Cinemark Holdings Q4 User Manual

Corrected Transcript

1-877-FACTSET www.callstreet.com

Total Pages: 22

26-Feb-2021

Cinemark Holdings, Inc.

(CNK)

Q4 2020 Earnings Call

Cinemark Holdings, Inc. (CNK)

Q4 2020 Earnings Call

Corrected Transcript

26-Feb-2021

1-877-FACTSET www.callstreet.com

CORPORATE PARTICIPANTS

Chanda Brashears

Vice President-Investor Relations & Corporate Communications, Cinemark Holdings, Inc.

Mark Zoradi

Chief Executive Officer & Director, Cinemark Holdings, Inc.

Sean Gamble

Chief Operating Officer & Chief Financial Officer, Cinemark Holdings, Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Eric Wold

Analyst, B. Riley Securities, Inc.

Eric O. Handler

Analyst, MKM Partners LLC

Michael Ng

Analyst, Goldman Sachs & Co. LLC

James Charles Goss

Analyst, Barrington Research Associates, Inc.

Robert Fishman

Analyst, MoffettNathanson LLC

David Karnovsky

Analyst, JPMorgan Securities LLC

Alan Gould

Analyst, Loop Capital Markets LLC

MANAGEMENT DISCUSSION SECTION

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Cinemark's Fourth Quarter and Full Year 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to your speaker today, Chanda Brashears, Senior Vice President of Investor Relations. Thank you. Please go ahead.

Chanda Brashears

Vice President-Investor Relations & Corporate Communications, Cinemark Holdings, Inc.

Thank you, Natalia, and good morning, everyone. At this time, I would like to welcome you to Cinemark Holdings, Inc.'s fourth quarter and full year 2020 earnings release conference call, hosted by Mark Zoradi, Chief Executive Officer; and Sean Gamble, Chief Financial Officer and Chief Operating Officer.

In accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that are discussed by members of management during this call may constitute forward-looking statements.

Such statements are subject to risks, uncertainties and other factors that may cause Cinemark's actual performance to be materially different from the performance indicated or implied by such statements. Such risk

Cinemark Holdings, Inc. (CNK)

Q4 2020 Earnings Call

Corrected Transcript

26-Feb-2021

1-877-FACTSET www.callstreet.com

factors are set forth in the company's SEC filings. The company undertakes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast may include non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures can be found on today's press release, within the company's quarterly filing on Form 10-Q or on the company's website, investors.cinemark.com.

I would now like to turn the call over to Mark Zoradi.

Mark Zoradi

Chief Executive Officer & Director, Cinemark Holdings, Inc.

Thank you, Chanda, and good morning, everyone. We hope you and your families are healthy and well during this very challenging time. We appreciate your joining us to discuss our 2020 fourth quarter results. The format of our call this morning will be similar to that of previous calls this year.

I'll kick things off with a high level overview of the current state of our company and industry. And then, Sean will provide commentary on our liquidity position and fourth quarter financial results, before turning the call back over to me for a further update on our strategic focus and reopening status. We will then open up the line for our customary Q&A.

It's almost unfathomable that one year ago, we were reporting Cinemark's fifth consecutive year of record results, with the North America industry touting the second highest grossing box office of all time. Our earnings call this time last year reflected an incredibly strong company with a history of discipline and consistency, operating in a stable and mature industry.

It goes without saying that our environment has drastically changed. COVID-19 has caused significant distress in multiple industries, including the exhibition industry, and tested the strength and resiliency of our company over the course of the past 11 months.

I'm immensely proud to say that Cinemark is still a strong company, operating with balance, discipline and consistency, while adapting to our current circumstances. This past year has only reinforced that Cinemark has tenacity, perseverance and pure grit, not to mention an ability and a willingness to think quickly and move nimbly as we evolve and persevere this unpredictable and ever-changing environment.

While we have provided updates throughout the year that underscore how Cinemark has continued to adapt, we thought it worthwhile to outline the key actions that have enabled us to reactivate our theaters and generate positive variable cash flow.

Our Project Phoenix Relaunch Initiative with its structure, rigor and organization, has been truly exceptional. Initially tasked with researching and defining our cleaning and safety protocols and then coordinating the relaunch of nearly 350 theaters in the US, and more than 200 in Central and South America. Our team implemented a robust test and learn process and methodical phased rollout. It is because of this meticulous planning and preparation that Cinemark was one of the first exhibitors to reopen and has largely been able to remain open, government restrictions notwithstanding.

At the end of the year, approximately 75% of our US circuit was reopened, relative to just 45% of North America industry. Similarly, in Latin America, we had approximately 65% of our theaters operating. In both regions, we remain open, were allowed, and efficiently close and reopen as government restrictions change with the

Cinemark Holdings, Inc. (CNK)

Q4 2020 Earnings Call

Corrected Transcript

26-Feb-2021

1-877-FACTSET www.callstreet.com

fluctuating COVID status. With our foundation of disciplined processes and constant evaluation, the Cinemark team has become quite adept at quickly reacting to changes in regulations.

While there were many factors driving our successful reopening, our theater general managers were crucial in every aspect. We kept our GMs on staff throughout the pandemic to maintain our theaters while they were closed, which was no easy feat, and then prepare them for reopening. And because our GMs consistently live one of our core values, passion for people, they maintained a strong rapport with their hourly theater employees that had been laid off during the shutdown. As such, a vast majority of team members hired, as we began reopening, were previous Cinemark employees. It goes without saying how much time and money that saved our company in training, education, background checks, et cetera.

And our theater teams have been proficient in the execution of The Cinemark Standard and protecting the health and safety of our employees, guests and communities. Since we began reopening in June, we have consistently received 96% guest satisfaction scores on Cinemark protecting their health and safety. This simply could not be achieved without the meticulous research and planning by the Project Phoenix team and the impeccable execution of our theater staff.

And as we prepare for a steady stream of new film content, our film and marketing teams have been creative and resolute in securing relevant and varied library content and developing promotional campaigns to keep our guests engaged and entertained, including promotions around Halloween, Thanksgiving, Christmas, New Year's Eve, to name just a few.

Cinemark has also excelled in directly reaching our consumers, notifying them that we're open, highlighting films they can see, showcasing food and beverage promotions and, of course, emphasizing our clean and safety protocols. We have been aggressive in every communication channel, including digital, e-mail, social, public relations to inform consumers and entice them to visit our theaters.

Our Private Watch Parties have been a key element of those promotional campaigns and continue to grow in popularity. To date, we have hosted more than 150,000 Private Watch Parties. As the average number of attendees is 13 people, this represents more than 2 million moviegoers that have experienced The Cinemark Standard for themselves, just with PWPs. During the fourth quarter alone, the Private Watch Parties represented 24% of our attendance and box office.

And one interesting fact here, more than half of the Private Watch Parties, during the fourth quarter, were driven by library content, led by family-favorite comedy, Elf. This library content could be watched for free, at home, on the sofa. But, instead, consumers chose to pay $99 to see it in a theater. This reinforces what we have consistently stated: people are yearning for normality, escape and a fun out-of-home opportunity. Movie theaters provide all that and more in a safe and clean environment.

And something else that you can get only in the theater is that cravable movie theater popcorn. Our food and beverage team has been actively engaged in initiatives to sell more fan-favorite popcorn, refreshing soda and a wide variety and assortment of candy. In fact, our 4Q 2020 per cap of $5.42 was on par with our 4Q 2019, driven by increased incidence rates in this core category, despite fewer, more streamlined concession offerings and strategically discounted welcome back pricing on selected items.

Another exciting initiative we have started rolling out, and that shows considerable early promise, is Snacks In A Tap, our mobile and online concession ordering service, which enables moviegoers to order their food and beverages in advance and either pick them up at the counter upon arrival or have them delivered directly to their

Cinemark Holdings, Inc. (CNK)

Q4 2020 Earnings Call

Corrected Transcript

26-Feb-2021

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seat for a nominal fee. About 70% of our domestic circuit already features Snacks In A Tap functionality, and we've been highly encouraged by the initial results. We look forward to utilizing our key learnings from the initial rollout process to bring this platform to moviegoers across our domestic circuit during the first half of this year.

And to assure that we are maximizing attendance, revenue and cash flow, we've refined our processes to be more efficient and accelerated productivity measures to further streamline our business. We remain laser-focused on fine tuning operations and protocols such as rightsizing our operating hours and staffing to align with film content and consumer demand.

And all these strategies combined have led to some remarkable results in consideration of the headwinds we are facing. Notably, we're continuing to more than cover our incremental variable costs associated with being open and we are burning less cash open than we would relative to being closed. This requires an immense amount of focus and analysis by our service center in conjunction with incredible execution by our theater teams.

Furthermore, we're seeing the impact of these actions in our box office results. During the fourth quarter of 2019, Cinemark theaters represented 7% of the North America industry screens and generated 13% of the overall box office. Fast-forward to the fourth quarter of 2020, Cinemark constituted 11% of the industry screens with over 20% of the domestic box office. While we fully recognize that a portion of this market share growth is due to some competitors remaining closed, we will be aggressive in our attempts to retain a meaningful amount of this share shift on a go-forward basis.

And again, we feel well poised to do so given our consistent historic investments to maintain a high-quality experience with upscale amenities. We have the highest recliner penetration amongst the major players with 64% of our auditoriums featuring luxury loungers. 75% of our circuit is equipped with expanded food and beverage capabilities. Our XD brand is the number one exhibiter, premium large format brand with 278 screens across our global platform. We also have a solid reputation of top-notch guest service. And our Movie Club, our unique transactional-based subscription program has more than 950,000 members.

Before I turn the call over to Sean, I would like to share that in my 30-plus years in the entertainment industry, I have never been more proud or impressed by my colleagues than I am with the Cinemark team. We are all working relentlessly toward common goals. Navigating the pandemic and setting ourselves up to once again thrive and excel in a post-COVID environment. With every crisis, there's an opportunity and this team has done all they can to seize that opportunity.

Sean, will now walk you through our liquidity position and 4Q results before turning it back over to me, to cover our reopening status. Sean?

Sean Gamble

Chief Operating Officer & Chief Financial Officer, Cinemark Holdings, Inc.

Thank you, Mark. Good morning, everyone. As we continue to navigate the challenges associated with COVID19, cash management and liquidity remain crucial focal points. Cinemark has long maintained a disciplined approach towards capital allocation with a consistent history of balance sheet strength. We believe that these attributes, along with the many proactive measures we've taken to bolster and preserve liquidity and numerous additional options that remain available to us, provide us a viable runway to see our way through the remaining impact of the pandemic and emerge successfully thereafter.

As we've described on prior calls, some examples of the actions we've taken include significantly limiting all nonessential operating and capital expenditures, restructuring and streamlining our operations and headquarters,

Cinemark Holdings, Inc. (CNK)

Q4 2020 Earnings Call

Corrected Transcript

26-Feb-2021

1-877-FACTSET www.callstreet.com

including the permanent closure of 27 lower-performing theaters and significant reductions in workforce and payroll, negotiating substantial lease-related and other contractual payment deferrals and modifications, suspending our dividend and securing $730 million of new debt.

We also have actively pursued tax benefits provided by the CARES Act, including adjustments to qualified improvement property deductions and carrying back net operating losses, which provided us $124 million of meaningful cash relief during 2020, with another 100-plus million dollars expected by mid-2021.

In total, we ended the year with a global cash balance of $655.3 million, which includes approximately $15 million of new fourth quarter international borrowings and $7 million of state tax refunds received during the quarter.

Excluding these inflows, our fourth quarter cash burn was approximately $65 million per month. This figure is modestly below the estimate we provided on our prior earnings call of $75 million per month as a result of higher variable operating profit than we initially anticipated and further reduced capital expenditures.

Based on the current operating environment, we continue to project an average monthly cash burn of approximately $65 million. At this rate, and based on our approximate $600 million cash balance at the end of January, our cash runway extends into the fourth quarter of 2021. This runway further extends into 2022, including the incremental tax refunds we expect to receive that we have already filed for.

Just to be clear, these projections do not assume any further improvements in operating results as new film content ramps up during the course of the year or any additional rent adjustments, which we continue to pursue.

They also do not include additional financing options that remain available to us such as drawing on our $100 million revolving credit line, tapping incremental term loan borrowing capacity within our credit facility, executing sale leaseback arrangements on unencumbered properties we own and issuing equity.

Turning attention now to our fourth quarter results, we'd like to remind you again that our reported financials follow accrual-based accounting and therefore, do not necessarily correlate directly to the timing of our cash flows. Furthermore, as in previous quarters reported this year, our traditional metrics are somewhat distorted in this current environment. Domestically, approximately 75% of our theaters were open and operating at year-end and total fourth quarter revenues were $86.8 million driven by attendance of 5.1 million patrons.

US admissions revenues were $44.4 million, of which 24% were generated by private watch parties. Our average ticket price of $8.64 benefited from the impact of private watch parties, deferred revenue reversals related to loyalty point breakage and mix associated with reduced matinee availability that offset the effect of discounted pricing for library content. Domestic concession revenues were $27.9 million with a food and beverage per cap of $5.42.

As Mark outlined during his comments, we are extremely pleased with this result, in light of our sustained pricing discounts on concessions and the limited range of menu items we offer during the quarter. Internationally, we continue to scale up operations and ended the year with 65% of our Latin American theaters open and operating. Our total international revenues for the fourth quarter were $11.4 million with attendance of 1.5 million patrons.

Globally, film rental and advertising expenses were 44% of admissions revenues, which declined over 1,000 basis points compared to 4Q 2019. This decline was driven by lower performing first-run film content and the impact of library films that tend to carry more favorable terms.

Cinemark Holdings, Inc. (CNK)

Q4 2020 Earnings Call

Corrected Transcript

26-Feb-2021

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Concessions costs were 27.6% of concessions revenues, an increase from [ph] 79.9% (00:18:13) in the fourth quarter of 2019, predominately as a result of additional spoilage associated with our temporarily closed theaters. Promotional pricing, which has been very helpful in attracting consumers back to our theaters and stimulating incremental purchase incidents, also created a slight near-term drag on our COGS rate.

Global salaries and wages were $28.4 million and declined 72.1% year-over-year as our open theaters managed to effectively operate with highly reduced hours and staffing. Facility lease expenses of $65.3 million were driven by the fixed nature of our rent commitments, however, were down $18.3 million year-over-year, predominately as a result of permanently closed theaters, varied rent abatements, and reduced percentage rent associated with our decline in revenues. Again, these expenses are accrual based and do not reflect nearly $15 million of cash payment deferrals executed during the quarter.

Worldwide utilities and other expenses were $50.8 million and declined 56.8% versus 4Q 2019. While several costs within this expense category, such as credit card fees and commissions paid to third-party ticket sellers are 100% variable, others like property taxes and property and liability insurance remained fixed. Still, other expenditures such as utilities and repairs and maintenance have a blend of fixed and variable attributes and have been increasing as our theaters continued reopening. Finally, G&A for the quarter declined to $28.2 million, driven by the impact of our recent restructuring actions, travel restrictions and reduced incentive compensation expense. Collectively, our worldwide adjusted EBITDA for the fourth quarter was negative $97.5 million, and we posted a net loss of $239.3 million.

Capital expenditures during the quarter were $16.3 million, of which $7.3 million was associated with new-build projects that had been committed prior to the COVID-19 pandemic and $9.1 million was driven by new cleaning and safety equipment, regulatory and compliance requirements, maintenance and additional prior commitments.

For the full year 2020, we spent $83.9 million in CapEx, which was 16% below our revised guidance of $100 million and 72% below our original guidance of $300 million. Throughout the fourth quarter, and since the inception of the pandemic, we aggressively curtailed expenditures to preserve cash and liquidity, as is exemplified by our significant CapEx reductions.

As we've already indicated, liquidity management continues to be one of our near-term priorities and, as such, our 2021 capital expenditures will remain limited to essential needs and pre-pandemic commitments.

Along these lines, we currently estimate spending approximately $100 million on full year 2021 CapEx, with $50 million deployed to previously committed new-build projects that were mostly delayed from 2020, and the remaining balance predominately driven by maintenance and compliance needs.

Our expected maintenance expenditures remain highly reduced from historic levels and are associated with needed repairs and safety equipment. Our consistent investments, in proactively maintaining our theaters over the years, has positioned us to sustain a period of reduced CapEx without hindering our asset quality, operations or guest satisfaction.

Before handing the call back over to Mark, we thought it would also be helpful to provide an estimate of cash interest for 2021 that captures the impact of our recent debt issuances in 2020. Based on current interest rates and our existing borrowings, we expect cash interest will be approximately $32 million per quarter.

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