Cinemark Holdings Inc (CNK) 2011 Q2 法說會逐字稿

Good morning, my name is Janice, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark 2011 second quarter 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) I would now like to turn the call over to Rob Rinderman of Cinemark Investor Relations. Please go ahead.

Thank you, Janice. Good morning, everyone. Welcome to Cinemark's 2011 second 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 would now like to turn the call over to Cinemark's CEO, Alan Stock, who is joined this morning by CFO, Robert Copple. Alan?

Thank you, Rob, and good morning, everyone. We appreciate you joining us today. Following a brief overview of Cinemark's all-time record quarterly performance in Q2, I will provide you with an industry box office recap as well as a preview of coming attractions. I will also discuss and update you on our digital 3D, XD Extreme Digital Cinema, and IMAX initiatives. After my opening comments, Robert will provide additional commentary on our financials and update you on our capital structure and organic growth expansion plans both domestically and in our Latin American markets. Following that, we will open the lines to address your questions.

The second quarter was the highest grossing North American box office period in history, and Cinemark had an outstanding, record-breaking quarter as we achieved all-time best results on several fronts. Highlights from Q2 include both our highest-ever quarterly adjusted EBITDA at $149.8 million and record total revenue of $620.6 million. Our results were driven by attendance growth in both our domestic and Latin American operations. We extended our North American industry box office outperformance streak to 11 executive consecutive quarters with an 8.2 increase in our US admission revenues, and we over-indexed industry performance by more than 350 basis points. Cinemark's International segment admissions revenue growth outpaced our industry-leading domestic operations for the twelfth consecutive quarter adjusted for foreign currency fluctuations. Our Latin American international business total revenues grew 37.9% driven by record Q2 attendance and price increases.

We are happy with these accomplishments that stretch nearly three years, especially since we have been able to continually outperform the prior-year quarter. As we've indicated, when responding to questions about Cinemark's continued success, there is no magic formula or single reason for our track record of outperformance. The answer really lies in the long-term focus and disciplined approach we apply to managing our assets. While we are open to potential acquisitions, we are very selective in choosing theater locations and typically prefer to build our own properties so they can meet Cinemark standards, which are based on decades of industry experience.

The North American industry box office finished the quarter up approximately 4.5% over 2010 due to film line-up that was particularly strong and appealed to wide variety of customers. In total, there were 13 films released during the second quarter that will gross over $100 million each compared to eight films in the second quarter of 2010 and was led by the highly successful sequels, The Hangover Part II, and the Pirates of the Caribbean on Stranger Tides. April and May each set domestic industry box office records for the respective months. April began with the release of two animated titles that exceeded expectations -- Hop and Rio. Also exceeding expectations and helping to lead the record-breaking May were the action-packed Fast Five and the comedy, Bridesmaids. Other strong performance films included Cars 2, Thor, Kung Fu Panda 2, X-Men First Class, Super Eight, Green Lantern, Bad Teacher, and the late-quarter release of Transformers 3, Dark of the Moon which posted a very strong lead-in to the July 4 holiday and will benefit early Q3 box office receipts.

The third quarter will also benefit from the long-awaited Harry Potter and the Deathly Hallows Part 2 finale which had record-breaking advanced sales as fans went online to ensure that they could get in to attend its midnight screening and other showings. The result was a debut that shattered records for best midnight, opening day, and opening weekend receipts in the US as well as the highest-ever global opening weekend. The impressive midnight record was enabled by exhibitors' ability to add additional auditorium capacity to meet demand as a result of our conversion to digital cinema.

The remainder of the summer has a diverse array of titles including today's opening of the new Planet of the Apes prequel followed in the coming weeks by the Glee concert movie in 3D; Final Destination 5; Spy Kids 4, All the Time in the World; Steven Soderbergh's' Contagion; and the baseball-related Moneyball, starring Brad Pitt and Philip Seymour Hoffman, to name just a few. Many promising titles fill the pipeline for Q4 including the all-important holiday slate. Early on during the fourth quarter, Disney's Real Steel debuts along with Paranormal Activity 3. The Shrek spinoff, Puss in Boots, opens in November, as well as Happy Feet 2; Jack and Jill, starring Adam Sandler and Al Pacino; and the long-awaited first installment of the Twilight saga, Breaking Dawn. Similar to Warner's strategy with the Harry Potter finale, Summit has elected to split the final chapter of the immensely successful Twilight franchise into two films. Releases during Thanksgiving week include The Muppets and Martin Scorsese's Hugo.

Three sequels open in theaters in late December -- Alvin and the Chipmunks Chipwrecked, Mission Impossible Ghost Protocol, and Sherlock Holmes A Game of Shadows. Then a few days before Christmas, we will be showing the US film adaptation of the international best-selling novel, The Girl with the Dragon Tattoo as well as Steven Spielberg's 3D directorial debut, The Adventures of Tintin, an animated feature with the voice of Daniel Craig among others. Disney's War Horse, also directed by Spielberg, closes out the calendar year with a December 28 release.

By 2011 year-end, approximately three dozen 3D titles will have been released by Hollywood, more than 50% above the number in 2010, which was also up significantly from the 2009 level. While the quantity of films is high, directors, producers, and studios are in the pioneering phases of learning how to best utilize 3D as an integral part of the storytelling experience and in creating an increasingly immersive and digitally stimulating environment for the cinema goer that is additive to the film. Some would say we are only in the biplane era of 3D cinema technology. As a result, many believe significant production and artistic advancements in the future will further enhance the 3D experience.

One such development is the increase from 24 frames to 48 frames per second that we saw demonstrated at Cinema Trade Show earlier this year. The visual impact was very powerful, and Peter Jackson's much anticipated film, The Hobbit, will feature 48 frame rate technology. During the second quarter, Cinemark again made significant progress in growing our worldwide Real D, 3D, and digital footprint. As of June 30, we had 2,056 3D-enabled projectors worldwide, up from 1,675 at March 31. With the additional Q2 installs, we have achieved the low end of our desired range of the 40% to 50% 3D penetration of our global theatrical circuit. 1,683 of our 3D projectors are based in Cinemark's US theaters with the remaining 373 located throughout our Latin American circuit.

Also, we recently reached an agreement with Real D that increases our ability to equip up to 3,000 screens with their 3D technology. This will allow us to achieve our desired 50% 3D coverage on our existing theaters as well as provide us capacity for our new build program. At quarter-end, we also had 765 additional non-3D-enabled digital projectors installed worldwide, up from 520 at the end of Q1. Backed by DCIP consortium funding, we are on track to complete our plans to be 100% digital, deploying Barco 4K digital projectors in our US first-run theaters by 2011 year-end, and are also concurrently expanding our Latin American digital footprint.

Q2 of 2011 domestic admission revenues from Cinemark's premium format ticket sales including 3D, our 46 US-based XD, plus eight IMAX auditoriums increased by nearly 30%, versus the second quarter of 2010 and contributed more than 20% of the Company's domestic admission revenues. Our proprietary XD Extreme Digital Cinema screens accounted for 3.5% of Cinemark's total US admission revenue in 2011 for the second quarter on just 1.2% of our total domestic screen count. The XD admission premium remains in the $3 to $5 range as compared to the cost of a typical 2D ticket both in the US and in Latin America.

At quarter end, we had a total of 66 XD auditoriums throughout our worldwide circuit and are on target with a full-year plan to launch between 15 to 20 XD screens during the remainder of 2011. With this expanded footprint and proven performance, our studio partners have begun featuring our XD brand in their promotional campaigns including print, online, and social media for many recent blockbuster films. In April, we increased our digital IMAX auditorium footprint from six to eight. Finally, our Company reached another milestone during July when we broke through the 5,000 screen count barrier. At this point, I will turn the time over to Robert who will provide an in-depth look at Cinemark's financials.

Good morning, everyone. As Alan mentioned, Q2 was another outstanding reporting period for Cinemark, [went] to several noteworthy Company records including our highest-ever quarterly worldwide attendance, all-time quarterly records for both domestic and international total revenues, and adjusted EBITDA. For Q2, Cinemark's worldwide admissions revenues were $405.9 million, an increase of 15%, well in excess of the North American industry increase of approximately 4.5%. Adjusted EBITDA rose 19.7% to $149.8 million, at an industry-leading margin of 24.1%, compared to 23.2% margin in the year-ago second quarter.

In the US, our attendance increased 5.5%, helping drive an 8.2% increase in our admission revenues to $291.3 million, also an all-time record. Total domestic revenues rose 7.8% to $441.9 million. Our average US ticket price increased 2.6% to $6.64 from $6.47, primarily reflecting more 3D and premium ticket sales during the quarter and other price increases. Concession revenues per patron were up 2.2% to $3.19, our best-ever quarterly level. Adjusted EBITDA for our US segment increased 13.9% to $110 million. Our US adjusted EBITDA margin increased to 24.9%.

Cinemark's strong momentum throughout Latin America continued in Q2 with key metrics posting double-digit growth across the board. Admissions revenues increased 36.6%, attendance rose 19.4%, and average ticket prices advanced 14.4% due to incremental 3D and premium pricing, other price increases, and FX. Concession revenues grew 38.8% due to a 16.8% rise in average concessions revenues per patron resulting from price increases, FX, and the attendance increase.

Total international revenues grew to $178.7 million, and adjusted EBITDA increased 39.2% to $39.8 million. Consolidated worldwide film rentals and advertising costs were 54.8% of admissions revenues, flat compared to the prior year. Concessions supplies costs were 15.6% of concession revenues compared to 14.8% in the year-ago period. The modest increase was primarily due to an increase of inventory procurement costs and also a higher weighting of our international segment which typically carries higher supply costs than Cinemark's domestic business. Our focus on containing operating costs allowed us to limit the salaries and wages, increase to a mere 3%, which supported Cinemark's strong 9.8% worldwide attendance rise.

G&A expenses were $31.2 million. G&A increased, primarily due to higher salaries, increased share-based awards compensation expense, a rise in professional fees, increased credit card service charges, and FX impacts. Depreciation and amortization expense increased 14.3% to $39.9 million, partially due to new theater additions and FX.

Q2 interest expense increased 4.1% to $29.8 million reflecting our issuance of $200 million aggregate principal amount of 7.375% senior subordinated notes in June at par value which mature in 2021. The proceeds were used to repay $157.2 million of our term loan debt with the remainder increasing in our cash balance. This refinancing spreads maturity of our various long-term debt obligations to 2016 through 2021. A few special charges during the quarter negatively impacted Cinemark's reported diluted EPS figure for the period, including an approximately $5 million loss on early retirement debt due to the repayment of our term loan and the charge for approximately $2.3 million included in loss on sale of assets and other, relating to the settlement of a hedge agreement.

Total income before income taxes increased 26.1% to $64.3 million. The net income attributable to Cinemark Holdings, Inc. was $40.4 million, or $0.35 per diluted share including the negative impact of the previously discussed charges. Cinemark's effective Q2 income tax rate was 36.2%. Cinemark's balance sheet continues to rank among the strongest and least leveraged in our industry. The June 30, 2011 cash position was $550.9 million, resulting in net debt of approximately $1 billion and a net leverage ratio of 2.1 times adjusted EBITDA.

Our US circuit at quarter-end was comprised of 3,850 screens at 295 theaters in 39 states. During the three-month period, we opened two new theaters and 22 screens and acquired one theater with 12 screens. We have signed commitments to open three additional new theaters and 42 screens for the remainder of the year and nine theaters with 125 screens subsequent to 2011. Cinemark expects to incur approximately $84 million in CapEx to develop these additional 167 screens.

Our total Latin American screen count at June 30 was 1,133 auditoriums in 141 theaters. During Q2, we built three new theaters with 20 screens and closed one theater with 12 screens. We presently have signed commitments to open four additional theaters and 26 screens this year and nine new theaters with 65 screens subsequent to 2011. Our estimate for CapEx to develop these 91 additional international screens is approximately $85 million.

During Q2, we invested $49.5 million on capital expenditures, including $17.9 million of this total on new construction and theater additions and a $31.6 million balance for maintenance CapEx. For the current year, our new build CapEx estimate remains at $80 million to $100 million, and full-year, total CapEx is projected to be in the $170 million to $200 million range. As we have been saying in recent quarters, the projected level of new build CapEx assumes that we ultimately build more projects than those currently signed. Similar to 2010, maintenance CapEx for 2011 will be higher than the typical year for Cinemark, largely due to our planned XD expansion and conversions and aggressive digital rollout.

We also incurred additional expenses for the digital conversion of our six existing film-based IMAX systems and the purchase of the two new IMAX digital systems. Additional costs for XD construction, IMAX conversions, selected theater remodels and upgrades, and digital cinema conversions of approximately $50 million are all included in our full-year 2011 CapEx projections. Maintenance CapEx levels should revert back to normalized amounts next year and into 2013 as we complete our digital and XD conversions.

In summary, Cinemark achieved several milestones during the second quarter, posting record worldwide quarterly revenues and adjusted EBITDA, and we again outperformed a robust US cinema industry. We achieved strong attendance growth in both our US and international businesses, and each operating segment set all-time records for admission revenues, total revenues, and adjusted EBITDA. As Alan mentioned, we are pleased with our continued outperformance, but also want to emphasize the long-term momentum that has been driving our business forward, especially Cinemark's international success.

We remain optimistic about the Hollywood movie pipeline for the balance of 2011, and many of the titles already announced for release next year. We continue to progress with Cinemark's premium 3D, XD, and digital expansion initiatives. We have also reached the low end of our stated worldwide 40% to 50% Real D 3D screen target range and we will continue adding more XD large-format auditoriums domestically and throughout our Latin American circuit. We also continue Cinemark's core organic growth focus, but we will remain open to creative acquisitions that adhere to our rigid standards including asset quality, appropriate valuation, and geographic fit. Operator, that concludes our prepared remarks. Please open the lines for questions.

(Operator Instructions) Your first question is from Eric Handler of MKM Partners.

Thanks for taking my questions. Two things for you. First, your ticket price -- average ticket pricing was up over 2% in the quarter. It seems like overall 3D box office revenue was flat. So was that XD revenue where you able to post those gains? And then secondly, how big -- what is your cash level internationally? It seems like that is building quite nicely. It seems like you have more than enough to complete your expansion to meet your expansion goals. What can you do with that excess cash?

Thanks, Eric. Let me address both of those. The ticket price is really combination. It was to some degree, as you mentioned. Our weighting of premium formats, including our XD, definitely helped. We also had a base price increase of 1.5% to 2%. I think that came through in the number as well. As you mentioned, I don't know that if you really cut 3D out exclusively and looked at it. The weighting didn't necessarily change there a lot, but I think just overall premium format we had influenced the number a lot and again, our base price increase.

With respect to international cash balances, we don't necessarily disclose that separate amount. But you are right, we are growing a balance there. It is sufficient to not only pay for the projects we have in the pipeline, but as we move forward and look at the growth in projects that we're seeing in Latin America, it will -- that including the natural cash generation it has every year will easily fund that expansion. We are, just like the US, looking for acquisitions. So that would be our primary focused use of the cash that we maintain in Latin America. We do have some tax methods and beneficial ways to bring money back. We do bring dollars back from both Brazil and Mexico every year, and we will continue to do that. We also have some loans that we've made in those countries. So we could trigger those loans and bring some of the cash back if we foresaw that need. We're trying to leave most everything down there right now because again, our preference just like the US, for that matter, would be to find an acquisition.

Thank you very much.

Sure.

The next question is from Alexia Quadrani from JPMorgan.

(inaudible) for Alexia with a few questions. First, can you talk about how you're thinking about domestic pricing for the rest of the year?

I don't know I'd see it that different from what we saw this quarter. Again, our base price increase, I think, is we will stay in that 1%, 1.5%, 2% range. It will really come down and into the mix of 3D and premium formats -- how they perform the rest of this year versus what we did last year. Definitely with the number of films we have available and the quality of the films that are out there, there's the potential that you will have some benefit from the weighting of 3D throughout the rest of the year. But again, we look at our base somewhere around that 1.5% to 2%.

And on Latin America, is there a sense that you have about product driven versus secular trends going on down there? Is it just an insatiable demand for Hollywood product? Or is it new theater-goers that may be part of a rising middle class? And where do you feel you are at penetrating these markets at this point?

I think, in general, we would answer that certainly there's a combination of both of those things. They are playing very well to the film that's out there, and of course, each of these countries is continuing to grow and develop. The economies are very strong. We are seeing a lot of the class systems change as there's more earning power, as jobs are being more prevalent out there. I think that is probably kind of hard to figure out exactly where those pieces slice and what exactly is happening in the detailed portion of it. But there's no question that as you go out throughout these countries, you see a lot of growth. You see excitement throughout all the sectors of those different economies. I would definitely tell you that the movies, the economy, all of those pieces of the puzzle mean a lot.

As far as penetration goes, there's definitely a lot of growth potential for us to continue throughout these countries, and we certainly see when you look purely at population per screen and attendance per screen and all the metrics that are out there, there's no question that countries like Brazil and Argentina and all of these continue to grow and have the capacity to add more screens. As you know, certainly Cinemark is playing a big role in that.

Okay. And finally, can you update us on the Board's thinking about the dividend? You seem to have a good cushion here. Is there a possibility of a raise this year? And are there certain targets you keep in mind in terms of payout or cash on hand?

We have had historic targets that are in the 60% payout range. That's ultimately varied by year based on our relative performance and CapEx commitments. We are not providing any guidance on changes in the dividend that we foresee happening. I would say that we just declared, as you can read in our press release, our normal quarterly dividend. Our Board just met. And there's nothing we have right now that we are looking at for changing that rate. Obviously, our Board could decide to do that in the future. But there's no guidance we're giving regarding any change like that.

Okay. Thanks a lot.

Sure.

Your next question comes from Eric Wold with Merriman Capital.

Hi, good morning. A follow-up question on the ticket prices. Obviously, the box office has been relatively stable in tough economies. If things do worsen -- if we ever significantly get the double-dip going forward -- what would you think about in terms of the base sticker prices in concessions? Would you hold the line on either increase? And which one would be more likely to see hold the line first?

We look at our pricing twice a year -- both in the spring and then in the fall before each of the busier seasons. I think the approach we would take, and we always kind of analyze this on a market by market, theater by theater basis. Right now as we've mentioned here, we think the base pricing is in that 1.5% to 2% range, and we will continue to evaluate that. Concession and box office work together. We evaluate each piece of the equation and determine where or what pricings and individual pricings within the scope of how we price all of our tickets that we will look at those things on an individual, theater by theater basis. Right now, I don't -- wouldn't anticipate that there's -- of course, a lot of changes as we move forward from that 1.5% to 2% range. I think the answer lies really on a market by market, and we'll have to see what happens with the economy if we do dip again and what direction we go. Does that affect or impact or change our thoughts on those bases? We just have to look at that when that time comes.

Okay, and 1 question on 3D. With the increased number of 3D screens, you've had an agreement now with Real D to take it up further. As you look at the number of 3D screens you've had installed, do you have any kind of metric in terms of what the average usage is of the screens between a 2D and a 3D showing?

No, I don't know that we necessarily -- of course, we -- the key for us is to always have a variable pricing to make sure we give our customer the choice to decide what movies they go to and how they prefer to go watch it. And we get to that 50% level really right now just based on what product, the amount of product that is out there and our feeling that we can accommodate that. So our goal as a Company is to make sure we're providing both 2D and 3D formats and allowing the flexibility for the consumer to choose which way they want to go. We don't necessarily on a per screen -- because that stuff can move real rapidly between theaters. Again, depending on demand and how people want to watch the film. We think right now that going after the 50% level has been our goal for a while. We think that will accommodate the number of titles that are coming up in the next couple of years and certainly feel pretty good about it right now.

Perfect. Thanks, Alan.

You bet.

Your next question comes from the line of James Marsh of Piper Jaffray.

A couple quick questions. First, wanted to follow up on ticket pricing. International price question. If you look at the trend, international as percent of historically part in that 60% range. Really seems like in the last year, it spiked up to 70%. I guess trying to understand that is something that will continue going forward? Is it a premium mix issue? Is it underlying pricing that's more aggressive in those markets? Is it a mix issue? I'm trying to understand what is driving that in your opinion?

James, I think it was a number of things, and I apologize here. It was a little bit hard to hear some of your questions. It was basically the differential in how the international ticket price increases are going compared to the US. And really it is a function of the mix of countries we are in as well, as you mentioned, the mix of product. We have seen that internationally premium formats such as 3D tend to outperform what the US have. I think there are some stats out there that if you look at the number of the movies, even say a Harry Potter that I think in the US was doing in the 40% range for 3D. Internationally, it tended to do in the 60% range throughout the world, I would say -- or the rest of the world, and you had a number of movies like that. So 3D has really kind of overperformed internationally compared to the US. We do have a number of XDs we've put out that also are doing very well. That is part of the driver.

The other part of the driver clearly is just economies where the US has definitely slowed down, and we are being very cautious. And we have been so over the last few years. I think on the international side you also have a significant increase in demand really throughout Latin America. Brazil, clearly, is doing very well. The economy is doing well, but Argentina, Peru, Colombia, Chile. All of those countries we have been able to raise our prices reasonably compared to the limitations we face in the US. I think it's just a combination of the outperformance of Latin America and those opportunities combined with a heavier weighting from the patrons in wanting to see premium product.

As far as can it continue? I think the key there would really come down to the economies in Latin America. Everything we have seen is they continue to be fairly robust. They tend to weather the storms really well of our economy. I think somebody mentioned earlier on the call that it is a combination of events. You are seeing a rising middle class. You are seeing more disposable income, and that's making a big difference for our opportunities.

Sure.

Next question comes from Jim Goss of Barrington Research.

Thank you. The G&A increase did stand out in terms of variance. You mentioned several reasons. But I was wondering how much FX had to do with both G&A, international revenues in terms of admission and concession, and maybe even the international ticket price and concession spending per patron?

Sure. I don't know if we have given G&A, FX -- but I mean ballpark it's probably around $1 million or so impact to there, give or take some. The other thing, Jim, that if you look at our G&A -- if you look at where our run rate has been over the last, probably, 3 to 4 quarters -- the G&A we have had this quarter especially if you FX adjust it, is not unreasonable. We have been running somewhere in the 28%, 30% range. If you look at last year in particular, this quarter, some of what's making this differential -- that was a particularly low quarter for us. We had a number of things happen that drove that quarter down. But I think again, if you look more of a run rate say after Q2 of last year, you will find that it's not that out of line with where our expectations would be. Clearly, as we expand to Latin America, we do have some more G&A. We're making sure that we have the proper personnel, and you have new cost as you have the level of growth that we are facing down there.

With respect to pricing and FX, if our ticket price increase in Latin America we gave was, I think, 14.4%. If you took that on an FX-adjusted basis, it would have been around 5%. On concessions price, it was 16.8%, and I think that would have been around 7.9%. So ballpark, you are looking at about 9% benefit, I think, from FX on revenues.

Okay. That might have come in to the G&A side, too.

Absolutely. It absolutely did.

I was wondering, too, if the conversion to digital winds up prompting theater sales among the regionals -- among those who don't want to take that step. And you mentioned an interest in some acquisitions, but you have been very selective over the years. Do you think there are a number of chains out there that would cause you to break with past patterns and go the acquisition route rather than the internal build? Both domestically and internationally, for that matter?

Certainly, there could be. The answer for us always in an acquisition is, number 1, what is the quality of that asset? What kind of theaters are they? Where are they located? How do they fit in and work with our base of theaters? And then part 2, of course, is the price. What are we paying for that thing, and is it accretive for our Company to buy them. That has always been our mantra. When we bought acquisitions in the past and anything you can look at, they have been great assets and very quality theaters, and we have been able to buy them at a price that has worked well for our Company. That is going to be our mantra, and if there are particular chains and there are items both here in the US and internationally that can fit into that mold -- and we again potentially there could be -- then we certainly would have an interest and would want to pursue them.

Okay. A couple of 3D issues. Within XD, if there is a 3D movie, do you ever choose to go the 2D route on the XD screen? Or even have a special 3D showing if you sense that the demand would be greater in 2D versus 3D?

We actually do. I think one of the beauties of our XD product is our ability to choose which movies go into it and how to play them. And we certainly have just recently here on many films, we've given the choice of both 2D and 3D and allowed people to choose. And we will rotate back and forth between those. Just really what you're after here is supply and demand and making sure you meet the needs of the customers and provide that opportunity of choice -- both 2D, 3D -- whether it's XD or regular screen. Wherever it might be, we want to make sure the customer can choose which way to watch it, and we can definitely can do it both directions.

And then you mentioned 3D outperformance internationally versus US. Are you seeing any shift in that pattern? Or any sense that it's following the US with a lag? Or do you think there's just a greater demand internationally vis-a-vis the US?

I think it really comes back down to how are those individual films playing and how are they perceived? Both here in the US and internationally, films play differently. Sometimes we might have a movie -- again, Robert cited Harry Potter -- that the 3D penetration here in the US was in the 40%, 45% range, and it was closer to 60% internationally. I think that is just indicative of that particular film and how people perceive it and how they wanted to watch it.

Again, Latin America here has been performing better on the 3D front and whether those particular films and each movie. I think as we look at the future here and as we look at what is happening with 3D, it is really based on a movie by movie title. Each movie will play to the level of where people want to watch it. There could be nuances, and none of us really break it out this way, but like any movie plays differently on a regional basis. It might play stronger in any part of the country or in particular state or any particular area. They all vary. Some of those same things can apply in the 3D world. There are differences on areas. There are differences on films. And that would certainly apply to our international countries on country by country and film by film.

All right. Thanks Alan. Thanks Robert.

Your next question is from Barton Crockett of Lazard Capital Markets.

This is Victor Anthony in for Barton Crockett. I had a few questions. 1, I wanted to know if you could discuss -- address the current 3D debate in the industry. Do you think 3D as a percent of box office per movie essentially stalls out around the 40%, 45% range we have been seeing for the past few movies that have come out in 3D? And second question is whether or not -- if you could discuss the sources of the outperformance in the US. On a box per screen basis, is it mostly ticket price driven? Thanks.

Anthony, we just were talking about the whole 3D side of the equation here. Again I would answer it and tell you, I don't know that there's a number that we are going to pin or that we think we are going to achieve on 3D penetration because what we have certainly seen is it has been a movie by movie basis. We have seen movies in the horror genre that are upwards in the 80% to 90% range. We have seen kids' films in the 50% to 60% and the 40% range. I think it's 100% driven by what is that film. We had Transformers that opened at 60%. So I don't know that there is an easy way to answer where are we going with that percent? And is it going to max out? And at the end of the day, what is the driver going to be? We always look at what's the quality of that 3D film versus the quantity of those titles, and where's that whole thing going to go.

So as far as part 2 question. Again I don't know that there's any -- we have outperformed the industry now for, as we stated, almost 3 years -- for 12 consecutive quarters. Again, it is just a function of how we run our asset, the quality of our assets, where they are. All of those pieces of the puzzle that work toward driving the results that we have. We have not necessarily outstripped the industry by any stretch of the imagination on average ticket price increases or any of those things. It has really been driven for us by focusing on attendance and focusing on making sure that our theaters are running well.

Okay. The last question is more of a longer term strategic question. I know you have discussed your capital allocation plans both domestically and internationally. I was wondering if there is -- how do you think about expanding beyond Latin America? Have you considered looking at Eastern Europe -- or Europe, in particular? Whether or not you just think the opportunity in Latin America is -- the runway is just long and wide enough that you will just stay there for the foreseeable future?

Well certainly our concentration right now is to continue on in Latin America. We do feel there's an incredible amount of opportunity and growth potential, and we want to continue to focus and make sure we capitalize on that. In years past, we have had theaters in Europe. Some number of years ago, we actually sold those assets to primarily focus on our Latin American markets. We do have a couple of theaters in Taiwan we've always had our eye on and an interest in, and those theaters perform very well. For us, not that we are spending a great deal of time because there are certainly issues with China and with the Asia market.

I would tell you that is a market we would certainly continue to look at. There are some certain limitations in China right now. They still limit the number of films that are allowed into the country. They limit ownership issues. That is not without problems. We are still continuing with our theaters in Taiwan do perform very well. We have some development partners over there, and we will continue to look at whether there is opportunity for us to grow. Most definitely right now, our time, our capital, and our energy is focused toward Latin America.

Okay. Thank you.

Your next question is from Ben Mogil of Stifel Nicholas.

Hi. Good morning, and thanks for taking the call. I just wanted to drill a little bit on the cost side. When I look at it domestically, it looks like some of the utilities costs were a little bit higher. Some of the other non-variable costs in the US were a little bit higher than I was expecting. Are you seeing any inflation? Same thing for Latin America, obviously stripping out foreign exchange. Are you seeing any operating expense inflation of note here?

Definitely, costs have gone up. Not excessively, I think, but we've seen some cost increases. In the US, we've tried to absorb that through efficiencies and price increases. But definitely in some quarters, we will see some variance there. I don't think anything especially on the domestic side surprised us a whole lot this quarter. And again, if you look at the payroll side, that's probably the thing that we can control the most. I think we managed that extremely well.

On the international side, it's a little different arena because there is a lot of demand for all types of resources. Just as we are seeing the benefit from the economies growing rapidly on the revenue side, there is more pressure on the expense side. Again, we've tried to keep pace with price increases while not overdoing it. As I mentioned, if you look at the real price increases, they are more in the 5% to 8% range. If you looked at historic, I think we tended to be more in the 8% to 10% range. So we are running a little lower at least to date than what we have in the past. It's something we are looking at internationally to make sure that we are keeping up with price pressures that occur just from fast-growing economies.

And domestically, the utility number was actually a lot higher than what I was looking for particularly on a per screen basis. Are you seeing some of the energy cost issues we've seen obviously over the last couple months really begin to hurt you over the summer?

I don't think it's -- because that utility is -- as I recall, utility and other. So it includes a number of other costs in it. There's everything from property insurance to Real D fees to DCIP fees in there. I think it's things like that that are probably impacting the difference that you're seeing rather than real utility cost. Because again as we show 3D films and relative patronage that changes that Real D fee. And then again on DCIP as we do the rollout -- the least cost that we incur obviously goes up.

That's great. That's it for me. Thanks.

Thanks, Ben.

Your next question is from Bo Tang with Barclays Capital.

Thank you. Just in terms of returning capital to shareholders. Given that your flow has increased over the last several quarters, what are your other thoughts toward buying back stock?

Again, it is not something that I'd say is on the table that we are ready to go out and do today. I would say with the increase in float, it does become an opportunity that we haven't felt comfortable with in the past because the lack of flow we had. Now with the change, I think it becomes one of the alternatives that the Board could consider in the future. If we are looking at increases in regular dividend rates or special dividends or stock buybacks, those would all be available. Again, I'm not suggesting that we are looking at doing any of those in the current periods. I think it is something that we would entertain if it created the most shareholder value for us, and the Board felt it was the best use of our money.

All right. Great. That was all I had. Thank you.

You bet.

The next question is from Joe Hovorka of Raymond James.

Thanks. A couple questions. First, could you give the exact 3D number as a percentage of revenue this year versus last for the quarter?

I don't actually have that. I apologize, Joe. Because of the way we run our data, we include everything that is premium format. That would include both IMAX 2D, 3D and XD 2D, 3D. As Alan mentioned, that total premium format was about 20%. So it was a slight increase, as I recall, over what we had last year. I think last year for that same type of format, we had about 17%. I don't really know where the number if we tried to carve out 3D only would be. But clearly it would be closer to last year's number because last year was probably more oriented toward 3D because we definitely added a number of XD since then.

But 20% versus 17%, all premium formats.

Yes.

I wanted to ask a question about the cost side, too. Specifically, the salaries and wages in the domestic side of the business. It was down on an up revenue number. Can you talk a bit about that? Is that something we could see going forward?

Joe, at the end of the day, is it's on a quarter-by-quarter basis. Obviously, sometimes it is hard to see exactly where they fall. The goal always is to be as efficient as you can and to make sure you are operating at efficiency levels the best you can. We have pretty sophisticated software and tracking and systems that we have always used to try to help the guys manage that system and make sure that they are staffing correctly. Those are probably the bigger variables that we have, to be honest with you. Making sure that staffing levels are correct for any particular movie, and you are running those theaters appropriately in that direction. So you can have anomalies from quarter to quarter and differences from time to time, and obviously, the guys did a great job this quarter of really focusing on it and making sure that they were staffing appropriately and everything was running correctly. I would hope in the future that we can continue to achieve those kinds of results.

It is not a change in policy or the way you are doing things?

No, it's not. But if you look at the last 2 to 3 quarters, you would see that, especially domestically, that cost control has been very, very efficient, let's say. There clearly has been a very strong emphasis in our circuit on that particular variable cost.

Sure. The last couple of quarters. The reason I ask -- I guess Regal had a number that was kind of similar to that, and they had talked specifically about changing some of the labor policies. Was curious if there was anything here.

Again, I would answer that we've had the leading industry margins forever. That's always been one of the goals for our Company is to be efficient with what we do. We haven't necessarily changed our philosophies in general. We continue and always have made an emphasis on making sure your payroll, making sure all pieces of the equation -- the utilities, lights, all the things that need to go into the equation for managers to do their job well. We want to make sure we are always focusing on that.

And then one last question on -- I know you are touching on acquisitions. Has the activity on the acquisition front changed in recent months? Is it more active out there right now? And if it is, what does pricing look like? Is it -- I'm not expecting you to give me EBITDA multiples, but is it in line? Are people asking too much?

I don't know that it has really changed a whole lot in the last year. I think there is some anticipation, and we probably have not seen any exact results of this yet. But as was asked on 1 of the questions earlier on, if we -- as the industry changes over to digital, there's going to be over the next couple of years, definitely is going to force that issue. You are going to have to change to digital, or you are not going to probably have film. Because they're going to at some point in time quit making prints, and they will not be available any more. We believe inherently that will put some pressure on some of the regional guys -- whether they have got the capital or the ability or desire to make those changes. I don't know that we have anything necessarily right now. There certainly always seems to be and always has been some circuits that are available, and you just have to work through that process. Right now, nothing really specific that we can give you details on.

The deadline you are referring to about the digital is that September 12 timeframe?

I don't know there's necessarily a specific deadline. As you think through the process here, what is happening especially for those of us that are involved in the DCIP front -- Cinemark and Regal and AMC will be 100% converted to digital over the next couple of years. We will actually be done by the end of this year. Both Regal and AMC goals are some time into the 2012 or perhaps a little bit into 2013. Having said that, my point is just -- and then most of the larger chains and even a lot of the regional chains have already converted over. You are just inherently going to get to a point -- let's just call it over the next 2 years -- that primarily, the vast majority of screens are now digital. And so it is going to put great pressure on whether the studios can afford to or want to or are going to continue to make prints. That is not a decision, of course, we would make. That is up to the studios to decide how and where they release those films. It puts a tremendous amount of pressure on the system if you do not have digital because their ability to make prints would become a much more difficult job to do.

Maybe an opposite question to that. Are there areas -- are there competitive theaters in your zones that may -- if they don't choose to go to digital and obviously could go away. Is there a -- could you see a positive impact from that? Or no?

To be honest with you, I am not sure that if you have a good theater that is producing well -- it's a great theater, I don't think it means that it is going to go away. There's no reason for that to happen. That would obviously mean that if they can't convert it to digital, and they can't get prints then somebody would have to step in that probably has the capital. Again, that is your question of acquisitions or wherever. I imagine most people again are looking at this. We've had discussions as our industry -- the NATO industry has been discussing this and making sure that people are prepared. There's been different methods for which they can take advantage to do that. So we will just have to see. It's obviously more on a circuit by circuit and those effects and changes on a regional basis. We'll have to see what happens with it.

That's all I've got.

Your next question is from Martin Pyykkonen with Wedge Partners.

Morning. I want to drill down on the international attendance a little bit. Up 20%, and headcount was obviously strong. It looks like you added a number of screens up above 6%. I can back into it a little bit, but can you provide a same theater comparison on a same-store kind of analogy? In other words, how many of that headcount came from theaters opened within this year -- past year -- versus were existing prior to a year ago?

Unfortunately, that's not a number that we really drill down into and provide it. It is, as you said, a simplistic basic would be to look at the new screen count that we've added. We provide a number, but the number we provide really is just taking average screen count and dividing it into attendance. And that average screen count would be weighted, obviously, for the new openings.

Clearly, same-store produced extremely well. If you just think of the numbers you just mentioned being up 20%, and screen count being up around 5% to 6%. That clearly means a significant increase versus the US in same-store. Because the new theaters don't necessarily -- on average, I think it is a reasonable assumption to assume that everything performs similarly. Clearly that is not the exact case, but that is a reasonable ballpark to take.

So we did see a good increase in same-store. Fortunately is, I think, just a benefit we are having of the strong economies and the change in the socioeconomic side of each 1 of the economies we are in. Each 1 of those countries. Generally across the board, they are mostly all on an upswing.

I guess, too, when you are adding the screen and the countries you are in for the most part there, I'm guessing that is the case. But is it true that you have enough footprint to keep having screens that are far enough away from others that you have? In other words, another suburban town, what have you, that you are attracting essentially a new audience to your screen. You are not crowding yourself. I'm assuming there is a lot of runway to go on? In Latin America, I am talking about.

Yes, certainly as you -- and I think the best way to look at it is what the statistics are on the attendance per screen. In other words, how many times do people go to the movies. As you look at those statistics, you are going to absolutely see that countries like Brazil are way under-screened, and their potential to continue to grow is tremendous. Without question that as we continue to add screens, and as we look at where those screens are at that you have very dense, very populated cities throughout the region that we built in. Just cities like Sao Paulo alone. These are absolutely huge populated cities. There's the ability to continue to add screens.

The key driver, to be honest with you, in all of our international markets is the retail and what is going on with the malls and the shopping centers. We always want to make sure those theaters are located in good retail communities. As those things continue to grow -- as malls and shopping centers and retail outlets and restaurants and places where people want to go and be. Those are the natural places where theaters develop into. And I think again as you see the growth and the potential there, no question that it's -- I know you are trying to drill down into are we cannibalizing anything else that is going on? And those numbers would obviously indicate that that is absolutely not the case.

I think the reality is -- phase 1 was putting theaters in the market. Phase 2 is going back, and as Alan said, as you add new malls -- it's not to say every mall is in a brand new city. If we take Sao Paulo, there's a number of new malls going into Sao Paulo. There will be some instances where you are filling in an interior spot that was open. Could it have an effect on existing theater? Sure it could a little bit. But we're, as Alan said -- we're easily seeing the offset to that and increases in earning power of potential patrons and that translating to people going to the movies more often.

So it is not causing a deterioration because you are in-filling. It's actually reaching a broader audience. Clearly, there are a number of places that we have not built yet. As Alan said, there are new malls being built in a number of cities that -- sometimes we call them the smaller cities, but many times those are 3 million to 5 million people that really just don't have much of a theater base yet.

I was actually thinking you were nowhere near cannibalizing. So I was just looking for more color on that part. Question on XD. It's obviously doing well for you with the 3.5% on 1.2% screens. Can you give a preliminary view even looking into 2012 -- broad range what you might add in terms of that? In terms of number of screens in XD?

We haven't -- go ahead.

In general, that is going to be pretty broad. We have been adding obviously all the way from 30, 40, 50 screens a year. As we look toward 2012, again just in general terms, it will continue to be in that range next year. And this is broad range, but probably somewhere in that 30 to 50 range. It's a lot of it. And as we continue to expand that footprint, we almost always add an XD screen in our new builds. So when we open a new theater, there's going to have an XD in there. The ability to continue to add it and retrofit it into our existing theaters will slow down as the next couple of years roll out just because we are reaching those penetration levels. Or we've reached spots to where we're probably not going to have the ability to add them or retrofit them as much anymore. Mostly going to be based on new builds. Right now though for 2012, we should be in where it is a little early to give you the exact numbers because we are still kind of working through that. But probably in that 30 to 50 screen count range.

And of the 46 you have today, how many are domestic versus Latin America?

Actually, the 46 are domestic, and then we have 20 more that are in Latin America.

66 of them that are open right now, and the 46 are all here in the US.

Last question on 3D ticket pricing. There has been a lot of talk in the industry about potentially whether it makes sense on animated titles if they do have a lower percentage versus [fan boy] and horror, and so forth. If it makes sense at all to reduce ticket price to build any more volume. Do you see that as attractive? Or do you just take it for what it is and leave your pricing generally where you are at in terms of the spread on that?

We would answer and say we do not think that is the direction to go, and primarily, several reasons here. As we mentioned before, we absolutely give every customer a choice. If they feel like they can't pay for 3D, and our -- again, our average ticket price premium for 3D is just a little over $3. That number has been static for a while. We don't necessarily feel like we need to drop. It is a different experience. In fact, as we move out into the future and the technologies and the quality, all the different things roll into 3D, we want to make sure people view it as a premium. It is a different experience. We think it is a great experience. But they have that choice. If they choose not to pay that $3 premium, they can certainly watch it in 2D. And we have without question on all films, offered it both ways and allowed them to do it. We don't think it's a smart thing or direction we would like to go to reduce ticket price, and we're not planning to do that.

Okay. Great. Thanks. Nice quarter.

Thank you.

Thanks.

Next question is from Ben Swinburne of Morgan Stanley.

Hello. It is actually Mike [Ganance] on for Ben. Thanks for the question. I just had a couple of longer term questions on the international business. As you -- obviously with the very strong attendance trends in LatAm, should we think about the organic base price increase pricing power being above that 1.5% to 2% that you have talked about domestically?

The 1% to 2% definitely is domestic. When we look at Latin America, as I said, this year. For this quarter, we are up 5% -- on FX adjusted, we are up around 5% for ticket and concession was around 8%. Last year if you looked at the full year, I think ticket was up about 9.5% and concession was up about 8%. Clearly things can change, but we would generally guide people that we would then have a higher ticket price increase and concession increase internationally than what we are seeing domestically. Those economies can support better growth in both ticket and concession then what the US can. As far as relative rate, a little more difficult. If I had to pick something I would give you a pretty broad one and say it is probably 5% to 10%.

I guess so far this year you've got revenues up about 30% at the international business, and margins are a little down-ish year-over-year. Long-term, how should we think about the EBITDA margin? Obviously, you want to invest in the top line growth there. Is that something that you think you could expand over the next couple years? Or you think we could see relatively flattish EBITDA margin?

I won't say our EBITDA margin changed internationally the way it did domestically. At least if I'd look at it quarter-over-quarter, it was slightly up this quarter. We do think there's room for expansion. We have been much more focused on revenue growth and are placing more -- well, maybe said differently -- if you look at the history of what we have done in the US, I think we've shown that we are able to control our costs extremely well and really push our margin. Internationally, we actually -- international has tended to track with US historically. The last maybe year as the US has even more cost control, I think we have been able to move our margin up. Internationally, it has been a much stronger focus on growth, and even though pricing is higher than what it is in the US, again as we mentioned earlier, cost also internationally has moved up because just overall demand for everything involved.

We will put more and more focus on both pricing to look and make sure we are getting the margins we are after as well as cost control. As we expand some of our systems even greater into international than what they are today and put more focus on certain cost controls. All that to say, we do feel like we could move our margins up on the kind of volumes we are seeing. It is not going to be an overnight item, but we do think it offers some good growth long-term.

Sure. 1 last 1, I know it's in its very nascent stages. How are you are thinking about Netflix' entrance into the Latin American markets? And how that grows consumer demand for content broadly versus maybe being incremental competition for people's eyeballs

I would tell you on the surface, we don't think it is much of an impact at all, and primarily several reasons. When you look at the international market right now, for 1, piracy has always been an issue down there, meaning the availability to get movies and DVDs and all these kinds of things almost day and date with films is much more prevalent because that is the way the world works down there. Also, I will tell you that, of course, the release patterns are a lot different down there. Some movies don't open the same time as they do here. All those kinds of things. I think it is a different world down there. As we think about how PVOD or Netflix or any of that kind of stuff relates to our international business, it is not the same at all. We don't feel it to be much of an issue whatsoever.

Great. Thanks.

The next question is from Marla Backer with Hudson Square.

Thank you. A couple of questions. First of all, as you look out to the rest of the film slate for 2011, are there any films that you see on the slate that you -- not necessarily are concerned about but that you think might not travel as well in some of your international markets?

No, not necessarily, Marla. I think at the end of the day there are some great animated -- we talked about Puss in Boots and Happy Feet and Alvin and the Chipmunks. Those are some great titles that are coming out toward the end of the year. Those always perform well. The animateds do very well in our international markets. Movies like Mission Impossible and Sherlock Holmes -- those are other big titles that are coming up. I don't think there is anything out of the normal at all that as we look at the film slate that would cause us any concern or any differences in our international markets.

How did Hangover 2 do in your international markets compared to how it did domestically for you?

Off the top of my head, I don't know specifically. You saw the quarter so it obviously performed very well. I think those kinds of movies can do well in our international markets. So I don't know off the top of my head how it performed in total in the international market. But I would tell you it is going to be in the -- I'm sure in the Top 10 without any question. It did well. I don't know exactly what that percentage would have been.

No, I wasn't asking for a percentage. Obviously if you can't recall that it doesn't stand out, it clearly didn't underperform.

No. We don't have any -- again, I don't think there's any titles that stand out under that front that would have been underperformers by any stretch. Of course when you saw the results that we had that would indicate just the opposite. The movies -- remember the vast majority of films that are playing down there are US films. Always there's going to be differences in timing and when those are released, and we've talked about that in the past of how they hit each quarter. Those kind of anomalies will always be the case. But at the end of the day, there wasn't anything that stood out as being an underperformer.

Right. Okay. My last question is on -- I don't think you mentioned this earlier in the call. On the Open Road titles because the first one is actually coming up fairly soon, Killer Elite. Are you planning to participate? Are you planning to show the movie? I have noticed that in some of the AMC and Regal theaters, they are already putting up posters for that film. If you are planning to show it, are you going to be as aggressive about marketing it?

Well for us, certainly movies that Open Road would provide, and of course from our perspective, they are another supplier of film. They would be just like any other film company that is out there, and we would certainly want to play their product. And we would display it and trailer it and do it as if it was any other film company. Just because it is owned by the AMC and Regal folks wouldn't really change how we would think about it. Our goal is to play and make sure we have in our theaters the best films that are out there, and we hope that Open Road can successfully source and get great film, and we would love to play them. And we'd love to help them make them successful. Without question, we are always looking for suppliers and places to where we can get film, and I think Open Road will become another one of those sources.

Thank you.

The next question from Jim Goss of Barrington Research.

Hi. I thought I'd ask a couple more about international. 1 is with the higher attendance per screen that you typically have in your Latin American markets, is one consideration to add screens in existing locations, effectively increasing the size of your multiplex?

Jim, we don't necessarily have always the ability to do that. Remember a lot of these locations and spots where theaters are built throughout Latin America -- again, you take a city like Sao Paulo, these are very high, dense populated cities. So the ability to add screens and grow those is probably not -- it really doesn't exist. I think it is more just going to come from new spots and new locations that get developed. You have got to think of these cities very much like New York City -- like Manhattan would be. They are again highly dense, highly populated areas. So you do have the ability as development occurs throughout those regions to just add because there's so many people there.

Okay. Is there much variance among the various countries you are in in terms of pricing for tickets and concessions?

We definitely have a fair amount of variance. Some of the countries clearly while growth is going on, we are not necessarily seeing the economic opportunities that we are seeing in others. Brazil, we do provide some information, I think, on Brazil and Mexico. And then we put other when you look at our Qs and Ks from a revenue point of view. And I think what you'll find when you go through that data is Brazil definitely has some of the higher ticket prices and per caps of our international circuit. So there's definitely variance. Again, all in all, they have been doing extremely well and moving their ticket prices up. Brazil, being our largest market, and fortunately, the one that's also experiencing great opportunities right now on tickets and pricing.

Lastly, Brazil has been, obviously, the major point of focus beyond Mexico. Are there any other countries, in particular, emerging as the next potential Brazil? I know you talked about Argentina a little bit. Are there any? Or is Brazil really the focus for now?

If you are specific talking specifically in Latin America, again we continue to focus all throughout that region. Brazil, because of the nature of population, and potential is more. We do continue to build theaters throughout all of Latin America. I don't know that any of them would reach the penetrations and levels or have the size ability that Brazil has. We certainly want to continue to grow.

Purely from a focus, Brazil is more of a relative issue because it is just larger. But we are doing a lot in Chile right now. We are doing a lot in Colombia right now. We're doing a lot in Peru right now. On a relative basis, those are actually probably have as much growth as Brazil has experienced. It is simply quantity, clearly Brazil has that opportunity.

Okay. Thanks.

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

We'd just like to thank everyone for participating today, and we look forward when we discuss our Q3 results. So thank you, everyone, and have a great day.

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