Cinemark Holdings Inc (CNK) 2013 Q3 法說會逐字稿

Good morning. My name is Felicia and I will be your conference operator today. At this time, I would like to welcome everyone to Cinemark's Q3 2013 earnings call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question-and-answer session. (Operator Instructions).

Thank you. I would now like to hand the conference over to Ms. Chanda Brashears. Ma'am, you may begin.

Thank you, Felicia. Good morning, everyone. At this time, I would like welcome you to Cinemark Holdings Inc.'s third 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 or 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 third-quarter 2013 results call. This morning, I'll provide an overview of Cinemark's third quarter box office performance, as well as the North American industry, highlight the incoming films rate 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 then we'll conduct our customary question-and-answer session.

After setting an all-time record for attendance, admission revenues and adjusted EBITDA in Q2 of this year, we exceeded each of these metrics and set new records in the third quarter.

Our worldwide admissions revenues from $479.6 million, an increase of 19.2% over the prior over indexing the North American industry box office by more than 1,270 basis points or 1,500 basis points on a constant basis.

Due to the strength and diversity of our global footprint in [conferencing] [568] or 5,794 screens, we have outperformed the North American industry in 17 out of the past 19 consecutive quarters on the currency adjusted basis.

We also generated record worldwide total revenues of a growth of $757.6 million, a growth of 19.6%. Our operation teams continue to leverage the increase in attendance, while maintaining their focus on cost control achieving our company's highest adjusted EBITDA of $192.2 million.

Our industry-leading adjusted EBITDA margin was also record-breaking for us at 25.1%, a 170 basis point growth from a year ago period.

The robust third-quarter North American box office generated roughly $2.9 billion in revenue, a 6.5% increase over the third quarter of last year.

The foundation of the third-quarter box office was the outperformance of several mid-tier films such as We are the Millers, The Conjuring, The Butler, in addition to the success of [Temple sequels], such as Despicable Me 2 Grown Ups 2.

The summer box office produced record admission revenues driven by attendance at a four-year high reiterating the strength of the theatrical exhibition industry. Strong film product continues to draw people to the movies for the exceptional out-of-home experience the theaters consistently provide.

Cinemark focuses on a superior experience with market-adaptive theaters using a wide variety of platforms including XD, VIP, NexGen, CineArt and Movie Bistro.

The first of our Movie Bistro cast locations is opening and serving an enhanced dining menu with fresh wraps, hot sandwiches, burgers, gourmet pizzas, as well as a variety beverage options including beer, wine, and especially cocktails that can be enjoyed in the comfort of our auditorium luxury seats. We are very pleased with the results and looking forward to the second test location opening this coming weekend.

Additionally, where we roll in out our Cinemark premier concept was much receiving and amenities in both our Playa Vista [in towns] in locations next year.

The fourth quarter faces a challenging comp as Q4 2012 was up nearly 16% for the North American industry, with the success of blockbusters such as Skyfall, Twilight, Hobbit, as well as breakout films including Lincoln, Argo and Les Mis.

The fourth quarter is down approximately [3.7] to date. Gravity demonstrated great strength in the box office, driven by the 3D success of the film. We commend Warner Brothers and director, [Elfaso Coron] on it's history that delivered 3D cinematography. Additionally, their efforts in marketing the film in 3D obviously resignated with the patrons and translated to success at the box office.

In our opinion, films with an integral focus on 3D such as Gravity, Great Gatsby and Life of Pi highlighted the 3D experience and contribute to the continued demand and incremental box office.

We are enthusiastic for The Hobbit later this year in both 3D and High Frame Rate, as Peter Jackson is again utilizing 3D technology to enhance his ability to convey the story.

This up coming weekend, we are looking for to the release of Thor The Dark World in 3D and the continued roll-out of 12 Years a Slave.

The weekend after Thanksgiving, Disney releases Frozen, which is an animated film loosely based on Hans Christian Andersen's The Snow Queen.

We then have a second film in the The Hobbit series, The Desolation of Smaug, which Warner Brothers has approved us to play in High Frame Rate on essentially all our 3D compatible screens worldwide.

The Christmas break has a diverse line up including "The Secret Life of Walter Mitty, Walking with Dinosours, Anchorman 2, The Wolf of Wall Street, Saving Mr. Banks and American Hustle.

Though still a little premature for great visibility as 2014 film slate has some big sequels and several new films , we're all ready excited about and including Hunger Games, Mocking Jay Part I, The Hobbit, There and Back Again, Transformers 4, Amazing Spider-Man 2, Fast and Furious 7, How To Train Your Dragon, 2, And Captain America The Winter Soldier, other films includes Maleficent and Interstellar.

Our XD presence continues to be the number one private premium large format in the world ending the quarter with a total of 141 XD screens globally; 90 domestically and 51 internationally. We anticipate opening an additional 10 to 15 XD screens by the end of the year increasing our total to 250 to 260 XD screens worldwide.

Recognizing our XD screens exceptional patron experience and contribution to the box office, the studios provide forms of XD marketing, including national television, advertising for recent releases. Some recent examples include Gravity, Captain Phillips, (inaudible) as well as the upcoming films such as Thor, Hunger Games, Hobbit and Walter Mitty.

Approximately 22.2% of our worldwide box office were generated in premium ticket sales this quarter, a slight reduction from a year-ago quarter period.

Our immediate company initiative in Latin America, Flicks Media continues to develop and build momentum. We already have one revenue share affiliate in Brazil and we'll incorporate others in the first stage of our expansion plan. We're also expanding Flicks into Argentina and incorporating the business model an best practices learned to date.

We consider Flicks Media to be in it's empathy with substantial growth and development opportunities over the next three to five year. We envision alternative content, online ticketing and loyalty, among other areas, as part of our long-term strategy for Flicks Media to increase shareholder values.

We are on 63% digital in Latin America and on track to be 100% digital by the end of the year with the exception of Brazil, which was delayed to early 2014 to benefit from the importation tax credits.

With respect to the Digital Cinema Distribution Coalition, DCDC, the initiative has now reached over 1,200 theaters and 17,000 screens progressing to towards a nationwide network to seamlessly connect all theaters. We hope to eventually to be able to extend the digital satellite distribution network worldwide, as well as Cinemark is approximately 50%transition to DCDC and expects to be 100% transitioned early next year.

Cinemark is committed to environmental responsibility and sustainability through various channels, including solar energy, recycling, energy efficiency, waste reduction and water conservation. We've installed solar panels, generated our own electricity at in five theaters and we'll have an additional two theaters with solar power within the next couple of weeks, generating nearly $2.4 million kilowatt hours annually; enough electricity to power 200 homes for a year.

On the [hills] of the 20th anniversary of first Latin American theater opening, we are excited to have signed a lease agreement that will expand our international operations into Bolivia, increasing our Latin American presence into 14 countries. Our theater will be located in the Ventura Mall in Santa Cruz Bolivia with a population of 2.7 million in the greater area. We've been working on this deal for quite some time and are anxious for it's opening schedule for next month.

We continue to wait the (inaudible) review regarding the divestiture of our 290 screens in Mexico and expect a ruling in the upcoming weeks. In summary, we generated another record-setting quarter with our diversified portfolio of assets throughout the United States and Latin America. Our stable domestic operations fund our annual dividend, which was recently increased to $1 per annum, resulting in a year of approximately $3; our Latin American growth story, including our immediate company initiative, Flicks, further differentiate us from our industry peers worldwide and enhances our shareholder value.

Robert will now discuss the Company's finance performance for the third quarter and provide an overview of our capital structure.

Good morning, everyone. As Tim mentioned, the third quarter was record-breaking for Cinemark in regards to worldwide revenues, adjusted EBITDA, and adjusted EBITDA margin. Our total worldwide revenues for the third quarter increased 19.6% to $757.6 million. Worldwide admissions revenues from $479.6 million, an increase of 19.2%. Our worldwide adjusted EBITDA was $190.2 million for the quarter, resulting in a robust adjusted EBITDA margin of 25.1%.

The third quarter was our first full quarter operating Rave cinemas. On August 16, we completed the divestiture of 52 screens as required by the DOJ. We've been extremely pleased with the transition and commend our SWAT, an acronym for special workforce and training team members our new Rave employees for the successful integration of these theaters into the Cinemark family.

Our US segment total revenues for the quarter grew 27.3% to $525.8 million, driven by the successful film slate and first full quarter of operations of acquired Rave theaters.

Admission revenues for our US segment increased 27.4% to $337.9 million for the quarter. Our admissions revenue substantially outperformed the North American industry box office estimate of 6.5% growth. On a per-screen basis, our domestic theaters box office increase 13%, doubling the performance of the North American industry box office.

Our US attendance for the quarter was a record $50.6 million patrons, an increase of 22.8%. Average ticket price rose 3.7% to $6.68, primarily due to pricing increase and pricing at acquired theaters.

The US concession revenues were $171.1 million, an increase of 26.2%. We increased our domestic concession per patron growing 2.7% to $3.38, marking our 27th consecutive quarter of concession per cap increase. That's nearly seven years of consistent quarterly increases.

The increase was primarily due to incremental sales and price increases during the quarter. We're continuing to pursue additional concession revenue enhancements through our introduction of Movie Bistro and expanded movie items offered in the Rave theaters we acquired.

Our US segment generated adjusted EBITDA of $132.8 million, the highest quarterly amount in our Company's history. We congratulate our theater teams for their execution and controlling cost and leveraging the increase in attendance and revenues, which propelled our EBITDA margin to 25.3%, a 240 basis point increase.

As a reminder, the Rave assets we acquired had a -- has a historic adjusted EBITDA margin below 20%, which will have a greater impact on our adjusted EBITDA margin during more challenging box office periods.

The strength of our international segments third quarter was muted by an FX headwind of approximately 11.3%, in a challenging comparison. In Q3 of 2012, our international segment outperformed the US industry box office by 1,250 basis points.

Our international total revenues for this quarter increased 5.1% to $231.8 million. Admissions revenue increased to $141.7 million, fueled by attendance growth of 6.7%. In constant currency, admission revenues increased 14.9%.

Our international segment average ticket price was $4.66. In constant currency, the average ticket price improved approximately 7.7%.

Our international concession revenue increased 10.4% to $71.2 million, versus the same period last year. Concession per patron maintained it's robust growth trend at $2.41 for the third quarter, an increase of 3.5% in US dollars and 13.3% in constant currency, primarily due to incremental sales and price increases.

Despite currency headwinds, our Latin American segment achieved an all-time quarterly record adjusted EBITDA of $57.4 million, returning a 24.7% margin, a 30 basis point improvement from the year-ago period. We commend our Latin American operations team from managing attendance growth and maintaining cost control discipline, especially during such an aggressive new build initiative in the digital conversion.

Consolidated film rental and advertising cost was essentially flat to the same period last year at 53.1% of admission revenues, concession [flies] were 16.1% of concession revenue, an improvement of 40 basis points due to the improvements in our international segment.

Total income before income taxes was $124.1 million, compared to pretax income of $77.4 million in Q3 2013. Net income attributable to Cinemark Holdings, Inc. increased 68.8% for the quarter to approximately $80 million or $0.69 per diluted share. Our third quarter effective tax rate was 35%.

Cinemark continues to have the strongest and least levered balance sheet in the industry with a cash balance of $479.8 million. Our net debt position is approximately $1.35 billion and a net leverage ratio of 2.1 times adjusted EBITDA.

At quarter end, our US segment consisted of 331 theaters and 4,014 screens in 40 states in 99 DMAs. During the quarter, we built three theaters with 35 screens and invested our four theaters with 56 screens. We have signed commitments to open seven theaters with 80 screens for the remainder of 2013 and 12 theaters with 140 screens subsequent to 2013. We expect to incur approximately $129 million in the CapEx for these additional 220 screens.

Our total [line] American [circuit] at September 30 consisted of 175 theaters and 1,381 screens. During the quarter, we opened three features and 21 screens. We've presently assigned commitments to open eight new theaters representing 48 screens for the remainder of 2013, and 11 theaters representing [69] screens subsequent to 2013.

Our estimated CapEx to develop these additional 117 international screens is approximately $89 million. We remain committed to our strategy to reinvest with the Company. During Q3, we invested $69.1 million on capital expenditures including $42.7 million on new construction and an additional $26.4 million on maintenance CapEx , which includes the Latin American digital conversion cost and the expansion of our XE premium large-format screens discussed earlier.

We expect 2013 CapEx to be approximately $300 million versus the initial guidance of $350 million at the beginning of the year. The reduction is the result of the shift of the digitization of Brazil to 2014 and the new-built projects that will now next year.

We remain committed to organic growth and accretive acquisition, as we believe these are the most productive use of our capital. We see new-built opportunity throughout South and Central America, a 100 to 125 screens for each of the next three to five years and we'll continue to evaluate prospects for acquisition opportunities in Latin America and the US.

Recognizing the increase cash [iteration] resulting from our successful expansion strategy, our Board increased our dividend 19% last quarter to $0.25 per quarter or $1 annually. The [two value] of Cinemark continues to be our diversified portfolio of assets offering shareholders the unique opportunity for strong dividend yield with simultaneous growth.

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

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

Your first question comes from the line of [Robert Fishman with Muffet Matenson].

Hey, good morning, guys. One for Carol, one for Robert. Tim, would you like to comment on Netflix's move to try and push up the windows in some theatrical releases? And would you consider playing any movies that are shown on Netflix's streaming service Saturday and date or earlier than the current windowing strategy?

I think obviously the comment is -- was probably self serving to Netflix. I don't think it would be good for the overall industry. The -- from the studio perspective or from the creative perspective or from the exhibiter's perspective, I think there's always been strong support for the theatrical window, and I think that support will continue. Obviously, Cinemark is a big strong supporter of the theatrical window, and we don't see any arguments that it should a day in-day window.

Okay. And one for Robert. Can you help us think about if you're able to better -- to leverage the tight cost control of -- in Latin America in a stronger box office environment compared to a weaker one? Or should it be irrelevant of the strengths of the box office there?

Well, I mean the strength of the box office is definitely going to drive our margin, so this quarter were able to improve them compared to last year and we did -- clearly have a better quarter this year than the last year and so we're able to leverage that.

Considering everything we're doing in Latin America with expansion, digitalization, a lot of initiatives going on at once, we always gets concerned that it's hard to stay focused, and we felt like our teams did that. But just like the US whenever you have better box office performance, you have that ability to leverage your fixed costs and potentially increase margins.

Okay. Thanks, guys.

Thank you, Robert.

Your next question comes from the line of (inaudible) with FBR Capital Markets.

Okay. Thanks for taking the question. I wanted to understand a little bit better this 13% per screen admissions growth in the US. You know, normalizing for the Rave transaction, what was the actual performance per screen because I imagine I increased the average there?

You know, [Barton], it's helped some. That wasn't the driver, if we exclude Rave, it's not that different. So I mean, again, when you're getting into first-screen average and we were just performing extremely well on our existing domestic circuit.

I mean, that's pretty [exposive]. I mean you guys have had quarters when you outperformed the industry but not one in memory that was at that performance. Was there anything that particularly contributed to that this quarter?

You know, we think that obviously we're very focused on providing the great experience at the customer level. And sometimes products can playoff a little differently in different sections of the country. But obviously we think there's a whole combination of things that -- but I think the primary factor is our focus on -- or in next year at the theatrical level and there's a lot of different factors. And last year, we -- the industry was down last year and versus this quarter this year. And so we just had a great quarter.

Okay, but on the flip side of it looking at Latin America, I mean you guys have normally constant currency, had pretty healthy outperformance in Latin America per screen versus the US but we didn't really see that this quarter. It was slightly better than the US. You know what's happening there? And is there any follow up on the macro situation in Brazil? Or any explanation you can give for a lack of outperformance in Latin America this quarter?

Really, I think, [Barton] it's more of just a pure comp issue. If you look at last, our US group performed similarly to the US box office last year. I mean, we just had a significant outperformance for the quarter as I mentioned we're up 1,250 bps last year, compared to the US. So the US -- I mean perspective-wise, the US was down 7%, Latin American was up 5.5%. last year. So on a comparative basis, we had -- if you put it for the two years, still did -- we think extremely well, and arguably the international have outperformed for that entire period of time. I think it's just the competitive year coming off of versus really anything in particular in Lat-Am.

And given that the comps are issued in Lat-Am, can you give any visibility into how you see the comp in the fourth quarter or the trend so far in October?

No, I mean that Gravity performed great on a worldwide basis, and it's anticipated that Thor is going to perform great on a worldwide basis. And so it's a -- you're always comparing one quarter to the next. We tend to, which I know the industry tends to do, but we tend to look on it on a more -- on an annualized basis, and we think 2013 is going to be a very good year for the industry, whether it's internationally or domestically.

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

Thanks, [Barton].

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

Thanks. First of all, Robert, you talked about lower CapEx this year just versus -- because of some timing issues. How would -- how do you think this is going to impact CapEx for next year? Is it going to be $15 million higher than you were going to expect it and pushes out into next year? And then secondly with regards to Latin America, since you're doing the installs on your own, how does the virtual programming -- the virtual print fees flow through your income statement?

Sure, as far as the shift in CapEx, some of it will be definitely just be a pure movement and that's primarily the digitization in Brazil, which is primarily will occur next year, and so that's -- we don't have a number yet but that makes up a big part of the $50 million.

The remainder is still a little bit of a question because it's just -- they are projects that -- our scheduled opened by the end of this year and looks like they'll move in early next year. The key to that clearly becomes how many projects do we end up signing for next year? So still open -- does the whole 50 move or just part of that move but definitely a decent piece of that will increase our original expectations we had for next year. Again, we are not overly concerning to us because we had planned on spending that money this year and it's just a timing issue.

On the VPF, they flow into our costs. We recovered the VPF from the studios just as DCIP does. But in our case, since it goes on our own income statement, while they are not technically part of film rental, we net them against film rental simply because there is -- coming from the studio from a presentation point of view. And so overtime that will impact our international film rental. It's still a little bit early to see the level of impact just simply because we're still digitizing.

Okay. And then just one last follow up. When you look -- gave us your gross screen additions for the fourth quarter. On a net basis, where do you believe you end up the year at in terms of global screens?

You know, I think on the net basis probably domestically somewhere around [4480] or so ballpark; and then internationally probably around I'll say, without Mexico , is probably around [1425], I mean, give or take.

Great, thank you.

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

Thanks. On your US film rental in the quarter, which was lower despite the box office strength was that just a more favorable mix in movies with deeper performance in the sale or any other more structural benefits there?

No, it was that.

Okay. And then Robert, on your 100 to 125 screen growth outlook in Latin America for the next few years, can you say at this point whether you see next year is any, I don't know, stronger or lower in that range in terms of your confidence or too early to tell at this point the pipeline of mall openings?

It's still a little bit early, Townsend. We feel like we'll be in that 100 to 125 range. You know obviously, that's what we're gunning for. But it is a little bit early. We're still looking at projects.

We feel -- as we look further out the pipeline, we feel very good. The timing of some of the projects is our biggest questions, but we should be close.

And do you see those weighted to those second half of the year again like you're seeing this year or more spread out?

Yes, a little tougher. It's still a little bit early to -- we're scheduling a lot of that right now, and I don't have a real clear picture on timing it's on because it's a little bit like this year where we're seeing some of them move. I'll be able to really give you a much better guidance next quarter on it.

Okay, thanks.

Sure.

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

Hi. I was hoping you would go into the new concepts for your running in concessions in those theaters. What do you see as the average concession per cap and the concession margins on those new concepts? And then also I was hoping you would go into the other income. It's a little bit larger than we typically see. Is that a function of the M&A? Thanks.

Sure. So let me address the other income first and then I'll go back to concession. Other income primarily is a function of increase in attendance that we saw. You know we benefit from advertising and promotional benefits as our attendance increases. And then in that addition, we have a number of other items, where there's gains and things like that. And overall just attendance drove for that than anything.

On concession, it's still early for us to really I say measure and start providing I think meaningful data on the impact. The positive clearly we see is that as we're rolling out concepts like Movie Bistro. Not only does it change the dynamic in that theater itself because it's obviously much more heavily weighted towards concession but we also learn about certain items that we might be very popular in that venue that maybe we can add to what we call our hot spots in our other theaters where we've added the capability to provide an expanded offering of items like hot wings and those type things in our normal theaters. The Rave theaters also provide us a great input and that in a number of those theaters had a bar and restaurant or -- and again not heavy restaurants but kind of a lighter fare, but we're learning a great deal really right now and as we go into next year about how those concepts work with -- and again, where it might make sense on a broader basis.

Tim, you want to --

Yes. And A lot of the concepts that whether VIP concepts or Movie Bistros are really market-adaptive concepts and the same with CineArts, it's sort of a market-by-market evaluation.

Got it. And where do you guys stand on super ticket? I believe increment is playing around that concept again.

Yes. Now we've done some tests with the studios through to try to help them with their downloads or sales to CineMode concepts. We haven't done the super ticket. It's been with different type of promotion with the studio.

But you know, obviously we have an ongoing relationship with all the studios, and we work very closely with them on various marketing initiatives. But there's definitely, I think, whether it's us, Regal, or your -- and all of the studios they're trying to say -- hey, how can we work together to try solve some of their problems, and also help ourselves in the process?

Great, thank you very much.

Your next question comes from the line of [Ben Swimberg] with Morgan Stanley.

Hi, good morning, this is Ryan Fiftal on for Ben. First, I have a follow-up question on the earlier question on film windows. I think Netflix has made the broader point that TV viewing has become increasingly flexible, increasingly on demand, multiple devices in and out of the home, while there's arguably been less change for how films are consumed. So I'm just wondering what you -- how do you feel about the risk to the industry of TV potentially gaining share of total hours of entertainment consumption as TV everywhere really expands over the next couple of years?

Yes. Well, I mean I think first off the head of Netflix backed off on his statement. I would make that point of clarification. But in the overall discussion, I think that from the studio and the creative community, if you talked to any of the directors and a lot of them come out over the years from what -- that they make their films to be seen on the big screens. Now they -- now it's going to roll out on all different types of platforms.

And then the other challenge that studios have faced is that as things are going into the in-home environment and multiple platform it scatters and trying to maintain a price point on that has been a real challenge for the studios. Not because the number one window that's working for the studios right now and also for the creative community is the theatrical window. And so they're very very concerned about maintaining that window because as things go into that inhome environment, it's been a real challenge for them to control any price points. And but I mean I think the in-home environment does -- the point you're making -- continues to scatter. It's going to be scene on a lot of multiple platforms and -- but right now the studio has made a lot of progress with the digital download as to how they can regain some of the control over the in-home platform.

Okay, thanks. And then, I was wondering on another note can you give update on Fathom? Any more color on initiatives that are going on there or maybe more broadly in the opportunities that you're particularly excited about on non-film content?

You know, right now we're still in the process of I think currently announcement on his call trying to finalize the details on the purchase of it. And so we've been much more focused on that and then than the opportunities and expansion. We do obviously think that it will fit better with it being theater owned and align ourselves a little better and the opportunities that could be out there, but right now we're really more focused on closing the transaction.

Okay, great. Thank you.

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

Hi, guys. Good morning and thanks for taking my question. And just going back to domestic performance, was your top five or top seven films dramatically different than your competitors from what the industry showed or were you relative or were you overweight in any genre relative to the rest of the group?

No, I mean I think the -- we all play the same product. Now different products play differently in various areas of the country, but there is a wide variety of product in the marketplace, and we all play the same product basically. But there is great (inaudible) and also there's a great article that played really well.

And we think again that we that a lot of things go into the performance of any company, and Cinemark is very focused at the theater level, and the product will be a great slate of wide variety of products, which probably helped everybody and they appeal to a real broad audience. And did Cinemark benefit from that? Yes, we did, but I would presume our other competitors also benefited out of it.

Okay, that's great. Thanks guys.

Sure.

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

Thank you and good morning. Two questions, one, I guess first on Mexico. I know you're still working through the process there but since I guess you were first approached to sell those assets. Let's take the assumption that this is not approved in the appeal process and going back and forth. Are you still resigned to exiting Mexico just some fashion to finding a buy divesture? Or just something that you would consider holding on if that was the only option?

No. Well, one, we're waiting for the ruling out. The ruling that we've operated in Mexico for the last 20 years. We're very comfortable in operating; we feel we have great assets in Mexico. And if the sale isn't approved, we just continue to grow and expand our operations in Mexico. We've got a great team down there. We're very familiar with the country, and our -- well like I said that -- in fact, one of the longest countries we've been in and still feel that there's a great assets.

And then also we continue to expand to other countries in Latin America like we just announced; going into Bolivia and we're continuing to look at all the markets in Latin America.

Okay. And then last question -- yes, I know it's early with Flicks Media down there. But what are you seeing so far in terms of local versus national kind of at demand mix versus what we have here with NCMI and how would you expect that to evolve over time?

Well, historically Latin America -- screen advertisements has always been a strong component, even probably even stronger than the US. Now, NCMI has revolutionized the way the US sees screen advertising, but the actual advertising, just outright advertising , has always been an integral component of Latin America. And so really it's just digitizing and expanding the overall concept of via Flicks Media to bring it in to the I guess the --to perform on the same level or similar level NCMI, and then also we see other components in the model in Latin America more like what [Ellis] is doing in Canada with his media aspects.

I mean, I think the exciting part, Eric, is that we're able to professionalize it with digitization, but you're still rolling out and keep in mind, in many countries we're ahead of our competitors even on that but the idea is to bring in -- is to create the national presence in all these countries that -- similar to what NCMI has done. As we do that we think to your point even though the advertising is reasonably developed in these countries or at least recognized, let's say, we'll be able to expand it more because -- one, it will be easier to the digital distribution and projection of it; but then secondly, you can go after bigger accounts because you'll be able to provide really just a huge marketing platform.

Because right now the cinema advertising has been cinema advertising to whether there hasn't been a network that's graded the scalability; something like NCM has done so that they can go out and compete as a network for a broad range of advertising with other advertising networks. And so the concept behind Flicks Media is to create that scalability, and to Robert's point, to really professionalize the process.

Perfect. Thank you, guys.

You bet. Thanks, Eric.

Your next question comes from the line of Matthew Harrigan with Wunderlich Securities.

Thank you. I had two questions. Your first -- I note that (inaudible) is geared towards the US. I mean they had a nice hit with instructions not included. But as you get to the tipping point in Latin box office, are you seeing a lot more local, indigenous production because it's something that conceptually helps your numbers out a lot over a period a time.

And then secondly, sort of relaying the theater versus TV thing and the advent of [4K] and all that, are you going to market the faster frame way in The Hobbit fairly aggressively again? I mean obviously last year that it died with of a whimper in terms of consumer conception but I know that longer term there are things you can do with crisper 3D and all that if you can give more attention on the frame rate.

Yes. You know, first off, in Latin America as the actually, platform gets expanded, it does help local production. And local production varies from quarter to quarter, year to year, whether it's Brazil, Mexico or Argentina, Chile, Peru. It can show up in any of these countries where there is strong local production. But -- and then also to your point on the movie you mentioned without instructions that was a -- the studios are also looking at the US market for Spanish language or themed products. It's also gaining traction in the US market. So we think that's all good for us.

On the high frame rate, Cinemark is the only circuit that all their -- I think that all their -- all our 3D screens have been approved by Warner Brothers as having the technology and all the right components to play it any screen. And that was true last time around, and it's true this time around. And as we turn in our call that all our 3D high frame rate screens have been approved by Warner Brothers to show the hobbit in the high frame rates.

I think you're going to see Jackson and then also you're going to see James Cameron and then we continue experimenting with the technology and advancing the technology. And then you'll start to see other directors also pick up on that technology so -- because it does really help in the action sequences. They will get better with it just like they've done with 3D, and I think it's just part of an evolving technological story, which is a great story for our industry.

And I was just curious, I mean, everyone's aware of Jackson and all that on the faster frame rates but it seems like it would be really interesting on the 3D animated projects as well , which get a lot of pop down in Brazil; huge outperformance. Does anyone have any plans to do the 3D animated projects at the faster frame rate?

I'm not aware of any, but again as the technology develops -- and it usually takes more of the technical directors so they're developing the process, and then the more creative creators will adapt to the technology,. And with Jackson and Cameron, they're probably -- two of the top technical --they're great creative directors, but they're also great technical directors. And so, as -- I mean that all of these year technologies, including 3D, we'll just continue to evolve.

Thanks, Tim.

Your next question comes from the line of Chad Beynon with Macquarie.

Hi. Good morning. Thanks for taking my questions. One more on the Latin American CapEx, if I may, for you, Robert. Could you comment broadly on the areas where these 19 theaters in the pipeline will be, in general, if they're in locations where is demand is simply exceeding the existing supply or if these are actually coming into new regions where it will be a new product. Just trying to get an sense of where ticketing concession pricing come in when pipeline opens up.

Yes. I mean the reason why we feel like we have a nice runway is that when we look at overall throughout Latin America and nearly every country down there, it's just purely under screened to your point and in some cases we'll be building theaters and markets that clearly have existing theaters, but that particular part of the market -- these are huge cities, so there's areas within each of the cities, whether it's Sao Paolo, Ben Buenos Aires, in Brazil, Santiago those might not have a theater positioned correctly. Some of them have those. Some are going into new markets.

We had different -- like [Sabot] in Brazil, Salvador in the (inaudible) and some of those that are just heavily under screened, where you have millions of people, and just made three major theaters in the market. And so -- yes, there's just incredible opportunity in some of these larger cities, still.

And as we talked at CINECOM -- I think it was last year, we're looking at smaller markets. The biggest thing we've seen throughout Latin America this year and especially Brazil is growth in these smaller mid markets, which have not been our primary focus. And so we're putting much more emphasis on that, and again those are very generally green opportunities that they're just significantly under screened.

The mix -- I don't know changes the numbers a lot. Just as we've had this year; we've got growth in Chile, we've got growth in Colombia, some in Peru, we've got by far the bigger piece is Brazil, but it's really located throughout. We have Central America, back out some projects in Ecuador we're looking at. So it's pretty broad perspective wise, but ought to be consistent, I think, with most of our past -- our history of growth.

Well -- and I think what happens a lot because Brazil gets so much coverage that Latin America sort of becomes a Brazil story. But the real story down there is that all of these countries are doing very well and this year broad expansion of the social classes and economics and that is a fairly broad story throughout all these countries. And so the point that Robert is making, really, it's all the countries are sort of rising, and we're building in all of them.

Okay, thanks. And then one more, if I may, regarding concession per cap in the US, another good result particularly up against a tough comp. Slate aside, did you see thing abnormal in September with volumes, given that we saw a little bit of a drop off in the casual dining sector when the government decided to take the month off? Or was it steady as you go at your theaters?

Yes. With us, it's -- ours is a lot of film product related, and it's obviously the third quarter was a great quarter for the industry. And so it's -- the people show up but -- and they tend to buy in a similar fashion. So --

Okay, thank you.

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

All right, thank you.

Jim.

Good morning. DCDC, I believe you mentioned would be pretty much implemented by spring. I'm wondering how quickly you expect this will have an impact; what type of events, and will it dovetail with Fathom? Or will it be a separate slate as well?

Yes. I mean I should back off on -- when we say DCDC will be implemented, it'll be implemented in AMC Regal and Cinemark and [deployed]. And I think they signed up national enthusiasms and they signed up southern theaters, and they're in the process of signing up other theaters as we go forward.

And so -- although the three major exhibiters in the US will be deployed by DCDC concept, there probably be another year or two that it will roll out to all the rest of the theaters. And so I should make that clarification.

And the two businesses really have nothing to do, in fact, with each other. Fathom will be -- DCDC is an industry utility. It's to connect the industry, where Fathom will be an entity that we're purchasing from MCM, -- the three major companies -- and we're going to bring focus on expanding the availability of all target content.

There is already some business model there. Obviously, we're going to be working on developing and we'll have the platform to expand it, but we'll just have to see where that goes.

With DCDC, will -- say you want to do sporting events, it seems that the rights fees negotiations might be the bigger sticking point.

Well, yes, and again, you can't think of DCDC as a company that's going to bring any -- it's strictly a platform that content providers go over. And so like all film can go over it, all live events can go over it, but it's not an entity in itself that goes out and solicits it's content; it's strictly a service company or industry utility to deliver content to the theatrical platform.

Okay. With the success of Gravity, are you viewing 3D as a niche product or potentially broad product? Has this shifted your attitude at all?

No, I mean, we've always been big believers in 3D, and we think that if the studios are going to make the money to -- or spend the money to make the films in 3D, that they should aggressively market them in 3D, and that we should work with them to marketing them in 3D. Not every film, I think, should be 3D, but the ones that they decide should be seen in 3D they should -- and we need to work together as an industry to market it and make the public aware of it. And then ultimately the public makes the choice as to whether they want to see it in 3D or they want to see it in 2D. And obviously on Gravity, the vast majority of people chose to see it in 3D. And I think that Warner did a great job at getting out the message; is that that's the way to see the movie, and I think that exhibiters try to -- because that was the preference of the audience -- tried to book it as much as they could on their 3D screens.

The good news with Cinemark is that we're about 50%,55% 3D capable and so we have a great platform to meet that demand.

Okay. And then just a couple of details. Facility lease expense had a bump this quarter. Is that a decent run rate at this stage or is it a little bit more as you blend in some issues? And on the other income level that was brought up before, that was higher -- there's nothing unrecuring in that number, is that correct? And given the variability, is there an explanation for just why it bounces around quite so much?

So although I hit all these. Jim, the first one with respect to rent - the primary change in our rental expense, as well as a lot of items barring just normal changes in attendance, but by far the big increase you're seeing the full quarter of Rave. In fact, I think because we operated throughout this full quarter, these are --anything that lends itself to being more fix oriented, such as rent is probably a probably a reasonable run rate.

On screen average on I guess other income and again it -- other income will vary somewhat with attendance because some of our contracts are designed around attendance, as well as just the nature of even the items, again, if you're looking at gains or just attendance-driven concepts that create other income, better attendance is going to drive that number up and down. And so I think that's primarily just what you saw in this quarter and what we would expect to see. And then in the [third] quarter that comes back down that doesn't necessarily hold.

I think having G and PG movies helps some of the items because again some of what we offer, whether it's even food product and/or games when there's good kids movies there are a lot of buyers and so the product itself will influence that a little bit.

All right. Thanks very much.

You bet.

I think that was our last question.

I think that's the last question. I want to thank you for joining us and we look forward to our next earnings call for the fourth quarter. Thank you.

Thank you.

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