Cinemark Holdings Inc (CNK) 2004 Q2 法說會逐字稿

At this time, I would like to welcome everyone to the second-quarter conference for Cinemark, Inc. and subsidiaries, hosted by Alan Stock, President, and Robert Copple, Chief Financial Officer. All lines have been placed on me to prevent any background noise. (Operator Instructions).

I will now turn the call over to Mr. Robert Copple, Chief Financial Officer. You may begin your conference, sir.

Good morning, and thank you for participating in our second-quarter conference call. Our earnings were released late yesterday afternoon, and our second-quarter 10-Q for Cinemark, Inc. and our 10-Q for Cinemark USA, Inc. are now available on the SEC website. Before we begin, I would like to remind you that this call may contain forward-looking statements within the meaning of section 27-A of the Securities Act of 1933 as amended, and Section 21-E of the Securities and Exchange Act of 1934 as amended. All statements other than statements of historical fact communicated during this conference call may constitute forward-looking statements.

The operating data we will discuss today is attributable to Cinemark USA and subsidiaries, other than the inclusion of our holdco notes and the related interest expense. The costs incurred at the holdco level, as reported on Cinemark, Inc., are generally de minimus, other than the interest expense related to the notes above and the tax benefits associated with that interest.

For those of you who have not visited our website, it is located at Cinemark.com. Under the corporate/employment tab, you will find an investor relations tab which contains worldwide theater count summaries by quarter and adjusted EBITDA reconciliations.

With all this housekeeping done, we are ready to start, and I will turn it over to Alan Stock.

Well, we're certainly glad to be here on this call with all of you today, and thank you for your time and interest in Cinemark. I will first give you a brief overview of both the industry and Cinemark for the second quarter, and then talk a little on how we feel about the second half of the year. Then I will turn the time over to Robert to give you a little more detail about the second quarter.

The second quarter has been very good for both the industry and Cinemark. According to EDI, the US box office was up approximately 5 percent for the second quarter, compared with 2003. Through the first half of 2004, the US box office is up approximately 1.3 percent. The industry started the quarter up in the month of April, and then declined in the month of May, and then we finished up very strong in the month of June. Many titles performed very well, including Shrek 2, which has grossed over 430 million in the US box office.

To move on to Cinemark, we're very pleased with our second-quarter results. For the quarter, we were up 9 percent in attendance compared with last year, our revenues increased by 11.8 percent, and we were able to achieve a 24.2 percent EBITDA margin for the quarter. We attribute these results to quality product that drove up attendance, as well as a 2.2 percent increase on our average ticket price.

Cinemark continues to remain very focused on operating very high-quality theaters throughout the world. For the first half of 2004, we have experienced a 9.9 percent increase in attendance and a 13.7 percent increase in revenues. Looking forward, Cinemark plans to continue to be a leader in the development of stadium seating multiplex theaters. Through June 30th, 2004 we have opened 111 new screens and added four screens to two existing theaters. As we look at the next two quarters, we did start the third quarter out very strong with Spiderman 2, but do believe the second half of the third quarter will soften, due to the Olympics. The holiday period will bring us some great titles, and should help us to finish the year ahead of our 2003 numbers.

With that, I will turn the time over to Robert and he will go into some more detail.

Thank you, Alan. I will now walk you forward through our results for the quarter. We generated 276.7 million in revenues for the quarter, an increase of 11.8 percent over 2003. This increase in revenues is comprised of US revenue growth of approximately 10.3 percent and approximately 17.7 percent growth of our international revenues for the quarter. Much of the international growth was the result of a rebound in our operations in Mexico, generating a 20.6 percent growth rate for the quarter-over-quarter in 2004.

Drilling a little deeper into the worldwide consolidated data, our attendance increased 9 percent, average ticket price rose 2.2 percent to $3.57, and concession per patron rose 3.7 percent to $1.83 per patron. Average revenues per screen increased 5.6 percent for the quarter, to 86,617 from 82,011. Our operating cost as a percentage of sales decreased 260 basis points, primarily due to the fixed expense components embedded in our various cost categories, and as a result of the lower film and advertising costs. Film costs benefited from our strong performance in international operations, which generally incur lower film rental costs than in the US. Our recurring G&A cost increase, as a percentage of revenue, is 55 basis points for the quarter, which is primarily a result of salary and bonus costs based on the performance to date.

In our income statement, we have segregated compensation costs incurred as a result of the change of control that occurred in April upon the purchase of the controlling interest in the Company by Madison Dearborn Partners. The G&A cost we have isolated of approximately 32 million is attributable to, first, the required accounting treatment of employee stock options that were exercised and purchased as part of the stock acquisition, the value of which is treated as a comp expense and that equates to approximately 16.3 million; and then, other compensatory resulting from the change of control relating to employment contracts and other contracts of approximately 15.7 million. These costs were incurred and expensed as a result of the acquisition, but were funded through contributions both in equity and our new holdco debt at the holdco level. Since these were the result of the acquisition, and will not be items requiring the use of the Company's annual cash flow, I have excluded them for purposes of this discussion in calculating our adjusted EBITDA numbers for the quarter. The increase in revenues resulting from attendance and by screens (ph) translated into net income excluding the recap G&A charge of -- excluding the recap G&A charge, the revenue attendance price gains increased our net income by 21 million. That's compared to 8.4 million last year. Our adjusted EBITDA increased 21.1 percent for the quarter to 67.1 million, and as Alan mentioned, this resulted in a margin of 24.2 percent.

At quarter end, our cash was 98.5 million. Our total debt, including the accretive cost of the holdco debt, was 99.31 million. This excludes any issuance premiums that would be reflected on the balance sheet. The result of the net debt compared to our EBITDA for the quarter brought us down to an adjusted EBITDA ratio to net debt at 3.9 times.

At quarter end, we had 10.8 million of 8.5 percent senior subordinated notes outstanding, from 105 million original issuance. We have announced a redemption of those remaining notes that should close by the end of August. This will be funded out of excess cash available, as well as potential borrowings under our revolver.

We had additional change in our debt during the quarter, as a result of the repurchase of approximately 17.8 million of our 9 percent senior subordinated notes that arose from the tenders on the change of control offer that was required by the recapitalization of the Company. Therefore, we have approximately 342.3 million of outstanding 9 percent senior subordinated notes at quarter end.

John mentioned in the quarter we opened six new theaters with 65 screens. That was domestically. Internationally, we opened two new theaters with 13 screens. We added four screens domestically to existing theaters. We closed one screen -- or one theater with three screens, and we sold our UK operations, which consisted of two theaters and 17 screens, and treated those as discontinued ops on the income statement.

That ends our prepared remarks, and we would now like to open up the lines for questions.

(Operator Instructions). Grant Jordan, Wachovia Securities.

I had a couple of questions. One -- you touched on it a little bit on why international was so strong with Mexico, but if you could just give us a little more color on what you think is driving that? Second question is, your ticket price increases seem a little bit lower than what we have seen from some other operators -- if you have any plans to change that going forward? And then finally, if you could just go over your theater expansion plan for the rest of this year?

With respect to the international operations, we did touch on that Mexico has performed extremely well. Actually, all of our countries have done very well during this quarter. And in particular, we focused on Mexico because that had been a point of interest last year, when it had backed off slightly from historical operations, and we attributed that primarily to some economic events that were occurring, as well as lack of translation of film product from the US, and that we were unable to have some of the local product that we've seen in the past. Obviously, we're excited to see it bounce back extremely strong this year, reflecting that there were some aberrations last year that caused the decrease, and so it's back on track as we've seen it before. Obviously, it also helps that the exchange rates have remained relatively stable, at least compared to last year. Brazil is performing extremely well. Those are our two big countries. The real has held up very well there, and we have continued to expand and increase our attendance levels. Argentina is actually performing very well. It has rebounded from the lows we saw in the 2000 timeframe.

So, really across the board internationally, films are translating very well. The economic environment is generally very good in Latin America, and that's just translating into extremely strong performance.

You asked about ticket prices. We've increased our ticket prices modestly. We feel they are reasonably in line with our competitors. As with everybody else, we constantly do surveys of what the local competition is charging and try to be within a reasonable amount of that. We as a company have always focused on attendance. I do think when you look at our numbers compared to others, you will find that our attendance has remained extremely strong, and increased proportionately generally higher than some of our competitors. Whether that is the result of maybe a price differential or just the particular markets and how the product played, I don't know if I can answer that. But, again, we focus much more on maintaining and increasing attendance.

Your last question I think was in regard to what is coming up build-wise for us?

Right.

Through June 30th, we have commitments to open eight new theaters with 77 screens by the end of 2004. So that's kind of what is headed forward for us for the rest of this year.

And then, next year, do you have any preliminary CapEx budget?

I wouldn't say necessarily for the year that I would give a number, but I think in our Q, we mentioned that the commitments we have this year and next year to date. If you combine international and domestic, I think it's about 80 million total. Now, I would say overall, our current feeling is that we would probably have a similar amount of expansion next year as what we're seeing this year -- a slight ramp-up from what we saw last year.

(Operator Instructions). Andrew Finkelstein, Lehman Brothers.

A couple of questions -- and I have to be on and off the call, so I'm sorry if you already touched on this. But, just first, maybe you could just touch on what was the impact, if any, from FX for maybe Mexico or Brazil this quarter? Was it helping or hurting as you reported back to dollars?

My second question was on film exhibition costs. We've seen, across the industry, an improvement this quarter and I just was wondering if you could extend to expand a little bit more on that? Was it international or was there in fact an improvement in the US?

Generally on FX, it had just nominal or minimal effect on us. What I had mentioned is that the FX rates, primarily in Brazil and Mexico as compared to last year for the quarters, were relatively constant. There is some change, but nothing significant. So, being as those are by far the largest operations we had, it did not affect our numbers in any meaningful way. A few of the other countries we had a little bit of impact, but we don't feel like it had a significant bottom-line effect. The good part of that -- I think that's one reason you are seeing extremely strong international numbers -- we didn't really have any FX, be it up or down, that we had to deal with in different countries, which we have over the last few years. And everything was able to pretty much just operate on its year-over-year on a relatively equal comparative basis, and did extremely well.

Andrew, I think when we talk about film rental, we continue to tell you that film rental is obviously one of those things that, depending on the quarter and the film and what is played, I think we all did see a slight decrease in film costs for the quarter -- again, probably indicative of the type of product that played. We are seeing some independent film, which obviously has been able to achieve some good results in the box office again. We generally can buy that film a little less or just the nature of it. I think the film rental for us, as we look forward, will remain pretty consistent as we've always projected it to be.

Okay, thanks. And then just one question I was hoping you could help me out on. I don't know if it was in the 10-Q that you filed, but are you guys breaking out or could you break out the US screens -- just the US screens from the international screens at this point?

Actually, if you go to our website, we have a walk-forward of our screen counts that reflects domestic and international.

Okay, thanks a lot. Great quarter.

At this time Sir, I'm showing there are no further questions.

I always like it when you are easy on us. Nice to have a good quarter, and I appreciate everybody's participation in the call.

Again, thank you for participating. You may now disconnect.