Cinemark Holdings, Inc. Price & Performance (CNK)

Before we begin, I would like to remind everyone that statements or comments made on this conference call may be forward looking statements. Statements or other statements of the company's plans, objectives, expectations or intentions. These forward looking statements are subject to risks and uncertainties that could cause the company's actual results to materially differ from those expressed or implied in the forward looking statements. The factors that could cause results to differ materially are detailed in the company's 10 ks, which was filed this morning. Also, today's call may include non GAAP financial measures. A reconciliation of these non GAAP financial measures to the most directly comparable GAAP financial measures can be found in the company's most recently filed earnings release 10 ks and on the company's website at ir.cinemark.com Cinemark. With that, I would like turn the call over to Sean Gamble.

Thank you, Chanda, and good morning, everyone. Before we get started, I'd like to first express our deep sympathies Colleagues, partners and the collective Los Angeles community that has been impacted by the devastating wildfires in California. Our hearts go out to all of you as you manage through this difficult time. Thank you all for joining us this morning. For our fourth quarter and full year 2024 earnings call. Then Melissa will provide details pertaining to our fourth quarter financials go forward capital allocation strategy. As we look back on 2024, Box Office results once again reinforce the enduring and timeless appeal of shared cinematic experiences that are unique and exclusive to a movie theater environment. Audiences showcased their ongoing enthusiasm for being immersed in captivating stories and events on a grand larger than life scale with cutting edge sight and sound technology that can't be matched at home, anywhere else. The collective enjoyment elevated emotional impact, and deep lasting memories that are fostered by experiencing films in a communal, theatrical setting continue to accentuate the irreplaceable impact of this long established yet ever evolving form of entertainment. North American industry box office reached which climbs to within 3% of 2023, despite the significant headwinds that were imposed by the prior year strikes in Hollywood.

As more and more compelling content was released to the big screen, moviegoing momentum surged delivering overall results that far exceeded expectations with numerous all time records. Examples include the highest grossing animated film in history, the most successful R rated film of all time, and North America's biggest Thanksgiving box office weekend ever. Furthermore, multiple franchise installments outperformed their predecessor while legacy sequels tapped into nostalgia to unite generations attracting both longtime fans as well as new audiences with a blend of beloved and fresh faces and storylines. And as the industry swelled to better than expected results, Cinemark once again went above and beyond with year over year box office performance that outpaced our industry by 300 basis points domestically 100 basis points internationally. We have now extended our outperformance trend to 14 of the past sixteen years, [indiscernible] now exceeds respective industry benchmarks by 900 basis points in North America and 700 basis points During 2024, maintained our meaningful market share gains of more than 100 basis points relative to our pre pandemic baseline and we entertained more than 200,000,000 guests across our global circuit. Furthermore, we also achieved all time high concession sales with another new domestic food and beverage per cap record of $7.89 [indiscernible] Altogether, we delivered worldwide revenue of more than $3,000,000,000 with $590,000,000 of adjusted EBITDA and a solid 19.4% adjusted EBITDA margin, that was flat year over year despite a 4% decline in attendance.

We also generated strong free cash flow of $315,000,000 and further refortified our balance sheet. Our results are the byproduct of an intense focus on effectively navigating the dynamic ebbs and flows of film release volume throughout the year simultaneously advancing a wide range of strategic initiatives, geared toward positioning our company for future success. Over the past several quarters, I provided updates on these initiatives including actions we've pursued to elevate the experience we provide our guests, build audiences, grow new sources of revenue, streamline processes and optimize our footprint. And this morning, I thought I would share a brief full year recap.

The content we show on our screens always one of the primary drivers that attracts guests to our theaters. Our studio partners and filmmakers do a phenomenal job of producing all kinds of captivating films that are intriguing to audiences then advertising those films with compelling campaigns to generate interest to see them. [indiscernible] through the extensive marketing reach, loyalty programs and sophisticated scheduling tools, that we have developed over many years. We now have more than 30,000,000 addressable contacts across our global circuit to whom we send weekly calls to action to stimulate ticket sales. Utilizing purchase history, expressed interest are emails, push notifications, website and app automatically tailor communications with millions of unique variations to increase their effectiveness by making them highly personalized, relevant appealing. We also have established a wide social and digital outreach that generates billions of impressions each year with increasing engagement that has driven a heightened connection Affinity, [indiscernible] Our loyalty programs also deliver significant impact in boosting awareness of upcoming films, and increasing movie going frequency. Our guests continue to find tremendous value in our fan favorite monthly membership program, Movie Club. And over the course of the year, subscribers grew another 10% to nearly 1,400,000 members.

We have an active channel of communication with our movie club members They are consistently our most satisfied customers. And in 2024, tickets purchased through Movie Club grew to represent 25 Moreover, combined with our free movie rewards program, loyalty members now consistently represent over half of our domestic box office proceeds every quarter. In addition to utilizing marketing, and loyalty efforts to stimulate movie going demand, We also have improved our programming capabilities. Through an ongoing refinement of the database tools and controls we use to schedule our show times, we further increased the volume and availability of films that consumers want to see most. Additionally, we once again actively pursued non traditional content to attract guests to our theaters during slower periods of release volume as well as to expand our audience base. Foreign, faith based concert and repertory films continue to grow in appeal and generated more than 10% of our domestic admissions revenue for the third year in a row. Of course, beyond what we show on our screens, what's equally important in keeping guests coming back for more is the experience we provide them when they visit our theaters. To that end, we remain committed to continuously enhancing [indiscernible] execution of our in theater presentation, amenities atmosphere and service to deliver a comprehensive entertainment value that is unmatched across our industry, and that continues to earn us positive satisfaction ratings In 2024, we continued advancing the multiyear conversion of our entire circuit to Barco laser projectors reaching 20% of our global footprint.

Also diligently maintained our superb fleet of digital projectors, delivering an incredible 99.98% uptime. While sustaining our industry leading light levels across more than 10,000,000 shows throughout the year. We also maintained our commitment to investing in new premium amenities while extracting increased impact from previous installations. In doing so, we achieved record breaking box office results for our large format screens driven by our XD auditoriums, the world's number one exhibitor branded premium format. For the full year, PLFs represented 5.5% of our screens accounted for 13.4% of our total box office proceeds, which was up 60 basis points almost 400 basis points from 2019. Similarly, our D Box motion seats also set a new box office record on a 30% expansion in seat count. Of course, also continue to derive substantial benefits from our widespread fleet of premium recliner seats that span approximately 70% of our domestic circuit. Another amenity that also meaningfully contributes to the atmosphere and experience guests enjoy at our theaters is our food and beverage selection. [indiscernible] further enriched the variety assortment and ease of purchase of our concession offerings. We continue to expand enhanced hot food options, hone our menus to better cater to local tastes and fine tune the layout of our self service facings to improve sell through. [indiscernible] also work to capitalize on emerging consumer trends for convenience, which the introduction of more expedited queue lines that are now present in a third of our domestic theaters while further ramping up our mobile ordering platform.

At the same time, we actively leaned into growing excitement for movie themed merchandise, which further elevates the fun, excitement and anticipation of going to the movies. Collectively, these many actions drove our all time high food and beverage results To round out the progress we have made advancing our strategic initiatives in 2024, We also continued to increase the sophistication and efficiencies in the way we operate our business. Over the course of the year, we maintained our focus on continuous improvement in our pursuit to drive productivity without compromising quality, by using refined data analytics and tools to simplify tasks, increase automation, and strengthen decision making. Through our ongoing efforts, we further enhanced our staffing and workforce management capabilities, as well as reengineered varied operating procedures to successfully generate a third straight year of labor productivity upside, reducing payroll hours deployed per customer while preserving our guest service standards. We also strengthened our overall sourcing and procurement practices to more aggressively pursue product alternatives and cost deflation as we work to combat ongoing inflationary pressures on theater amenities and services, cost of goods sold and utilities. And in the realm of pricing, we further invested in our team analytics and market intelligence to more closely monitor and respond to market elasticities at a discrete theater level, so our pricing stays actively calibrated and aligned with evolving demand dynamics.

All of these actions provided significant that were consistent with twenty twenty three despite the attendance headwinds caused by the strikes. Moreover, we believe they will continue to afford us ongoing benefits as we move forward. Would like to commend our exceptional Cinemark team for their outstanding determination [indiscernible] to deliver yet another year of stellar results, positioning our company for long term prosperity. As we turn our attention to 2025 and beyond, we remain highly optimistic about what the future holds for Cinemark and theatrical exhibition. After a relatively light first quarter, the 2025 release schedule for the balance of the year continues to reflect a nice spring back to the recovery trajectory our industry was following prior to the 2023 strikes in Hollywood and 2026 is already looking like it will notch another step forward from there. As of today, a little over 100 wide releases have been dated this year. We expect that figure will likely grow to around 115 by year end, which is roughly 90% of pre pandemic levels represents a further improvement from the past two years 2025 hosts the most diversified slate we have seen since COVID, with a wide range of genres and varieties of films, both big and small, that truly offers something for everyone.

There's action adventure like a Minecraft movie, The Accountant two, Mission Impossible: The Final Reckoning Ballerina F1 and Jurassic World: Rebirth, superhero films like this past weekend's heroic launch of Brave New World, Thunderbolts, Superman and the Fantastic Four First Steps Family fair including Snow White, Lilo and Stitch, How to Train Your Dragon, Smurfs and Zootopia two, suspense thriller and horror titles such as Megan two, I Know What You Did Last Summer, conjuring last rights and saw 11 comedies like Mickey 17, The Phoenician Scheme, and a Naked Gun reboot Faith based films, including The King of Kings in the next season of The Chosen, Nostalgia plays like Karate Kid Legends, Freakier Friday and Michael Indian drama titles such as Warfare and Downton Abbey three and Fantasy Sci Fi Spectacles that include Tron Harry's, Wicked For Good, Avatar, Fire and Ash. The list in 2025 goes on and on. And then twenty twenty six's film slate is already jam packed with new installments from widely popular franchises like The Avengers, Minions Toy Story, Spider Man, Shrek, Hunger Games and Mario Brothers, as well as new original movies, [indiscernible] That have already been announced. As we consider the positive progression of film one of our top priorities going forward is to fully capitalize on that resurgence maximizing attendance, box office and margin potential.

To do so, we plan to continue driving actions to further refine our programming and Showtime scheduling while strategically leveraging our marketing, pricing and loyalty capabilities and aggressively pursuing concession sale opportunities. At the same time, we remain maintain our focus on further advancing strategic initiatives to position Cinemark for long term growth and success. Experiences we provide our guests, scaling up our investments pursuing revenue growth and diversification opportunities and driving incremental productivity gains. And finally, all the while, we intend to maintain the operating [indiscernible] and prudence that have served us so well over the years and helped us build our advantaged market position. Will continue to actively focus on staying ahead of market trends, effectively navigating fluctuations in attendance, remaining disciplined with expense, cash and investment management, and resolving our remaining COVID related debt. We've made huge strides over the past years since COVID, on account of the many actions we have pursued, to establish new growth channels develop enhanced operating capabilities, optimize our circuit expand our market advantages and strengthen our financial position. We believe Cinemark is in excellent shape in today's environment because of these efforts. Furthermore, maintain a positive outlook for the future based on the current state of our company, the many opportunities that are directly within our control to drive incremental value creation and the further industry recovery we anticipate overall.

As such, we are thrilled to announce this morning that we have reinstated our cash dividend. This event marks another major milestone in our company's recovery from the pandemic and reflects the remarkable achievements of our sensational team to date the confidence we have in the future prosperity and resilience of Cinemark and our commitment to creating long term shareholder value. I will now turn the call over to Melissa who will provide added context on our fourth quarter results and capital allocation strategy. Melissa? Thank you, Sean. Good morning, everyone.

And thank you for joining the call today. We were very pleased with our fourth quarter and full year 2024 operating and financial performance. Our success was fueled by industry results that far surpassed expectations. And our Cinemark team's exceptional operational execution. In the fourth quarter, we entertained 51,000,000 moviegoers across our global footprint. A significant increase of 26% compared with the fourth quarter of twenty twenty three. Given the higher volume and increased scale of films. We grew worldwide revenue nearly 28% to a Q4 record of $814,300,000 Moreover, we gained leverage over our fixed costs with the increased attendance and benefited from the execution of our strategic initiatives. Nearly doubling our adjusted EBITDA year over year to $156,900,000 We also expanded our adjusted EBITDA margin by six eighty basis points to 19.3%. Domestically, we welcomed 32,600,000 page up 24% compared with the fourth quarter of twenty twenty three. We held our market share flat with the elevated levels we saw in Q4 of last year. And maintained significant share gains of more than 100 basis points compared with the pre pandemic period. Our market share was bolstered by a content mix that skewed more heavily towards family films.

Which tend to perform particularly well in our circuit. As well as our strategic initiatives. We also benefited from our ability to capitalize on alternative content opportunities during the slower October content period. Which offset the impact of some of the capacity constraints we experienced during the crowded holiday season. Propelled by the higher attendance, our domestic admissions revenue increased 27% to $338,700,000 We were able to overcome last year's challenging comparison associated with the Taylor Swift, The Arris Tour concert film, and grow our average ticket price 2% year over year to $10.39 This growth was primarily driven by strategic pricing initiatives. And higher premium format mix. Particularly three d penetration. We grew our domestic concession revenue a sizable 29% year over year to $259,700,000 and delivered a record setting fourth quarter per cap of $7.97 Our concession per cap was up nearly 4% with incidents rates holding strong despite the outsized increase in attendance. Other revenue was $68,000,000 an increase of 35% year over year primarily due to higher attendance, an increase in online penetration, and a one time $6,000,000 contractual payment received from a third party service provider. Delivered $666,400,000 of revenue, and $128,000,000 of adjusted EBITDA.

Yielding a healthy 19.2% adjusted EBITDA margin. Shifting to our International segment, we entertained 18,400,000 guests during the fourth quarter, representing a 28% increase compared with the same period last year. Notably, our fourth quarter international attendance reached 90% of 2019 levels and our market share continued to meaningfully outperform pre pandemic period. Internationally, we delivered $67,800,000 of admissions revenue, dollars 53,700,000.0 of concession revenue, and $26,400,000 of other revenue in the fourth quarter. In total, we grew international revenue 23% year over year to $147,900,000 and increased adjusted EBITDA 160% to $28,900,000 yielding a 19.5% adjusted EBITDA margin. International adjusted EBITDA benefited from enhanced operating leverage associated with the 28% increase in attendance, film performances that were stronger than expected, and inflationary impacts partially offset by FX devaluation. We continue to meaningfully benefit from our local team's significant expertise and long track record in effectively managing the intricate economic and political environment throughout our Latin American region.

Turning to global expenses. Film rental and advertising expense was 58% of admissions revenue. Up four forty basis points compared with the fourth quarter of twenty twenty three. Due to an increased concentration of high grossing titles and the overall mix of films, which is a dynamic we expect will persist going forward as the box office continues its recovery. Concession costs as a percent of concession revenue were 19.2%. Down 30 basis points year over year. Driven by strategic pricing measures lower shrink in moist, and favorable concession rebates. Partially offset by inflationary pressures on certain concession categories and a shift in product mix. Global salaries and wages were $107,700,000 up 11% compared with the fourth quarter of twenty twenty three, due to higher payroll hours to accommodate the increase in attendance expanded operating hours. As well as higher wage rates and employee benefits. These increases were partially offset by the impact of our labor productivity initiatives As a percent of total revenue, salaries and wages declined 200 basis points year over year. Facility lease expense was $80,600,000 a modest increase of 2% year over year. Reflecting the relatively fixed nature of domestic leases. As well as higher variable rent internationally, due to the increase in attendance.

As a percent of total revenue, facility lease expense decreased two forty basis points. Utilities and other expense was $127,300,000 up 12% from the fourth quarter twenty twenty three. Primarily driven by the increase in attendance which impacted our variable costs such as credit card fees. This expense line item was also impacted by higher gift card commissions and higher property and liability insurance. As a percent of total revenue, Utilities and Other declined two ten basis points, G and A was $57,100,000 in the fourth quarter, an increase year over year due to wage and benefits inflation, increased severance costs and higher share based compensation. These impacts were partially offset by lower incentive compensation expense and foreign exchange rate fluctuations Globally, we delivered $51,300,000 of net income attributable to Cinemark Holdings' the fourth quarter and diluted earnings per share of $0.33 For the full year, we generated $309,700,000 of net income attributable to Cinemark Holdings Inc, diluted earnings per share of $2.00 $6 Shifting to the balance sheet. Ended the year with a healthy $1,100,000,000 of cash. Which remains elevated as we prepare to address our convertible notes maturing in August of twenty twenty five. [indiscernible] Our year end cash balance benefited from $315,000,000 of free cash flow generation, during 2024.

Specific to the fourth quarter, generated $136,000,000 of free cash flow. Which was bolstered by working capital tailwinds, associated with the stronger December box office. Keep in mind, our free cash flow has benefited from lower CapEx levels as well as lower cash taxes due to our utilization of tax attributes As we look forward, we expect our CapEx levels will ramp up as box office recovery resumes and our cash taxes will increase. Turning to capital allocation. As we have consistently stated, we have three pillars to our capital allocation strategy. Strengthening our balance sheet, investing to position the company for long term success and returning excess capital to shareholders. With a focus over the past few years on the first two priorities. Regarding the first pillar, we are proud of the progress we made during 2024 to strengthen our balance sheet. We paid down $156,000,000 of pandemic related debt extended our maturities, and reduced the interest rate on our term loan through successful reprices. Most recently in November we achieved a 50 basis point [indiscernible] Furthermore, we maintained our net leverage ratio within our target range of two to [indiscernible] Ending the year at 2.2 times net leverage.

We continue to view our balance sheet as a strategic asset and a key differentiator for our company. Providing us with the flexibility to invest in long term growth and maintain the health of our circuit. Moving to our second pillar, pursuing strategic and financially accretive investments to grow and secure Cinemark's long term success. In 2024, we spent $151,000,000 on capital Given the anticipated box office recovery, and our intent to capitalize on that recovery, [indiscernible] are increasing our capital expenditures for 2025 to approximately $225,000,000 We expect to allocate roughly half of that spend towards maintaining a high quality circuit and laser projector conversions. With the remainder to be spent on high confidence ROI generating opportunities. Including newbuilds and other theater enhancements, as recliners, premium formats, While we intend to continue to prioritize the strength of our balance sheet, and growth opportunities first and foremost, Given the progress we've made on these two pillars, coupled with our expectations around Cinemark and the broader industry's recovery, we have reevaluated our near term capital allocation priorities. [indiscernible] For our third pillar, returning excess capital to shareholders, payable quarterly representing a an approximate 1% yield. Based on our outstanding shares, this equates to approximately $40,000,000 annually.

The first quarterly dividend will be payable on March 19, to shareholders of record as of March 5. The reinstatement of our dividend underscores the health of our balance sheet, Beyond this, the repayment of our convertible notes remain our primary capital consideration in the near term. Our intent is to return a greater share of our free cash flow to shareholders through dividends and or stock buybacks. Provided our net leverage ratio remains within our target range of two to three times. The relative mix of dividends and or stock buybacks be determined over time. Our overarching goal is to maintain a balanced and disciplined approach to that provides us with sufficient flexibility to capitalize on any future value creation opportunities that may arise including M and A, while also mitigating risks. In closing, we are proud of our 2024 results and the strong positioning of our company. Our success enables us to confidently invest in the future of our business and prioritize shareholder returns. Demonstrating our dedication to being good stewards of capital. As we look forward, we remain highly focused on continuing to generate strong financial and operating results long term value for all shareholders. Operator, that concludes our prepared remarks and we would now like to open up the line for Thank you.

The floor is now open for questions. Bynan of Macquarie. Please go ahead.

Hi, good morning. Thanks for taking my question and congrats on reinstating the dividend. Sean, wanted to start with just concessions, maybe focusing on The U. S. You mentioned that this is a big driver growth in the next couple of years. Obviously, the numbers that you've been putting up have continued to grow at record setting paces. So can you maybe just elaborate a little bit more in terms of what's going to drive the further growth? Is it incidents of purchase? Just the overall consumer environment, which we've seen a nice [indiscernible] particularly after the presidential election. So is it controllables or uncontrollables? And kind of how you see the CapEx helping grow that line? Sure. Thanks for the question, Chad.

Look, we've been thrilled with our continued food and beverage performance really over the years. I think the whole industry saw a big jump in food and beverage coming out of the pandemic. There were some question as to whether or not there would be a reset and it really just established a new baseline from there. We've continued to grow. I always look at food and beverage as a game of single and doubles. It's a whole series of varied initiatives that ultimately drive the overall results that we've had. Everything from the assortment of what we're putting into our theaters to just optimizing the way we lay that out. To new ways to ease purchase through the way we navigate lines in our theaters and the types of forward facing fixtures that we have in our theaters. Clearly, merchandise has had some big uptick over the last couple of years as well. So it's a whole range of things. Specific to your question on incidents and pricing, I mean that plays into it too. Like we have our strategic pricing team that's not only working on how to best optimize ticket pricing based on elasticity, but the same goes for our food and beverage, so there's a component of that.

But we do heavily focus on how do we drive incidents. And that tends to overall lead to the richest margins. And we still have seen the bulk of our growth over the last several years come from stimulating more volume [indiscernible] promotions, through just better fine tuning what we're offering to guests and some of those other things I mentioned in terms of like the ease of purchase. So wide range of things and we've got a whole series of initiatives that are in motion to just continue to try to sustain those types of increases over time. And Ted, just to provide a little bit of context on expectations for full year 2025, We are expecting to continue to grow our domestic concession per cap moderately year over year in 2025. [indiscernible] Great. Thank you both. And then as we think about the remainder of the content for 2025, obviously more I guess loaded in the last three quarters. Can you talk about how you're feeling about the spacing of content And then just the breadth at this point of different genres, family friendly, faith based, action, etcetera. How you're feeling at this point for the rest of the year?

Sure thing. Well, yes, as you kind of mentioned, we we mentioned in prepared remarks, the first quarter is a little bit later. I mean, in the conversations we've had with the studios, it would seem as though that could be just some residual impact from the Hollywood strikes. And then the rest of the year really gets moving along. As far as the spacing goes, I mean there's there is more we're seeing an increase in volume as I mentioned during the year. So while there are some pockets of content that are spaced out nicely with a great cadence, We do see a little bit more bunching up in periods of place throughout the year. So that could create some more capacity constraints than we've seen in the past Again, I would flag those are usually positive signs in the sense that we're fully maximized in terms of our occupancy. In those periods. As I mentioned in our prepared remarks, the the types of content, we think it's one of the most diverse slates we've seen. So we think that that has a lot to offer all types of audiences. So based on at least on paper the films that we've seen and what materials have been released thus far, we're really optimistic about how these films perform over the course of the year.

Thank you. Appreciate it. Thanks, Chad.

Thank you. The next question is coming from David Karnovsky of JPMorgan. Please go ahead.

Maybe just Melissa following up on your capital allocation commentary, can you just clarify in the convert and how you intend settle that with cash and or stock? And then you mentioned a buyback. I know that you might want to comment on this later, but maybe what would be the factors that would determine the mix of repurchases versus dividends over time?

Great. So in terms of your question on convertible note maturities, So as we've conveyed in our prepared remarks, given strong financial condition and optimism around our recovery in that of the industry. We do intend to repay the principal amount of the convertible notes using cash on hand upon their August 2025 maturity.

The notes don't have a provisional call feature, so we do expect cash our cash balance to remain elevated in the near term as we prepare to address the converts. Beyond the principal amount, we do have a call spread in place that protects us from stock price movements up to $22.08 and we have the flexibility to settle the impact in either cash or shares. How we choose to settle any exposure above the principal amount will be contingent upon the extent to which the stock price 2,208 our cash on hand and potential dilution other factors So we're that's really the strategy there. We'll determine based on where the stock price is at that time. And we'll take the course of action that we believe is in the best interest of the company and our With respect to determining the relative mix of buybacks over time. That That will really be based on the facts and circumstances that we see there. In terms of factors and the natures of buybacks in general, the things that we're going to consider would include, but not be limited to our cash and liquidity, [indiscernible] dilution management, and total ongoing returns [indiscernible] paid to shareholders.

But again, we'll evaluate that based on facts and circumstances available at the time.

Okay.

And then just on a separate topic, Sean, I'd be interested to get your thoughts on Netflix's agreement with IMAX for the Narnia film. You'll participate in this somewhat through your IMAX footprint, but wanted to get your overview overall view on the structure and then whether you see an opportunity at some point down the line for a similar participating arrangement with your XD screens. [indiscernible] Sure. I think it's an interesting structure they put together. I We would have preferred to see a more full wide release of a film such as that. I think that also sounds like is similar to what the filmmaker would prefer But I know it's pretty clear from their commentary that's not the strategy they're choosing employ right now. So I think this has been described more as promotional effort and way to support talent versus any real shift. I think ultimately it remains to be seen how that film gets programs because it is being released in a very crowded period of the year in 2026 where it will be going up against several other major films that will have full releases from major studio suppliers. So I think it's kind of a TBD in terms of how that plays out.

So it's an interesting concept and I know it's it's an approach that's being used, but don't think it's necessarily one that is sustainable over time.

Thank you. All right. Thanks, David.

Thank you. The next question is coming from Robert Fishman of MoffettNathanson.

Good morning. I'll start with Sean and then one for Melissa too. Sean, actually a two parter for you. So can you you continue to perform strongly in the markets in The U. S. Think you call out number one or two.

In the box office in 2021 of your top 25 markets. Can you just talk about the advantages of your domestic geographic footprint I think Stilene is a little bit more suburban. Are there regions in The U. S. That you can benefit from getting even bigger? And maybe on the flip side of that, since 2019, you've reduced your screen count by about 400 screens.

So do you see building more screens going forward as good ROI?

Or should we expect further reductions of the underperforming screens in the years ahead? Thank you. Thanks, Robert. Great question. Yes, I mean, I think starting with our profile, We do tend to operate more in suburban markets across the country at large not to say that we aren't in some urban markets. We obviously have a large presence in places like San Francisco and Los Angeles. And that's just how the circuit has evolved over time. Certainly has nothing to do with any aversion to other markets that we're not in The U. S. We tend to evaluate those Ultimately, as areas of further what's the opportunity on a discrete level. So as we looked over time, as we've looked over times, the place that we've chosen to put theaters in have just yielded the best prospects for returns. So we would be open to broadening out into some other markets to the extent that there were opportunities that had a high confidence of accretive new theaters. You mentioned kind of closing down theaters. We have reactivated our new build pipeline. We do believe that will continue to be part of Our overall optimizing footprint strategy over time in the pocket of growth for us.

We do see more opportunities emerging that have the right kind of return profile and the right kind of demographics for new builds. Clearly, that whole pipeline was [indiscernible] put on a bit of pause during the pandemic, but We're encouraged by what we see in terms of future opportunities, it will all boil down to the types of the types of returns and prospects we have and the balancing of our capital allocation priorities that Melissa spoke about earlier. Okay, cool. And so Melissa, if we go back to some of your prepared remarks, keeping margins flat in full year 2024 versus 2023, Just can you talk a little bit more about how we should think about margin improvement in 2025 and beyond expected to recover further. Maybe just talk about some of those cost line items like the film rental costs and other potential efficiencies?

You're welcome.

All right. So if we hit go forward margins, a couple of things that I'd highlight. First, based on the performance that we've been experiencing over the past couple of years, we're certainly optimistic on our ability to expand margins as the box office office rebounds further in 2025 and beyond. In terms of 2025, we do expect our margin to benefit from higher operating leverage. Over our fixed cost due to the stronger year over year box office as well as the ongoing execution of our strategic initiatives and growth in our average ticket prices as well as our concession per cap. However, these anticipated benefits may be somewhat offset by market share tempering as the box office covers and auditoriums increasingly reach capacity limits. As well as ongoing inflationary and other More specifically on the expense side, as you project out, margins for 2025, there's a couple of things that I would keep in mind.

So first, we do expect our film rental rates will increase in 2025 versus last year given a greater share or a greater concentration of blockbuster content anticipated. Second, on the salaries and wages side, we are facing ongoing wage rate pressure that you'll want to take into account And then specific to international due to labor local labor laws, we do have less flexibility to adjust staffing levels with changes in attendance. Which may impact international margins as the box office further rebounds. I'd also call out utilities and other We do expect that to reflect higher repairs and maintenance this year as we address deferred maintenance needs across the circuit. And then on the G and A side, modest increases are expected to to further advance our strategic initiatives and position the company for long term success. Those investments will be targeted in nature. And then lastly, on the Latin America side, we always want to factor in inflation as well as the FX dynamics in the region. All of that said, we do remain highly focused on maximizing overall profit Very helpful.

Thank you, both.

Thanks, Robert.

Thank you. The next question is coming from Eric Handler of Roth Capital. Please go ahead. Good morning. Thank you for the question. Melissa or Sean, maybe a variation on the last question.

Cinemark pre pandemic had a long track record of operating adjusted EBITDA margin above 20%, matter of fact, ten year average was like 23%. Revenue this year, at least from a consensus basis, is for a record level. But how To get back to those normalized levels, do you have to see attendance sort of get close to record levels or are there other levers that you can use to sort of get back there?

I'll take that one, Eric. So it's worth noting that pre pandemic margin rates benefited by about 200 basis points from dividends received from NCM and DCIP, which will not recur on a go forward basis. As we think about levers to drive margin expansion going forward. Attendance is certainly the biggest attendance in box office. Those are going to be the biggest drivers of that margin expansion. But outside of that, market share, our ability to sustain market share or grow market share as well as the average ticket prices and concession per caps, the extent to which we grow that. Those are going to be key factors and you've seen us have success particularly on the food and beverage side, kind of shifting the mix of business towards food and beverage, which is higher margin And then outside of that, it's really going to be offsetting cost pressures that we're facing. And we have many initiatives in place whether it be revenue [indiscernible] to look to continue to expand margins. But there certainly are some puts and takes on the expense side that that are headwinds for us. Us.

Helpful. And then Sean, you did mention about sort of reactivating [indiscernible] plans. And I believe part of that is in your 2025 budget, At this point, do you have [indiscernible] projects signed up for construction and when do we when can we start seeing maybe some of those come online? And then can you maybe talk about the variation between domestic versus LATAM?

Hap?

Sure thing. Yes, we actually have a new location opening This week in fact in El Paso, which is our first family entertainment center concept that is happening right now. We have a couple of other projects that are in motion that we expect will be happening this year. There's some other opportunities also that we are not committed as of this point, but that we're also working on. I mean, so we do have a variety of things and that's continuing to build. Of course, that as I mentioned earlier, the pace of that will be dependent on just ongoing industry recovery, our cash flow projections are our balance sheet refortification objectives and just the overall strength of opportunities. There's a range of things that go into that. More of those opportunities at this point are domestic based versus international based. There are a couple of things that are actually actually in motion international as well. As far as some some screen additions and things of that nature.

So that we have reactivated kind of our exploration across the LatAm markets too. But I would say that's moving a little bit slower at this stage than what's happening in The U. S. Thank you. Thanks, sir.

Thank you. The next question is coming from Ben Swinburne of Morgan Stanley. Please go ahead. Thanks. Good morning, Sean and Melissa. I want to ask a couple of cash flow related questions. I don't know if you could help us with cash tax rate in 2025. I think it was about 18% of book income in 2024. I know you said cash taxes would grow, but I presume that's partly because entirely because income is going to grow And then I think you had mentioned at a conference last year, what kind of longer term capital spending the $200,000,000 to $250,000,000 range. Obviously, that's within your your '24 numbers in that range. Just wanted to see if that was still the right kind of longer term framework And then I think maybe the more important question is just how do you guys how do you and the Board think about The right free cash flow payout ratio when you just combine whatever it is you're going to do with buybacks and dividends, presumably it's a to some degree tied to free cash flow generation. I think your $40,000,000 dividend is going to be about 13% of at least last year's free cash flow.

Pre pandemic, you were paying out like 60 like long term, what's the philosophy around sort of return of capital once we get beyond the August convert?

Sure. I'll start with the cash taxes. So on the cash taxes side, we do expect that start to step up meaningfully in 2025. And there's a couple of drivers of that. First is that will naturally cause our cash taxes to increase. We also have less available tax attributes to minimize our tax [indiscernible] has been under a corporate income tax holiday since 2022.

And they'll start to return to their statutory income tax rate of 34%. So three factors are really driving our cash taxes to increase in 2025. As you step back and look at where effective tax rate will land, think on a normalized basis that that will begin to return closer to 30%.

So that's the context on the cash tax side. In terms of capital expenditures and really what that normalized range would be over time. We have stated in in the past, as you mentioned, Ben, $200,000,000 to $250,000,000 as being within that normalized range. And we're at $225,000,000 is the expectation for this year. As we think about beyond 2025, we do think that the number could grow to $2.50. Potentially a little beyond that, but that's going to be contingent upon the accretive investment opportunities at that time. So I'd say for now that's a pretty good range for where we think things could shake out, but we'll have to see where the ROI opportunities are. And then on the third point, in terms of how we're thinking about free cash flow, the percentage of free cash flow that we ultimately will allocate over time. Just from a philosophy standpoint, the way that we're thinking about this is we want to make sure that our capital allocation strategy is maintaining sufficient flexibility for us to be able to capture opportunities that are in front of us, while at the same time mitigating we want to make sure at the end of the day that we're considering those two factors.

But we're really just trying to deliver long term value for all shareholders. So we'll be balancing those factors.

Okay. But you'll operate within your leverage range or would you dip below the leverage Because obviously, if you keep the payout ratio lower, at some point you'll dip below two.

Yes. So the intent is for us to operate within that two to three times net leverage ratio going forward.

Got you.

And then if I could just ask Sean about the slate, I know you don't have a crystal ball, but since you have a 26 slate slide in your deck, like it's fair game, Are you still expecting supply to get back to pre pandemic levels next year and presumably box office as well along the way? Well, I mean, it's interesting. We're certainly optimistic of that volume pipeline continuing to round out. We had thought that potentially 2025 would be a year we'd see volume creep back to pre pandemic levels. And then clearly, the six months of work stoppage in Hollywood impacted that. We're looking this year continuing to bounce back somewhere between 2023 and where 2019 was. I mentioned potentially up to 115 releases, which would be about 90% of pandemic levels and then 2026, what's phenomenal about 2026, I mean, the obviously, the studios tend to plant their stakes for their large films. We have nice visibility into that and it looks very promising. How those mid tier and smaller films round out, won't get line of sight to that until much later. But based on the conversations we continue to have, new entrants that continue to ramp like in Amazon and in Angel Studios, in A24, as well as non traditional content, we're definitely optimistic that it'll close the gap further, if not reach the level of volume that we saw prior to pandemic.

So we're definitely encouraged by the continued trends we see with regard to the rebuild of [indiscernible] Thanks.

You. The next question is coming from Omar Mahes of Wells Fargo. Please go ahead.

Good morning and thanks for the question. Sean, I think you highlighted on your prepared remarks and maybe a follow-up to the prior question for for your expectations of 115 films by year end and 90% of pre pandemics. And you talked about just closing that gap over the next few years. So how should we think about where these films will come from? Is it mostly from just additional volume from some of the major studios, new entrants or some of the smaller studios just ramping up the volume in mid sized film? Just Just any color on sort of how that bridge looks like to sort of closing that gap or potentially exceeding it? And Melissa, on the cost side, U. S. Costs came in a bit higher than expected and you talked about some of the potential drivers there. But maybe I think you talked about salaries and wages. And some inflationary pressures there. But maybe on the concession side, were also elevated. And I think you've talked about some inflationary pressures and some internal initiatives. Can you unpack what's what's some of the drivers there from those two key factors? Thanks.

Omar. Yes, just on your I'll start with your first question. Regard to Vamed. I think kind of our sense is from all the factors you mentioned, when we speak with our traditional studio partners and try to get a sense for what their plans are, and add all that up. And then as we we know that Amazon has publicly indicated the potential to get to up to 16 films by 2027. So they are clearly building to the level of a major studio in terms of the scale of releases that that they plan to have. Angel Studios has been delivering about five to six films a year, eight A24 has ramped up. Lionsgate has expressed similar intentions. So we kind of put all that together. And then as we look continue to look at how non traditional content has grown I mentioned it's been over 10% of our box office for the past three years. We continue to see consumer appeal for faith based, foreign, repertory, concert, creator content types of of films gain bigger and bigger results. So there's that element too. And then when we just look at the risk equation on smaller and mid tier films that has improved as a result of a more dynamic window think there's more opportunities even for the studios to continue to try more of that because there's lower downside potential and more upside potential.

So that's how we're kind of coming to that overall assessment of [indiscernible] building back towards that volume level because we're not that far off, I mean, when we were talking about 115 films this year versus 130 on average pre pandemic, that gap has been closing and it wouldn't take too much more to get to get that fully back. Obviously, the scale and the mix of the types of films within that will vary year to year. But back to the earlier question, '26 is looking really, really compelling right now.

And then Omar, to your question, There are a couple of things that I would mention there. On cost of goods sold rate, there we were favorable 60 basis points year over year in The U. S. So we were pleased with the outcome there and that was really driven by strategic pricing actions, lower shrink in waste, and higher concession rebates due to the increase in attendance that we saw. Partially offset by ongoing inflationary pressures that we continue to see uncertain concession categories. We think going forward, in 2025, we'll still see some modest pressure or we'll start to see some modest pressure continue On the COGS front with on the inflationary side. However, maybe the points that I would call out on the quarter, Q4 in particular, that may have come in a little bit higher impression pressured margins a bit would have been on the utilities and other side. We did see an increase there driven in part by the 24% increase in attendance, which impacts our variable and semi variable expense so namely credit card fees, janitorial utilities to varying degrees. But in addition to that, we did have higher gift card commissions to stronger gift card sales as well as increased penetration in third party channels.

Also saw on the fixed cost side some impact due to higher property and liability insurance. So that contributed to the increase that is something that on utilities and other, we do think will remain elevated as we move into 2025, particularly as I mentioned earlier, in that we are going to be leaning into and addressing some deferred maintenance on the R and M side across the circuit. So that and we expect that to be around $8,000,000 to $10,000,000 of a headwind in 2025.

Very helpful. Thank you. Thanks, Omar.

Thank you. The next question is coming from Patrick Scholl of Barrington Research. Please go ahead.

Hi, good morning.

I just had a question on ticket pricing and how you're kind of approaching that, the strong 2025 and 2026 slate.

And I guess also sort of like in the context that you mentioned of maybe giving back some of that market share gain as you kind of are at your as you're kind of closer to your capacity limits, then with a stronger slate like filling in the the gaps in the slate and whether alternative content needs like a little bit more marketing to stand out and how how you approach kind of supporting that side of the film slate?

Okay. I'll take the average ticket price question. To start. So in terms of 2025, we expect modest growth in our average ticket prices domestically for full year 2025.

That will fluctuate quarter to quarter based on fill mix. Terms of the primary drivers, strategic pricing opportunities continue to be a tailwind for us. As well as growth in premium format mix including XD, D BOX and three d, given the expected strength of the film slate.

Keep in mind on the international side that we do expect ticket prices to face some continued pressure from FX dynamics in the region with some offset [indiscernible] a factor as well. But we continue to leverage data and analytics to really lean in and find the optimal pricing that's going to maximize overall [indiscernible] as well as box office. With respect to your question, on alternative cash stock market, I'll take that one.

With regard to alternative content marketing, it's interesting. In some ways, the non traditional content is in some ways easier to target market because they tend to be a little bit more niche focused audiences with established channels to reach them. So you think of like a concert film usually the artist has a broad base of followers that you can tap into. Foreign films, similar, they're usually looking for those kinds of things, more proactively. State based films, same fold. They have their kind of different channels as they get to those audiences well. So of those films always have the potential to crossover as you look like a Sound of Freedom or something like that when it gets a bit more mainstream. And on occasion, they'll follow these the distributors of those that content will follow a more traditional marketing campaign. But generally speaking, through [indiscernible] channels where they have direct connectivity to their consumers as well as supplemented with our own marketing channel. That's way we're kind of getting to these audiences and how they're they're finding this content. Does that hit on what you were asking Pat?

Yes. Thank you.

Thank you. The next question is coming from Mike Keke of Benchmark. Please go ahead.

Hey, Sean, Melissa, Shanda. Thanks for taking our questions and congrats the quarter and your dividend. Just two from us. Clearly, the domestic growth opportunity Sean, for '25 and 2026 is pretty obvious good tailwinds here in terms of film volume, variety, etcetera, everything you pointed out. Maybe less obvious is how you think Latin America will perform over the next couple of years and whether you think that region for you is sort of a plus or minus to the growth in revenue and margin that you see from your domestic business?

Sure. Thanks for the questions, Mike. Latin America we've been really pleased with the performance in Latin America. I mean, obviously, the the recovery of the region as a whole, I would say is actually pacing ahead of The U. S. At this stage. For a while during the pandemic, it was lagging, but you look at certain places even Argentina with everything that has gone on there recently economically the recovery of movie going has been one of the strongest that we've seen around the world. So we look at just the movie going behavior of consumers is really strong. The way we've been able to enhance the performance of our business there similar to The U. S. Has been really strong. And as we look ahead, we continue to just see positive signs about where that region is going. I mean, there has been no loss of interest in going to movies that Moviegoers in that region tend to over index in the volume of the level of consumption that they have. So we still think the overall fundamentals of Latin America look positive and are positive for our business.

Good to hear, Sean. Second question on Movie Club. It seems like every quarter you've got Great data to share. I think you said maybe 25% of your admission of revenues now from Movie Club, I think that's up trending higher. I guess thinking forward here, how do you sort of maximize the value of this loyalty program and how important has it been in terms of sort of achieving some of your strategic goals in terms of retention when you think about market share and reoccurrence of attendance is obviously is key to your growth and your concession sales, which have been a huge success? Thanks, guys.

Sure, sure. Well, yes, I mean, it's it's a very important program for us that has had a tremendous amount of success. I mean, as you kind of hit on, some of the goals that we seek through that is number one, it keeps audiences coming to Cinemark. These are very loyal consumers to our business. They derive a lot of value from the program overall. And as you mentioned, there we can continue to see the ratio box office that they represent grow year after year. We've also seen that the program has helped stimulate increased movie going frequency and food and beverage consumption in both cases. So when we look at consumers behavior prior to joining the program and after joining the program, we see both of those tend to grow. So it comes back to the value they derive from the program. Stimulates greater consumption. There's greater upgrading behavior. Which is all a positive and directly aligned with kind of the studios interest as well, which they think very highly of this program. And it over the third piece is it just enhances the overall experience which leads to increased guest satisfaction. So simplistic. We have a direct line of of communication to these guests, so we can we tailor our communications to their likes based on the data we get in terms of learnings of what they tend to prefer.

And the ease of purchases just simplified. So all around, there's just a whole range of benefits that consumers derive in been very important. Fortunately, we've continued to see the program grow at a pace that's consistent with what we were seeing even pre pandemic that ebbs and flows based on the amount of volume or amount of content in the marketplace. But it's continued growing. And as I mentioned, we're up 10% year over year and we're up considerably since 2019. Thanks Mike. Appreciate it. Thank you. Our final question from today is coming from Steven Lasevic of Goldman Sachs.

Hey, thanks. Good morning. Just two follow ups from me. First for Sean on market share. Could you elaborate a little bit more on your outlook for market share in 2025 in The U. S? It sounds like you're expecting some pressure. I'm just curious how much of that might be flight related or capacity related versus how much might be added competition or any other factors And then second for Melissa on film rental expense. In your prepared remarks, I think you called out some of the increases were expected to dynamically persist going forward. Just curious if you'd talk a little bit more about what this means and if there's any quarters in particular Sure. Thanks, Stephen. I'll Benefits of all the efforts we pursue to drive attendance in just kind of structural market share improvements, which we continue to believe will will be sustained at about 100 basis points ahead of where we were pre pandemic. In 2024, those benefits were further amplified by a mix of content that really worked well for our circuit. As well as a slate that was pretty well spread out over the year that Cinemark the amount of capacity constraints we had with hitting occupancy thresholds.

So as we look to 2025, we continue to expect those structural benefits will be maintained But we do expect some of the content mix benefits we received in 2024 as well as the the capacity constraints to temper or the limited capacity constraints to temper a bit. So, and that's just a byproduct of more volume in the marketplace overall more diversified content in the marketplace, So as I mentioned earlier, at least with regard to the capacity constraints, I mean, what generally is happening there is when there's a lot of great content in the market, we're being fully utilized So we're highly productive in those moments, but some of that volume will spill over to other parts of the market and our share may compress a little bit. So not necessarily a bad thing but it does affect the overall rate of share that we have overall.

And then on the film rental side, [indiscernible] film rental rates for 2024 benefited from a lower concentration of tentpole films due to the Hollywood strike. Particularly in the first half of the year. As blockbuster content resurged in the second half, what we saw is box office box office concentration increase as did our film rental rates. So as we look forward to 2025, we do expect that dynamic to continue with a greater concentration of blockbuster content, which will increase our film rental rates year over year. But as you think about how that could present from a quarterly standpoint, it's really going to be dependent upon the concentration in any given quarter, but the first half of the year, given the impact of the Hollywood strikes in 2024 was certainly lighter on the film rental rate side. As I think the other point that would be worth calling out would be on the marketing side. That is also in included within our film rental line item and that does also vary quarter to quarter based on our expected attendance and the returns that we're seeing. But we do expect for the full year 2025 that marketing spend is percent of admissions and concession revenue will be relatively consistent to what we saw in 2024.

That's great. Thank you both.

Excellent. Thanks, Steven. Thank you. At this time, I'd like to turn the floor back over to Mr. Gamble for closing comments. All right. Thank you, Donna.

In closing, I'd just like to reinforce once again the strength our confidence in the strength of Cinemark and the advantage position that we maintain in today's environment as a result of the significant advancements we've been able to make over the past year into position our company for success We remain highly encouraged about the road ahead and the further upside we anticipate with further box office recovery and the [indiscernible] of our strategic initiatives and would like to thank you all once again for joining us this morning and we look forward to speaking with you again following our first quarter results. Thank you.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or lock off the web cast at this time and enjoy the rest of your day.