Cinemark Holdings, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015; comparisons are with the corresponding 2014 periods. Cinemark operates movie theatres in the U.S. and multiple Latin American markets. Unless noted, amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $700.1 million | $646.9 million | $2,145.4 million | $1,967.0 million |
| Operating income | $99.1 million | $82.3 million | $324.1 million | $267.0 million |
| Net income | $46.7 million | $38.5 million | $160.5 million | $146.4 million |
| Net income attributable to Cinemark | $46.3 million | $38.1 million | $159.1 million | $145.3 million |
| Diluted EPS | $0.40 | $0.33 | $1.37 | $1.25 |
| Adjusted EBITDA | $154.8 million | $141.7 million | $495.4 million | $439.6 million |
- Revenue rose 8.2% in Q3 and 9.1% year to date. Q3 attendance increased 7.3% to 71.0 million; nine-month attendance rose 7.6% to 213.2 million.
- Operating margin increased to 14.2% from 12.7% in Q3 and to 15.1% from 13.6% year to date. Film rental and advertising costs rose faster than revenue, but overall operating costs were lower as a share of revenue.
- U.S. Q3 revenue increased 9.8%; international revenue increased 4.3%. International attendance grew, but reported ticket and concession spending per patron was pressured by foreign exchange.
- Nine-month operating cash flow was $226.3 million, versus $223.1 million. Capital expenditures were $232.4 million, compared with $156.2 million; operating cash flow less capital expenditures was approximately negative $6.0 million.
- Cash was $502.9 million at September 30, 2015, down from $638.9 million at December 31, 2014. Current assets were $631.1 million and current liabilities $351.5 million.
- Long-term debt carrying value was $1.818 billion; capital lease obligations totaled $215.9 million. Cash less debt, excluding leases, was approximately $1.315 billion. The company had $100 million available on its revolving credit line and no revolver borrowings.
Material changes and notable items
- Q3 revenue growth reflected higher attendance and ticket prices in the U.S., along with increased attendance internationally. Management attributed attendance gains to the film slate and new theatres; it cited price increases, ticket mix and concession sales as additional U.S. drivers.
- International average ticket price declined 12.9% in Q3 and 9.9% year to date, primarily reflecting unfavorable currency movements. Foreign currency exchange losses were $18.7 million for the nine months, versus $0.4 million a year earlier; currency translation reduced comprehensive income by $105.2 million.
- Income taxes were $99.3 million for the nine months, up from $70.5 million; the effective tax rate increased to 38.2% from 32.5%. The filing says the prior-year rate reflected items related to Mexican subsidiaries.
- Capital spending increased, including approximately $26.3 million for the corporate headquarters building. At quarter-end, signed development commitments covered 161 domestic screens and 68 international screens, with estimated remaining development capital expenditures of about $89 million and $52 million, respectively.
- On May 8, 2015, Cinemark amended its senior secured credit facility, extending the $700 million term loan maturity from December 2019 to May 2022. The amendment generated approximately $6.9 million of debt issuance costs and a $0.9 million loss on amendment.
- Q3 included a $0.5 million gain on asset sales and other, principally from sales of a Taiwan joint-venture investment and U.S. land. Nine-month impairment charges were $5.0 million, related to specific theatres and associated intangibles; the filing cites competition and adverse local market conditions.
Outlook, risks and contingencies
- The filing provides no quantified full-year revenue, earnings or cash-flow guidance. Management identified films scheduled for the remainder of 2015, including Star Wars: The Force Awakens, The Hunger Games: Mockingjay Part II and Spectre, among others.
- Management notes results are seasonal and depend on the timing and success of film releases; one quarter may not predict another. Planned theatre development is expected to be funded through operating cash flow and potentially borrowings, debt issuance, sale-leasebacks or excess-real-estate sales.
- Risks include foreign currency movements, variable interest rates, competition and film-release performance. A 100-basis-point increase in rates was estimated to increase annual interest expense by approximately $5.8 million on variable-rate debt outstanding at quarter-end.
- The company reported Department of Justice and state antitrust investigations involving film clearances and possible coordination or communications. It said it would cooperate, could not predict the scope or outcome, and did not believe it had violated antitrust laws.
- A California wage-and-hour class/PAGA case remained disclosed; the court had determined class certification and a PAGA representative action were not appropriate. The company said it could not predict the outcome, considered potential liability not material, and recorded no reserve. It reported no material changes to previously disclosed risk factors.
- The company stated it was in compliance with debt covenants and that disclosure controls were effective as of September 30, 2015.
Investor verification points
- Check whether attendance, ticket-price and concession trends persist, particularly in international markets after currency effects.
- Monitor cash generation against elevated capital spending and the committed theatre-development program.
- Review debt maturities, variable-rate exposure, lease obligations and the terms of the amended credit facility.
- Track foreign currency impacts and the antitrust investigations, including any material developments not quantified in this filing.
- Assess the sustainability of earnings growth against film-rental costs, taxes, impairments and the company’s quarterly dividend.