Cinemark Holdings, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement figures are unaudited. Cinemark operates movie theatres in the U.S. and Latin America.
Business context and operating conditions
Government restrictions related to COVID-19 led Cinemark to close all U.S. theatres on March 17 and all Latin American theatres on March 18. Five U.S. theatres reopened in June on reduced hours with library films; ten additional U.S. theatres were scheduled to join the test-and-learn reopening on July 31. Broader reopening plans depended on the pandemic, local restrictions and film availability. Nearly all theatres were closed during Q2.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $9.0 million | $957.8 million | $552.6 million | $1,672.5 million |
| Operating income (loss) | $(214.3) million | $156.1 million | $(257.2) million | $213.4 million |
| Net income (loss) | $(170.8) million | $101.9 million | $(230.2) million | $135.1 million |
| Adjusted EBITDA | $(117.6) million | $244.7 million | $(51.4) million | $397.0 million |
| Diluted EPS | $(1.45) | $0.86 | $(1.96) | $1.14 |
- Six-month revenue fell 67.0%; attendance declined 67.9% to 45.8 million. The closures drove the steep decline in admissions and concession sales.
- Q2 revenue was largely limited to other revenue, principally amortization of National CineMedia (NCM) screen-advertising advances. Only 13,000 patrons attended the five U.S. theatres reopened late in the quarter.
- Q2 income tax benefit was $98.1 million; the six-month tax benefit was $101.3 million. Management cited expected carryback of 2020 tax losses and state NOLs; the six-month provision also included $14.2 million of net discrete tax charges.
Cash flow, liquidity and debt
- Cash and cash equivalents were $571.8 million at June 30, versus $488.3 million at year-end 2019. Current assets were $744.7 million and current liabilities $596.1 million.
- First-half operating cash flow was negative $153.9 million, versus positive $303.6 million a year earlier. Capital expenditures were $47.0 million, down from $115.2 million. Cash used in investing was $46.8 million; financing provided $290.7 million, including new borrowings.
- Reported debt principal was approximately $2.153 billion, up from approximately $1.778 billion at year-end. This included a $250 million issue of 8.750% secured notes, $98.8 million drawn on the revolving facility, and approximately $6.1 million of Peru and Colombia borrowing. Cash interest paid in the first half was $47.0 million.
- The revolving facility was $98.8 million drawn against a $100 million commitment. The filing reports approximately $1.2 million available in one section, but elsewhere says there was no available capacity after a letter of credit; it also notes that the letter of credit was cancelled in April. Confirm actual availability.
- Operating lease obligations were approximately $1.380 billion, in addition to finance lease obligations of approximately $148.8 million. Cinemark deferred or withheld approximately $42.7 million of lease payments; most repayment was expected in 2021.
Material changes, outlook and risks
- Cinemark suspended its quarterly dividend, reduced personnel and salaries, halted non-essential spending, and negotiated payment deferrals or abatements with landlords and suppliers. The $0.36-per-share dividend paid in March was the only 2020 dividend reported for the first half.
- A June restructuring plan included permanent corporate headcount reductions and planned closure of 13 U.S. and seven international theatres. Restructuring charges were $19.5 million; $16.6 million remained accrued at quarter-end.
- Management said available cash was sufficient to sustain operations into 2021 even if theatres remained closed for the rest of 2020, while warning that the pandemic could materially harm cash flow, liquidity, credit access and debt-servicing ability. This is management’s assessment, not a guarantee. No quantified revenue or earnings guidance was provided.
- The $250 million secured notes bear 8.750% interest and are due in 2025, but may become due in 2022 or 2023 if specified amounts of the 2022 and 2023 senior notes remain outstanding. Lenders waived the credit facility maintenance covenant for Q3 and Q4 2020, subject to liquidity and other conditions. The company reported compliance with debt agreements at June 30.
- Major uncertainties include reopening pace and capacity limits, customer willingness to return, film release delays or alternative distribution, lease negotiations, potential further impairments, and the ability to generate cash and meet obligations. Six-month impairment charges were $16.6 million; no long-lived asset impairment was recorded in Q2.
- Legal matters include an appealed antitrust jury award in the Flagship Theatre case, a patent infringement suit, and federal and state antitrust investigations. The company disputes the allegations and says it cannot predict outcomes.
Important facts for investors to verify
- Actual cash burn, available liquidity and the duration of the stated cash runway under different reopening scenarios.
- Reopening progress, attendance recovery, capacity restrictions and the timing and breadth of new film releases.
- Revolver availability and covenant-waiver conditions, plus refinancing or repayment plans for 2022–2023 debt maturities.
- Timing and collectability of expected CARES Act tax benefits, including an estimated $20 million cash refund, and repayment schedule for deferred rent.
- Potential additional restructuring, impairment or legal charges, and whether the dividend remains suspended.