Cinemark Holdings, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. This unaudited report covers the three months ended March 31, 2020. Cinemark operates movie theatres in the U.S. and Latin America. All theatres were temporarily closed beginning March 17–18 in response to COVID-19. The company filed using the SEC’s 45-day extension, citing pandemic-related operational challenges.
Financial performance
Amounts below are in millions of U.S. dollars except per-share data and where noted.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $543.6 | $714.7 | Down 23.9% |
| Operating income (loss) | ($42.9) | $57.4 | Operating margin: (7.9%) vs. 8.0% |
| Net income (loss) | ($59.4) | $33.2 | EPS: ($0.51) vs. $0.28 |
| Adjusted EBITDA | $66.2 | $152.3 | Down 56.5%; margin 12.2% vs. 21.3% |
| Cash from operating activities | ($15.6) | $104.3 | Down $119.8 |
| Capital expenditures | $34.1 | $57.6 | Down $23.4 |
- Revenue and attendance: Admissions fell 26.0% and concession revenue fell 24.2%. Attendance declined 26.5% to 45.8 million, principally reflecting theatre closures late in the quarter. Average ticket price rose 0.6% to $6.39 and concession revenue per patron rose 3.2% to $4.16.
- Segment performance: U.S. revenue fell 23.0% to $427.4 million and international revenue fell 27.3% to $116.2 million. Adjusted EBITDA was $56.1 million in the U.S. and $10.1 million internationally, compared with $125.8 million and $26.5 million, respectively, in Q1 2019.
- Costs and taxes: Operating costs totaled $586.5 million, or 107.9% of revenue, versus 92.0% a year earlier. Long-lived asset impairment charges were $16.6 million versus $5.6 million. The company recorded a $3.1 million income tax benefit, but the interim tax provision included $16.1 million of net discrete tax charges.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $479.4 million, down from $488.3 million at December 31, 2019. Current assets were $587.7 million and current liabilities were $600.4 million.
- Long-term debt was $1.898 billion, including $644.7 million on the term loan, $98.8 million drawn on the $100 million revolving facility, and $1.155 billion of senior notes. The filing reported only about $0.1 million of remaining revolver availability after a letter of credit; that letter was cancelled April 3.
- Operating and finance lease obligations totaled approximately $1.553 billion at quarter-end. These are separate from reported long-term debt.
- Financing activities provided $48.0 million, including the $98.8 million revolver borrowing. The company paid $42.3 million in common-stock dividends during the quarter, then suspended the quarterly dividend amid the pandemic.
- Management said it believed available cash was sufficient to sustain operations through the remainder of 2020 even if theatres stayed closed for the rest of the year. The statement is an estimate, not a guarantee, and the filing warns that COVID-19 could adversely affect liquidity and access to credit.
Material changes, outlook and risks
- COVID-19 response: The company closed all theatres, halted non-essential operating and capital expenditures, laid off more than 17,500 domestic hourly theatre employees, furloughed 50% of headquarters employees, reduced other employee salaries, and worked with landlords and suppliers to modify payment timing. Executives and the CEO also reduced or waived pay while theatres remained closed.
- Subsequent financing: On April 20, 2020, Cinemark issued $250 million of 8.750% senior secured notes. The notes generally mature May 1, 2025, but may mature earlier in 2022 or 2023 depending on the amount of specified existing notes then outstanding. The company also obtained a maintenance-covenant waiver for the September and December 2020 quarters. The high coupon and conditional earlier maturity add financing and refinancing risks.
- Government support: Cinemark expected an approximately $20 million 2020 cash tax refund related to qualified improvement property, as well as possible payroll tax credits, deferred payroll taxes and tax benefits from carrying 2020 losses back. These were expected benefits, not all cash received as of filing.
- Impairment and investment judgments: The company recorded $16.6 million of long-lived asset impairments. Its COVID-related goodwill and tradename evaluations found no impairment at March 31, though one reporting unit’s estimated fair value exceeded carrying value by less than 10%. Cinemark did not impair its NCM investment despite its estimated market value of $133.2 million being below its $265.4 million carrying value, judging the decline temporary.
- Other risks and contingencies: The filing highlights uncertainty around reopening, attendance recovery, film releases, foreign currency, and theatre fixed costs. It describes pending patent litigation, an antitrust case with a jury damages award that the company appealed, and federal and state antitrust investigations; outcomes cannot be predicted. The company stated it believed it was in compliance with debt agreements at March 31.
- No quantified operating guidance: The filing gives no formal revenue, earnings or reopening forecast. Management expected attendance to recover gradually over time, but timing and extent remained uncertain.
Key facts investors should verify
- Whether cash, tax benefits, payment modifications and the April note proceeds were sufficient to fund operations during prolonged closures, and the subsequent cash burn.
- Theatres’ reopening dates, operating capacity, attendance recovery and film-release schedule, and the effect on revenue and cash generation.
- Debt and covenant developments, including the 8.750% notes’ conditional maturity provisions, revolver availability and any further waivers or financing.
- Whether impairment assumptions and the NCM investment’s carrying value remain supportable as market and operating conditions evolve.
- Developments in the antitrust investigations, appealed jury award, and other litigation contingencies.