Cinemark Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023, compared with the three months ended March 31, 2022. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Cinemark operates movie theatres in the U.S. and Latin America through two reportable segments. At quarter-end, it operated 516 theatres with 5,833 screens. The company closed one U.S. theatre and its sole Curacao theatre during the quarter; its Ecuador theatres were classified as held for sale.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $610.7 | $460.5 |
| Operating income (loss) | $28.5 | $(33.0) |
| Operating margin | 4.7% | (7.2)% |
| Adjusted EBITDA | $86.2 | $25.2 |
| Net loss attributable to Holdings | $(3.1) | $(74.0) |
| Basic and diluted loss per share | $(0.03) | $(0.62) |
| Cash provided by (used for) operating activities | $7.9 | $(118.8) |
| Capital expenditures | $26.3 | $18.7 |
Revenue increased 32.6%, reflecting higher attendance and ticket and concession spending. Attendance rose to 42.9 million from 33.1 million. Average ticket price was $7.25 versus $7.12, and concession revenue per patron was $5.50 versus $5.23. Management attributed attendance growth to a more consistent cadence of broadly appealing film releases. Adjusted EBITDA margin was approximately 14.1%, compared with 5.5%.
Holdings’ total assets were $4,712.1 at March 31, 2023. Cash and cash equivalents were $650.1, down from $674.5 at year-end. Current assets of $826.6 exceeded current liabilities of $740.9. Long-term debt carrying value was $2,514.6, including $110.0 classified as current; debt less current maturities and debt issuance costs was $2,375.4. Cash less debt carrying value was approximately $1,864.5, excluding lease obligations. Operating cash flow less capital expenditures was approximately $(18.4).
Material changes, outlook and risks
- Improved results versus Q1 2022 reflected increased attendance and higher average ticket and concession revenue per patron. Operating expenses rose in several areas, including film costs, concession supplies, wages, utilities and general and administrative expense; inflation contributed to cost pressure.
- Management said existing cash and expected operating cash flows should be sufficient for working capital, capital expenditures and known contractual obligations over the next 12 months and beyond. The filing provides no specific earnings or revenue guidance. Management’s outlook remains dependent on film availability and performance, theatrical release windows and consumer behavior; it cited a planned 2023 film slate.
- After quarter-end, National CineMedia (NCM) filed for Chapter 11 bankruptcy on April 11, 2023. Cinemark warned its Exhibitor Services Agreement could be rejected or renegotiated and its NCMI investment could lose value. It had written down that investment by $0.7 in Q1.
- On May 1, 2023, Cinemark redeemed $100.0 principal amount of its 8.75% secured notes for $106.6 cash, including accrued interest; $150.0 principal remained outstanding.
- The $624.9 term loan was due in 2025, including a final $613.4 payment scheduled for March 29, 2025. The $100.0 revolving credit facility was undrawn and available at quarter-end. The company reported compliance with debt agreements and a 2.2-to-1 secured leverage ratio, below the 4.25-to-1 covenant threshold applicable when the revolver is drawn. The quarterly dividend remained suspended.
- Other disclosed exposures include inflation and wage pressure, supply costs, foreign exchange movements, competition from streaming and other entertainment, and the uncertain recovery of theatrical exhibition. A COVID-19 insurance coverage lawsuit had received an adverse summary judgment; Cinemark filed for reconsideration. The company said it could not predict the litigation outcome.
Important facts for investors to verify
- Whether NCM’s bankruptcy affects Cinemark’s advertising agreement, related revenue and the carrying value of its NCMI investment.
- Cash generation after capital expenditures, and the liquidity impact of scheduled debt maturities and the post-quarter $106.6 note redemption.
- Whether attendance, film releases and customer spending sustain the improvement in revenue and operating performance.
- How inflation, labor costs, concession supply costs and currency changes affect margins, particularly in international markets.
- Progress and final proceeds from the proposed Ecuador subsidiary sale, which remained subject to customary approvals.