 2023. So it's really timing of the spend is expected to be back half weighted.

Our next questions come from the line of Robert Fishman with Moffat Nathanson.

Two questions, please. Sean, maybe a big picture question to start. It's clear that the momentum is back in your favor given all the recent and record box office. So after a tough couple of years navigating through the pandemic, can you just share more about the entire company's confidence level in achieving record levels of success and the likelihood of profit surpassing pre-pandemic levels?

Look, I'd say -- I'll tag team that one with Melissa. I'd say, as I mentioned in the prepared remarks, we've been very pleased with what we've seen now with regard to consumer behavior. Obviously, that was a question during the pandemic in terms of how consumers would operate coming out of it. And when we look at movie going activity since it certainly points to a high level of sustained excitement about going to movies. In terms of that translating to us, it gives us, I would say, confidence and optimism about where things progress longer term. As I mentioned in the prepared remarks, we're continuing to hear the studios provide feedback of their intentions to increased levels of production back to where they were pre-pandemic. So we see all that as very positive. And I would say, likewise, the work we're doing with our strategic initiatives to make sure that we drive the best results on that consumer enthusiasm and attendance ultimately should translate into positive ongoing margin results.

Yes. And just to follow on to that, to give a little bit of more context on our second quarter adjusted EBITDA margins, what you saw was our team's ability to really capitalize on the strength of the box office and a film slate that as we stated, resonated particularly well with our circuit, and that led to especially strong market share, concession per cap as well as average ticket prices in the quarter. As we think about our long-term margin potential, we certainly have many initiatives that we're pursuing, both on the revenue side as well as the cost side to try to get back to those pre-pandemic margins over the long term. But there are, as you know, going to be a number of factors that, that's dependent upon not only attendance and box office recovery, which is the largest driver of our margins. But beyond that, our market share gains, elevated concession per caps and average ticket prices, the extent to which those persist as well as our ability to offset further inflationary pressures that may materialize and then the pull-through that we get on the strategic initiatives that we're executing on. But we're certainly pleased with our ability to deliver strong margins in the quarter and the momentum that we've seen.

Okay, great. And just a question about the competitive landscape if I can. You've highlighted how Cinemark has had the sustainable market share. You just mentioned it. Can you talk about where that has come from and maybe the opportunity to grow market share further? And how Cineworld's emerging out of bankruptcy could impact any of that, if at all?

Sure. I think we mentioned in the past, I mean, we obviously got a bump in share as we were exiting -- or I should say as we're reopening during the course of the Pemcby [ph] being one of the first circuits to open. What we've seen is that exposed a lot of audiences perhaps to our circuit who may not have been coming as frequently and they got a taste for the type of experience we're providing and they've stayed. A large part of it is not really one single thing, but we had spent a large amount of time strengthening our marketing capabilities, which we think are industry-leading right now in terms of the type of awareness we build and reach we have to try to encourage consumers to come to more films and come to Cinemark when they see them. We've been working quite a bit on more sophisticated practices for planning showtimes and operating hours, which we think play into that. And then, of course, there's just the overall experience that guests have when they come to us. So we spent a lot of time -- this even predates me joining the company. I'd say it's in the DNA of Cinemark really delivering a fantastic guest service to our customers when they're here. As we look forward, our aim, obviously, is to continue to sustain that. We felt that 100 basis points of improvement versus our prepandemic level is a reasonable assumption now that most of the theaters are and screens are operating again. That will -- just to point out that will fluctuate quarter-to-quarter somewhat based on the type of content mix that's in the marketplace and how different films resonate with different demographics. For instance, what we saw in the second quarter was the film content played particularly well in our markets with the level of family and her and the style of action, particularly with Hispanic markets. Even on the flip side in July, even though July was our biggest month of admissions revenue ever, the nature of the title skewed a bit lower for our audiences compared to other markets around the company. So we expect we might see third quarter tick down a little bit for us overall. So it will ebb and flow a bit, but our focus certainly is on continuing to drive those initiatives to sustain our advances. It's hard to comment. Your other question on CineWorld and Regal; we certainly suspect them having a stronger financial position. We'll put them in a better position to be competitive going forward. We certainly hope for -- we always believe that delivering consumers widely across the industry, a really positive experience lifts all boats and is a positive thing for all of us. So, our hope coming out of that is that they will continue to deliver a heightened experience and a positive experience, and that will be a good thing for everybody.

Our next questions come from the line of Eric Handler with Rob at GM.

Sean, granted, I know Cinemark has a long history of being conservative with the balance sheet, but you're at the point now, you're at 3.4x net leverage. You've got a pretty good work chest of cash available to here. I mean do you -- how are you thinking about maybe loosening the purchase a little bit and increasing CapEx for some additional ROI projects, maybe buying back some debt in the open market for -- get some nice accretion off of that? And just your thoughts there.

Sure. I'll let -- again, I'll tag team and Lisa, I'll let her hit a chunk of that is we'll say, it's a topic we talk quite a bit about. We do have a focus in terms of the balance in terms of where we're aiming for restrengthening our balance sheet as well as pursuing different kinds of initiatives. But Melissa, I'll let you dive deeper.

Sure. So in terms of capital allocation priorities, those remain centered around 2 main areas: strengthening our balance sheet, which includes delevering and then making the right investments to position the company well for the long term. As we think about the go forward, certainly, as I mentioned in my prepared remarks, we're targeting a net leverage ratio in the 2 to 3x range. As Sean mentioned, we are in regular conversations around our capital allocation priorities. But one thing to keep in mind is we'll look to be opportunistic in paying down debt and delevering given our cash position. But at the same time, given some of the current industry dynamics that could cause some potential shifts in film slate, you can expect us in the near term to be conservative with that cash on hand.

Yes. And the only other thing that I would kind of supplement that is, obviously, we view that as a good position with kind of contending with any near-term uncertainty that may be out there, but also then being able to be really opportunistic as different types of things, different kinds of opportunities may shake out of this environment. So we feel that Hence, we commented on being in Injavanta's position, we think we're not only in a position of strength to navigate ongoing fluctuations but also to capitalize on opportunities as they come our way during the course of the coming year.

Great. That's helpful. And then just as a follow-up, with National CineMedia's bankruptcy and the emergence and restructuring, what's different, if anything, at all, in your agreements?

Well, for the time being, it is largely business as usual. They have a plan, a bankruptcy plan that's been approved. And as I understand, are expecting to emerge sometime this month or next. They've accepted our pre-existing contracts. So we continue to operate according to that. So for now, there haven't been modifications to that contract. Any future modifications will be something that would be mutually agreed upon and that's to be determined.

Yes. The other thing that I would just mention there is based on the terms of their restructuring. So as you know, we have our ESA, which is where we earn ad revenue. But then in addition to that, we have our investment in NCMI. Based on the terms of their restructuring, we do expect their outstanding debt will be converted into equity, and our ownership interest will reduce from 25% today to less than 5%. So that would impact the value of our investment and any share of any potential future dividends that they may pay out. And as you probably will see in our financials that investment, we've reduced that considerably over the years. So I'd say the degree of exposure on that is minimal at this point.

Our next questions come from the line of Omar Mahes with Wells Fargo.

Sean, maybe first, we've seen a few films shifted away from the back half of the year to 24% as a result of the writers and actors strike? Do you expect any additional firms to move out of the 2023 schedule? And Melissa, maybe on the strength of your ATPs and per caps, you guys have previously talked about modest growth for the back half of the year, but that remains elevated with average ticket pricing and burps running around mid-single digits, silo double-digit range. Can you just cuts maybe what's driving that? And how should we think about 3Q and 4Q?

Thanks, Omar. It's still hard to say for the end of the year with regard to any further shifts. There's a lot of work and a lot of planning underway to try to limit the amount of impact. There will be on that. A lot of that is going to ultimately just depend on how long the conversations and negotiations continue and the availability of writers, different resources that may be required in the form of writing and/or just promotional support. So we're going to have to see.

And then with respect to average ticket prices and per cap, so I'll start with the average ticket prices. We do continue to believe we can modestly grow our ATPs for full year of 2023 relative to 2022 levels. But our average ticket prices will fluctuate quarter-to-quarter. If you think about the back half of this year, we expect our average ticket price growth rate to moderate due to the film mix and that's particularly given we'll be lapping the significant lift from the 3D penetration on Avatar from last year. So that's something to keep in mind. And then in terms of per caps, we, again, continue to believe can grow our per caps year-over-year in the second half of 2023. However, per cap similar to average ticket prices, those fluctuate quarter-to-quarter with film mix. For context, if you think about our Q2 per cap, that benefited from the film mix in the quarter with the film slate that not only drove an audience mix that skewed younger and tends to purchase more on the concession side, but it also provided more opportunities for us to sell films merchandise. Conversely, as we think about the second half of the year, we are expecting our year-over-year concession per cap growth to moderate. And that's, again, driven by upcoming film slate. And we've already seen that play out in our per cap in July with a more adult skewing film slate that drove an audience mix. That's just typically less inclined to indulge on the concession side.

Our next questions come from the line of David Karnovsky with JPMorgan.

Maybe to follow up on the pricing loans. Maybe in Q2, can you unpack a bit what strategic pricing versus PLS, what the offset was from the mix? And then Chan, I don't know if there's any detail you could provide with the strategic pricing. You've noted it for a few quarters now. What's sort of resonating there? Any incremental color on that would be great.

Yes. So on the average ticket pricing, if we look at domestic ATPs, we're up about 6% in the quarter. About 5 points of that strategic pricing, a point of that is format mix, so premium format mix and then offset by ticket type mix.

And just in terms of reference to strategic pricing, I think it's one of the areas that we have viewed as an area of opportunity for a while in terms of strengthening our use of data and analytics around pricing. We've for a long, long while, had varied pricing throughout the day, throughout the week, that's tailored to high-level demand patterns that we've seen over time. And we just continue to drive that down further to more discrete levels on a by theater basis, but with the use of data. So it ranges in terms of just tailoring levels of price on a more active basis to varied levels of demand both for for movie going in terms of our tickets as well as our food and beverage prices. So with that, we found success in capturing upside both from price and certain circumstances, but importantly, just in terms of frequency and consumption and really getting that equation right to maximize box office, maximize attendance and maximize overall concession revenues.

Okay. And then, Sean, you noted the 3 films in APRA earlier. Just wondering, do you have a sense yet for Apple or Amazon, what run rate fleets might look like not in the next 6 months, but in the next couple of years, right? What could this maybe contribute to overall box office in terms of volume or revenue?

Sure. Well, Amazon has -- they've publicly expressed an intention to release up to about 8 to 12 films per year. So when you look at the volume of that, and clearly, we -- while I haven't said this, our expectation is those would probably range in size from small to mid-tier to more significant films, more blockbuster tent-pole type films. So that level of volume is commensurate with a major studio. And Apple has -- have they kind of given indications of a similar amount, maybe not quite that number, but there have been indications out there of each spending somewhere around $1 billion annually. So to the extent that flows through, again, those are sizable levels. So there's the potential for us to see almost 2 incremental major studios entering the marketplace, which would obviously provide a huge tailwind in terms of overall volume over time.

Our next questions come from the line of Stephen Laschet [ph] with Goldman Sachs.

Maybe for Sean, with the actors and other influencers unable to promote movies like it typically would given the strikes. I was curious if you see the need or maybe the opportunity for studios and perhaps the theater operators and partnership to invest more in advertising in the back half of the year. Just curious if you think that there's added return opportunities on this type of spend.

Stephen, I'll take this one. Regarding our marketing spend, we do not expect any meaningful changes in our spend on account of the strikes. Our spend does vary quarter-to-quarter based on our expected attendance and ROI. But for the full year, we're still expecting marketing expense as a percent of revenue to remain largely in line with 2022 levels.

Got it. And then, maybe just a higher-level question on merchandising. We saw a series of merchandising initiatives around the Barbie movie last month, I think Cinemark or token that with some collectible items. I'm just curious how you think about the merchandising opportunity going forward. Just something you think you might want to get bigger into maybe as it seems the content becomes more linked to consumer IP, if that's something to win deeper into.

Sure. Well, we do. I mean we think there's incremental opportunity there. A lot of that often depends on the types of films that are in the marketplace. So in terms of getting boost here and there. So obviously, the -- I think Melissa commented the first half was particularly strong with regard to the types of films and the number of opportunities they provided for merch sales, while the second half might be a little bit lighter. But on the whole, we see there's opportunity, and it's -- when we look at just what consumers are doing, we see the level of consumption there has been really strong, if not growing. We are actually, in addition to expanding what we offer within our theaters, it's something that we started to ramp up to from an e-commerce standpoint. So now through our app, through our online website, you can purchase that march as well, which is a great thing. We've seen is in circumstances where we sell out of merchandise in our theaters, now we have the opportunity to continue to offer that to consumers online. And we've seen a great uptick with high-demand type items in people flowing through to online purchases. And then I would just add, the online store also gives us more of a sustained venue. We have limited space in our theaters, but there is a wider array of things we can offer on a perpetual basis to drive incremental sales in that category. So we definitely view it as a positive opportunity as we look ahead, something that can continue to contribute to future per cap growth.

Our next questions come from the line of Jim Goss with Barrington Research.

I wanted to ask about the emerging genres you mentioned. You -- I think you indicated there was about 7% of your revenue base was coming from a combination of perhaps base based films or cultural may play a role, Indian, Japanese, Hispanic or maybe some other areas. And to some extent, you're identifying some new audiences that took advantage of the hole that was available. And how sustainable is that? And clearly, that's providing some of the increment that's helping you reclaim higher ground.

Well, look, we think -- so it's a great question, Jim. And you're right. We did comment that it was about 7% of our box office results in the first half. We do think it is a sustainable category. If anything, for a long, long while, we had an anticipation that alternative content had a lot of promise, and it was frustrating that it only had taken off to a limited degree. So it's taken some time for this category in some of these different areas to catch on. But I would say we're now finally starting to see a bit more momentum. The appetite for a wider audience base to go view these types of multicultural films is picking up. The scale of those films is also been to a higher degree, which we think certainly helps the quality of those movies and the scale of those movies. So they're starting to translate more across cultures. We're certainly seeing -- slowly starting to see more in the -- like we've had the met for a while, but in the concert space in the gaming space, these different types of events. And then clearly, we're seeing more scaled faith-based results on some of these films like we saw with Gesa's Revolution and sound of Freedom that are delivering some pretty solid box office figures. So all in, we continue to think there's opportunity there. We've said historically, we think probably 5% or so of box office might be a reasonable expectation. Certainly, as more of the Hollywood content comes in, that will just create a bigger overall number. But we think there's a lot of ongoing potential here. And if anything, we think there's a bit more growth than what we're currently at based on some of the trends we're seeing in these categories.

Okay. One other thing I'd like to ask about is film rent margin trends, I might have expected more favorable trends given that there have been blockbusters, but not perhaps as many films getting to the higher levels. And I thought you might also get some concession in terms of how you've played with Windows over the past several years. But they're not quite where I thought they'd be. And I wonder if you might -- maybe are where you think they should be. If you have any comments on the film rent margin progression.

Sure. So in what we saw in the quarter, our film rental, the dynamic that's playing out in our film rental rate is that as the overall box office grows, we're seeing more higher grossing titles and those fall higher on the film rental scale. So that's the dynamic that we're seeing in -- or we saw in the quarter play out. As you look forward, we do continue to expect our film rental rate to be impacted by a higher concentration of tentpole films. But that's going to -- our film-only are going to vary quarter by quarter based on the volume and content in any given quarter. We still are receiving economic consideration for window -- the reductions in windows. But again, that also varies quarter-to-quarter based on release patterns.

Yes. And I would just add, Jim, just a quick data point. When we look at the top 5 films in second quarter of this year, they were about 62% or so of our box office when you consider what they were in 2019, it was about 53%. So we're still seeing more of the remaining gap of film volume in some of those smaller titles. So those have made a big advance this year versus last year, but that's an area that's still to fill in, and it just puts a little bit of a mixed drag on that overall metric. That, coupled with some of the incremental spend that we're doing, which also hits that line item from an advertising and promotion standpoint, which we think has been net-net compared to 2019, valuable in sustaining our market share. Another piece to one of the questions that was asked before.

Thank you. [Operator Instructions] Our next questions come from the line of Eric Wold with B. Riley [ph].

A couple of questions. I guess, first, can you update us on kind of what you're seeing with labor wage rates domestically and in Latin America? And how would you characterize the staffing of the theaters relative to where you want to be at this point in terms of still looking to manage costs and margins, but not impacting the guest experience?

I'll take that one. So in terms of wage rates, we are still seeing some wage rate pressure. Our wage rates are up about 5% year-over-year. That is, as you know, from the past couple of years, it's come down from where we were trending. We -- while we see wage rate pressure in pockets, we are not seeing that market-driven pressure nearly to the extent that we were previously. What we're seeing now year-to-date continues to be more related to state government mandated increases versus that labor market dynamic. Now we do -- and then in terms of Pure, our ability to actually staff up the theaters, we were able to -- as we ramped up for the summer season, we were able to staff the theaters to the levels that we intended to staff them to. So that was definitely a positive as you think about the last 2 years and the staffing challenges that we had seen. So I would say better dynamics at play there...

Yes. And I would just add for Latin America, similar dynamics to what Melissa said, albeit I think in many of those markets, some of the increased inflationary challenges that we've seen here in the U.S. are more commonplace in those markets. So there's -- that's more of the norm, and our teams there are very adept at dealing with those types of dynamics. So it's been more of a newer phenomenon in the U.S., but we've got a lot of experience in that market. And staffing levels are where we need them to be there, and we're continuing to do what we can to offset and manage the cost of normal market inflation.

And then, just a follow-up, maybe taking the more EBITDA margin question from earlier on a different route. I guess I know there's a lot of uncertainty in terms of what inflation you may do in the coming years, how the film slate may continue to ramp and box-frecover. But given what you saw in the second quarter in terms of margins, do you feel that the current operating structure and cost structure and kind of per cap spend levels can allow margins to get back to prepandemic or above prepanemic levels if the box office fully recovers in the coming years, but attendance continues to lag revenue at the same level it is now?

So I mean, there's a lot still in flux, so it's hard to say. But I think maybe said another way, we don't necessarily believe that we need to attendance to fully recover in order for margins to recover. So that's going to depend on the factors that we talked about like market share per, all that that you highlighted. But as you saw in the quarter, attendance doesn't necessarily need to get back to those pre-pandemic levels.

Our next questions come from the line of Chad Beynon [ph] with Macquarie.

This is Aaron on for Chad. With regard to your premium format screens, is there a level of penetration you'd like to get to over the medium term? And how does that rank among your priorities versus some of the other ROI-generating opportunities you mentioned?

Ari, thanks for joining. Look, we've been very pleased with what we're seeing with premium consumption across the board, not just our screens, but our D-BOX motion seats, our food and beverage, our responsiveness of audiences to recliner seats. I mean it really cuts across all the different premium offerings. As far as priorities, it's an area that certainly is ranking high on our ROI priorities because the returns have been really strong. I'd say, target-wise, specific to the screens and auditoriums; one of the governors on that is just the size of the auditoriums across our existing fleet. So if we're adding new theaters that provides a lot of flexibility. When we're talking about existing theaters, we want to make sure it's the right scale of experience, right? You need to have a large enough auditorium for the overall experience to be appropriate. So we don't undermine that product. So we do see a sustained opportunity there to a certain degree for certain second XDs in marketplaces here and there. But I would say, in fact, it's a piece of the the overall prioritization effort we're doing with regard to our CapEx, like there's a number of other things that are really positive. So it's high on the list. The degree of which we're doing that really is balanced with a range of other things. And then like I mentioned, just the the types of auditoriums and the size of terms that we have available to us at this point.

Okay, great. That's helpful. And then can you help us just understand the inflation picture in Latin America and how that's affecting the consumer. It's good to see the international recovery continuing, but just wondering how that's trending currently.

Sure. It's interesting, as I kind of was alluding to before, the high inflation is something that most of these markets are very accustomed to because it's not unique to retail. It's not unique to our industry. It really cuts across everything in these markets. And -- what they've become more accustomed to there than here is pricing growing at a comparable level to inflation. So typically, what happens is wage rates goes up, cost of utilities goes up, cost of groceries go up and people just take the pricing of goods and services up at a similar level, and that's how things go. So -- and the consumers accept that. They expect it because it's -- like I said, it's almost just the way many of these markets operate. Here in the U.S., it's a little bit of a different dynamic because it's -- we're not accustomed to higher levels of inflation. So you got to be a little bit more careful on the aggressiveness of pricing just to try to match some of the cost escalation that's been there because there can be a sticker shock that happens here that doesn't happen there. So I would say, again, LatAm, it's more of the norm, and it's something that really hasn't been -- hasn't been a near-term or newer issue that they're contending with.

Got it. Appreciate the color, and congrats on the quarter.

There are no further questions at this time. I would now like to hand the floor back over to Sean Game for any closing comments.

Thank you, and thanks, everyone, for joining us again this morning. In closing, I'd just like to reiterate our optimism about the future of the Atrovexhibition and our company long-term indicators regarding consumer interest in theatrical movie going and film volumes remained positive, and Cinemark maintains a highly advantaged position to capitalize on our industry's continued recovery through our ongoing strategic initiatives and the many actions that we've already taken to enhance the experience as we provide our guests, advance our operating capabilities and strengthen our financial position. So thank you, and we look forward to speaking with you again following our third quarter results.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy your weekend.