Cinemark Holdings, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Cinemark operates movie theatres in the U.S. and Latin America. Unless otherwise noted, dollar amounts below are in millions.
Business context and operating conditions
COVID-19 severely disrupted operations. Cinemark closed all theatres in March 2020, then reopened 252 U.S. theatres and 15 international theatres by September 30, generally with reduced hours, limited capacity, promotional pricing, and library films or limited new releases. Film release delays and government restrictions continued to constrain attendance and operations.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $35.5 | $821.8 | $588.1 | $2,494.3 |
| Operating income (loss) | $(210.8) | $58.5 | $(468.0) | $272.0 |
| Net income (loss) | $(148.0) | $32.0 | $(378.3) | $167.0 |
| Adjusted EBITDA | $(128.0) | $169.8 | $(179.4) | $566.8 |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $(167.7) | $397.2 |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $67.6 | $186.5 |
| Diluted EPS | $(1.25) | $0.27 | $(3.22) | $1.41 |
Q3 revenue fell about 96% year over year; nine-month revenue fell about 76%. Attendance for the nine-month period declined 77.9%, to 47.7 million patrons from 215.8 million. Fixed theatre and lease costs remained substantial despite the drop in revenue, producing sharply negative operating results. Q3 included a $24.6 million impairment charge and $0.5 million of restructuring costs; nine-month charges were $41.2 million and $20.1 million, respectively.
The company recorded income tax benefits of $121.1 million in Q3 and $222.4 million for the nine-month period, supported in part by CARES Act provisions permitting certain NOL carrybacks. It reported an $84.1 million income tax receivable and received $115.8 million in cash tax refunds during the nine months.
Liquidity, cash flow, and debt
Cash and cash equivalents were $825.7 million at September 30, 2020, up from $488.3 million at year-end 2019. The increase reflected financing proceeds despite operating cash use. Nine-month financing cash flow was $577.5 million, including proceeds from new debt; investing cash use was $67.5 million. Current assets were $984.0 million and current liabilities were $623.9 million.
Gross debt principal was approximately $2.51 billion, compared with a balance-sheet carrying amount of approximately $2.37 billion after discounts and issuance costs. Debt included $250 million of 8.75% secured notes issued in April and $460 million of 4.50% convertible notes issued in August. The company also had $641.4 million outstanding under its term loan and $100 million available on its revolving credit line. Operating and finance lease obligations totaled approximately $1.50 billion.
The revolving-credit leverage covenant waiver was extended through the quarter ending September 30, 2021, with additional covenant terms and restrictions. Management stated that Cinemark was in compliance with its debt agreements as of September 30. Rent and other lease payments deferred during the pandemic totaled approximately $62.6 million; the company began repayments in Q3 and expected most repayments during 2021. The quarterly dividend was suspended.
Material changes, outlook, and risks
- Management said available cash, at the then-current operating level, was expected to sustain operations until late 2021, or into 2022 when considering additional tax benefits. This estimate is highly dependent on operating conditions and cash burn.
- The 2020 restructuring plan included a permanent corporate headcount reduction and planned permanent closure of 14 U.S. and seven international theatres.
- A favorable appellate ruling in the California antitrust case was final and non-appealable; Cinemark reversed its previously recorded litigation reserve, contributing to the Q3 gain on disposal and other. A separate patent-infringement case remained pending.
- Key risks include further pandemic-related closures or restrictions, limited film availability and shorter theatrical release windows, continued cash use, debt service and access to financing, covenant and refinancing risk, and potential dilution or cash demands related to the convertible notes and warrants.
- No specific revenue, earnings, or reopening guidance was provided. Management noted that release schedules, theatre reopening plans, and operating levels remained uncertain.
Important facts for investors to verify
- Whether reopening, attendance, film supply, and government restrictions support management’s estimated cash runway.
- The timing and cash cost of deferred rent repayments, other contractual obligations, and remaining theatre commitments.
- Debt terms, covenant-waiver conditions, maturity triggers on the 8.75% notes, and the company’s ability to refinance or service obligations.
- The effect of convertible-note conversion, hedge transactions, and warrants on future dilution and liquidity.
- Whether further impairments are warranted, including for theatre assets and the NCM investment, whose estimated market value was below its carrying value.