Cinemark Holdings Inc (CNK) 2013 Q2 法說會逐字稿

Good morning. My name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark quarter two earnings 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 Ms. Chandra Brashears, Investor Relations Manager. Please go ahead.

Thank you, Tracy. Good morning, everyone. At this time, I would like to welcome you to Cinemark Holdings, Inc.'s second-quarter 2013 earnings release conference call hosted by Tim Warner, our Chief Executive Officer and Robert Copple, our Chief Financial Officer. In accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that are addressed 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. The Company undertakes no obligation to publicly update or revise any forward-looking statements.

Today's call and webcast may include non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release and on the Company's website, investors. Cinemark.com. I would now like to turn the call over to Tim.

Good morning, everyone. Thank you for joining us for our second-quarter 2013 results call. This morning, I will provide an overview of the North American industry and Cinemark's second-quarter box office performance, highlight the upcoming film slate and provide an update on a few of our strategic initiatives. After my remarks, Robert will provide additional commentary on our financial results and capital structure. And we will then conduct our customary question-and-answer session.

Although news headlines may lead you to believe that movies are not performing well, the real story is in the numbers this quarter. The diversity and breadth of the second quarter's film product combined to lift the box office to an all-time North American industry record of over $3 billion with a tenfold performance of Iron Man 3, Man of Steel, Fast & Furious 6, Monsters University and Despicable Me 2. In addition to the success of midrange films, including The Great Gatsby, Now You See Me, This is the End and The Heat, the second-quarter North American industry box office increased by nearly 8% from the prior-year period.

On a worldwide basis, our admission revenue set an all-time record of $464.5 million, an increase of 11.1% overindexing the North American industry by approximately 320 basis points. The diversity of our global circuit has allowed us to outperform the North American industry in 16 out of the past 17 consecutive quarters on a currency-adjusted basis. That is four years of outperformance.

Our distinct worldwide footprint generated an 11.7% increase of total revenues to $725.6 million for the second quarter. Thanks to the continued discipline and cost control efforts of our operational team, we generated a record $178 million in adjusted EBITDA resulting in an industry-leading 24.5% adjusted EBITDA margin, a 30 basis point growth from the year-ago period.

The third quarter has already demonstrated resilience against a challenging comp, which includes the Dark Knight Rises, Spiderman 2 and Ice Age Continental Drift. The third quarter is up more than 6% to date with the success of Despicable Me, The Conjuring, The Wolverine, 2 Guns, Smurfs 2 and the latest one by Woody Allen, Blue Jasmine. This upcoming weekend, Planes, Percy Jackson, Sea of Monsters, Elysium will be released, as well as Cloudy with a Chance of Meatballs 2 and Riddick later in the quarter.

The fourth-quarter film slate includes a new concept film, Ender's Game, the Return of Thor in The Dark World. The Thanksgiving holiday kicks off with the highly anticipated second film of the Hunger Games franchise, Catching Fire. The newest Disney Princess will make her debut in Frozen the weekend after Thanksgiving. We then have the second film in The Hobbit series, The Desolation of Smaug. The Christmas break boasts a wide variety of films, including Walking with Dinosaurs, Anchorman 2, Saving Mr. Bank, Monument Men, The Secret Life of Walter Mitty and Jack Ryan.

We continue to expand our XD premium large-format presence in both our domestic and international markets. As of June 30, we had a total of 137 XD screens globally, 88 domestically, including the nine extreme premium large-format screens acquired from Rave and 49 internationally. We anticipate opening an additional 20 to 25 XD screens by the end of the year, increasing our total to 150 to 160 XD screens. We are the industry leader in circuit owned premium large-format screen initiative, operating more than 50% of the screens amongst the top four exhibitors in the US. Our domestic XD screens achieved a 53% increase in the box office from a year-ago period, generating approximately 5.6% of our second-quarter box office on only 2% of our screens.

The studios continue to recognize the value and incremental revenue our XD format generates. In addition to online social and mobile media advertising the studios dedicate to our XD screens, they have also featured our XD brand in national television advertising for nine films so far this year, including the most recent films Red 2 and The Wolverine.

The studios are also promoting our XD brand with television advertising in our international markets. Already this year, 10 films in Latin America, including The Wolverine and Smurfs 2, have featured see it in XD in advertisements. Our XD screens combined with our 3D business allowed us to generate 27% of our worldwide box office in premium sales. A lack of advertising for the 3D format, as well as an overlap of major 3D releases, may have negatively impacted the 3D percentage of the industry box office. Though it may not be advantageous for every film to be produced in 3D, directors have embraced the technology, utilizing it to successfully enhance the story for film, such as Life of Pi and The Great Gatsby.

Whether the 3D percentage represents 20% or 90% of a film's box office, the incremental revenues benefit both the studios and exhibitors. We view 3D as beneficial and accretive to the box office, especially from a global perspective. We have been testing the Auro 11.1 premium immersive audio solution in our XD auditoriums on a limited basis for several months. We have been pleased with the product and have recently announced our partnership with Barco to install Auro 11.1 in our XD auditoriums worldwide.

Auro 11.1 will further differentiate the premium sound with both [high player] and the future discrete object-based capability. We believe that object-based sound is the future of the premium cinema experience and are looking forward to creating a new industry standard with a partner who is a frontrunner in technological innovation.

Our digital conversion in Latin America continues to progress and we anticipate completion by the end of the year for each country with the exception of Brazil. We postponed the digital conversion in Brazil to take advantage of the importation tax credit. We have received government approval and anticipate we will be fully digitized in Brazil in early 2014. As of the quarter-end, we were 51% digital in Latin America.

Establishing and developing direct communication and relationships with our patrons continues to be an integral focus point through various mediums, including email, social media and our Cinemark app, which grew by 600,000 downloads during the second quarter and has now reached over 2.8 million downloads to date.

In addition to the studio partnerships we have with CineMode, we are very pleased with our recent partnership with Amazon, which features CineMode reward offering a discount to purchase Star Trek Into Darkness Blu-ray or DVD and included a free digital comic. In return, Amazon featured our Cinemark logo and directed traffic to our website to purchase tickets for Star Trek Into Darkness. We continue to explore additional collaborative efforts with studios and vendors to create customer rapport and incremental value.

As NCM announced on their call last week, Cinemark in conjunction with Regal and AMC intend to purchase Fathom Entertainment from NCM. Though we believe the vast majority of the box office will continue to be generated by the studio releases, we continue to view alternative content as supplemental to the box office.

Rave Cinemas became part of Cinemark on May 29. Robert and I recently toured many of our new Rave assets to speak with our managers and identify opportunities to enhance both brands with best practices. We not only acquired strong theaters, but very high-quality managers and staff. Per the Department of Justice final judgment, we will be required to divest three theaters due to market overlap and have entered into an agreement with Carmike Cinemas for the sale of the three theaters representing 52 screens. Robert will now discuss the Company's financial performance for the second quarter and provide an overview of our capital structure.

Good morning, everyone. Our total worldwide revenues for the second quarter were $725.6 million. Worldwide admission revenues were $464.5 million, an increase of 11.1%, which is 320 basis points more than the North American industry. Our worldwide adjusted EBITDA was an all-time record-breaking $178 million for the quarter, resulting in an industry-leading adjusted EBITDA margin of 24.5%.

Our US segment's total revenues for the quarter experienced robust growth of 16.4% to $513.7 million, benefiting from the diverse film product and inclusion of the 32 Rave theaters acquired on May 29. Admissions revenues for our US segment grew 17% during the quarter. Our admissions revenues substantially outperformed the North American industry box office estimate of 7.9% growth.

On a per-screen basis, our domestic theater box office increased 9.4%, also meaningfully outperforming the North American industry. Our US attendance for the quarter was 46.9 million patrons, an increase of 11.7%. Our average ticket price rose 4.7% to $7.16, primarily due to price increases. Our premium product as a percentage of our domestic box office was 24.5% this quarter compared to 27.9% in the same period last year. The reduction is primarily due to the 3D attachment rate decline in the quarter, as Tim discussed previously.

US concession revenues were $164.2 million, an increase of 15.8%. Domestic concession per patron increased 3.6% to $3.50. The increase was primarily due to incremental sales and price increases during the quarter. Since our IPO in 2007, we have reported consistent growth in our concession per patron line item each quarter with more than 25 consecutive quarters of increases in concession per caps. We commend our food and beverage group, as well as our theater teams for their remarkable performance.

With the increase in domestic attendance, we were able to recognize operational leverage in our US segment-generated adjusted EBITDA of $128.7 million, the highest quarterly amount in our Company's history. Our theater teams did another outstanding job this quarter in controlling costs and converting our increase in revenues to the bottom line with a resulting 25.1% adjusted EBITDA margin. Though the Rave assets we acquired are state-of-the-art and were very well-managed, they joined our circuit with a historic adjusted EBITDA margin below 20%, which slightly impacted our margin this quarter.

Our International segment's strong quarter was muted by an FX headwind of approximately 5.5%, a challenging comparison as Q2 of 2012 increased 14.2% in US dollars and 27.6% in constant currency over Q2 of 2011. Other factors impacting the box office performance include the timing of Easter, a significant family holiday in Latin America similar to Christmas in the US, which was in Q1 this year versus Q2 of the prior year, as well as the Confederation Cup, which occurred in June of 2013.

Our International total revenues increased 1.7% to $211.9 million. Admission revenues were $128.6 million for the quarter. In constant currency, admissions revenues increased 3.8%. For an additional comparative perspective, our International admission revenues have grown 111.5% from 2008 to 2012 on a constant currency basis.

Our International segment's average ticket price was $4.85, essentially flat to last year's period. In constant currency, the average ticket price improved 4.9%. Our second-quarter International concession revenues continued to perform extremely well, increasing 8.2% to $64.5 million versus the same period prior year. Concession per patron was $2.43, an increase of 9% in US dollars and 14.3% in constant currency.

Our Latin American segment generated adjusted EBITDA of $49.3 million for the quarter, returning a 23.3% margin. We are especially proud of our Latin American field operation's ability to focus on controlling operating costs while also maintaining their expansion initiatives with new theaters in the digital conversion. As discussed last quarter, there are incremental expenses associated with such a heavy growth period and their ability to generate this margin with a reduction in attendance required a great deal of focus and execution.

Consolidated film rental and advertising costs increased 100 basis points to 55.4% of admission revenues due to the increase in blockbuster films during the quarter. Concession supplies were 16.2% of concession revenues, a slight increase of 40 basis points due to higher inventory procurement costs and the impact of special concession promotions that are driving incremental concession sales.

General and administrative expenses increased to $40.5 million due to the increased compensation expense and increased professional fees primarily associated with the Rave acquisition and Mexico disposition. In May, we issued $530 million of 4 7/8 10-year senior notes. In June, we used these proceeds to redeem our $470 million of 8 5/8 senior notes that were due in 2019. The refinancing extended our maturity and will result in a 375 basis point reduction of our interest rate, which will translate to roughly $3.6 million in cash interest expense savings each quarter, or over $14.5 million in annual savings.

As part of our redemption of the $470 million 8 5/8 senior notes, we incurred a $72.3 million early retirement of debt expense comprised of $56.6 million make-whole premium, the write-off of the unamortized bond discount of $8 million, a payment of approximately $100,000 for other fees and unamortized debt issue cost of $7.6 million. Total income before income taxes was $29.6 million reflecting the $72.3 million redemption-related charge. This compared to a pretax income of $83 million in Q2 of 2012.

Net income attributable to Cinemark Holdings, Inc. was approximately $20.3 million, or $0.18 per diluted share. Our Q2 effective tax rate was 29.5%. Our balance sheet remains the strongest and least levered in the industry with a cash balance of $515.5 million. Our net debt position is approximately $1.31 billion. And a net leverage ratio of 2.2 times adjusted EBITDA.

Pursuant to the NCM common unit adjustment agreement, the attendance increase expected to be generated by our Rave acquisition resulted in an extraordinary common unit adjustment calculation. As a result, Cinemark received an additional 5.3 million common units of NCM during the quarter with a current value of approximately $100 million. We now own a total of nearly 24 million units valued at $453 million with relative ownership of 19.6%.

At quarter-end, our US circuit consisted of 332 theaters and 4434 screens in 40 states and in 99 DMAs. During the quarter, we built one theater with 10 screens, closed one theater with five screens and acquired 34 theaters with 513 screens of which three theaters and 52 screens will be divested per the Department of Justice final judgment that Tim discussed earlier. We have signed commitments to open nine theaters with 109 screens for the remainder of 2013 and nine theaters with 106 screens subsequent to 2013. We expect to incur approximately $127 million in CapEx for these additional 215 screens.

Our total Latin American circuit at June 30 consisted of 172 theaters and 1360 screens. During the quarter, we opened three theaters and 18 screens and closed one screen. We presently have signed commitments to open 12 new theaters representing 72 screens for the remainder of 2013 and seven theaters representing 47 screens subsequent to 2013. Our estimated CapEx to develop these additional 119 international screens is approximately $96 million.

We remain disciplined in our strategy to reinvest in the Company. During Q2, we invested $53.5 million on capital expenditures, including $30.3 million on new construction and an additional $23.2 million on maintenance CapEx, which includes the Latin American digital conversion costs and expansion of our XD premium large-format screens discussed earlier. We project 2013 CapEx to be within the $300 million to $325 million range, a slight reduction from the previous guidance due to the postponement of the Brazil digitization.

As discussed last quarter, CapEx is elevated for 2013 with the robust newbuild pipeline, estimating that we will open more than 200 new screens worldwide this year, as well as the Latin American digitization and XD conversions. We continue to believe we will return to a more normalized CapEx range of approximately $250 million in 2014, primarily dependent upon the newbuild pipeline and the postponement of the digital conversion in Brazil.

Given the tremendous growth opportunity throughout South and Central America, we believe the current use of our capital is to reinvest through organic growth and accretive acquisitions, providing shareholders with financial returns of 20% cash on cash and maintaining at least a 20% adjusted EBITDA margin through our disciplined investing philosophy.

In addition to the shareholder value we create through our growth, we paid a dividend resulting in a yield of approximately 3%. We continue to view our Company as a very unique investment opportunity with both the growth potential in Latin America and the stability of the North American industry. Operator, that concludes our prepared remarks. Please open up the lines for questions.

(Operator Instructions). Barton Crockett, Lazard Capital Markets.

Okay, thank you for taking the question. I wanted to ask about the timing impacts on Latin America. I mean normally the box office per screen there has been outperforming the US. This quarter, it didn't. You cited Easter, you cited the Confederations Cup as timing headwinds. How do you see those timing headwinds playing out in the third quarter? Is there anything unusual that we should think about or do you think the baseline view coming into it is that maybe we go back to the old pattern of outperformance constant currency?

I do think in constant currency we feel good about the coming quarters. The thing more than anything I don't want to lose sight of is the comps that we had this quarter compared to last year were huge for Latin America compared to the US. The US even in US dollars last year was down slightly in Q2 where internationally it was up over 14% in US dollars and over 27% in constant currency.

And so if you actually compared last year and this year, combine them, the International still in constant currency overperformed for that two-year period. So a lot of it was just timing of how last year fell and this year and then as we discussed some of those other items. But this quarter, we feel good about. There's really nothing unusual affecting us similar to what we had last year.

Okay, great. And then if you could talk a little bit about Fathom, So with the acquisition of Fathom by you guys and AMC and Regal, is there going to be a change to the business there? This has been a pretty modest contributor of profits to NCM. Are you guys going to invest a lot of money so maybe we see some losses absorbed while you try and change it into something else or is it pretty much kind of steady-state modest profit contributor after the spin? ?

Well, we think by us taking Fathom into sort of a direct relationship between exhibitors and alternative content providers, you take out that third-party conflict between us and NCM and also with the rollout of the DCDC technology, we will have the technological network in place to expand upon alternative content. But it will take the companies coming together to continue to develop the business model. I think there has always been a vision that alternative content could play a more significant role in the future, but it is going to take time to develop the business model.

Okay. I mean is this something where you see a lot of incremental investment into that with a return later or too early to really say at this point?

No, no. We won't be investing in content ourselves. We will be soliciting content. So I mean I don't see, and Robert can comment too, but I don't see significant investments as part of this structure.

Barton, as you said, it has kind of been a modest business for NCM and we felt like it aligned a little bit better with our business directly. It is more similar to film, I would say, than advertising, but it is kind of premature actually even at this point for us to estimate what capital cost we would have in it. We don't feel like it would be significant in the future. We just want to put a little different focus on it, but as Tim said, there is still a lot of rows to be plowed just to develop the plan.

Okay, great. I will leave it there. Thank you.

Thank you.

Townsend Buckles, JPMorgan.

Thanks. Robert, on your domestic per-screen box office growth that came in nicely ahead of the industry, can you talk about how much Rave impacted results there and any other factors that moved the needle? It sounds like XD may have been a lift.

The Rave really we picked up just a little over one month and the numbers aren't really that different from ours, so it is definitely beneficial. It's a great acquisition for us, but didn't really move the numbers. XD definitely continues to perform extremely well. As I mentioned and Tim did during the discussion, it has had great growth and continues to. It's a major focus of ours and overall for premium product made a big difference for us. So I think overall if you look at it, our overall screens did get the kind of growth we did. Our 2D and 3D both performed well and average screen did well and XD was a nice enhancement on top of it.

On the XD, are you seeing a real stepup in per-screen attendance there maybe from the increased marketing and can you remind us how you are pricing those screens versus your normal ones?

Yes, and I think the big change with the -- because there is enough PFL -- PLF screens in the marketplace now that the studios are really getting behind the PFL (sic) release and with their marketing dollars and their campaigns. And so I think that is what is really driving the increased performance. But on an average, for a 2D release, it probably averages around $3 and for a XD 3D probably is in the $4 or $5 range.

Got it. And lastly, we continue to hear a lot about M&A opportunities in the US. I don't think you have been quite as vocal as your peers in expressing your desire to find additional acquisitions after the last set of deals and you obviously have Latin America to focus on. So if you could talk about how interested you are in buying in the US versus your investment in LatAm newbuilds and potential acquisitions down there.

Well, we are interested in both areas of the world and would like to do some additional acquisitions. I think we have always been very, very concerned about the quality of the assets to make sure they are very sustainable assets. And so here in the US, you could see some M&A activities going on. It is not as robust as it was last year in the marketplace, but there is -- our competitors have talked about it. We don't see it anywhere maybe as active out there as they see it because a lot of the circuits in the US are owned by families and so their rationale for coming to the marketplace might be a little different than ours or than financial entities.

Got it. So not quite as much quality out there, you would say?

No, there is high-quality stuff, but it is owned by families. I mean I will cite some examples and by citing them, I don't want you to think that they are out there in the marketplace, but they are like -- the Harkins organization runs a great circuit of theaters in the Southwest. The Cobb Theaters -- the Cobb family has a great circuit in the Southeast and Santikos has a great circuit in San Antonio. All very attractive assets, but they are owned by an exhibitor/operator and not by a financial entity.

Got it. Thank you.

Eric Handler, MKM Partners.

Yes, thanks for taking my question. Actually three quick questions for you. First, you talked about your XD screens accounting in the US of about 5.6% of revenue versus only 2% of screens. How does that compare to what your XD is doing in Latin America? Secondly, your concession per cap, I believe you said on a constant currency basis in Latin America was up 14%. That is a pretty hefty increase. What is sort of the main driver of that growth? And then third, just because you ran through some of those numbers pretty quick, where do you expect to end the year in terms of your total theater and screen count?

With respect to the XD performance in Latin America, we are performing extremely well down there. I didn't actually run the percentages, but if I look at the screen count compared to the box they generate, in the US, as you mentioned, it is 2 to the 5.3. It is probably close to double, so something similar, maybe not quite the 2 to 5.3, but I think the screen count, if we looked at it, is somewhere around 3.6 and the box isn't quite double, but similarly up significantly. So they are doing very well. Some of that just has to do with relative price, has to do with where the theaters are in the market, but we continue to want to expand XD throughout Latin America because it is performing extremely well.

Screen count at year-end, as I said when I went through the numbers that we had, we think with the additional theaters that we are estimating that we should end up somewhere around 5970. Obviously, things could move a little bit, but as we have said in the past, we expect to open 100 new screens in Latin America and over 100 new screens in the US. Everything still seems to be on track to achieve that. Actually you asked one other thing, Eric and I didn't write it down.

Concessions, you said on a constant currency basis Latin America was up -- the per cap was up 14%, which is a really strong number. What is sort of driving that?

If you go back, we have actually had some great performance in Latin American concession. It is really the same thing. It is the mix of products that we have in the US. It is price increases, but I think it is more probably just the mix of the different types of products that we have been able to put together, combos, things like that.

Great, thanks.

Ben Mogil, Stifel.

Hi, good morning and thanks for taking my question. I wanted to talk to you about two things. So in Brazil, obviously seeing lots of headlines around the macro; they are slowing down. Can you give us a sense from where you sit not so much on the sort of day-to-day operations, but the newbuild pipeline in 2014 and beyond? Are you seeing any kind of slowdown or are you sort of seeing that still be very robust from your perspective?

Yes, in Brazil, as you point out, Brazil has had tremendous, tremendous growth over these last four or five or six years and it has slowed down, but it is still -- it's probably going to have in the range of about a 2% growth in that area this year. But when you factor in the past four or five years, it has just had tremendous growth.

As far as the mall development, which is sort of the key to our expansion, at least forecasting it through 2014 and maybe early into 2015 with projects that are already in the pipeline, we don't see any downturn in those mall projects, which would be our key to expansion.

And then -- and to the other thing, just like in the US when the US went into a recession here four or five years ago or whatever you want to call it, we didn't see any drop-off in attendance in our numbers here in the US. And our industry performed very well in the US in that downturn in the US. Not that what is going on in Brazil is anything like the financial crisis that the US went into, but throughout our history in Brazil for the past 17, 18 years, we haven't seen any impact of a downturn over that 17-year history with the attendance performance at our theaters.

And from a competitor perspective, I mean with the limited information that you may or may not have, are you seeing any of the macro issues in Brazil impact your competitors maybe more so than you? Just trying to get a sense of the overall markets growing.

No, I mean I think the -- sometimes a downturn can help trigger some M&A activities or these kind of factors or maybe if you -- if he is a lesser competitor in the market, they might not have the financial wherewithal or structure that a downturn might trade some headwinds for them. But we still feel very, very good about Brazil and we have been in all these markets 17 or 20 years and are excited about both our future and the future of these countries.

And then last question, on the domestic front, 3D numbers continue to sort of erode despite I guess the hope people had this year that they would be stable. From your perspective, what do you think is not working to the degree that once worked?

Well, I mean I think -- and this again is just my perspective because -- I think a little bit that the industry has sort of taken 3D for granted and that the studios, even though they spend the money to make the movies in 3D, I mean I think they could be doing a lot better job to communicate to the public why they need to see it in 3D. And also exhibition could play a part of that role, that we need to make maybe more of an effort.

Now within Cinemark, we have always been very, very concerned about the light levels behind 3D and the importance of playing it in 6 foot lamberts, which we always promote and produce. Also some of the films that were out there at IMAX have underperformed. And so you were in the four-week periods and sort of an underperformance on the IMAX. The screens have I think sort of helped drag it down.

But we believe in 3D. We believe in the technology. A lot of the top creative talent in the world have embraced it. There is a tremendous number of movies, already 28 for next year have been announced coming out in 3D and I'm sure there will be more. Cameron has announced that he is going to make his three Avatars coming up in 3D, Star Wars. I mean I could go on and on. So I think the industry has embraced the technology, but obviously we need to do a better job selling it.

That's great. Thanks a lot, Tim. I appreciate it.

Thank you, Ben.

Jim Goss, Barrington Research.

I think I might first follow up a little bit on the 3D question. Are you tending to think this 30% domestically is sort of the new normal or does it erode from here and what are you seeing internationally at the time that domestic has faded?

I mean I think it is going to vary product to product and also how a studio brings their film to market as to if they really emphasize that people should be seeing this in 3D. And of course, on a global basis, 3D has always outperformed the domestic market and the global market. The global market continues in order to perform very well in 3D and I think in the US, whether it is 20% or 90%, it is accretive and it is very advantageous both to exhibitors in the studios and we also think to the customers to have this premium experience. And we think the -- although there has been a little downturn here in the US in these last few films, we think that the format is very viable and maybe needs a new effort to revitalize it. But we are still very strong both domestically and globally on 3D. And every indication we are getting from the studios and the creative community, they still strongly believe in the format.

Well, one of the other issues that seems to have happened domestically versus internationally is that the multiplexes are typically smaller internationally. So if there is a 3D/2D option, there tends to be more of a push towards the 3D as their primary choice alternative; whereas the domestic exhibitors, I think including you, have tended to want to give the customer their choice and might have not sort of veered them in that direction. Do you think there is anything to that?

Well, your assumption that you have larger footprint theaters here in the US and so there is more diversity of choice and showtimes is correct where internationally the theaters tend to be a smaller footprint or screen count. And so they -- there may be less of a collection of showtimes. Now from Cinemark's perspective, we always try to give the customer a choice. Like ideally as much as possible, we try to have 50% of the showtimes in 3D and 50% of the showtimes in 2D to where the customer can make the choice as to what format they want to see it in.

But I mean I think the good news for the industry is that a surprising number of customers continue to want to see it in 3D. And I think again it goes back to that the industry has taken the format a little bit for granted and the efforts to market it or sell the film in 3D and to see it in 3D had been a little bit lacking on both sides.

Okay. In Latin America, you have talked quite a bit about Brazil. Are there any other markets you would want to highlight in terms of their underlying growth trends and related or maybe unrelated currency issues that should be highlighted as a reason things may have been different?

No, I mean I think Latin America continues to be a great story and Brazil, because of its size, is always sort of the lead story in Latin America and South America. But all the countries in Central America continue to perform very well, both from a theatrical perspective for us, but also from an economic perspective. Colombia is a country that has been doing very, very well economically and Peru and Chile and all the rest of Latin America -- people have read about some ups and downs in Argentina. But, in general, the overall status of Central and South America and Mexico have been very good when you consider the world market. Like if you would compare that market to like a Europe or other areas of the world.

Okay. Last question just to detail. What is the domestic and international film count that make up that 5794? I didn't see it in the release.

Oh, relative ending screen count.

Yes, just the quarter-ending screen counts.

Oh, just the quarter-ending. Okay. For the quarter, it is 4434 domestically and 1360 internationally.

Okay. Thanks, Robert.

Sure.

Tony Wible, Janney Capital Markets.

Hi. I was hoping you could focus on the divergence between the local currency ticket price increase and the concession increase. It is a pretty big spread. Would you expect those two to converge over time and would that be from ticket pricing moving up a little bit more or would you expect some moderation on the local concession side?

Well, I think that the ticket pricing tends to follow inflation in the countries and maybe it either gets a little ahead or behind inflation. Where concession moves a little bit as introduction of product and also introduction of the theater experience because, in a lot of these countries, and it has been a long time since we entered them, but concession wasn't part of the theatrical experience. And so as it becomes more of a part of the experience, we see that sort of translates into a similar habit when people go to the movies in the US or people -- the longest country we have been in is Mexico. You know Mexico would have a similar sort of a concession experience or buying habit and I think that sort of translates as you go down to the other countries over time. And so in addition to the price increases or new product increases, you have heard of a certain expectation when you go to the movie that they start to develop also.

Got it. And then I was hoping you could talk a little bit about Latin America. Five years from now, 10 years from now, how big of a part of the mix do you really want it to be? After you get rid of Mexico, do you plan on putting that right back to work in Latin America and do you continue to plan to build it out where it will be 30%, 40% of revenue at some point?

I think the key on Latin America is just the pure opportunity play that we have down there. On a relative -- everything else being equal, it will continue to increase as a percentage on a relative basis and just that -- this year, we have talked about building 100 screens domestically, 100 internationally. We hope to build over 100 internationally next year. And so all around the bases, that's just considering that International is a smaller percentage today. If I am able to keep those numbers running equal or actually even in International building more screens than I am domestically, you will start increasing that percentage.

As Tim said earlier, we are looking for acquisitions both in the US and Latin America. We feel like as you look out in that five and 10-year timeframe especially that we will be able to do some meaningful acquisitions in Latin America, especially as some other companies help build the market in some of the areas that we are not as focused on and so you get newer and better quality product out there for us to look at acquisitions of.

So I think longer term it increases. It is hard to say what's the percentage. We don't have a limit per se. I think obviously our domestic business is very strong, continues to grow as well. But if it is 30%, 40%, that would be fine with us. I mean historically it has been in the 30% range and so post Mexico getting it back up to similar percentages would be something we would hope to achieve.

Got it. And then last question is on Mexico. When that business rolls off, does it skew the concessions per cap in any way? I am just basically trying to figure out in Mexico was there a disproportionate amount of concessions versus ticket sold?

Not really. I mean some of the rates in Mexico might have been slightly higher than the US, but I don't think you are going to see a real meaningful movement.

Great. Thank you.

Ben Swinburne, Morgan Stanley.

Good morning. This is Ryan Fiftal on for Ben. I was hoping we could get an update on a couple of your medium-term initiatives. First, has there been any -- have you guys had any recent progress with DCDC and developing the ability to bring more diversity of content into your theaters? And then second, I believe you have been testing some premium concession formats this summer. So is there anything you are seeing coming out of those tests and what is your latest thoughts on the ability to expand higher-end concessions?

No, thank you for the questions. First off, on DCDC, it's a partnership of -- which is more like an industry utility of Cinemark, Regal AMC and Warners and Universal, but it is going to be open to all content providers and all exhibitors. It is in the process of being deployed in those three circuits, but, again, it will be open to all exhibitors and six of the major studios, the six majors plus Lions Gate have signed to go over those studios. It is anticipated that we will have that completed by the end of this year for those three major circuits and -- or the first quarter of next year. And so it will be up and running in those circuits and then we will continue to add exhibitors as exhibitors want to join outside of those three circuits. And like I said, six of the major studios have already signed and they are in negotiation with the other major content providers to join us.

On your other question on the premium cinemas, Rave -- when we acquired Rave, they have call it Crave Cinemas and some premium formats and we also had some smaller, premiums like our theater in Napa we opened with a wine bar and beer and some finger food. And so we have been testing that concept. But we opened up in fact this month our first what we call Cinemark Bistro in Edinburg, Texas and then we follow later on in the year with one in the El Paso market. And so it is too early to really comment on that result.

We are highly confident that we will be able to execute well in both those things. But Cinemark has a very diverse product that they can bring to the marketplace and it ranges from our Nextgen theaters to CineArt theaters to CineBistro and we're also building what we call Cinemark Premium in both the Playa Vista development in the greater part of LA and then in the Maryland market. So we have a wide variety of products that we are bringing into the market.

Okay, great. That is helpful. And then on DCDC, I would imagine there are two pieces to it. One is the technology side and actually getting the systems implemented and then the other is going to be attracting content to that platform.

Right. And that is where, as we discussed earlier, we have taken Fathom -- we are in contract with NCM to take Fathom, which was on alternative content company, back in-house with AMC Regal and Cinemark and we view that the potential of a lot of that content will come from studios that we currently do business with, but that business model will sort of develop over time. But the DCDC will be the technological superhighway that creates the scalability and easy access to thousands and thousands of screens.

Great. Thank you.

Eric Wold, B. Riley.

Thanks. A couple questions. One, after visiting the Rave theaters around the acquisition, any thoughts on if any of those will be rebranded as one of the Cinemark brands or will they be kept as Rave and if they are kept as Rave, any thoughts of opening more under the Rave name? And then I have another question after that.

Okay, yes, it is a very strong brand and we do own the brand. And so there will be -- and it will be like we did with Century. When we bought that brand, it was a real strong brand in the Bay area. So when we tend to open a new theater in the Bay area, we tend to call it Century Theaters. And probably where they are sort of the dominant format in the Northeast, when we expand in the Northeast, we will probably open as a Rave. However, they do have some really high profile locations and I will use the example of the bridge, which is right off the 405, which is one of the busiest freeways probably, or if not the busiest freeway in the US. There is a chance we might rebrand a high-profile location like that just to get the exposure to Cinemark.

Okay. And then on -- previously you discussed M&A opportunities down in Latin America and focusing on some of the smaller markets that Cinemark may have not pursued organically in the past. How receptive have those potential targets been? If you've started discussions, are you even looking there? Is that something you think is ripe near term and how would you characterize the competitive environment for acquisitions in that market versus relative to this market?

Sure. First off, as it relates to maybe expanding our footprint in Central America and South America, Central America, with the exception of Belize, I think we are pretty much in every country in Central America. And then in South America, there is Bolivia, Paraguay, Uruguay and Venezuela are probably the major countries we are not in. And we do see them as opportunities, not so much Venezuela because of the current political environment right now, but, at some point when that environment would change, it might create an opportunity for us.

But the other countries, it is just a question of us going in with the right development. So when we identify the right developer that is building say a huge project in Bolivia, of course, we will want to be part of that project or if there is a big developer going into Paraguay or Uruguay that we can become part of their projects, we'd want to be part of their projects and we are constantly looking at those opportunities and we are sort of hoping that they come up.

As far as acquisitions, there are smaller companies, but again they tend to be more family owned and operated and so their motivations for a sale might be entirely different than a financial entity. But they are there, and we constantly -- we have been in these markets for 17, 18, 20 years now, you know, depending on the market, and so we are constantly talking to them, have a great relationship with all the different exhibitors in these markets, and we think over the period of time, to Robert's previous comments, that these opportunities will arise.

And do you see that market as being more competitive for acquisitions than here?

No, not necessarily, because I think the families will tend to do business with people they know. One of the, I think, great strategic decisions that we made at Cinemark is that all our in-country management are from that country, and they have known the individuals on a very personal basis. I obviously spend a lot of time in Latin America and know most of all the exhibitors in Mexico, Central and South America.

Perfect. Thank you, guys.

Matthew Harrigan, Wunderlich Securities.

Thank you. Firstly, there was a lot of excitement last year on the faster frame rates with The Hobbit, 48 frames, and even how it affects the optics of 3D, and clearly that fizzled. Some of the audiences said it didn't even have a film feel to it.

Can you talk about what else is in the pipe on that format, other than the next Hobbit, and how that evolves, and do you think that becomes a bigger deal over time?

And then secondly, big macro question, I mean, everyone knows the box office has been great this summer, but you have had a lot of casualties, Smurfs being the most recent in the body count. I mean, you can see what the film calendar next year looks like. But is there anything behaviorally from the studios that you anticipate in reaction to such a checkered result, some big pictures like Despicable Me, but unusually large number of failures too?

And you know, probably one of the toughest things to produce is a great movie that people want to see. So I tend to be very shy about commenting on the creative process because it is one of the most difficult things to bring together, bring into the market, market it and create a movie that a lot of people want to see.

The other thing I would be a little cautious on is on a global basis, a lot of these films are working very well; and I will cite Pacific Rim as an example of that. I mean, it is already up over, I think, $350 million or so on a global basis. And even the Lone Ranger, which has been getting a lot of press, it is already up to the $175 million, $180 million on a global basis.

And we are not privy to the studio's business model as to how they structured the financing of this film and how they bring to the market. We are strictly on the retail end of it. And obviously, on the combined effort, the industry is doing very well from the exhibition side. Now, we realize different studios will be impacted different ways by how they decided to make these films. But on a global basis and then the aftermarkets and all the ancillary markets that they sell the product into, it is tough for us to sit here and say as to what was a good financial investment and what wasn't.

On the 48 frame rates, Jackson went down this path and so he was the industry trailblazer. We are hearing that he is going to bring it back to the market with the new Hobbit. And then we are hearing that Cameron is also going to experiment and continue to experiment with it. So I think it is going to take the top sort of not only creative directors, but the real technical directors, to really pull this off. And it will be interesting -- like I said, it was a big fuss last year. Cinemark, because of our technology, we are totally capable of playing the high frame rates, but sort of got mixed results in the actual marketplace.

Thanks, Tim.

Thank you. Okay, well, thank you very much for joining us this morning. We look forward to speaking to you again following our third quarter. Thank you.

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