Cinemark Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial amounts below are in millions unless otherwise stated.
Business context
Cinemark operates movie theatres in the U.S. and Latin America. All domestic and international theatres were open as of September 30, 2021, although some international locations had closures during the first nine months. The prior-year quarter was severely affected by COVID-19: only 267 theatres were open at September 30, 2020, compared with 524 theatres and 5,897 screens worldwide at September 30, 2021.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $434.8 | $35.5 | $843.8 | $588.1 |
| Operating loss | $(42.5) | $(210.8) | $(297.4) | $(468.0) |
| Net loss | $(77.6) | $(148.0) | $(428.7) | $(378.3) |
| Adjusted EBITDA | $44.3 | $(128.0) | $(59.5) | $(179.4) |
- Q3 2021 operating margin was approximately negative 9.8%; Adjusted EBITDA margin was approximately 10.2%. The 2020 comparison reflects extensive theatre closures.
- Q3 attendance was 30.7 million versus 1.9 million; average ticket price was $7.35 versus $7.96, and concession revenue per patron was $5.35 versus $4.87.
- For the first nine months, cash used in operating activities was $42.2, investing activities used $55.1, and financing activities used $12.9. Cash decreased $112.3 to $543.0. Operating cash use included the benefit of $136.8 in tax refunds, partly offset by payments of previously deferred rent.
- At September 30, cash was $543.0; current assets were $669.2 and current liabilities $642.8. The company had $100.0 available on its revolving credit line and $21.1 of restricted cash supporting letters of credit.
- Long-term debt had a carrying amount of $2,543.1, excluding related issuance-cost adjustments; cash interest paid during the first nine months was $89.8. Operating lease obligations totaled approximately $1,285.6. Deferred lease payments were $43.0, including $37.6 due within one year.
Material changes and unusual items
- Revenue and operating results improved substantially year over year as theatres reopened and attendance recovered. However, nine-month net loss increased to $428.7 from $378.3, reflecting, among other items, higher interest expense and a less favorable income-tax benefit.
- Cinemark refinanced debt during 2021: it issued $405.0 of 5.875% notes due 2026 and $765.0 of 5.25% notes due 2028, using proceeds principally to retire $400.0 of 5.125% notes and $755.0 of 4.875% notes. It recorded a $6.5 loss on extinguishment of debt. Interest expense for the nine months rose to $111.6 from $92.3.
- Q3 included a $6.5 distribution from DCIP, impairment charges of $7.5, and a $1.0 loss on asset disposals and other. The nine-month period also included a $1.3 restructuring credit, mainly from settling lease obligations below prior estimates.
- The company adopted convertible-debt accounting guidance effective January 1, 2021, moving the $460.0 principal amount of its 4.50% convertible notes fully into long-term debt and reducing equity by $68.2 net of deferred taxes.
Outlook, risks and contingencies
- Management provided no specific revenue, earnings, or cash-flow guidance. It said that based on its current recovery estimates, it believes it has and will generate sufficient cash to sustain operations. It continues to limit capital spending to essential projects and has kept its quarterly dividend suspended.
- Management cautioned that COVID-19 continues to adversely affect business, results, cash flows, and financial condition. Recovery depends on attendance, film availability, operating conditions, and other factors; the filing does not assure a particular recovery timetable.
- The revolving-credit leverage-covenant waiver extended through Q3 2021; amended testing provisions applied to specified quarters from Q4 2021 through Q2 2022. The company said it was in compliance with its debt agreements at September 30, 2021. It also reported its actual ratio under the senior-note additional-debt coverage test was below zero, versus a 2-to-1 minimum for incurring debt under that test.
- Cinemark is pursuing an insurance claim against Factory Mutual for COVID-related losses after the insurer denied coverage; the outcome is uncertain. It is also defending a patent-infringement suit and cannot predict the outcome. Management said currently pending proceedings were not expected to be material, individually or in aggregate.
Investor facts to verify
- Whether attendance, film supply, and operating hours support continued recovery beyond the unusually low 2020 comparison.
- Cash generation after tax refunds and deferred-rent payments, and the timing of the remaining $43.0 in deferred lease payments.
- Debt maturities, interest costs, covenant-test requirements, and the extent to which revolving-credit availability remains accessible.
- Whether the company can sustain liquidity while funding lease commitments, planned theatre projects, and ongoing operating costs.
- Developments in the Factory Mutual insurance litigation and the Intertrust patent litigation.