Cinemark Holdings Inc (CNK) 2011 Q1 法說會逐字稿

Good morning everyone. My name is Janice and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark Q1 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions).

Thank you. I would now like to turn the call over to Rob Rinderman of Cinemark Investor Relations. Please go ahead.

Thank you, Janice, and good morning everyone. Welcome to Cinemark's 2011 first-quarter results conference call and webcast.

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 factors are set forth in the Company's SEC filings.

I will now turn the call over to CEO, Alan Stock who's joined this morning by Cinemark's CFO, Robert Copple. Alan?

Thank you, Rob. We appreciate everyone joining us today. I will begin with a brief overview of our 2011 first-quarter results, followed by an industry box office update, including the highly anticipated film slate that is off to a solid start here in the second quarter.

I will also highlight Cinemark's digital, 3D, XD Extreme Digital Cinema, and IMAX initiatives. Robert will follow with further detail and insights on Cinemark's Q1 financials, provide an update on our capital structure and plans for additional growth and expansion. Subsequent to his prepared remarks, we will open the lines for a question and answer session with you.

Cinemark's geographic diversity and operating discipline continue to allow us to again outperform the overall industry. Compared to the 2010 first-quarter, which set industry records, our worldwide revenues for the quarter were $483.1 million, down 6.5% from the prior year.

Our industry-leading adjusted EBITDA and EBITDA margins for the quarter were $102.7 million and 21.3% respectively. We posted our 10th consecutive period of domestic box office receipts outperformance, over-indexing North American industry performance by more than 300 basis points. Our strong US adjusted EBITDA margin of 20.9% during this down quarter is a result of our operations' group focus on cost control.

Our international Latin America segment again achieved admission and concession growth marking the 11th consecutive quarter in which Cinemark's international foreign currency corrected admissions revenues outperformed our industry leading US results.

Total revenues for our Latin American international business rose significantly over the previous year, setting records for Q1 attendance, revenues and adjusted EBITDA.

Our Brazilian theaters performed especially well in Q1 and we have continued to benefit from overall economic growth throughout much of the region.

With the difficult [comps] of Avatar and Alice in Wonderland, two of the top-grossing films in 2010 behind us, we remain very enthusiastic and optimistic about the line-up for the remainder for 2011, especially given the large number of recognizable franchise and tent pole titles in the pipeline, including many sequels and new franchises being presented in the 3D format.

When these potential blockbusters are released, Cinemark will be ready as we have significantly expanded our 3D and XD footprints in recent quarters. In total, there are close to three dozen 3D titles scheduled for release by Hollywood this year, a more than 50% rise over the number last year.

Some of the franchise sequels include the much anticipated Harry Potter and the Deathly Hallows, Part Two Finale; Transformers, Dark of the Moon; Cars 2; Pirates of the Caribbean, On Stranger Tides; Alvin and the Chipmunks, Chipwrecked; Kung Fu Panda 2, The Kaboom of Doom; and Happy Feet 2; as well as new 3D titles such as Thor; Green Lantern; Captain America, The First Avenger; and the Adventures of Tin Tin, which marks Stephen Spielberg's first foray into 3D directing.

In addition, there are a number of widely anticipated non-3D sequels, prequels, reboots and original fare on the slate, including Twilight, Breaking Dawn; The Hangover Part 2; X-Men, First Class; Super 8, from director JJ Abrams; Mission Impossible 4; and Sherlock Holmes 2.

We are beginning to see early indications of Q2 North American industry box office strength, with the past three weekends outperforming in the US relative to 2010, buoyed by the impressive performance of Fast Five, Rio, Hop, and Tyler Perry's Medea's Family Reunion. Latin America is also performing well.

We achieved noteworthy progress in growing our worldwide Real D 3D and digital screen count during the first quarter. At March 31st, we had deployed 1,675 3D-enabled projectors worldwide, up from 1,337 at year-end. 1,419 of these were installed in the US theaters and the remaining 256 were in Cinemark's Latin American circuit.

Subsequent to quarter-end, we are further increasing our Real D 3D-capable screen count with our 40% to 50% penetration goal in sight, likely by mid-year. At quarter-end, we had 520 additional digital, non-3D-enabled projectors installed worldwide, up from 227 at the end of 2010.

With the DCIP consortium finalizing its second and final financing traunch of $220 million in March, we are now able to fully complete our transition to a 100% US digital circuit by the end of 2011, deploying brand new Barco 4K digital projectors throughout our cinema circuit.

During the 2011 first-quarter, admission revenues from premium format ticket sales including 3D, our 40 US-based XD auditoriums, and our 6 IMAX auditoriums, contributed approximately 19% of Cinemark's domestic admission revenues. This proportion of premium format revenues is quite impressive given the lack of tent pole Q1 product and further highlights customers' appetite and demand for premium offerings.

Cinemark's XD Extreme Digital Cinema accounted for 2.8% of our US admission revenues in the first quarter on the 40 XD screens, which account for approximately 1% of our total. The average XD admission price remains approximately $3.00 to $5.00 above our typical 2D ticket, both domestically and in Latin America.

We had 50 XD auditoriums in operation throughout our worldwide circuit as of March 31st, 2011, and continue to target opening an additional 35 to 40 XD auditoriums by year-end.

With our increasing XD footprint, we are beginning to realize the opportunity for increased visibility through national ad campaigns. During the past quarter, we were very pleased as Sony became the first studio partner to feature our XD auditoriums in their national ad campaign for Battle Los Angeles.

In addition to our XD expansion plan, during April we opened 2 new digital IMAX systems in existing theaters, one in California and the other in Texas. Also, we have now completed the upgrade of our six film-based IMAX systems to IMAX Digital.

Before I turn the discussion over to Robert, I want to address the announcement and initial testing of premium video on demand movies on DirecTV by four of the major film studios.

The announced terms of the test involve a few select movies that will play approximately 60 days after theatrical release at a $30.00 price point into those homes with a secure DirecTV box. The studios have stated that they recognize the importance of the theatrical release window to the successful out-of-home and in-home economic performance of a movie.

Although it is not the intention of the studios to negatively impact the theatrical performance of their movies, we view a shortening of the current theatrical window as a change to our business relationship. Our position is that such a change requires us to reevaluate the terms and conditions under which we promote, market and exhibit these films.

We feel the full economic opportunities of the film are best realized by maintaining the existing established theatrical window. This maximizes the opportunities for patrons to experience the film in the environment that was intended by the creative community. Theaters establish the film's brand, which is the most important ingredient in maximizing revenue opportunities for the studios.

We are in discussions with our distribution partners to understand their perspective and express our concerns. We are confident that there is a viable solution to their goals without negatively affecting theatrical economics.

At this point, I'm going to turn it over to Robert for a more in depth look at our financials.

Thanks, Alan. As Alan mentioned, we again outperformed the industry this quarter.

During the 2011 first-quarter, Cinemark generated worldwide admissions revenues of $311.7 million, a decline of 9.1%, compared to the previous year. However, this was versus an estimated North American industry decline of approximately 21%.

In our US operations, domestic admissions revenues were $213.6 million. Although this represents a decline of 17.6%, it equated to an outperformance by Cinemark of more than 300 basis points, compared to estimated North American industry performance for the period.

Total domestic revenues were $328.7 million, a decline of 15.1% versus the previous year. Average ticket price decreased slightly to $6.40 from $6.55, reflecting fewer 3D and premium ticket sales in this year's mix.

Our domestic attendance was 15.7% lower during the first quarter, but substantially outperformed the estimated 19.5% overall industry attendance decline.

Concession revenues for patrons increased 5% to $3.14, the highest ever quarterly per patron amount we have generated.

As a result of our focus on operating costs, we were able to minimize the impact of the quarterly revenue decline, as reflected by our domestic adjusted EBITDA margin which was 20.9% for the quarter.

We experienced another very strong quarter in our Latin American operations. During Q1, our international admissions revenue increased 17.2%, bolstered by a 7.9% attendance increase and an 8.6% rise in average ticket prices.

Cinemark's concession revenues grew 21.1%, driven by a 12% increase in average concessions revenues per patron and higher attendance. And total international revenues rose 19.4%.

This quarter Cinemark generated an industry-leading amount of worldwide adjusted EBITDA at $102.7 million and had an industry-leading adjusted EBITDA margin of 21.3%.

Income before income taxes was $34.4 million and net income attributable to Cinemark Holdings was $25 million, or $0.22 per diluted share.

Our effective income tax rate for Q1 was approximately 26%, reflecting a reduction in some of our uncertain tax position liabilities due to closures of certain tax years.

Consolidated worldwide film rentals and advertising costs were 200 basis points lower year-over-year at 53% of admissions revenues. The decrease in film rentals and advertising rates was primarily the result of comparatively fewer blockbuster titles in release during Q1 of 2011.

Concession supply costs increased in the first quarter to 15.9% of concession revenues versus 14.6% of concession revenues in Q1 of 2010. This slight increase was primarily due to the increased waiting of our international business, which has higher supply costs than the US, and slight increases in inventory procurement costs.

Salaries and wages decreased 4.6% to $50.1 million, largely due to a reduction in staffing levels in response to lower domestic attendance, partially offset by new theaters and the impact of certain international exchange rates.

G&A expenditures were $29 million, compared to $25.5 million in the year ago period. The increase was primarily due to higher salaries and incentive compensation expense, increased share-based award compensation expense, and FX impacts.

Depreciation and amortization expense increase 14.8% to $39.1 million, largely due to the impact of accelerated depreciation expense on our legacy 35 millimeter projectors, FX and new theater additions. The accelerated deprecation expense of approximately $3.5 million per quarter on our 35 millimeter projectors should be completed by the end of Q3 2011.

Q1 interest expense rose 12.6% to $29.3 million, reflecting the higher interest rate margin on our amended and extended senior secured credit facility. This quarter marks the 12th anniversary of this amendment, accordingly the impact of the change in margin should be fully reflected in our [2012] information as of March 31st, 2011.

During the quarter, we received an additional 549,417 national CineMedia, LLC common units as a result of the annual common unit adjustment, increasing our relative ownership to 15.8% from 15.3%. At quarter-end, we owned approximately $17.5 million NCM common units.

We also vested in the remaining Real D 136,952 options available to us under our license agreement. We exercised all of our options during the quarter and now own approximately 1.2 million Real D common shares.

At quarter-end, Cinemark's balance sheet remained among the strongest and least levered across our industry. At March 31st, our cash position was $463.3 million, resulting in net debt of approximately $1.1 billion and a net leverage ratio of 2.3 times adjusted EBITDA.

To bring you up-to-date on our US planned circuit expansion, Cinemark's total domestic screen count was 3,816, with theaters in 39 US states as of March 31st. During Q1, we closed one theater with 16 screens. We have signed commitments to open 4 new theaters with 50 screens this year and 5 theaters with 77 screens subsequent to 2011. We expect to incur approximately $62 million in capital expenditures to develop these 127 additional screens.

Looking at Latin America, total international screen count at quarter-end was 1,125. During the recent period, we built two new theaters with 12 screens. We have signed commitments to open 7 theaters with 45 screen during 2011, as well as 7 additional theaters with 48 screens subsequent to this year. Our estimate for CapEx to develop these 93 additional international screens is $66 million.

During Q1, we invested $35.8 million on capital expenditures, including $11.3 million on new construction and theater additions, and $24.5 million for CapEx maintenance. For 2011, our new build CapEx estimate remains at $80 million to $100 million, and four year total CapEx is projected to be in the $170 million to $200 million range. As a reminder, this level of new build CapEx assumes that we ultimately build more projects than those currently signed.

As with last year, our maintenance CapEx for 2011 will be higher than typical, primarily due to further XD conversions in our digital roll out. We're also incurring costs for the digital conversion of our 6 existing film-based IMAX systems, as well as the purchase of two new IMAX digital systems.

Additional costs related to Cinemark's XD construction, IMAX conversions, selected theater upgrades, and digital cinema conversions of approximately $50 million are included in the total full-year 2011 CapEx projection I mentioned earlier. CapEx maintenance should revert back to more normalized amounts in 2012 and 2013 as we wind down our planned digital and XD conversions.

To sum up, despite a challenging industry comparison, the very strong industry box office results in last year's first quarter period, Cinemark's Q1 2011 results again outperformed the North American industry in both admission revenues and attendance.

Internationally we set records for Q1 and generated very strong adjusted EBITDA and adjusted EBITDA margins. We're looking forward to a very promising and diverse movie slate for the balance of 2011. Our XD 3D and digital expansion initiatives are progressing according to plan. And this should help us capitalize upon this year's upcoming releases.

We're installing Barco 4K digital projectors with 40% to 50% of our digital platform featuring Real D 3D systems, both in the US and internationally.

Cinemark's strategy is to remain focused on organically growing our worldwide exhibition circuit by building state-of-the-art theaters in the US and internationally. We will continue to consider creative acquisitions, provided they meet our strict criteria, including appropriate quality, valuation and geographic fit within the context of our existing theater assets.

Operator, that concludes our prepared remarks. Please open up the lines for questions now.

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster.

Eric Handler, MKM Partners.

Two questions, first in terms of your screen count, maybe a clarification, where do you think you end 2011 in terms of net screen count for both the US and Latin America?

And then secondly, when you look at, your net leverage continues to go down, do you have a target net leverage range and sort of what's your viewpoint at this point in terms of is the M&A market picking up at all? Do you want to be involved with M&A? Or might we see another dividend increase at some point this year?

Eric, thanks for the question. With respect to CapEx, again, looking at the numbers that we've provided you of the new builds this year, we would expect to close a couple theaters as well. In general, in the US where we said we had approximately 50 new screens still scheduled to build this year, we'll probably close another, somewhere 10 to 15 screens domestically. And so you can kind of net that into 35 or so, 35 to 40, that we build throughout the remainder of this year domestically.

And then internationally, I don't know, if we have closures it might be again 5 to 10 screens, if that many. And then you'll have the new builds that we've gone ahead and shown.

Again, there's a difference between signed commitments. It's getting late in the year to say that we'll add additional screens this year that we don't already have a signed commitment, but it is possible that beyond what we have said we have signed that we'll also have 10 to 20 more screens.

Okay, so net-net you're probably looking at an increase from where you are now by year end of 75 to 85 screens?

Yeah, it should be in that ballpark range. I mean, it could get up to 100, but probably 75 to 85 probably reasonable.

And then the leverage?

On the leverage side, we don't per se have a target leverage. As we've told people for some time, we are carrying a large cash balance. We understand that. But we still feel like there will be opportunities to put that to work to some targeted acquisitions and or, hopefully some additional new organic projects.

With respect to dividends, that's obviously up to our board. It's been some years, we increased our dividend at the end of last year. I can't say I anticipate a quick dividend change any time soon, but obviously we continue to monitor the best use of our capital and whether there's ways to invest it to create shareholder value. If we don't find that there's positive opportunities to do that in the foreseeable future, then I assume our board would look at a dividend again.

But I don't want to (technical difficulty) that's something that's in the plans right now.

Eric Wold, Merriman Capital.

A follow up question on the [Latin American] acquisition side. So if you look at potential acquisitions out there, I know multiple got pretty extended around the early Avatar days. Are you seeing multiples come in at all? [Multiple expectations] from sellers come in at all from those levels? Or as you're getting into now another big box office season, and expectations for a rebound at the box office, are those expectations staying high?

And then secondly on that, are you seeing more potential opportunities in terms of something that would fit all of your criteria here in the US or in Latin America. Is Latin America more attractive for that reason then because there probably is less competition for those targets?

I think I would answer and tell you that in the last, of course, six months as business has been down a little bit, I don't know that we've necessarily seen a lot more that's come to market. But definitely there's theater chains that are out there. There's regional guys that are out there. There's both circuits here in the US as well as, as you mentioned, internationally that Cinemark could potentially be interested in and we will look at them.

It's a little hard to answer on the multiples where it is right now. [Either] there hasn't been a lot of sales or things that have occurred. And of course, everyone can compare what our multiples are as a public company, what Regal's are. Everybody can kind of go through that map and that model.

So, I mean we do continue to believe that there are certain things we would be interested in, and not necessarily more orientated toward here in the US or internationally. I think us being a pretty diverse circuit, we have interest on both sides of the equation. And we'll continue to evaluate those.

And as we've always stated, first of all we want to make sure that asset is an asset that works for us, that it's priced well for us and it's something that is valuable for us to own and then we definitely, with our balance sheet as we've discussed, have the ability to act on those things.

We do believe there are things that could come to fruition for us and we'll continue to work through that process.

Obviously, our goal would be to look at something larger, but we also are able to take advantage of one-off deals. I think we just had an announcement.

Yeah, we just this morning, in fact, announced one theater that we purchased. Again, it was one theater, but it was in South Carolina, a 12 screen theater that we just are purchasing right now.

So, although that's one theater and it's a little thing that happens, there's definitely things like that that will pop up and we think we can take advantage of.

And then lastly, with the goal to be 100% digital around year-end, what can we think of in terms of long-term operating margin benefit from being 100% digital, if you think about everything that may go with that in terms of your payroll, employment, adding more content and getting more, whatever it may be that you want to include in there. What do you think that could add to the operating margin being over to digital, if there is a target for that or potential for that, how much of that could potentially fall within the first one to two years?

Certainly I think right now, Eric, we kind of answer that there's definitely some positive benefits than can be had with that. Now, again as you state, most of that wouldn't come to fruition until 2012. And I think it's a little bit early for us to kind of figure out what some of those are.

To get full benefit of full digital, you have to be just that, every single screen needs to be converted. We haven't had a lot of those up to this point in time. And that'll be kind of what will take place here between now and the end of the year is that the remaining screens and everything will be converted over and we'll begin to better understand and realize and probably give you some more clarity around that issue as we progress closer to 2012, and as we kind of understand how to better model that.

So I probably prefer to defer that a little bit until we get closer to that period in time.

Alexia Quadrani, JPMorgan.

Could you dig in a little bit further on the tremendous growth you saw in Latin America? I guess specifically talking about how much of the growth was currency. And then I mean, it looks like your screen count there was up about 5%, so that's not all of the growth either. I guess it really was such a weak, late in the first quarter, I'm trying to get a better understanding of what really was behind such a great performance.

If you look at, the guidance we tend to give on FX is more of what our increases were, [concession] dollars versus what they are as reported.

So I think if you look at our average ticket prices reported, we up internationally about 8.6%. Concessions were up about 12%. Around 6% of that was FX, so if you looked at average ticket price, it was probably more in the 2.5% to 3% on FX adjusted basis and the concession was around 6.5%, 6.6% or so.

So, definitely benefited us more than we had expectations of in that we felt like rates were already strong and again, those economies continue to perform and the currencies, not across the board, but definitely currencies in some of the countries have continued to improve.

However, as we said to start with, attendance was up 7.6% compared to a fairly significant decline in the US. So, as far as what's driving that, you did have some local product, I think as Alan might have mentioned in his comments, that helped us. This was different product than what we saw at year-end Q4 that we reported. And I think that's a key factor for people to keep in mind is that in addition to the US product that we have, we can improve our performance as a result of local product being generated in really any of these countries.

Brazil has been the strongest performer in terms of additional product, but there's product generated in Mexico and in Argentina. And then there's actually foreign product that's brought in as well and so that can be additive.

I think the key factor, to be honest with you, is still just the economies. The economies are doing well. And it's adding people, it's improving their income levels and allowing them to feel more comfortable going to the theaters more times.

And we would love to tell people how that will work over the next couple of years. We feel like the countries will continue to perform well, but as long as they keep growing, we feel like we'll be a beneficiary of it.

Given your great success in those marketplaces, are you seeing maybe a more intense competition maybe on the horizon as other people maybe are trying to really step up their investment in that space, given how successful it's been? Or is it pretty much the same as it has been?

I don't know if we're, again, I think in general of course the new construction and growth is happening down there. But I don't know that it's any, it's increasing any differently here in the last little bit. And certainly as the economies are doing well and construction ramps up, then there will be more theaters that are built. And of course, Cinemark won't build every single one of those.

But as you've seen from our growth plans, we definitely have a pretty good slate of product that's coming on for us and we're definitely taking advantage of the economies and how those countries continue to grow.

So, we're confident in our position in those marketplaces and our ability to secure new product. I mean, we're in a great position to kind of dictate where we want to take it.

And then this last question on the domestic marketplace, do you have the 2D price increase in the quarter?

2D price was about 1.5%. We would guess this year that we'll be somewhere in the 1% to 2% range on 2D price, domestically.

James Marsh, Piper Jaffray.

Couple quick questions here. First, just a quick little follow up, you mentioned that promotion that you got from Sony on Battle LA for the XD theaters, is that something that you guys need to compensate them for? Or is that free?

And then I've got a question related to international. Just wanted to get a better idea of what the per screen numbers are doing by market. I think you mentioned that Brazil seemed to be outperforming. But I was hoping to get some type of a, I guess per screen type of metrics out of those markets so we can understand which ones are doing better.

So James, on your first question, no we do not pay the studios for that. In fact, they're more than happy to, to the extent they can, to promote and put those brands in their marketing material and to kind of push it.

So, I think obviously the studios recognize and see the results of what XD does for them, the great box office performance that we can get [at] for their films. So, not that we're going to have every single film, but we're beginning to make some headway as we continue to expand that footprint just to get the studios excited to, themselves, market and promote and push that brand and push the idea that they can, their films can be shown in a premium format. So they're happy to do so without fees.

With respect to your other question, we don't provide individual country data. I would say on a more generalized statement, though, the southern [cone] clearly is doing really well, when you look at Brazil and Argentina, Chile, Peru.

I think as you get to, kind of move up, Central America, Mexico, those are doing well. If you look at Mexico, just FX has improved. But I mean those again, if you just read economic reports and everything else, you don't have the same economic activity going on in Mexico and kind of Central America is generally what you're seeing in Brazil and some of the countries down there.

And so, I think if, breaking down numbers it would pretty much reflect that. But I'm not suggesting our operations in Mexico are not doing well. They're doing fine. It's just if you look at the real strength, clearly Brazil is doing incredible right now. But then again, Argentina, Chile, Peru, Columbia, all those are doing fairly well.

And I just had one quick follow up. You had Cameron and Jackson talking about going to 48 frames per second. And I guess the way they describe it, it's just a very quick and easy software upgrade for your digital projectors. Is it that simple from your perspective? Are you guys going to need to incur any additional CapEx if you wanted to move kind of in that direction?

As we understand it, I think fortunately for us with our DLP, our Barco projectors and the technology that we have deployed, it is basically a software change for us to be able to do that. So as we've looked at it, and it's obviously in the early stages of understanding that.

But the demonstrations that were given to us during the CinemaCon Convention and the things we have seen about it, I mean, it does take the level of picture quality, I mean it's a fantastic picture. So we are excited that they are looking toward doing that and we do believe it can come to us with very little changes to our projectors, other than as I stated, a software upgrade.

Bo Tang, Barclays.

I was just curious, given 3D movies, when you look at (technical difficulty) roughly one third part of the box office that comes from [movie] ticket sales, will you be able to give us any data or color on what percentage is from people who opt to, choose to see a movie in 2D versus the people who cannot see the movie in 3D because their local theater couldn't play 3D? And then I have a follow up.

Well, I think at this point in time, most theaters have some degree of 3D theaters in them. And most movies come out right now with the choice between 2D or 3D for the customer. And we have seen all the way upwards of close to 90% percentages based on the movie, downwards of anywhere 55% to 60%. So generally, it kind of runs in that range.

Most movies on average, I believe, are probably in the 60% to 70% range in general, just depending, sometimes animated films, we know that horror and certain type of genres definitely skew on the high end of the equation. And that, those number have been pretty consistent. That number has been consistent for the last couple of years.

And we anticipate as we move forward, of course, movies like Avatar and big epic movies and movies they spend a tremendous amount of time, money and energy on, people recognize and they go for it. But likewise, our animated product and all across the board, people are choosing in those levels. So that seems to be consistent and continues to be that way. And we anticipate it going forward along those same levels.

And then also, in terms of your XD roll out. You've given us guidance for the full year, but kind of just looking out over the next several years, do you have any long-term goal or long-term target of how many XD screens you plan to roll out throughout your theaters?

Well, I think our goal right now is probably somewhere around a hundred-ish level that we'll have here in the next, let's just say a year and a half or two years, by the end of 2012. It might even get more than that.

But where we're, we reach a point when we retrofit screens it becomes a little more challenging and a little more difficult to do. But having said that, we certainly on all of our new growth and all of our new screens, both here in the US and internationally, most every single one of those theaters will incorporate an XD component in them.

So, even though our retrofit may slow down a little bit or may not go at the same rate it has been for the last couple of years, we'll definitely continue to grow. So to the extent that we're adding 5 to 10 theaters a year, then we would continue to add somewhere around that level of XD screens into our company as we move forward.

Tony Wible, Janney.

[As Netflix] kind of prepares I guess to enter the Latin American market, do you guys see any potential disruption from that move?

Latin America has always faced earlier DVD releases. I mean, it's kind of been opposite of the US where historically a film is released late in Latin America. And many times by the time it's released you already have DVDs out in the United States.

Now worldwide release patterns have changed over the last few years and so that now many times you'll have day [to day] worldwide release. But just because of the history of kind of how that market developed, we don't see having any significant issues from timing of release patterns down there.

Got you. And on the early VOD window and the discussion around maybe changing film rental policies in conjunction with earlier windows, I guess can you provide us with some kind of qualitative way about how you're looking at this? I mean, would you see kind of a moving scale of lower rates for earlier windows? Or would you kind of see just a flat, you're thinking like lower rate?

I know how you guys have paid for film rental windows as an industry has kind of changed over the years, so I'm just trying to figure out how those pricing models might change if we do see more window activity.

Well, the hard part on answering that Tony, of course, we're in conversations with all the studios right now and having those discussions. And as I mentioned, coming into play is our trailer placement, is marketing materials, is the terms, is the conditions, all phases come into the conversations when you're having those discussions with them.

So I can't really get into how or where, I'm not really sure we know yet where this ultimately shakes out. But the bottom line is that our goal as a partner with the studios is to get into this and that we respect each other on each side of the equation and we work through some kind of a model that would work for both of us. And that could involve several different areas and we want to make sure that we're covering all of those.

So, I don't have the ability to get into details of it with you as obviously those are confidential meetings right now. But just leave it to say that we're goal oriented to make sure that the economics are not taking an impact on our side and we'll work through that process with the studios.

Great. And the last question is on the second quarter, you obviously have a different film slate mix, kind of the rougher quarter, but would you anticipate with more 3D and the quality of the stuff improving that you'll revert back to positive year-over-year growth on ticket pricing on average?

Yeah, I mean, if you go back, Tony, and look, again our base 2D price was up for the quarter. To your point, it was just a mix issue. I think as you have more 3D product, especially with the kind of titles that will be in 3D for the rest of the year, we won't see what happened in Q1.

Again, if you think about Q1 of 2010, it was driven by Avatar and Alice, two big 3D movies and just disproportionate amounts of the box. And so you're kind of over that hump and I think back into a normal, not just a more normalized pattern, but realistically more 3D product coming out during this period than what you saw last year.

So, you shouldn't have this mixture problem. If anything, it'll be very positive to the mixture. But again, on a just, diving down to the base part of it, we did increase our ticket prices.

Ben Mogil, Stifel Nicolaus.

So I just wanted to talk about the domestic box office. Obviously I think, it's I don't know if it's 9th or 10th quarter that you've outperformed. And here the performance was pretty remarkable against the industry. Are you taking share away from Mom and Pops that haven't upgraded to 3D?

Are you taking share away from larger operators who have, but have more aggressive pricing assumptions? Like when I sort of look at your numbers say against what Regal reported I guess last week, and sort of what likely what AMC will do, where do you think you're gaining share?

Ben, I don't know if there's an easy answer to that. Of course, we operate in 39 different states, so we're pretty diverse. The nature and who we're up against in different markets in different areas is going to be very vast. So I don't know that there's a easy answer to say that we're shifting from one person to the other.

And as you stated here, we're now 10 quarters into this. So it's a long period of time where we continue to perform well. And I think it's just more reflective again of how we operate those theaters, the quality of those theaters, where they're located, how we price them, all those factors come into play.

And I don't know if we really have the ability or how you would analyze where that's coming from or how that's changing or what's really occurring. We just know, of course, that we stay focused at hand of making sure that we do our job well. And we're able to achieve those results.

David Miller, Caris and Company.

Couple questions. Rob, there was a $5 million one time gain on other income below operating income. I was wondering if you could just provide some texture around that? It just seemed unusually high. I apologize if you already stated in your prepared remarks.

And then on this premium Video on Demand rap, I mean, would you guys agree that this is somewhat of an unorganized threat at this point? I mean, no one seems to really be able to agree on what the splits are going to be with the cable MSOs. This is assuming that it happens at all, okay? But no one can agree on what the splits are going to be. No one can agree on which studios are going to participate. Paramount, I think, has said that they're just not even interested. No one can agree on which films are going to be in the window, if at all, and how long after theatrical release this is going to take place.

So, I mean, your reaction and Regal's reaction to this whole thing seems to be very defensive and rightly so. But I'm just wondering if at this point that's even justified just given that this is somewhat of an unorganized threat at this point. Thanks very much.

Let me just say quickly, the $5 million you mentioned is a combination of a number of items. When you look below the line, you're dealing with interest income which was up for the quarter.

Right.

Also, probably another big piece would be equity and income of affiliates, which is primarily probably related to DCIP. And that's, again that's just our share of the income that they report. And [so those sales] would be the big drivers of that.

Okay.

And David, I think I would answer you and say of course when something changes like it has with this release pattern, so when a studio takes a movie and they change the way they do business, then of course that's why you're getting the reaction.

And all exhibition is concerned of where that's going, how it affects us. At the end of the day, we want to make sure, of course, we protect our business and the integrity of it.

Now having said that, you're exactly right. There's a lot of unknowns out there. And that's been the most difficult part of all of this is every single studio has taken a different look at it. There's a different tact. And I think the message, hopefully, from the studios that everybody gets is that they're trying to figure out ways, again, to change and alter and do things differently in the in-home space. As we all know, that's declined. And so everybody's trying to figure out how you do that without affecting or changing the theatrical side of the business.

So, I think everybody's had a reaction here because there's a change and everybody's trying to figure out what to do. And the important part is that we all work together and we weigh in on this matter equally so that we can all figure out what works best, how to do this, because it's in all of our interests to hopefully help the home space and help the studios achieve that. But we certainly, having said that, don't want to do so at any expense in the theatrical. And we want to make sure our integrity is there.

So, that's just kind of where it is and I don't know that this will get easily figured out in the short-term. And as the studios have said, the current thing they're doing is a test to try to figure out some of those pieces of the equation. But at the end of the day, it's going to be difficult. We're going to have to work through that with them. And a lot of things are going to be said and we're going to make sure on the exhibition side that our point is well-driven home and that we are there to protect the theatrical experience.

Barton Crockett, Lazard Capital Markets.

I was wondering if you could talk a little bit about film mix in Latin America in the first quarter and the second quarter, in particular did Alice in Wonderland last year run mainly in the first quarter in Latin America or was it pushed to the second quarter because of a later release pattern? And is that anything that affected kind of comparability in first-quarter performance in [Lat Am] versus the US?

I mean, a couple of things I can tell you. I think most of Alice was in the Q2 of last year. I think it may have opened toward the end of Q1 if I remember right. But most of it was related.

And as mentioned a little bit earlier, we did have, in Brazil in particular, I think last year local product was somewhere a little north of 3% or something like that, where this year, local product was upwards of 16%.

So, definitely there's been some, that's probably one of the biggest drivers here for Q1. So between Alice and between that and some of these other, just the way film is played.

Okay. And this year in Brazil, I think, they're getting [outsized] benefit from Rio, for obvious reasons. As you look so far in the quarter, I mean, is there any sense of Latin America and Brazil performing closer to the US than they did in the first quarter or still kind of the big outperformance?

Again, I think we would just say that they have the same product and, again, the patterns are a little bit different. For instance, Fast Five hasn't opened there yet. It opens internationally this weekend, granted that's only a week behind.

And then Thor, on the flipside, opened there a week ahead. So things will change a little bit and those release patterns will be different. But remember that's always been the case.

So, I don't think there's any indicators right now that we can tell you and [to us] we don't give guidance that way to understand it. But at the end of the day, as has happened in the past, the slate of film that's in front of us is good product and should play well internationally. They love the animated. They love the action films. And we see no reason why it, again, won't follow or do what we should do here in the US.

So there's no indicators right now that anything will be different for us.

Okay. And then I wanted to ask you about digital projectors. Now that you're getting a little bit more experience running these things in a lot of theaters, any updated view on the life expectancy of these things? And the cost to replace and maintain?

I could see an argument that life expectancy might be less than an analog projector. But perhaps it's just cheaper to replace because you just replace constituent parts and digital seems to be on a perpetual trend downwards, so might over time cost of ownership be lower? How do you see that kind of playing out? Any updated thoughts at this point?

Yeah, and it's probably a little early to obviously answer that question. The digital has performed incredibly well for us. It's been very consistent. We've had very little, if any, problems with the things. Of course, you're trying to roll it out and make sure that everything's working.

But as you mentioned, a digital projector is really more of a modular element. It's more of a computer oriented piece of the equation. So to the extent that things do change or wear out or have problems, it's just a whole different animal than what you have on the analog world.

The full life expectancy is a little difficult to anticipate at this point in time. As we did the DCIP agreement, those are longer term and anticipate that we'll have them in play for a while. So, I don't know that there's, at this point in time, it's probably a little difficult to tell you how that's going to relate to the old legacy equipment that's in there. But certainly we're getting great results and feel very confident that their consistency, the level to deliver a good picture for us will be very good, especially for the consumer.

Jim Goss, Barrington Research.

A couple of questions, one related to your strategy for the large format in Latin America. How aggressive do you plan to be and do you think it would be primarily XD or will you incorporate IMAX as well if it's possible in selected markets? Just what would your thinking be since you've been on better terms with IMAX now?

I think right now our focus is on XD throughout our international markets. Again, not to say that we wouldn't necessarily look at an IMAX play, but we currently have 10 XD theaters that are open in the international market. We'll have another 30 or some odd, or 20 some odd, that we'll open throughout the end of this year.

So our goal right now is to continue focusing on XD, especially as I mentioned in our new theaters, we'll put that in there. And to the extent that we can convert and add and continue the process, we will do so throughout the international market.

We've been able to, in these markets, get great results from XD as we introduce it. It becomes very much like it does here in the US and people love that premium format. They love the abilities for 3D and all that. So, right now we will continue to remain focused on XD expansion down there.

Okay. And in terms of 3D domestically, I was wondering if, perhaps not even in the large screen format, but the regular auditorium sizes, are you expecting 3D to take on more genre than it has tended to or it's more focused on action adventure and animated? Do you think it will be in a broader number of types of films?

I think certainly as you look at the pure quantity of what's coming out and as Hollywood looks at it and as we listen to those guys, they love what they can do with 3D. They love the way they can tell stories and the method in which they can deliver a movie to the consumer base with 3D.

So having said that, I think it's natural to think that it will continue to expand and that's why we wanted to grow our screen count and the ability to show 3D throughout our circuit.

So, it's hard for me to predict exactly what kind of genres and where it will go. Most certainly we've all seen the results of a horror genre and what that can do for a movie when it's done in 3D. So I think you're going to see most all of those come out in a 3D format.

I think just in general, that will probably be answered as the way consumers watch movies and as the way they perform. And I think having said even all of this, a question was asked earlier on the frame rates and how that looks, all of these things.

And it was described to us at the CinemaCon Convention by James Cameron, most specifically, we're in the very early stages of development of 3D and the ability for filmmakers and directors to use that medium and be very creative with it is just beginning.

So I think as we go through the process in the upcoming years, they will figure out better and different ways to make their movies and in my opinion can only get better as they think through that and as they better understand how to shoot and make movies in 3D, which I think naturally, again, expands and makes our base of films and our quality of films just get better as time goes on.

Last couple of housekeeping details -- I think you talked a little about tax rate impacts. But is 35% a run rate you're still sort of endorsing? Or might it be less than that?

It is the rate we're endorsing. Clearly, we've been inconsistent. But the difficulty, obviously, is with our worldwide operations. We'll just see fluctuations. I mean, we've been fortunate they haven't really gone opposite [way on us] for some time. But if you go back some years, occasionally we've had higher than 35%. But we feel like 35% is kind of the middle ground that we would suggest people to look at.

And the other theater operating expenses I think were a little lower than I thought they might be. Is there, what is the fixed variable mix in that such that I suppose if the box office improves those would naturally go higher. You alluded to it with sort of the number of employees you had during the quarter with the slower [VO].

I don't know if I could easily give you a fixed variable component to reflect because it's not in linear by any means. Clearly, as the summer box office improves, we ramp up with more salaried costs which ends up having, you end up having more utility, slightly more utility, not a lot, but slightly more utility, other expenses that are just basically some operating costs.

So, there's not an easy equation. I think the key to this always gets into managing that part of the variable costs that you can while also staying focused on your revenue line so that you're being efficient, but in a way that you're able to serve all your patrons properly and generate additional revenue from things like concessions.

So, it's one where I think the bigger story is as we looked at the decline in attendance for Q1, I think if you look how Cinemark did compared to last year and how it did within the industry, our operations group did an incredible job of controlling costs and minimized the impact to our bottom line margin.

I think that focus will continue as our attendance levels pop back up and should provide us opportunities, hopefully. to expand our margin [levels].

Martin Pyykkonen, Wedge Partners,

Another question on Latin America. You mentioned overall revenue 19% premium format. Can you comment on Latin America? Was that in that range? Or was it meaningfully above or below that as a percentage of just Latin America, premium format that is?

With respect to Latin America, it was slightly higher than what the US is. Probably ran in the low 20s.

Okay.

Again, it was less than last year. Proportionally, kind of a similar decrease year-over-year just because of the movies that were played, but it has been outperforming the US slightly.

And then a little while ago you were talking about animation versus kind the action more adult, fan boy, etcetera, movies particularly in terms of 3D, as being kind of natural that there's less of the pull through on the family fare for 3D. Do you see any need to, or even if it's more of an opportunity to, going forward, reduce pricing on the family fare 3D and actually increase on some of the action, highly anticipated 3D where you might be net neutral, but price more toward the audience? Or do you more or less accept this as kind of a natural mix?

No, I think we would more accept it as a natural mix. I think it's very dangerous when you start getting into varying consumer tastes and pricing based on a piece of film product, because that's very difficult to do. Because everyone's going to view that differently and again, I think as we're achieving most animated films, again, are in the 60% plus category. That's pretty respectable.

If they're getting 60% of the ticket sales are still coming from -- yeah, for the 3D films and I don't think that's bad, but at the end of the day what I think will ultimately happen is the consumer base will choose and I think our goal is to provide choice for them. We want them to have that ability to choose 2D or 3D or XD or a matinee price or whatever it is, they have the ability for what they can afford and the price point and the way that they prefer to watch movies and we like to have that ability for them.

So we would definitely shy away from trying to differentiate pricing based on a style or a kind of movie.

Okay. And one last question, just another angle on the VOD. I understand the issue and the stance you've taken and why you're doing it. I guess in a hypothetical, if the studios said that they would never release anything less than 8 weeks, in terms of premium VOD regardless of the title, would that be okay with you? I mean, is the real issue here that you take a hard stand because you don't want any more compression below that, but 8 weeks would be okay if it was never any worse than that?

Well, certainly I would answer, my answer to them right now is that anything less than 90 days is not okay. And hence we're having the problem. And so I don't want to get into, I mean, hypotheticals are hard questions to answer and we could play that game all day long of where would this thing go.

And I want to be very clear that our message to the studios is that when you went less than 90 days, you change your model and I'm not happy with that. And so potentially I have to negotiate with them through the whole process.

So certainly anything less than that has raised an issue with us and with the exhibition community. And now it's our goal to try to work that out.

Jeff [Loxin], Bank of Montreal.

Just one quick one. Up in the projection booth, are you guys still using the 1K for the [NCMI] stuff and then 4K and then 35 millimeter? And if you could refresh my memory, who owns the 1K equipment? Is that NCMI? Or do you guys own it?

As we're building out the bigger digital cinema platform, the NCM will be moving over and is moving over to those projectors. So, obviously to the extent that they're not done yet and they're still on the smaller projector. We do own those projectors. So, Cinemark would own all of that equipment. NCM does not.

But eventually here, and I guess obviously by the end of this year as we're fully, full digital equipment is out there, then NCM would be on that platform.

And is most of that, have most of the 1Ks been written down to kind of a [dominimous] carrying amount?

Yeah, I mean most of them have.

Is that part of the acceleration?

It is. We also are actually looking at redeploying some of those to Latin America in some of the markets that will be slower to digitize. It's an opportunity really for us. If you look at our advertising in Latin America, it actually has done extremely well over the years, but because not everything has been digitized, we can't quite do the same things we do in the US. So we're really exploring what's the best use of those.

Matt Coppola, Williams Capital.

I know you mentioned in your remarks that you had about 19% of your domestic revenues from premium formats. I was just wondering if you had a comparative number for the previous year? And also if you had an average ticket price premium for your premium formats? Or if you can give out your ticket price numbers that you saw for like 2D, IMAX and XD for the quarter?

Sure. When we look, I'll kind of deal with domestic because I think it gets a little more difficult when you start dealing with our average worldwide.

If you look at, in general, our 3D premiums have remained at $3.00 for our basic, for the 3D. XD, as I think Alan mentioned, generally XD and IMAX, all that, probably run more in the $5.00 range. I mean, it can be $3.00 to $5.00, but generally it's the $5.00 range.

With respect to this year versus last year, I think last year's was around 23%, compared to the average that you're looking at this year.

Eric Wold, Merriman Capital.

I know some of the past questions have focused on 3D and the mix of product and all that. Obviously with 3D and IMAX product you basically, you don't have a choice and you really have to take whatever is converted in those formats. With the XD, you have some choice.

Sorry, I was a little surprised. I saw here in [SF] you were showing Water for Elephants on an XD screen. Maybe think about, I guess, I know it's probably a small sample size. Have you seen any meaningful difference in demand for a kind of a drama type film versus maybe an action or animated [already] film on the XD?

Well, I think certainly to the extent that there's a bigger budget action type film, those are going to definitely perform the best in those auditoriums. But even having said that, I think what we're finding is once a consumer and anyone watches a movie and they get accustomed to watching it in those XD auditoriums, you kind of get spoiled and you like to watch all your movies that way, drama or not.

So it really is a function, of course, of price and if you're willing to pay the cost to do that, because the experience is great overall. I mean, everything about watching a movie in those theaters is great and so the consumer recognizes that.

That is the beauty of XD is our ability to change movies in and out of there whatever we think is going to play best. So, in that particular theater at that particular time it was chosen that Water for Elephants would be the best choice in there. And we did that in a number of theaters and got good results from it.

But of course, to the extent we're rolling into summer now, we're going to have big films. Fast Five is going to be on those screens, followed by Thor, followed by Pirates, all the big titles are going to kind of come in there on a weekly basis.

And there's also the opportunity for us, which we have done before, of even splitting the screen. So we might have a matinee with a kid's type film and an evening show with more of an adult oriented film. So, definitely those possibilities exist and that's why we really like the XD format for its flexibility.

Andrew Finkelstein, Barclays Capital.

I don't know if I missed this earlier, Robert, but did you talk about operating leverage in the international side? It looked like much bigger revenue gains than we saw flow through to EBITDA. Maybe what's happening on expenses.

I think, Andrew, you've got to look back at more historical versus the comp. The difficulty with this quarter, especially in Latin America, if you compare this quarter to Q1 of 2010, I'd love to say 2010 is a norm, but it really wasn't. I mean, you had Avatar. Internationally the way film rental works, it's generally more of a declining scale versus the way you tend to see in the US of being aggregates. So, that by Q1 when Avatar was still playing extremely well, but kind of [it crossed over threshold] we had lower film rental.

And so if you look at our margins in Latin America in Q1 of 2010, it was about [our call] 25%. If you go back and look historically when we run a per screen attendance-based, similar to what we saw this quarter on average, and there's probably 5 or 6 other quarters that we had similar attendance levels per screen, you generally were around 22%.

And so, it's not that we had a big revenue increase and we didn't bring it to the bottom line, it's we actually did, it's if you compare back to kind of an anomaly that we had in Q1 of 2010, it just doesn't look as strong.

So we've [looked at a lot] of our costs and everything else because first blush you do exactly what you're suggesting and look at it and say, Gosh, I got all this growth, but when I compare EBITDA to EBITDA in 2010, it doesn't look like it came down to the bottom. It's really more of in Q1 2010, it's just an incredible amount that came down to the bottom because it's high priced. It was low film rental. It was a lot of things that just drove extraordinary amounts to the bottom line in Q1 of 2010.

But again, on an historic run rate basis, we're in line with our normal margins for this kind of performance.

Thanks for that. So going forward, we should see the typical, or historically what you normally saw in terms of profit growth?

Yeah, I mean, again I think if you went back and looked, that's what you would see. I mean, to kind of put it into perspective too, if you went to Q4 of 2009 where again we were showing Avatar on the first side, you'd see a lower EBITDA margin and that was primarily, again, driven by Avatar, but it had high film costs on a relative basis.

And so it's, I think everything would be more normalized as we look to the future. As it was in the quarter, really.

There are no further questions at this time. Do you have any closing remarks?

Well, we'd like to thank everyone for participating on our call today and we look forward to talking with you next time.

This concludes today's conference call. You may now disconnect.