Cinemark Holdings, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; unaudited. Cinemark operates movie theatres in the U.S. and Latin America. Figures below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Key financial results
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $889.1 | $751.2 | $1,669.0 | $1,530.8 |
| Operating income | $126.7 | $98.2 | $228.9 | $229.4 |
| Net income | $82.5 | $51.8 | $144.6 | $132.0 |
| Net income attributable to Cinemark | $82.1 | $51.2 | $144.2 | $131.0 |
| Diluted EPS | $0.70 | $0.44 | $1.23 | $1.12 |
| Adjusted EBITDA | $221.6 | $170.7 | $415.0 | $382.6 |
- Q2 operating margin was 14.2%, versus 13.1% a year earlier; first-half operating margin was 13.7%, versus 15.0%. Adjusted EBITDA is a company-defined non-GAAP measure.
- Q2 revenue rose 18.3%, with U.S. segment revenue up 28.6%; international revenue fell 10.0% as reported, or 0.4% on a constant-currency basis. First-half revenue increased 9.0%, while operating income was nearly flat.
- Q2 U.S. attendance increased 17.7%, average ticket price 3.7%, and concession revenue per patron 7.4%. International attendance fell 2.3%; reported ticket price and concession spend per patron also declined, partly reflecting currency and film mix.
- Operating cash flow was $279.9 million for the first half, compared with $235.7 million. Capital expenditures were $162.6 million, producing $117.3 million of operating cash flow less capital expenditures (a simple calculation, not a company-defined measure). Cash declined $17.8 million to $504.7 million.
Financial position and capital resources
- At June 30, cash was $504.7 million; current assets were $628.2 million and current liabilities $439.8 million. The current ratio was approximately 1.43.
- Long-term debt was $1.814 billion before unamortized discounts and issuance costs; capital lease obligations totaled $265.7 million. The company also had $100 million available under its revolving credit line, with no revolver borrowings outstanding.
- In March, Cinemark amended its term loan, extended maturity to March 2025, and reduced its interest margin by 0.25 percentage point. The term loan’s average rate was 3.9%; a 100-basis-point rate increase would raise annual interest expense by approximately $6.6 million. The company reported compliance with debt covenants.
- First-half dividends paid were $74.7 million. The board declared dividends of $0.32 per share for each of the first two 2018 quarters, up from $0.29 per share in the comparable 2017 quarters.
Material changes, outlook, and risks
- Revenue accounting: Cinemark adopted ASC 606 on January 1, 2018; prior-period figures were not recast. The standard increased reported other revenue by $32.7 million in Q2 and $60.2 million in the first half, while reducing admissions and concession revenue. It also changed NCM deferred-revenue amortization and gross-versus-net presentation, limiting direct period comparisons.
- Drivers and costs: Management attributed U.S. growth to a stronger blockbuster slate and luxury-lounger conversions, alongside price and concession-spend increases. Film rental costs rose as a share of admissions revenue, and staffing, supplies, depreciation, and certain other costs increased. International performance was affected by weaker attendance, film mix, and currency movements.
- Unusual items: Q2 loss on disposal of assets and other was $16.9 million, versus $0.1 million a year earlier; the increase primarily included theatre-remodel asset retirements and a litigation reserve. First-half expense on this line was $20.8 million. Q2 effective tax rate was 18.2%, including a $7.1 million benefit from settling Chile tax audits; Tax Act estimates remained provisional.
- Legal matters: A California jury found for the plaintiff on one antitrust claim and awarded damages subject to trebling; the amount of the recorded reserve is not separately stated in the filing text. Cinemark sought post-trial relief and said it may appeal. The company also received federal and state antitrust investigative demands and could not predict their scope or outcome.
- Currency and accounting: Argentina was to be treated as highly inflationary beginning July 1, 2018, with its financial statements thereafter remeasured in U.S. dollars. The filing reports substantial first-half foreign currency translation losses. Adoption of the new lease standard was planned for Q1 2019; expected recognition of right-of-use assets and lease liabilities was not quantified.
- Investment and spending plans: On July 5, after quarter-end, Cinemark paid $78.4 million for additional NCM units, increasing its ownership from approximately 18% to 25%. It had committed development plans for 205 additional screens and estimated remaining capital expenditures of approximately $145 million. No formal full-year earnings or revenue guidance is provided; management cautioned that results are seasonal and depend on film release timing and appeal.
Important facts for investors to verify
- How much of reported revenue growth reflects underlying attendance, pricing, and ancillary business versus ASC 606 presentation changes.
- The final amount and cash impact of the California antitrust judgment, the results of post-trial motions or appeals, and developments in government investigations.
- The effect of Argentina’s highly inflationary accounting treatment and currency movements on future reported results.
- Whether planned theatre development and remodeling remain within the stated capital budget, and how the NCM unit purchase affects liquidity and investment returns.
- Debt covenants, variable-rate exposure, lease obligations, dividend capacity, and the company’s ability to sustain cash generation amid film-slate variability.