Cinemark Holdings Inc (CNK) 2007 Q1 法說會逐字稿

At this time I would like to welcome everyone to the First Quarter Cinemark Earnings Conference Call.

All lines have been placed on mute to prevent any background noise.

(OPERATOR INSTRUCTIONS)

I will now turn the call over to Ms. Nikki Sacks, Vice President of ICR. Madam, you may begin your conference.

Thank you. And welcome to Cinemark's fiscal first quarter 2007 earnings call.

Before we begin, let me remind you that in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Company knows that certain matters to be 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 the actual performance of Cinemark to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the Company's SEC filings.

Today, Cinemark's CEO, Mr. Alan Stock, and CFO, Mr. Robert Copple, will be discussing the first quarter results.

As a result of the Company still being in the quiet period post IPO, they will not be addressing any questions after the presentation.

Now I'd like to turn the call over to Mr. Alan Stock.

Well, thank you, Nikki. On today's call, I will comment on the industries and Cinemark's first quarter results, the outlook for the upcoming film slate and provide an overview of Cinemark's strategy.

First, I just want to thank the Cinemark team and all of our bankers and new stockholders for their hard work and support during our initial public offering. It was a very successful transaction. We raised gross proceeds of approximately $532 million. Net proceeds received by the Company for the primary shares sold were approximately $250 million.

With our IPO now behind us, we are very optimistic about the remainder of the year and are focused on continued revenue and cash flow growth.

During the first quarter, the industry saw some solid films including Wild Hogs, 300, and Ghost Rider, which grossed between $100 million and $200 million each during the quarter. Overall, the domestic industry box office revenues were up approximately 7%, according to Movieline International.

Cinemark's revenues increased 53.7% quarter-over-quarter. Contributing to the revenue growth during the quarter was a 24.3% increase in average ticket prices and a 15.3% increase in concession revenues per patron. On a per screen basis, our revenue was up 16.5% domestically and 5.6% internationally.

Our comparable performance in Q1 of 2007 benefited from the addition of the Century circuit, representing 77 theaters and 1,017 screens that were acquired in October of 2006.

Looking ahead to the summer and the rest of the year, we are optimistic about the film slate. The first blockbuster movie of the summer, Spiderman 3, opened to a record first weekend. Quarter to date through last weekend, May 13th, the industry box office is estimated to be up approximately 6% compared to the prior year based on published box office data.

This upcoming weekend, Shrek the Third opens, followed by Pirates of the Caribbean, Ocean's 13, The Fantastic Four - Rise of the Silver Surfer, Heaven Almighty, Live Free or Die Hard, and Pixar's Ratatouille, taking us to the end of June.

The second quarter for the industry has certainly gotten off to a strong start with Spiderman. Of course, our results will ultimately depend on the success of the films I just mentioned.

Beyond June, some of the other highly anticipated films include Harry Potter and the Order of the Phoenix, The Simpsons movie, and Transformers in July and August.

While most of the discussion in the industry has been focused on these summer films, we are also optimistic about the film product beyond this summer. Both studios and independent third parties are investing more capital in film production, which increases the number of films available and enhances consumer choices, which should continue to help drive industry growth.

Finally, for those of you who were unable to attend our IPO road show, I'd like to give a brief overview of Cinemark's unique operating philosophy.

Our growth strategy has been, and will continue to be, primarily through organic expansion. Using this strategy, we have built a diverse footprint in high-growth attractive markets, where both the population and disposable income have been growing and are expected to continue to grow faster than the national average.

We have also built a portfolio of high-quality modern theaters, which have contributed to having the highest attendance per screen in the industry and leading market share in our markets. We are ranked number one or number two in 28 of our top 30 markets.

Our one significant acquisition to date was Century Theaters, a chain concentrated in the Bay Area, Sacramento, Las Vegas, Reno and Albuquerque, with 77 theaters and 1,017 screens in 12 states. It was a great complement to what Cinemark had built with respect to geographic fit, quality of circuit and operating philosophy. While the integration is substantially complete, we believe there are still opportunities to share best practices to form the best possible combined entity.

We have also taken our philosophy and applied it to our Pan Latin American growth strategy, where Cinemark theaters are located in fast growing, heavily populated metropolitan areas. By focusing on high-growth markets and implementing a disciplined operating philosophy that centers on building the best quality assets in the industry, we have been able to deliver consistent revenue growth and industry-leading financial performance.

We believe that by adhering to this philosophy of establishing leading market positions and focusing on operational excellence, we will continue to drive cash flow and deliver attractive returns.

And with that, I'll turn the call over to Robert Copple to discuss the quarter in more detail.

Thanks, Alan. I will now review additional detail regarding our first quarter financial performance and the quarter's impact on our balance sheet as well as discuss our IPO and the National CineMedia, or NCM transaction.

Cinemark's fiscal year is a calendar year, not a 52-, 53-week year. Accordingly, our data for Q1 is based on the calendar quarter ended March 31, 2007.

As Alan mentioned, we acquired Century Theaters in October of 2006. Century added 1,017 screens and 77 theaters to our existing domestic theater base. Century had a higher average ticket price and higher average concession per cap than Cinemark as a result of the mix of markets they were in. The benefit of additional screens and the higher prices are a primary reason for the relative level of the increase in the numbers I will be providing.

During Q1, we increased our admissions revenues 58.8% to $244 million and our concession revenues 47.4% to $115.1 million. As a result, our total revenues increased from $132 million to $378 million.

This increase was driven by attendance growth of 27.8% in 2007 over 2006, an increase in average ticket price to $4.96 in 2007 from $3.99 in 2006 and an increase in concession revenues per patron to $2.34 in 2007 from $2.03 in 2006.

On a segment basis for the quarter, our U.S. operations generated revenues of $305.8 million, a 69.2% increase over 2006. And international operations produced increased revenues of 10.6% to $72.2 million.

Our domestic attendance increased for the quarter 41.9%, and our international attendance increased 2.9%. Domestic revenues per screen were up 16.5%, while international revenues per screen were up approximately 5.6%.

Film rentals and advertising costs were $128.3 million for the first quarter of 2007 compared to $78.9 million for the first quarter of 2006. Film rentals and advertising costs increased as a percentage of admission revenues due to the relative strength of the top ten films and related higher film rental rates in the first quarter of 2007 compared to 2006.

Our film rental and advertising costs as a percentage of box office revenues in the U.S. increased 100 basis points to 53.4%, and our international film rental and advertising costs increased 40 basis points to 49%.

Salaries and wages increased from $24.5 million in Q1 of 2006 to $40.2 million in Q1 of 2007. And facility lease expense increased $51.6 million -- excuse me, increased to $51.6 million for the first quarter of 2007 versus $37.1 million in Q1 of 2006.

As a result of the increase in revenues, the Company's adjusted EBITDA increased to $80.1 million in 2007 from $49.6 million in Q1 of 2006. We define adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and other non-cash expenditures.

Our domestic adjusted EBITDA increased 74.1%, and our international adjusted EBITDA was up 18.5% for the three months ended March 31, 2007, compared to March 31, 2006. Our total adjusted EBITDA margin increased 100 basis points in 2007 to 21.2%.

Net income for the three months ended March 31, 2007, was $118.2 million compared to net income of $5.8 million for the three months ended March 31, 2006. Included in net income is impact of transactions with National CineMedia, NCM.

The specific impacts to net income included a pre-tax gain of $210.8 million and an impairment of theater assets primarily due to reduced future screen advertising revenue from NCM of $49.7 million.

NCM was formed in 2005 by Cinemark, Regal Entertainment and AMC Entertainment to provide advertising, promotion and event services to the companies' theaters. In February of 2007, the parent company of NCM executed an IPO.

In the IPO we sold a portion of our ownership and recorded a pre-tax gain of $210.8 million. We also recorded tax expense of $81.2 million related to this gain. We still maintain an approximately 14% interest in NCM.

As a result of our continuing stock ownership, Cinemark will receive quarterly cash dividends from NCM. We will record our share of future dividends paid by NCM in net income in the period when we receive the related cash distributions.

NCM also paid us approximately $174 million to alter the exhibitor service agreement with NCM for the ESA. The tax currently payable on the entire NCM transaction, including the ESA amendment, is approximately $114 million.

Under the new ESA we will no longer receive a percentage of NCM's revenue, but rather a monthly theater access fee, initially calculated at $800 per digital screen per year and $0.07 per patron.

In 2007 the revenues we receive from NCM are expected to be lower than those in 2006, even when we take into account the added screens and attendance from Century. Century previously had a screen advertising agreement with a third party, which was terminated. And we added the Century theaters to our NCM contract and began receiving the income from NCM for their performance in the fourth quarter of 2006.

As a result of a decrease on future cash flows attributable to our amended ESA, we evaluated our goodwill for impairment during the first quarter. Cinemark records and measures goodwill for impairment purposes at an individual theater level rather than a corporate level.

As a result, the Company does not aggregate its increase in cash flows from various existing and new theaters against decreases in other theaters. Instead, we separately evaluate each theater, and if there is a decrease in cash flow at an individual theater, we may impair the goodwill allocated to that theater. This can result in Cinemark having significant fluctuations in our impairment charges.

Cinemark recorded goodwill of approximately $1.2 billion as a result of the Century in mass and Deerborn transactions. Due primarily to the expected decrease in cash flow from NCM, we recorded a non-cash impairment of long-lived assets in Q1 of $49.7 million.

We utilized the proceeds of the NCM transaction to reduce our debt. On March 20, 2007, we acquired approximately $332 million aggregate principal amount of our 9% senior subordinated notes. We bought the notes at a premium and recorded a loss on early retirement of debt of $7.8 million.

Looking briefly at our balance sheet, our cash position increased to $163.1 million at the end of Q1 from $147.1 million at year-end. The majority of the increase in cash was the net proceeds received from NCM of approximately $389 million, which was offset by the repurchase of the $332 million aggregate principal amount of our 9% senior subordinated notes and the premiums paid on that repurchase.

As a result, at quarter end on March 31st, our long-term debt was approximately $1.6 billion. Netting the $249.4 million in cash we received from our IPO proceeds and our ending cash balance of $163.1 million against our debt reduces net debt to $1.2 million -- excuse me, $1.2 billion.

At March 31, 2007 our total domestic screen count was 3,524 screens total with are in Canada. As of March 31, 2007, the Company had signed commitments to open 13 new theaters with 200 screens in domestic markets by the end of 2007 and to open 9 new theaters with 138 screens subsequently to 2007.

Our total international screen count at March 31, 2007, was 955 screens. As of March 31, 2007, the Company had signed commitments to open 5 new theaters with 34 screens in the international markets by the end of 2007 and to open 3 new theaters with 28 screens subsequently to 2007.

During the quarter, we invested approximately $21.7 million on new construction and $10.4 million in CapEx maintenance. Included in the CapEx maintenance was $2.7 million related to the rollout of NCM's digital distribution technology to the Century theaters.

As of March 31, 2007, we spent approximately $6.5 million of our estimated $6.6 million associated with this deployment of the NCM technology. This deployment was completed during April 2007.

Additionally, the Company is beginning the rollout of a new point of sales system in its domestic theaters. We expect our total CapEx maintenance for the full-year to be approximately $35 million to $40 million. A little higher than normal as a result of the digital rollout that we had for Century as well as our expected costs on the point of sale system.

For the full year 2007, we expect our total CapEx on new theaters and CapEx maintenance to be between $150 million to $160 million. This amount includes CapEx spent during Q1.

Finally I'd like to comment on our initial public offering. On April 24, 2007, we completed our IPO. We sold 13.9 million shares of our common stock. And selling stockholders sold an additional 14.1 million shares of common stock at a gross price of $19 per share, $17.955 per share net of underwriting fees.

The net proceeds before other expenses received by us were $249.4 million, which we intend to utilize to reduce our long-term debt.

We intend to pay a quarterly cash dividend of $0.18 per share of common stock commencing in the third quarter of 2007, which will be a partial dividend based on the closing date of the IPO. The declaration of dividends on our common stock is at the discretion of our Board of Directors.

In closing, I'd just like to say that we look forward to the continued strength of the industry box office, which, combined with Cinemark's operational quality, should continue to produce attractive returns and drive cash flow.

As we mentioned at the start of this call, due to the quiet period associated with our IPO, we will not be taking questions at this time.

Thank you for your interest in Cinemark. Operator, that should end the call.

Thank you, sir. This concludes today's conference. You may now disconnect.