Cinemark Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts are in millions of U.S. dollars unless stated otherwise. Cinemark Holdings consolidates Cinemark USA, which accounts for nearly all operating activity; figures below primarily reflect Holdings consolidated results.
Business context
Cinemark operates movie theatres in the U.S. and Latin America, reporting U.S. and international segments. At quarter-end it operated 514 theatres with 5,812 screens. Management attributed improved results to a stronger, more consistent release schedule and increased attendance. The company closed its Curacao theatre in January; its Ecuador theatres were classified as held for sale.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $942.3 | $744.1 | $1,553.0 | $1,204.6 |
| Operating income (loss) | $168.4 | $(18.6) | $196.9 | $(51.6) |
| Operating margin | 17.9% | (2.5)% | 12.7% | (4.3)% |
| Net income (loss) | $120.4 | $(72.8) | $117.9 | $(145.3) |
| Net income (loss) attributable to Holdings | $119.1 | $(73.4) | $116.0 | $(147.4) |
| Diluted EPS | $0.80 | $(0.61) | $0.82 | $(1.23) |
| Adjusted EBITDA | $231.5 | $138.3 | $317.7 | $163.5 |
Q2 attendance rose 23.8% to 64.4 million; average ticket price was $7.43 versus $7.34, and concession revenue per patron was $5.80 versus $5.50. Six-month attendance increased to 107.3 million from 85.1 million. Revenue growth spanned both segments; international revenue comparisons were also affected by foreign exchange.
For the six months, operating cash flow was $251.1, investing cash outflow was $54.6 (capital expenditures), and financing cash outflow was $110.8. Cash increased by $83.5 to $758.0 at June 30. Q2 revenue growth and lower impairment charges supported the return to profitability. Q2 cost of operations was 82.1% of revenue, compared with 102.5% a year earlier.
Liquidity, debt and capital structure
At June 30, cash was $758.0, current assets were $975.4 and current liabilities were $744.7. Long-term debt carrying value was $2,436.4, including $460.0 of Holdings’ 4.50% convertible notes; debt net of cash was approximately $1,678.4, before considering lease obligations. Operating and finance lease obligations totaled approximately $1,231.1. Holdings reported equity of $254.8.
In May, Cinemark USA refinanced its secured credit facility with a $650.0 term loan due 2030 and a $125.0 revolver due 2028; no revolver borrowings were outstanding. The term loan’s average rate, after swaps, was approximately 6.8%. Cinemark USA also redeemed $100.0 principal of its 8.75% secured notes, leaving $150.0 outstanding. The company reported a 2.80x consolidated net total leverage ratio and $262.5 of available amount under the credit agreement; it said it was in compliance with debt covenants.
Material changes and unusual items
- Revenue rose 26.6% in Q2 and 28.9% for the first half year over year, with attendance and per-patron spending both higher.
- Q2 2022 included $92.3 of impairment charges, including an $86.8 impairment related to NCM; Q2 2023 impairment was $9.4. The lower comparison materially benefited operating results.
- The company recorded a $10.7 loss on debt extinguishment and refinancing in 2023, including costs associated with the credit facility amendment and note redemption.
- After NCM filed for Chapter 11 in April, Cinemark ceased equity-method accounting for its NCMI investment and recorded a $9.2 unrealized gain from fair-value measurement. NCM’s bankruptcy plan assumed Cinemark’s exhibitor services agreement, but Cinemark appealed an order concerning its most-favored-nations rights.
- Argentina-related foreign currency losses, including Blue Chip Swap transactions, affected results. The filing reports an $8.0 Argentina translation loss for the first half, excluding the Blue Chip Swap impact, and an approximately $4.9 loss from those transactions.
Outlook, risks and contingencies
No specific full-year financial guidance is provided in the filing. Management said existing cash and expected operating cash flows should be sufficient for working capital, capital expenditures and known contractual obligations for the next 12 months and beyond. It cited films scheduled for the rest of 2023, while emphasizing that results depend on film volume and performance, theatrical release windows and consumer behavior. Inflation in wages, utilities and supplies, supply availability, competition from streaming and other entertainment, foreign exchange and the pace of industry recovery remain risks.
The company expects the Ecuador subsidiary sale to close in Q3 2023 after receiving regulatory approval on July 27. Management said pending ordinary-course legal proceedings were not expected to be material, but noted it could not predict outcomes in its insurance coverage appeal or its NCM bankruptcy appeal. The quarterly dividend remained suspended. The filing states disclosure controls were effective and reports no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether attendance and box-office performance remain strong as the 2023 film slate progresses, and how much reported growth reflects pricing versus patron volumes.
- Cash generation, capital spending and liquidity relative to debt service, lease commitments and refinancing or springing-maturity provisions.
- The terms and final outcome of NCM’s bankruptcy, including effects on advertising revenue, Cinemark’s ESA rights and the value of its NCMI investment.
- Completion and proceeds, if any, from the Ecuador sale, and the continuing impact of Argentina currency restrictions and exchange rates.
- Whether recovery supports the company’s impairment assumptions and the return of a dividend; no dividend reinstatement guidance is given.