Cinemark Holdings Inc (CNK) 2012 Q1 法說會逐字稿

Good morning. My name is Felicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cinemark 2012 Q1 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a questions-and-answer session.

(Operator Instructions).

Thank you. I would now like to turn the conference over to Mr. Rob Rinderman. Sir, you may begin.

Thank you, Felicia. Good morning, everyone. 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 actual 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 Tim Warner, who is joined this morning by CFO, Robert Copple. Tim?

Good morning, everyone, and thank you for joining us. I'll begin with an overview of our 2012 first-quarter results, followed by a discussion of how the overall industry box office performed during the period. I will also preview the upcoming film slate, and update you on Cinemark's digital initiatives. Following my comments, Robert will cover additional financial details of our Q1 results and capital structure. At that point, we'll open the lines, and be happy to address any questions you may have.

We have set a new record for total revenues, adjusted EBITDA and adjusted EBITDA margin for Cinemark in the first quarter. Our revenues increased 19.8% to $578.8 million, and our adjusted EBITDA increased $37.6 million to $140.3 million, resulting in a 24.2% adjusted EBITDA margin, a 290-basis-point increase over Q1 of 2011.

After slower than anticipated Q4, the North American industry bounced back, with an estimated box office increase at 23.5%, according to industry sources. This quarter's box office was led by a diverse group of films, many of which outperformed initial projections, reflecting a well-thought-out release pattern that mixed different genres and attracted a broader audience.

Although very -- another very positive note, is the broad mix of both major studio and smaller and independent distributor releases, which included films such as The Vow, Safe House, The Grey, The Chronicle, The Woman in Black, The Devil Inside, and Act of Valor. Notably, there was a 33% growth in box office from films outside the top 20, which generated more than 45% of this quarter's box office growth.

Of course, there were also blockbusters during the quarter, and the top five films for Q1 grew 45% in box office versus the corresponding 2011 quarter. We had The Lorax, and the much-anticipated release of The Hunger Games, which grossed approximately $380 million domestically to date, a great start to a new franchise.

Cinemark's US assets once again outperformed the industry, generating an increase of admission revenues, and nearly 25% for the quarter, compared to an estimated industry increase of 23.5%. This marks the fourteenth consecutive quarter, our US segment has outperformed the domestic industry. We have continued to outperform, despite the higher hurdles we have achieved each of the previous Q1s. Our cumulative domestic box office growth for Q1 since 2008 is a robust 31.5%.

We expanded our adjusted EBITDA in our US segment 460 basis points to 25.5%, our highest quarterly US adjusted EBITDA margin since our IPO in 2007. Our theater managers did a fantastic job of managing our costs, while maximizing our revenues.

Our Latin American assets also performed well, as admissions revenues were up approximately 9.3% for Q1 2012, 13% in local currency. Our growth is on top of the 17.2% growth in box office that we achieved in Q1 of 2011. Our growth for the first quarter since Q1 of 2009 is 97%. Our Q1 2012 international revenues were $169.8 million, an adjusted EBITDA increase of $36.0 million, both are record highs for first quarter metrics.

Just as Q1's success was partially driven by diversity of product, combined with favorable release patterns, Q2 and Q3 have a strong film lineup, combined with well-spaced release patterns.

Q2 will benefit from the carry-over performance of the Hunger Games. The summer season started this past weekend with Avengers, which opened over $200 million, and will be followed by The Dark Shadow, Battleship, Men in Black 3D, Snow White and the Huntsman, Madagascar 3D, Brave 3D and GI Joe Retaliation, all opening in the second quarter.

The third-quarter film slate includes The Amazing Spiderman 3D, Ice Age Continental Drift 3D, and the highly anticipated The Dark Knight Rises. Further down the road, are the anxiously awaited releases of Skyfall, the newest Bond movie, [Jack Rechert], Twilight Saga Breaking Dawn Part 2, the final sequel, The Life of Pi, and first of a two-part installment of The Hobbit, An Unexpected Journey 3D, which of course, was filmed in (inaudible) and will be projected at 48 frames per second, double the usual speed of 24 frames per second.

As announced at CinemaCon, we are excited about our participation in Digital Cinema Distribution Coalition known as DCDC. DCDC is a joint venture between exhibitors and distributors to create an efficient system to seamlessly distribute all digital content to theaters via satellite. DCDC will be able to transmit not only our traditional products, feature films, but also new and promising content, such as live and prerecorded entertainment, including sporting events, music concerts, Broadway productions, and opera, as well as advertising.

By combining an efficient, enhanced delivery system, with the (inaudible) exhibition industry nationwide footprint of superior digital projection capabilities and outstanding sound systems, we are creating a national network that should enrich product availability. Through it's open satellite architecture, DCDC will be able to transmit any digital media from any distributor or content provider, as broad as nationwide coast to coast, or as targeted as one theater.

In summary, we are extremely pleased with our record-setting Q1 box office results, including our continued US industry outperformance, and our ability to leverage our operating margin to enhance our adjusted EBITDA growth. I will now turn it over to Robert for further financial discussion.

Good morning. As Tim mentioned, our worldwide total revenue increased 19.8% to $578.8 million, marking the highest ever Q1 revenue in the Company's history. Admission revenues increased 19.9% to $373.8 million, and adjusted EBITDA grew 36.6% to $140.3 million, resulting in a 24.2% margin. Our US segments total revenues also set a Q1 record at $409 million.

Admission revenues were $266.6 million, an increase of 24.8%, 130 basis points in excess of the estimated North American box office increase of 23.5% for the period. Our domestic attendance increased 19.2%, and average ticket price rose 4.7% to $6.70, primarily reflecting incremental 3D and premium pricing, which comprised 22.4% of our box office this quarter, versus 19% last year.

Our XD screens are increasing their momentum, with our 57 domestic XD screens generating 4.3% of this quarter's box office. Domestic concession revenues grew 25.3% in Q1 to $131.3 million, and concessions per patron rose 5.1% to $3.30, reflecting the positive impact of our higher first-quarter attendance, in addition to price increases. Our US segment adjusted EBITDA increased 51.6% from the prior year to $104.3 million, and we expanded our adjusted EBITDA margin 460 basis points to 25.5%.

International total revenues were up 10% to $169.8 million, exceeding the record revenues our international segment reported in Q1 of 2011. Admission revenues increased 9.3% to $107.2 million, and attendance rose 6.4%. Our international segments average ticket price increased 2.7% to $4.94, 6.4% in constant currency.

Q1 international concession revenues grew 15.8% versus the year-ago period, reflecting an increase in attendance, and a 9.3% increase in average concession revenues per patron, 12.1% in constant currency. Our international segment adjusted EBITDA was $36 million, up 6.3% from the prior year, and adjusted EBITDA margin was approximately 21.2%.

In Q1, consolidated worldwide film rentals and advertising costs decreased 70 basis points to 52.3% of admission revenues. Concession supplies costs were 15.9% of concession revenues, flat to the year-ago period. G&A expenditures were $34.1 million.

Q1 interest expense increased approximately 9.7% to $32.1 million, reflecting our refinancing in June of 2011, with $157.2 million unextended portion of our term loan debt, that was previously due in 2013, with $200 million aggregate principle amount of 7.375% senior subordinated notes, which mature in 2021.

Total income before income taxes was $70.8 million, more than double the prior year. And net income attributable to Cinemark Holdings, Inc. was approximately $42.1 million, or $0.37 per diluted share. Our effective Q1 income tax rate was 39.4%.

Our balance sheet continues to be among the strongest and least levered of our peer group. The Company's March 31 cash position was $528.6 million, resulting in net debt of approximately $1.04 billion, and net leverage ratio of 1.9 times adjusted EBITDA.

During the quarter, we received an additional 598,724 units of National Cinemedia LLC, as a result of the annual common unit adjustment, increasing our relative ownership from 15.8% to 16.2%. At quarter-end, we owned approximately 18.1 million NCM common units, with a current value of approximately $248.7 million.

Our US circuit at quarter-end was comprised of 3,895 screens, at 298 theaters in 39 states. During the three-month period, we added 1 screen to an existing theater, and acquired 1 theater with 16 screens. We have signed commitments to open 4 new theaters and 57 screens for the remainder of 2012, and 8 theaters with 104 screens subsequent to 2012. We expect to incur approximately $101 million in CapEx for these additional 161 screens.

Our total Latin American circuit at March 31 included 1,286 auditoriums and 161 theaters. During Q1, we built 2 new theaters with 12 screens. We presently have signed commitments to open 7 new theaters with 50 screens for the remainder of 2012, and 4 new theaters with 28 screens subsequent to this year. Our estimated CapEx to develop these 78 additional international screens is approximately $81 million.

We are committed to reinvesting in our theater circuit to constantly improve the quality of our assets, reinvesting $721.1 million, net of asset sales since 2008, which helped us to grow adjusted EBITDA by more than 50%, or $186.8 million over that time period. During Q1, we invested $47 million on capital expenditures, including $18.4 million on new construction, and spent an additional $28.6 million on maintenance CapEx, including adding digital projectors and expanding the number of auditoriums with our XD large screen format.

2012 full-year CapEx is now projected to be in the $200 million to $250 million range, slightly lower than our original projection. The reduction is primarily a timing issue, as we continue to negotiate [VPF] agreements with the studios for our international digital projector conversion, which has slowed our rollout process. Also, some of our new build projects originally projected to open at the end of 2012 may be postponed until early 2013, as a result of mall developer delays.

Our record first quarter results again reflect the continued success of our strategic initiatives, with double-digit growth in both our worldwide admission and concession revenues, and a strong increase in our industry-leading adjusted EBITDA margins.

The widespread and growing footprint of our international operations is strategically important to studios and advertisers. And our Latin American operations have positioned the Company to benefit from the region's new prosperity and exciting growth potential, truly differentiating us from our peers. Operator, that concludes our prepared remarks. Please open the lines for questions.

(Operator Instructions).

Your first question comes from the line of Eric Handler with MKM Partners.

Hi, good morning. Thanks for taking my question. First, on your screen count outlook for the year, you gave us what you expect to be opening. But when you include closures in there, can you give us an estimate on what you think your year end screen count is going to look like? And then secondly, with regard to concessions, you just put up your fourth out of five of the last quarters, we have seen per cap spending in the US, up in excess of 5%. Is there something going on with the mix shift that allowed -- the product mix that has allowed the -- you to put up such good numbers there?

I'll start with your question. This is Tim Warner speaking, I will start with your question on the concessions. It has been a combination of product mixture and a slight price increase in some categories. But the other big part of it is that we've been successful in integrating our social media, and sort of a direct correspondence in couponing to our customers that have also driven these sales. Regarding the screen count, Robert, will --

Yes, so Eric, with respect to the screens, one thing, the numbers we give are those projects that we've signed leases for, and technically probably most everything is signed, although maybe a little variation internationally. So at this point, I think -- before, we were talking 100 plus screens internationally to be built this year. And somewhere around, say, between acquisitions and new build -- when I say acquisition just this one-off that we just had this quarter, probably somewhere in the 70 range or so for domestic.

I foresee, as I've said, some of the international to be delayed in particular, so that I think that's probably going to be more in the 80 to 90 range, and the US will still be in the 70 range. As far as closures, I think probably net screens, 10 to 12 screens, probably are closed this year. So, we should have net US growth, and were those the US screens, so we should have net US growth, as well as international growth.

Great. Thank you.

Your next question comes from the line of Anthony Di Clemente with Barclays.

Hi. This is actually Bo Tang in for Anthony. Thanks for taking the question.

Hi, Bo. Just tell them it's you. You don't have to say Anthony. (Laughter).

So first off, I guess on the ticket pricing growth, it looks like you put up 4.7% in the quarter. Can you just kind of just break out how much of this growth is coming from base ticket price increases versus 3D?

Sure. Our biggest -- if we looked at, let's say, what we would call our 2D ticket price, our base price, it would probably be a real increase of about 1.5%. Most of the rest has to do with premium allocation, as well as increases in our 3D and premium pricing. So, I think what you were looking for, is probably in that 1.5% range.

Got it, great. And then also, Robert, you mentioned you're adding, you are looking to add a decent amount of new theaters in both the US and Lat Am this year. Would you be able to remind us where your typical ROI is for a new build, for both US and Lat Am?

Sure. Our hurdle rate for any new build, is to look for a 20% cash on cash return, and generally, that's within the first year. We also look for 20% margins. As you know, our EBITDA margins are one of the critical issues that we focus on, as we build or buy theaters. And so we kind of look for that 20/20, if you will, and we have been very good at achieving that. Actually, our domestic, we -- has greatly exceeded the 20% returns over the last few years. Kind of -- not necessarily reflecting more selectivity, but probably just less theaters being built in the US, and looking for those that we already feel like can have high returns. And internationally, we've also definitely met our 20% hurdles.

Okay, great. Thank you.

Sure.

Your next question comes from the line of Townsend Buckles with JPMorgan.

Thanks. As we think about the more indirect benefits of The Avengers' success here, as you look back historically, how much of a lift do you feel a strong start to the summer season provides the upcoming slate through things like higher trailer exposure, positive audience sentiment toward the content that coming -- that's coming out, and things like that?

Well, historically, a big film like this, and this is a very, very big film, probably going to be one of the biggest in our history, it drives a lot of additional attendance downstream. As you know, the customers get exposed to all the great product that is coming. And probably especially this year, because it feeds into a lot of great upcoming product. We just got back from CinemaCon, and I think everybody came out of CinemaCon, after seeing all the trailers and the previews and that, really pumped on the -- 2012 looks to be a very, very big year.

Great. And you've talked about interest in M&A. Can you give a sense of the level of activity or opportunities you're seeing in Latin America versus the US, and any preference you have between the two? And we've, obviously, just seen a Clearview officially come up. Can you comment about whether a circuit like that interests you?

Well, we're interested in M&A activity, in both Latin America and here in the US now. In Latin America last year, we did acquire a real premium circuit in Argentina in Hoyts. And although we're looking for other opportunities in Latin America, there may be more limited opportunities because of the new builds in Latin America. It's still a very developing market, so there's a lot of opportunity for organic growth.

Now here in the US, of course, we are constantly looking for high quality assets that would meet both our investment hurdles. And we think because of all the activity in the marketplace, that there will be continued focus on M&A activity in the US this year.

And any sense of just -- as we think about something like Clearview, just maybe the size, location? It does sound like it, maybe needs some capital investment there. Is that a profile that interests you?

Yes, Townsend, we unfortunately, don't comment on any specific deals that we look at. But we will look at all the different opportunities that are out there. And whether it's investing in something, and that has to clean it up or, just a pristine circuit. I mean, then we're looking, as Tim said, to meet our -- the hurdles that we set for ourselves, and whether or not any chain that has an opportunity for us will meet those hurdles.

Thank you very much.

Sure.

Your next question comes from the line of Joe Hovorka with Raymond James.

Thanks. A couple quick questions. Did you give the number of XD screens in the quarter? I may have missed that.

I gave the US. I can give you the overall. So, we have 57 in the US, and 30 internationally, so a total of 87 worldwide. So, that we added 6 overall this quarter.

And the 4.3% of revenue, that is a domestic admission revenue?

Yes, that is a domestic number.

Okay. And did you give the mix for premium tickets this quarter versus last?

Yes, I did, but I can hit that again. Let me grab that real quick. I think it was 22% this quarter. And if I remember, last year I think it was about 19%.

Okay. And this is the third quarter in a row where you've had attendance, average attendance decline per screen internationally. And that kind of coincided with the -- the beginning of that coincided with the Hoyt acquisition. Is that what is causing that, or is there something else there? Why -- (Multiple Speakers).

Sure. I'm sorry. Go ahead.

Why has the attendance per screen been down three quarters now internationally?

I think, Joe, it's a mix of factors. Arguably, maybe Hoyts has a little to do with it -- I think if you really look at our numbers though, and I'm not saying this to put overly focus on it, I think it just had a lot to do with how the product played at different times. When we publish our Q and you go through it, you will see that we break out Brazil versus other countries. The other countries total revenues were up, meaningfully this quarter.

Brazil was slightly off. Brazil is -- one, we're facing --overall, we are facing the FX worldwide, I think the average was a little over 3.5% as a head wind. However, Brazil, in particular, was a little more difficult. I think Brazil 's FX, if you did calculations, you would probably get more in the 5.5% range. And again, if you look at this quarter, you end up seeing total revenues in Brazil were slightly off, and others being up. It's not that we feel like there's any issues in Brazil. I think Brazil was just up, unfortunately, against a number of different factors that have kept having some comp problems that we will overcome.

We know in Q4, we had the significant -- again, I mean, think if you look at -- go back to Q4 of last year and others, you tend to see the other countries outperforming Brazil at the moment. Last year in Brazil, inQ4, we know the big film that was in Brazil from Q4 of 2010, it was a difficult comp. Q1, just ended up having a few other comp that came up. Some films didn't play as well there, and -- but they played well in some other markets. So, it just varied. Q2, being realistic about Brazil, you had some very big films last year, such as Fast Five and Rio that probably overperformed that were domestic films, but overperformed in Brazil just because they were focused on Brazil, with Fast Five being filmed there, and Rio, obviously, being about Rio.

So, don't know that that means Brazil won't do well this quarter, but we know, again, it's facing some comp issues. Not concerned about the country overall. We're still focused in building there. It's where the majority of our -- or at least, gets fair share of new builds are going on there. So overall, Latin America, we feel good, and it's just some tougher comps.

And so, just to be clarify, the FX doesn't impact the average attendance per screen?

No, no, you're right. Attendance would not be affected.

And looks like it's got -- because I assume everybody knows about the tough comp we had in the fourth quarter from the local film down there. But it looks like the average attendance actually got worse. We were only down like 1.5% in December, and now I think we're down 6.5% this quarter. So, it's not -- it's all centered in Brazil, then, it's not the other countries?

Yes, I mean, primarily I would put it on Brazil, but you're right. I mean, this quarter internationally is down, as you said, around 6.5%. We'll -- obviously, we'll have to see this quarter. We feel good. Avengers did very good internationally. Hunger Games, unfortunately, was not one of those movies that worked well. If that would have worked as well internationally as it did domestically, we probably wouldn't be having this conversation.

So, it's just one of those realistically, Joe, it depends on how the film plays. The film hasn't played as well for us overall. And in particular, Brazil, just had some extraordinary film play last year, and some of them aren't playing out this year. But again, we -- it is film. We feel like we're comfortable with the long-term opportunities in Brazil.

And I mean, I would add to, to Robert's point, it's just that last year, internationally sort of performed opposite the US. The last -- our international company really outperformed the US industry dramatically last year, and so they are up against a real tough comp issue.

Yes. And I mean, to that point, if you look at the last two years, if you look at 2010, 2011 and put those against the US, I mean I think you'll find international substantially outperformed domestic.

Okay, great. Thanks.

Your next question comes from the line of Ben Swinburne with Morgan Stanley.

Hi, good morning. It's Ben Swinburne. I wanted to ask you about sort of your leverage appetite, and where you think you could end the year? Because I -- Robert, given your new CapEx expectations, I think you are heading to a level that -- below -- you haven't been down at this level since the IPO.

So, can you help us think about where leverage could fall to, where you're comfortable, and then same question sort of on the high end? And if you don't end up executing on acquisitions this year, should we think about -- will you look at dividend increases like you have in the past? And then on the CapEx, I know we're not giving '13 guidance, but it sounds like for the most part, all that was timing shift. So it's -- should we be thinking about the delayed capital moving into next year?

Yes. Definitely on the -- with respect to the CapEx, the primary change from where we were last quarter, when we were suggesting 250 to 300, now we're dropping down to the 200 to 250, is all delayed. I mean, it's about half of it has to do with our rollout of our international digital projectors, which we had hoped to have all of our VPF agreements signed at this point. We haven't. And again, those VPF agreements will help us recover the cost over a period of time. But we're now willing to make that investment to those that-- that work is done.

Now we do clearly, have projectors down there already. We're around -- 38% of our circuit is digitized and 3D capable. But the next percentage we're waiting for, for these VPFs to get done.

And then with respect, as you've said, just general capital, we've delayed a few projects that we think will be done next year. So, our new build capital probably goes up a little more than we thought for next year. But again, it -- we don't feel like either one will be overly significant. It's something that we have enough free cash flow, that we should be able to absorb that.

With respect to debt levels, I mean, I don't foresee us changing anything in our debt profile currently. If we were to make a significant acquisition, clearly, we would consider the fact that we're very low levered, and the market is fairly robust, and so we might explore the debt market. But we also have a lot of cash, and lot of other assets that we can utilize to generate cash. So, by no means, is it necessary for us to go to the debt markets to make an acquisition of just about anything that is out there.

So, I think we're just in a very flexible position, fortunately. I wouldn't say we have a targeted debt level that we're trying to maintain. Hopefully, we expect to continue to grow our EBITDA, and really our debt to EBITDA ratio will go down, continue to go down over time, and we'll just have more capacity. With respect to what happens if we don't make any acquisitions, clearly up to the Board, with -- as far as making dividend policy, as I think I have said before. I mean, at some point, the Company will need to look at where it's cash position is, what the opportunities are to utilize that to build and grow the Company, and that is our first and foremost focus. But if we're unable to reinvest our cash in the Company and a significant balances, then I'm sure our Board will adjust dividend policy. But there -- I'm not suggesting that there is anything being focused on right now.

Thanks, Robert.

Sure.

Your next question comes from the line of Eric Wold with B. Riley.

Hi, good morning. Just a couple follow-up questions on the -- kind of the M&A strategy. As you look at the markets in the theaters and the chains that you may be kind of pursuing internally, would you characterize those markets as competitive? There is a lot of competition for the assets you are considering? They tend to be in markets that are kind of maybe off the beaten path of other acquirers. And two, as you look at your strategy, would you consider yourself more likely to pay up for quality assets, or you are kind of more looking, if you are going to be acquisitive this year, looking for screens to get -- or as you get a little bit more desperate, as I guess as you anticipate in a nice way, as you get towards some of the deadlines approaching?

Well, from M&A standpoint, we always focus on quality. And in our estimate, they have to be, what I'll call sustainable growth theaters. And, again, we are fairly rigid about sticking to our ROIs and our margins, which we feel have been the real key to our success. And as we look, we have a broad footprint in the US -- from the -- from some of the smaller markets in the US, to some of the larger markets in the US. And so, we feel that we're an acquirer of a broad base out there. And we look more -- more to the assets themselves, and the quality of the returns.

Perfect. That helps. Thank you.

Your next question comes from the line of Barton Crockett with Lazard Capital.

Okay, great. Thanks for taking the question. I was wondering about the comment that you've had some delay in reaching the virtual print fee agreements internationally with the studios. So, if you could provide a little bit more color on what was happening there, versus what was a surprise. And your confidence that you'll actually be able to finish it, when you expect to now, remembering that this thing seemed to drag on forever, when you did the VPF domestically. What's the risk of a similar type of protracted delay internationally?

Well, these are complicated negotiations, and we're very close on four of them, and you have some unique aspects of international VPS agreements. And we think we're very, very close to agreement with four, and the remaining two major studios are pretty far along in the process. And so, hopefully, by on our next call, we'll be able to announce that these are behind us.

Okay. Switching to expenses, I was curious, Regal has had tremendous leverage in their theater labor costs. I was wondering if there was anything that they are doing that you could learn from, that might give you another opportunity to improve your labor costs, kind of following what your competitor's doing?

Well, I mean, I think the big benefit of Regal and their big increase is that they had a substantial decrease last year. And so they had a -- where last year, we didn't go down to the -- I don't know what their margin level was last year in the first quarter. But I mean, ours was still in the 20%-plus range.

And so, obviously, since we didn't have a lower hurdle to work against -- but when you look at our margins, they were in the 20 -- I think it was over 20% last year in the first quarter domestic, and we went to 25.5%. And I think our margins, at least among the public companies, are the highest margins in the industry. And so, I think that we're well-represented in cost control, and that our managers do probably, at least in my opinion, when you look at the actual results, probably the best job in the industry.

Okay, all right. I'll leave it there. Thank you.

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

Great. Thank you. Just to follow up on that, the EBITDA margin issue there, I think very impressive you hit that in a seasonally light first quarter. And can you get into some of the key drivers, that drive this beyond just the slate? And has this uptick in margins changed your mind on where EBIT margins could peak over time?

I mean, I think the great thing about Cinemark is that we've demonstrated -- and I'll go back to the Q1 quarter of last year, when the industry was down substantially, but we outperformed the industry from a revenue standpoint. But also, we were able to ensure great cost control, and adjusted to the declining business, and we were able to maintain a very, very high, robust margin.

And I think the thing that we've demonstrated is that we can go up and down. If business goes down, our expenses go down, but also, if business really comes up, we're able to hold the expenses and expand the margin. And that's a combination of labor and all other costs associated with operating our circuit.

Okay, thank you. And then just to, I guess, talk a little bit about the upcoming slate in your Latin American markets. Is there any particular local films that you are enthusiastic about? Or is there any unusual timing for US releases that could help us model that market a little bit more effectively?

Well, I mean, I think the good news is Avengers set records in Brazil and Mexico, and a lot of our international countries, which -- and the reason I bring that up, I think that bodes well for movies like Spiderman and Batman in the international market. Also, Ice Age Continental Drift, for whatever reason always is one of the top performers in Latin America. And so, I think that also bodes well. And so, Madagascar 3 will do very well in our Latin countries. So, I think the upcoming slate looks very well, and is going to translate very well into our Latin American circuit for the domestic films.

Now on the local front, there are some films out there, I don't know of if any of them is going to be the huge breakthrough movie. But they tend to -- like Brazil historically, tends to run about 10, 15 -- between 10% and 15% of our box office. And then on big years, they can go up as high as 22%. And -- but, overall, we feel good, and think that the 2012 year is also, is going to be a great year for domestic, but also for our international holdings.

Great. Okay. Thanks very much.

Your next question comes from the line of Robert Fishman with Nomura.

Hi. Good morning. Given the strong expectations for the summer and holiday box office to come, can you help us think about this film rental cost and how that compares to last year, where some of the (inaudible) movies underperformed? And then as a follow-up, if you think that you can offset this with higher concession spending and lower concession costs?

Well, I mean, I think that film rental tracks performance. And I mean, ideally, if our performance goes through the roof, we wouldn't mind seeing a little increase in film rental, and so --but it does adjust. And when you look at film rental on say, a four or five year basis, there's not a lot of difference in film rental from year-to-year. And so because it does track the national box office. And -- but hopefully, we'll have a big year, and not that I want to see film rental increase, but if we have a sensational year, I could easily give up a point or two of film rental. And as you say that the -- that there is a lot of high anticipation for 2012. And The Avengers set a real high watermark for sales and performing. And I think everybody is highly anticipating amazing Spiderman and Batman, I think going into the year, was probably one of the most anticipated films to come from Chris Nolan. But also, we have seen some footage on The Hobbit and Life of Pi, which come in the fourth quarter, and the footage was absolutely sensational, so.

Okay. And if I could just add one more, how do you see the premium box office, as a percent of your total box office trending over the next couple of years? Specifically, if these new technologies are as successful, like the 48 frames per second, expanding 3D into different genres outside of just animation and action?

No, we're well-positioned first off, on the 48 frames. Cinemark will be able to play it in 3D on all our screens throughout the world. And so, we're really looking forward to it. And also, they showed some footage on the Great Gatsby, which would not be your traditional 3D film, but the sets and the immersion into that film were -- I mean, I would use the word amazing.

And so, that will probably be the first big budget movie that you didn't see from a great director, that you wouldn't normally think as being in 3D. And so, and I think it's going to be very, very successful. And our premium performance tracks the industry performance, or maybe exceeds it a little bit, and we had a great performance on the Avengers in the premium, both the 3D and the XD and the IMAX format. And so, we're glad to see that continue, and I think it's going to be a great year for premium format.

Great. Thank you.

Your next question comes from the line of Jeff Logsdon with BMO Capital.

We're a couple weeks away --

Good morning.

Good morning, both of you. Great quarter. We're a couple weeks away from the opening of Men In Black. You want to give us insight into who is going to be paying for the glasses?

Well, I thin that --

Come on, it's getting close.

Yes, I know, absolutely. I mean I don't see the model changing, and I think that they see the results on the Avengers -- well, of course, we feel already that the customer pays for the glasses in the upcharge.

Yes.

And I think it's been a great model, and I think the studios have really benefited, and obviously exhibition has really benefited from the new technology at 3D. And I think that the RealD 3D gives a very superior experience in our theaters, and the audience love it, and it's achieving great results, for both the studios and exhibition.

We will take it that the issue has been deferred on Sony's part. (Laughter).

Probably deferred. And if you were to ask me if, would I like to cut out any of my expenses, yes, I would. Just as I'm sure if you ask them, they would like to cut out some of their expenses, too.

And I am sure they would not like to just get the revenues from 2D tickets so. Thank you.

Right, absolutely. It's a tough question for them.

Thank you.

Thank you.

Your next question comes from the line of Ben Mogil with Stifel Nicolaus.

Hi, good morning, and thanks for taking the question. So --

Hi, Ben.

Hi, Tim. Tim, welcome on the first conference call, and Robert, thanks. So just two questions, Robert, I apologize, I sort of missed it earlier. What was the -- was 12.1 was the constant currency for FX, excluding sort of adjusted for FX for tickets or for concessions?

That was concessions. Tickets was about 6.4.

Concessions and tickets were 6.4. Great. Now, for thinking over -- and I really don't want to get too granular, but just by chance, Regal announced during your call that they had sold $42 million of box office over the weekend on Avengers. So if you kind of strip out -- take the $200 million number, and you strip out the share for Canada, it kind of looks like they were around 22%, 23% of the box office, which is sort of bigger than their overall share, and they have got big IMAX, so that helps them out.

Could you talk about, just looking beyond just this weekend, can you talk about how you see yourself positioned on weekends, where you've got big, big IMAX films? I'm looking at Spider-Man, Batman, Hobbit, films like that. Talk about what you saw your market share look like in your direct markets over say, this past weekend even?

Yes, no, we normally probably perform in the 10, 10.5 to 10.8 range, and on big weekends like this, we will tend to outperform that. And with -- I think you'll see a similar uptick in Cinemark's performance because of the high performance of Avengers in RealD 3D and XD and our IMAX screens, because a lot of people pay for the premium formats.

Are you seeing in markets where you compete, where you got IMAX and sort of maybe not the exact same film zone, but in a relatively close film zone, are you seeing yourself hold your own in those kind of markets?

Yes. I mean, our XD screens perform on an equal basis to our IMAX premium screens. So, people see it as a high quality premium experience and, and they are every bit as engaged in XD, as they are in IMAX.

And then flipping over to Latin America, and sort of talk about the 48 seconds per frame for The Hobbit, are your competitors in Latin America mostly on RealD as well, or are some on MasterImage or the other sectors that are more 2D?

Well, that varies. And I can't speak for all our competitors. But we have the same technology worldwide, and we will be able to take advantage of it. We have the Barco projection, and we're all ready and excited about the potential, because we think it's the next big enhancement in the 3D technology. And so, we're ready to go.

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

Thank you, Ben.

Your next question comes from the line of David Miller with Caris & Company.

Yes, hi. Congratulations on the stellar results. Most of my questions have been answered. Rob, just a quick housekeeping item, what was the free cash flow number in the quarter? I just don't see it on the press release, and I don't -- I assumed you've filed your Q, right now, I actually just haven't had time to take a look at it. Thank you.

Yes, no problem. We don't normally list free cash flow separately. Some of our competitors, I think if you went through similar math, it would be somewhere in the $50 million-plus range.

Okay. Thank you.

Your next question comes from the line of Tony Wible with Janney.

Hi. I was hoping you could speak to the drop in facilities cost per screen. How sustainable is that? And I have got a couple follow-ups.

Because most of our facility costs, especially domestically are fixed in nature, when I guess if you're doing it on a per screen basis, it might have to do with just relative mix. It's not something I would say, normally would fall off. Compared to revenues, clearly it's going to change, but with respect to per screen, it's going to have to do more with the mix of assets.

So, if we happen to be adding more screens, obviously, that for some reason have a lesser rate, then that might fall off slightly. But in general, I wouldn't to expect that to happen. I mean, it's not something that there is, we can easily achieve, because it has to do just with the rent rates.

So, there was no particular timing issue that benefited the quarter?

No, I mean, it probably just has to do with, however, overall, how percentage rent works, and it probably had to do with international mix a little bit as well, and how that fell in.

And on international, two things, can I confirm there weren't going to be any closures in the numbers that you mentioned, that the only closures would be in the US?

Yes, I mean, that's our expectations. That doesn't mean we won't end up -- international's a little unusual, in that occasionally, we'll have a theater that a landlord will come to us, and it might be a very robust model, and landlord's looking for extra space and might make an offer to close one of our screens within a theater. And occasionally -- it will just be a lucrative deal for us, and we'll give it back. So, that can happen, but we don't have any projected closures of the full theater at this time.

You have done so well in Latin America. I know you haven't had an, I guess, an urge to grow outside of Latin America yet. But is there any reason to change that when -- if so, what would it take to encourage you to look at another market?

Well, we think we have a lot of work ahead of us in Latin America and a great opportunity in Latin America, and have extensive knowledge of the marketplace, that we've been there for the last 15, 20 years. In the process, and I've explained this in some other calls, is that we have explored other opportunities in other areas of the world, but felt that the -- that we needed to really have great focus and great execution, and not be -- take a shotgun approach to this thing.

And so, our focus has been Latin America. As that market matures for us, obviously, we're very intrigued and very knowledgeable of the international marketplace. And it's -- from time to time in the future, we might look at other international markets.

Great. Thank you.

(Operator Instructions).

Your next question comes from the line of Bishop Cheen with Wells Fargo.

Hi, everyone. Thanks for taking the question. I know you addressed leverage and dividends, but we can't leave the subject without talking about IPO, especially in a very good trending year like 2012. Do you have any thoughts around critical mass, size, as it pertains to Cinemark, to meet whatever would be the standards of today's IPO market?

Yes. Again, I want to make sure we're all talking about the same thing, because obviously, we are a public company already.

Right. I'm sorry. Not IPO, but secondary.

Yes, with respect to the secondary market, I mean, again, we feel like we have a significant amount of cash on our balance sheet. We have a line of credit that's available. So I mean, going to the secondary market, I wouldn't say it's really in our plans. I guess it's always something that would be available, should we want to pursue a major acquisition and readjust our capital structure. But at least today, we feel pretty confident with our current mix.

Okay. And then one follow-up. On the digitization, I think you went over at the beginning of the call, but the upgrade in your digital plans for progressing, can you give us -- I don't think you said, in terms of percentage of how much of your plan, complete plan for digitizing is -- would be complete in 2012, how much would carry over to 2013?

Are you -- actually, our US circuit is pretty much fully digitized. That was done by the end of 2012, excuse me, 2011, get my years right. So, going into this year we are, our US circuit was already done. Internationally, as we mentioned, we are still rolling out digital. I think the number is about 38% is digitized at this time. Again, we're adjusting our numbers now, based on timing of when we end up having our VPF agreements signed. We would hope to move that up significantly by year-end, and then the hope is by the end of 2013, international would virtually be done.

That's great. Thank you.

Sure.

Sure.

Your next question comes from the line of Jim Goss with Barrington Research.

Thank you. I was wondering about the perceived timing of some of the industry consolidation that I think everybody seems to agree should be in the cards. Do you think -- I mean, is this something that would probably begin in earnest over the course of the next year, as some of the roll-ups might take place? And how does that tie into the notion, that the costly upgrades to digital in some of the smaller circuits might be pressured by any changes in the virtual print fee elements, and anything else you think might matter?

I think that you have a combination. I mean, as you said, probably one of those items pushing this is conversion to digital. I think just having some groups that have, investment groups that have owned a number of these chains a long time, is also an issue out there. As far as timing goes, as was mentioned -- with one of the earlier analysts, there are already some deals that have been announced, in terms of companies being auctioned. I -- we do feel like it's becoming a more active market.

I would assume a number of these deals are resolved by year end. Some probably will go into next year as well. But I think that the bigger opportunity now, is that we're actually hearing of deals starting to move where before, we envisioned that they probably would. And I do think there is a number of catalysts driving this right now.

Do you think it becomes a competitive thing, where you and your other larger peers will be -- trying to go after some of the same property, and prices might start increasing to the point where, you may second-guess whether it's worth doing it?

I think at least with respect to Cinemark, as Tim mentioned earlier, I mean we have certain hurdle rates we look at and quality standards. And I would assume my peer groups do, as well. Whenever you have a competitive environment, it probably makes you think through what's the proper amount to bid on deals.

But, and then we've always been very disciplined on our approach to an acquisition, making sure it's strategic to us, making sure that it creates significant value for our shareholders. And that's really the driver. And if something ends up being highly competitive, and is outside the price range that will allow us to accomplish that, then we will not be an acquirer of that asset. So, I think the nice part is, this has been a very disciplined industry, and I assume people will continue to do that based on how they can create value.

Maybe one last item related to this. To the extent that each of the major chains tends to have their own niche, in terms of size of markets and the nature of their approach, aside from any sort of competing at the fringes, do you think that will weigh into any of these decisions about where some of these chains would go, or do you think you and others would look into other areas as potential targets, as well?

I think what tends to be the issue around, where we look at chains probably is more, are they in our markets, outside of our markets, what kind of issues would we have with those particular theaters we are acquiring? I can't, again, speak for the other chains. We're fortunate, as Tim mentioned, we're in big cities, we're in small cities. We are in 39 different states.

So we're pretty open to just about any deal out there, again, if it meets our return hurdles. I would assume our competitors are as well. I mean, I don't know that anybody will be precluded in any manner from pursuing these. And there's probably going to be, to your point, there's also -- there will probably be chains of all different sizes and shapes in different markets out there, as well. So, I think that there is definitely opportunity for probably anyone that's looking.

All right. Thanks a lot, Robert.

Sure. Take care. Appreciate it.

And I would now like to turn the call back over to management for any further remarks.

Yes. One of the things that I would like to do on this call is introduce our new internal Investor Relations manager that we have just hired, Chanda Brashears. Chanda joined Cinemark a few months ago, has been working kind of behind the scenes to better understand the Company. She is still working on that, learning about our industry. And so we're working -- she's working closely with JC IR, which is previously known as Jaffoni & Collins. Rob Rinderman, who introduced our call is our primary contact there. So Chanda will be working with Rob closely, as well as myself, will be introduced to all of you all -- and I think actually, a number of you all just might have met her at a recent meeting we had. And so we're very excited to have Chanda on board.

And I would like to thank everybody for joining us here today, and we look forward to speaking to you again following our 2012 second quarter results. Thank you.

Thank you for participating in today's conference call. You may now disconnect.