Cinemark Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Amounts below are in millions of dollars unless otherwise noted. Cinemark operates movie theatres in the U.S. and Latin America.
Financial performance and liquidity
- Third quarter: Revenue was $821.8, up 9.0% year over year. Operating income declined to $58.5 from $82.7, and operating margin fell to 7.1% from 11.0%. Net income was $32.0 versus $50.6; diluted EPS was $0.27 versus $0.43. Adjusted EBITDA was $169.8 versus $168.4.
- First nine months: Revenue was $2,494.3, up 2.9%. Operating income fell to $272.0 from $311.6; net income declined to $167.0 from $195.3; diluted EPS was $1.41 versus $1.66. Adjusted EBITDA was $566.8 versus $583.4.
- Revenue mix and attendance: Q3 admissions revenue rose 6.3%, concessions 9.6%, and other revenue 24.5%; attendance increased 5.0% to 73.3 million. For the nine months, admissions revenue declined 1.3%, while concessions rose 6.6% and other revenue 16.9%; attendance increased 0.5% to 215.8 million. U.S. attendance fell 4.3% year to date, while international attendance rose 9.4%.
- Cash flow and investment: Nine-month operating cash flow was $397.2, compared with $350.1. Capital expenditures were $186.5, down from $246.0; investing cash outflow was $196.3 versus $352.5. Dividends paid to stockholders were $119.5. Cash increased by $56.6 to $482.8.
- Debt and liquidity: Long-term debt carrying value was $1,804.4, including a $648.0 term loan and $1,155.0 of senior notes. Cash was $482.8; the company reported $98.8 of available revolving-credit capacity and no revolver borrowings. Management said it was in compliance with debt covenants.
- Leases: Adoption of ASC 842 in January 2019 brought operating lease assets and liabilities onto the balance sheet. At September 30, operating lease liabilities were $1,445.2 and finance lease liabilities $141.8. Total lease liabilities were $1,587.0.
Material changes and unusual items
- Q3 operating results were pressured by a $27.3 impairment charge, compared with $1.6 a year earlier. Nine-month impairment was $45.4 versus $5.0, related to theatres affected by competition and adverse local market or demographic conditions.
- Film rental and advertising expense rose faster than admissions revenue in Q3; management attributed the higher rate primarily to the film mix and a greater concentration of blockbuster releases. Wage, concession-supply, lease, and other operating costs also increased.
- ASC 842 changed the classification of certain lease costs and contributed to reported changes in facility lease expense, depreciation, interest expense, cash flows, and Adjusted EBITDA. Comparisons with 2018 are therefore affected by the accounting change.
- On September 17, Cinemark amended its National CineMedia (NCM) agreement, extending it through February 2041 and providing incremental advertising time. The amended arrangement was accounted for as an operating lease for screen-use periods.
- Foreign currency movements affected international results. Argentina was treated as a highly inflationary economy beginning July 2018; management reported that the impact of remeasuring its results was not significant.
Outlook, risks, and contingencies
- The filing provides no quantified company-wide revenue, earnings, or cash-flow guidance. Management cited films scheduled for the remainder of 2019, including Star Wars: Episode IX, Frozen 2, Jumanji: The Next Level, and Joker, among others.
- Management said dividends are expected to continue at the board’s discretion, subject to cash needs, financial condition, earnings and cash flows, and debt restrictions. The quarterly dividend was increased from $0.32 to $0.34 per share in 2019.
- Committed theatre development and construction projects totaled an estimated $159 million for 29 theatres and 277 screens; actual expenditures may change. Management expects to fund development from operating cash flow and potentially borrowing, debt issuance, sale-leasebacks, or real-estate sales.
- The Department of Justice and several state authorities issued civil investigative demands concerning film clearances and possible coordination or communications among theatre circuits and joint ventures. Cinemark said it intends to cooperate and could not predict the investigations’ scope or outcome.
- In the Flagship Theatres antitrust case, a jury awarded damages in 2018; the company recorded a reserve and appealed. The filing says the outcome of pending motions or appeals cannot be predicted. A separate California wage-statement class settlement was approved in September 2019 and funded in October.
- Forward-looking results are exposed to film popularity and release timing, attendance, competition from other entertainment, foreign exchange, interest rates, costs, and litigation. Management said there were no material changes to the risk factors in its 2018 Form 10-K.
Most important facts for investors to verify
- Whether attendance, admissions, and margins recover after the year-to-date U.S. attendance decline and the Q3 operating-margin contraction.
- Whether the elevated theatre impairment charges indicate ongoing weakness in specific markets or locations.
- The effect of ASC 842 and the long-term lease burden on comparability, cash commitments, and leverage assessments.
- Progress and potential financial exposure in the DOJ and state antitrust investigations and the Flagship appeal.
- Ability to fund planned development, debt service, and dividends while maintaining liquidity and covenant compliance.