Cinemark Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in millions of dollars unless stated otherwise. Cinemark operates movie theatres in the U.S. and Latin America. Comparisons with Q2 2020 are unusually distorted: nearly all theatres were closed then, and Q2 2020 revenue was only $9.0 million.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $294.7 | $9.0 | $409.0 | $552.6 |
| Operating loss | $(85.5) | $(214.3) | $(254.9) | $(257.2) |
| Net loss | $(142.3) | $(170.8) | $(351.1) | $(230.2) |
| Adjusted EBITDA | $(11.8) | $(117.6) | $(103.8) | $(51.4) |
| Operating cash flow | Not presented quarterly | $(21.4) | $(153.9) |
- Q2 attendance was 19.1 million; average ticket price was $8.04 and concession revenue per patron was $5.75.
- For the first half, attendance fell 41.5% year over year to 26.8 million. Revenue declined 26.0%, while average ticket price rose 22.2% to $7.81 and concession revenue per patron rose 33.7% to $5.56.
- At June 30, cash and cash equivalents were $595.9, down from $655.3 at year-end 2020. Current assets were $719.7 and current liabilities $651.7.
- Long-term debt was $2,547.8 before unamortized discounts and issuance costs; lease obligations were substantial, including $1,297.0 of operating lease liabilities. Shareholders’ equity was $387.2, down from $788.0 at year-end.
- First-half capital expenditures were $32.8. Cash from operations included $136.8 of tax refunds received in April. The company reported $100.0 available on its revolving credit line and $21.1 of restricted cash supporting international loan letters of credit.
Material changes versus comparable periods
- As theatres reopened, Q2 revenue recovered sharply from the near-shutdown Q2 2020 base, but remained below pre-pandemic levels. The first-half revenue decline reflects the prolonged closures and operating restrictions earlier in 2021.
- Q2 adjusted EBITDA improved to a loss of $11.8 from a loss of $117.6 a year earlier. However, the first-half adjusted EBITDA loss widened to $103.8 from $51.4, reflecting the weaker first quarter and ongoing pandemic effects.
- Interest expense increased to $73.6 for the first half from $55.7, primarily due to debt issued in 2020 and 2021. The company recorded $6.5 of first-half debt-extinguishment losses.
- In March and June, Cinemark 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. The revolving credit facility maturity was extended to November 2024.
- First-half results included no long-lived asset impairment, compared with $16.6 in the first half of 2020. Restructuring costs were a $0.9 credit versus $19.5 of charges in the prior period.
Outlook, commentary, risks and unusual items
- At June 30, all 323 U.S. theatres and 152 of 198 international theatres had reopened; some international locations temporarily closed again during Q2. Management said it believed available and expected cash would be sufficient to sustain operations for the foreseeable future, while continuing to recover toward historical working-capital levels. No numerical revenue or earnings guidance was provided.
- Management continued to limit capital spending to essential projects, operate with reduced staffing or hours in some locations, and negotiate payment extensions with landlords and vendors. Deferred lease payments totaled $56.0, of which $45.6 was classified in current liabilities.
- The COVID-19 pandemic, local restrictions, attendance recovery, film-release schedules, competition and foreign currency movements remain key uncertainties. Management performed qualitative impairment reviews and recorded no impairment in the first half, but said it would continue to assess potential exposure.
- Debt-related risk remains material. A leverage-covenant waiver runs through the quarter ending September 30, 2021, with modified testing thereafter; the company stated it was in compliance with its debt agreements at June 30. The dividend remains suspended. Management disclosed that actual coverage ratios for certain senior-note debt-incurrence tests were below zero.
- The company is pursuing an insurance claim against Factory Mutual for pandemic-related losses; management could not predict the outcome but did not expect a material adverse effect. It is also defending a patent-infringement lawsuit and other ordinary-course matters.
- Other notable items: adoption of convertible-debt accounting guidance reclassified $101.1 from equity to debt and reduced opening equity by a net $68.2; the company recognized $8.0 of Q2 income tax expense, with valuation allowances affecting the rate. Q2 restructuring credits reflected lease settlements below prior estimates.
Investor facts to verify
- Track attendance, theatre reopenings and revenue recovery by U.S. and international segment, including whether international closures recur.
- Assess cash burn and liquidity after tax refunds, deferred rent payments and the use of available revolver capacity.
- Review debt maturities, interest costs, covenant-waiver terms and compliance as covenant testing resumes.
- Monitor lease deferrals, operating commitments and capital spending, including $99.3 of signed theatre-development commitments.
- Check whether management’s recovery assumptions support goodwill and theatre-asset valuations, and follow developments in the insurance and patent litigation.