Cinemark Holdings, Inc. (NYSE:CNK) Q1 2024 Earnings Call Transcript

Cinemark Holdings, Inc. (NYSE:CNK) Q1 2024 Earnings Call Transcript May 2, 2024

Cinemark Holdings, Inc. beats earnings expectations. Reported EPS is $0.19, expectations were $-0.21. Cinemark Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings and welcome to the Cinemark Holdings Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Miss Chanda Brashears, Senior Vice President, Investor Relations. Thank you Miss Brashears, you may begin.

Chanda Brashears: Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.’s first quarter 2024 earnings release conference call, hosted by Sean Gamble, President and Chief Executive Officer, and Melissa Thomas, Chief Financial Officer. Before we begin, I would like to remind everyone that statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company’s actual results may materially differ from forward-looking projections due to a variety of factors.

Information concerning the factors that could cause results to differ materially is contained in the company’s most recently filed 10-K. 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-Q and on the company’s website at ir.cinemark.com. With that, I would now like to turn the call over to Sean Gamble.

Sean Gamble: Thank you, Chanda, and good morning, everyone. We appreciate you joining us today for our first quarter 2024 results. Over the past three years, the theatrical exhibition industry has seen meaningful year-over-year increases in attendances and box office as film volume has been rebounding following the shutdown of movie making during the pandemic. And as we indicated last quarter, while this year will likely experience a dip in that recovery trajectory due to over six months Hollywood strikes last year that again disrupted film production. 2024 kicked off to a better than expected start. First quarter North American industry box office declined only modestly versus 2023 on account of a wide range of films that delivered outsized results.

Examples includes Sci-Fi sensation Dune Part Two that out grossed its first installment by more than 2.5 times with over $275 million of domestic box office. Animated hit Kung Fu Panda 4, which became the second biggest installment in its franchise history with over $180 million domestically and more than half $0.5 billion worldwide. Biopic Bob Marley, One Love, which captivated audiences and generated nearly $100 million of domestic box office. Musical comedy Mean Girls and action thriller The Beekeeper, which each delivered close to $70 million domestically. And mega adventure Godzilla x Kong, The New Empire that opened to a monstrous $80 million in North America at the end of the quarter and has since delivered over $500 million worldwide.

The first quarter also benefited from strong continued play through of December’s whimsical family spectacle Wonka, which has now exceeded $215 million domestically and nearly $415 million globally, as well as anyone but you that proved audiences are still craving romantic comedies in theaters having generated close to $90 million of domestic box office over its impressive run. Furthermore, we continue to witness strength of non-traditional content during the quarter, such as the successful releases of Cabrini and the complete fourth season of Faith-Based Series, “The Chosen”. The solid results of all these diversified titles once again provide strong further validation that consumer enthusiasm for experiencing compelling content in an elevated, cinematic theatrical setting remains vibrant.

We certainly experienced that enthusiasm within our cinema theaters during the first quarter as we entertain nearly 40 million guests across our global circuit with results that once again outpace the industry. Relative to 2019, our emissions recovery continued to sizeably exceed that of our industry by 700 basis points domestically and 600 basis points internationally. To that end, we also continue to maintain the most significant market share gains compared to pre-pandemic results of all major exhibitors. While Melissa will cover our financials in greater detail in a moment, during the first quarter we generated nearly $580 million of total revenue, more than $70 million of adjusted EBITDA, and a healthy 12% adjusted EBITDA margin. These results once again demonstrate our team’s resilience and outstanding ability to skillfully navigate a dynamic operating environment pressured by strike-induced headwinds.

Yesterday, we also successfully retired another $150 million of our COVID-related debt, given our sustained confidence in our team, financial position, and positive long-term outlook for our company and industry. That positive outlook was further reinforced a few weeks ago during CinemaCon, our industry’s annual trade show event, as studios and filmmakers provided glimpses into their upcoming film line-ups for the next year and a half. One key message that was emphasized again and again by studios during CinemaCon, as has been consistently conveyed to us during our one-on-one conversations, is the significant enhanced value that a theatrical release provides their films and their companies. As we’ve highlighted on previous earnings calls, the clear consensus is that theatrical release delivers unparalleled levels of promotional impact and quality perception, which strengthens consumer interest to see films, bolsters long-term recall value, and leads to elevated lifetime financial results throughout all distribution channels.

It’s also very important for consumers who want to experience these films on the big screen, as well as for attracting top-tier talent. In light of this context, as well as what has been further communicated by the studios with regard to their future film development plans, we continue to remain bullish about the resurgence of film volume over the coming years. Production is now fully up and running again following last year’s strikes. New significant entrance, like Amazon and Apple, are meaningfully scaling into theatrical exhibition, and non-traditional content, like concerts, faith-based films, multicultural titles, and anime, is also growing. Along these lines, the major studios took the opportunity during CinemaCon to showcase an increased number of titles relative to prior years, and what they shared, both the quantity of films, as well as the quality of materials presented, created a buzz of optimism that permeated the convention all week.

A diverse range of highly anticipated films slated for the rest of this year appear primed to fully deliver, including a resurgence of family films, like IF, the Garfield movie, Inside Out 2, Despicable Me 4, Moana 2, and Mufasa the Lion King, Action Adventure sagas such as Kingdom of the Planet of the Apes, Furiosa, Bad Boys Rider Die, Twisters, Venom the Last Dance, and Gladiator 2, comedic thrill rides like The Fall Guy, Deadpool and Wolverine, Borderlands, Beetlejuice, Red One, and Sonic the Hedgehog 3, Suspense thrillers such as A Quiet Place Day 1, Alien Romulus, Joker 2, Speak No Evil, and Smile 2, and the fantastical world of Wicked Part 1. And next year’s lineup is already coming together in a big way with a wide array of spectacle films that includes Wicked Part 2, Another Jurassic World, Superman Legacy, the next installment of Mission Impossible, a reboot of the Fantastic Four, Ballerina from the John Wick universe, a live action version of How to Train Your Dragon, Captain America, A Brave New World, Snow White, Zootopia 2, Minecraft, Megatru, Tron Aries, and of course Avatar 3, whose prior installments represent the number one and number three biggest global films of all time.

So again, based on strong, sustained consumer interest in movie going, numerous indicators that point to a continued resurgence of film volume, and the highly encouraging slate of upcoming titles on the horizon, we maintain a positive future outlook for the Atrovox [ph] exhibition and our company. And we believe that Cinemark in particular is uniquely positioned to prosper as we move forward on account of several key differentiators. To start, our consistent investment in maintaining and enhancing our theaters over time, which we have performed at sustained levels that significantly exceed our peers, has positioned our company with the largest collection of high quality assets in our markets. In addition to a more favorable overall condition of our theaters, we have the highest penetration of luxury seat of the major operators with almost 70% of our domestic circuit reclined.

We have the best sight and sound technology and overall film presentation in the business, including 99.97% screen up time. We have the number one private label premium large format in the world with our XD auditoriums, as well as the largest footprint of D-box motion seats, and we now offer enhanced food and beverage menus in more than 80% of our U.S. theaters. We also have a distinctive global footprint across the U.S. and Central and South America, with a concentration in both suburban and Latin markets that have strong movie going cultures which tend to over index in theater visitation frequency. With one of the highest market shares in North America, as well as the highest share across our Latin American region, our global footprint also provides valuable scale.

Furthermore, it provides attractive diversification across 42 states and 14 countries, beneficial best practice sharing, and access to varied pockets of growth in under penetrated markets. Beyond the quality of our assets and our favorable geographic profile, we also have a solid financial position with a healthy balance sheet, industry leading adjusted EBITDA margins and cash flow generation, and results that consistently outperform our industry. Our disciplined and balanced approach toward capital allocation over the years has positioned our company with an outsized advantage to both effectively navigate periods of reduced film volume as well as actively capitalize on market opportunities as they materialize. Our solid financial position is further supported by our advanced operating capabilities.

These capabilities are the byproduct of deep experience, domain expertise and skill of our sensational global team, as well as years of deploying strategic initiatives. Examples include our heightened levels of customer service that consistently earn high satisfaction ratings from nearly 95% of our guests in our domestic surveys. Sophisticated social and digital marketing platforms and tools that deliver billions of media impressions annually driving increased film awareness and demand to visit cinema. And planning and execution rigor that has a consistent track record of optimizing show times and staffing, fine tuning operating hours theater by theater based on fluctuating weekly demand, and driving efficiencies to help offset varied inflationary and supply chain oriented headwinds.

Our depth operating abilities and consumer minded actions have also helped us to develop a loyal and extensive consumer base. We have over 21 million members in our global loyalty programs and the U.S. and in the U.S. alone, Movie Club, our paid subscription tier now accounts for 25% of our domestic box office. These members are frequent and dedicated cinema moviegoers as well as our most satisfied guests. Moreover, our marketing reach extends to a total addressable customer base of nearly 30 million consumers and continues to grow. Finally, we are also well positioned to drive incremental value creation on account of the numerous levers we have that go above and beyond our industry’s continued recovery and our singular competitive advantages.

From continuing to extend premium amenities more broadly across our circuit to enhancing our food, beverage, and merchandise offerings as well as distribution methods even further to taking our pricing sophistication to the next level while executing a wide range of additional productivity initiatives to further optimizing our circuit including adding attractive new assets while addressing lower performing properties. The opportunities before us to drive incremental growth and prosperity that are fully within our control are plentiful. Those opportunities combined with the positive direction our industry is headed as well as our advantage market position underpin our optimism about the future of cinema and our ability to create meaningful long-term value for our shareholders.

I’ll now turn the call over to Melissa for a deeper look at our first quarter financials. Melissa?

Melissa Thomas: Thank you, Sean. Good morning everyone and thank you for joining the call today. We were pleased that the first quarter box office surpassed our expectation. Our team once again demonstrated our agility in the fluid environment and achieved healthy operating and financial outcomes by capitalizing on the box office and diligently executing our strategic initiatives. Globally, we welcomed 40 million guests to our theaters and generated $579.2 million of worldwide revenue in the first quarter. We delivered $70.7 million of adjusted EBITDA yielding a solid adjusted EBITDA margin of 12.2%. Despite the pressure on operating leverage given the attendance decline due to the impact of the Hollywood strikes. Domestically we entertained 23.6 million moviegoers in the first quarter and maintained strong market share.

We generated $231.8 million in admissions revenue and we grew our average ticket price 1% year-over-year to $9.82. The growth in average ticket price was driven by our strategic pricing initiatives partially offset by ticket type mix with more family content in the first quarter of this year as well as format mix due to the lapping of strong 3D penetration on Avatar from the prior year period. We generated $178.6 million of domestic concession revenue and our U.S. concession per cap achieved a first quarter record of $7.57. Our concession per cap grew 2% in the quarter fueled primarily by strategic and inflationary pricing measures and a shift in product mix towards higher price concession items partially upset by lower incidence rates due to film content.

Other revenue was $46.6 million down 2% year-over-year primarily due to the decline in attendance. Collectively our domestic segment generated $457 million of total revenue and $49.1 million of adjusted EBITDA yielding an adjusted EBITDA margin of 10.7% reflecting the relatively fixed nature of our domestic cost base. Shifting to our international segment. We hosted 16.1 million guests during the quarter a decline of 9% versus the first quarter of 2023 as the film slate did not resonate as well in the Latin American region year-over-year, though we did benefit from an increase in local content in Brazil. Similar to the U.S. we maintained strong market share across the region. As reported our Latin American operations delivered $58 million of admissions revenue $45.6 million of concessions revenue and $18.6 million of other revenue altogether we generated $122.2 million of total international revenue and $21.6 million of adjusted EBITDA yielding a 17.7% adjusted EBITDA margin.

Foreign currency devaluation particularly with respect to the Argentinian peso resulted in a year-over-year headwind to international adjusted EBITDA in the quarter that was largely upset by inflationary dynamics. Our seasoned and knowledgeable local teams continued to skillfully maneuver through the fluid economic and political environment in the region. Turning to our global expenses, film rental and advertising expense was 53.2% of admissions revenue down 40 basis points year-over-year due to a lower concentration of box office and the mix of films during the quarter partially upset by higher marketing spend. As I mentioned on our earnings call last year, industry box office in the first quarter of 2023 meaningfully exceeded our expectations resulting in marketing expense as a percentage of admissions revenue that was somewhat lower than we had planned creating a cover comparison.

Concession costs as a percent of concession revenue were 19.6% up 110 basis points compared with the first quarter of 2023 driven by ongoing inflationary pressures on certain core concession items as well as the shift in product mix towards lower margin products such as movie themed merchandise. Strategic pricing measures partially offset these impacts. Global salaries and wages were $86.9 million relatively in line with the first quarter of 2023. As a percent of total revenue salaries and wages increased 90 basis points primarily due to reduced operating leverage associated with the decline in attendance, wage rate pressure and expanded operating hours. Benefits from our ongoing focus on labor management dribble partial offset. Facility lease expense was $77.3 million a modest decline of 3% year-over-year primarily due to feeder closures.

As a percent of total revenue, facility lease expense increased 30 basis points. Utilities and other expense was $100.4 million down 3% from the first quarter of 2023 primarily driven by variable costs that declined with attendance and foreign currency impacts partially offset by inflationary pressures. As a percent of total revenue, utilities and other increased 30 basis points. G&A was $48.9 million in the first quarter an increase of 5% year-over-year primarily due to wage and benefit inflation, one time severance costs and higher share based compensation partially offset by lower professional fees and the impact of foreign currency fluctuations. We continue to exercise prudence in our discretionary spending and staffing decisions maintaining headcount below 2019 levels.

As a percent of total revenue, G&A increased 80 basis points. Globally, we generated net income attributable to Cinema Holdings Inc. of $24.8 million in the first quarter resulting in earnings per share of $0.19. Net income per the quarter included a $27.7 million tax benefit primarily due to the release of valuation allowances in certain foreign jurisdictions. Moving to the balance sheet, we ended the quarter with a strong cash position with $789 million of cash on hand. As expected, our free cash flow was negative $46 million for the quarter given the software box office environment, the timing of our semi-annual interest payments, seasonal working capital headwinds, and our ongoing investment in our circuit. In the near term, we remain focused on further strengthening our balance sheet while deploying capital towards strategic investments that position the company well over the long term.

To that end, yesterday, we used cash on hand to redeem the remaining $150 million of our 8.75% senior secured notes at par, reflecting our confidence in our companies and the industry’s recovery. Furthermore, we invested $23 million in capital expenditures to further enhance our global circuit. Looking ahead, we continue to anticipate deploying $150 million this year towards capital expenditures aligning with our commitment to prudent financial management. At the end of the quarter, our net leverage ratio stood at 2.8 times for the trailing 12 months, which is at the high end of our target range of 2 to 3 times. While our objective is to sustain this leverage ratio within our target range, we may face some pressure this year due to the Hollywood strike impacts.

I would like to reiterate that at this juncture, our capital allocation decisions are prioritizing a dual focus, re-fortifying our balance sheet and strategically positioning ourselves for long-term success. In closing, as we face complexities associated with the Hollywood strikes, our commitment to sound, operating, and financial practices remains steadfast. At the same time, as Sean highlighted, we are laser-focused on maintaining our distinctive market position and further advancing our company, which gives us optimism regarding our future prospects and the value we can provide to our shareholders. Operator, that concludes our prepared remarks, and we would now like to open up the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] The first question comes from the line of Eric Handler with ROTH MKM. Please go ahead.

Eric Handler: Good morning and thanks for the question. Sean, we’ve seen a number of companies this earnings season talk about the consumer being more conservative with their or selective with their spending decisions. I’m curious, are you seeing anything notable in terms of how they purchase tickets or food and beverage decisions that maybe suggest there’s some selectiveness going on here too?

Sean Gamble: Good morning, Eric. Thanks for the question. It’s a good question. I’d say interestingly to date, very consistent with history, we have not seen a significant impact from the macro economy on our business. Consumers, when the movies are in our theaters, we continue to see consumers coming out. I think we mentioned that in the prepared remarks just in terms of the number of films that have delivered above expectations. And that plays through to choices to upgrade to premium format, to plays through to concession purchases. As we mentioned, we had another record first quarter per cap this quarter. So we haven’t seen that bleed through. It’s similar to, as I mentioned, recessionary environments of the past where our industry has grown in six of the past eight major recessions in North America.

Going to the movies remains an affordable form of entertainment while consumers may scale back in other things that they may otherwise go to. It’s a localized, affordable means of entertaining themselves. And they still tend to select, to indulge when they come to theaters. And we just, we continue to see that in this current environment.

Eric Handler: Great. And then just the follow up, from what I’ve seen, your press release, there really isn’t much of a backlog at this point with new built theaters. Are you seeing anything change in the market that maybe could allow you to expand it beyond what you’re currently planning?

Sean Gamble: Sure. Well, I think there’s probably twofold. One, I think much like the whole of the industry during the course of the pandemic, our development process was more or less put on hold. We have reactivated that development pipeline process. So we’re out there kind of looking at sites. So there’s a bit of a delay on account of that. And then beyond that, as we’ve talked about, we’re still in that mode of just re-fortifying our balance sheet and being tempered in the amount of catbacks [ph] we’re deploying as our cash flow continues to recover. So I think those two things are a bit of regulators over just the speed of new build activity. But there are still plenty of markets where we see opportunities. And I think some of that will start to ramp to a certain degree over the coming years. It’s just going to take a little bit of time.

Eric Handler: Thank you.

Sean Gamble: Thanks, Eric.

Operator: Thank you. Next question comes from the line of David Karnovsky with JPMorgan. Please go ahead.

David Karnovsky: Hi, thank you. Sean, why don’t you see if you could expand a bit more on your conversations in CinemaCon. What are you hearing from legacy studios in terms of output? Is there anything incremental to share regarding some of the streamers? And then, with Amazon, we’ve seen them achieve some success recently with exclusive streaming films. Does that create any concern from your end about their output ramping over time? And for Melissa, your staffing costs for an early flat year-of-year wanted to see if you could just speak a bit more to the initiatives you’re deploying to control expenses there. And how should we think about the rest of the year kind of just given natural labor inflation and likely improvement in film supply by Q4?

Sean Gamble: All right. Well, thanks for the questions. Starting with CinemaCon, I’d say the overall feeling coming out of CinemaCon was definitely a very positive one. I think, so it’s interesting to get some exposure to the materials that are up and coming. And by and large, I think everyone was really positive about what they saw. Things looked extremely promising. As I mentioned, you know, too, just the number of titles that were showcased were also to a greater degree. How that all plays through to future volume, both what we heard during CinemaCon and also what we continue to hear as we speak directly with our studio partners is one of a focus on continuing to replenish their production. They’re building their slaves back in many respects towards where they were pre-pandemic in certain cases looking to go beyond that, but it’s just going to take some time.

Obviously, they were in the process of ramping that back post-pandemic, and then the strengths just put a little hiccup in that. So that’s just prolonged things a bit further. But on the whole, we remain very optimistic that in the coming years we could see volume return back to, close to if not exceed pre-pandemic levels. Specific to your question on Amazon, yes, I mean, look, we have very direct conversations. I think they’re really bullish about theatrical opportunities. They’re continuing to build towards that. They’ve got a number of films already slated this year. I think they’re looking at 25 as kind of their first big major film slate in theatrical. That doesn’t mean that they’re going to walk away from direct to platform films. I mean, we’ve seen that forever in this industry where studios remain, HBO would make direct for HBO movies in the past and there’d be direct to video films.

So we certainly expect there will continue to be direct to streaming films. It’s those movies that have a certain degree of higher scale and potential that are the ones that we will see coming to theaters. And we know that that Amazon, at least what they’re sharing with us, remains very committed to continuing to build into the space.

Melissa Thomas: And then David, on the labor front, so we do continue to scale our labor hours up and down based on projected attendance levels that we’re seeing. And we are working on a range of initiatives to drive further labor productivity. So a couple of examples for that would be continuing to right size our staffing at the wing, so opening and closing, being even more nimble between slow and peak periods with a focus on our most profitable service hours, optimizing operating hours and scheduling for expanded food and beverage offerings. And those are just some of the ways that we’re looking to drive efficiencies. With respect to salaries and wages, more broadly, it is reasonable to assume going forward that we’ll continue to flex our labor hours based on anticipated attendance levels, albeit at a rate that is less than the change in attendance.

I will say on the wage rate side, we do continue to face some pressure there. Now fortunately what we’re seeing now is more in line with pre-pandemic increases. And then as I mentioned, we do expect to continue to see some productivity benefits as we lean in there. The one call that I would make though in 2024 in particular, especially in the first half of the year, we do expect to be more impacted by minimum staffing levels, just given the reduction in content volume is more concentrated in that period this year. But over-archingly, we’re leaning into data assessing our profitability on a per-theater, per-hour basis to determine operating hours and our corresponding staffing requirements. And we’ll continue to balance our revenue-generating opportunities with cost mitigating initiatives.

David Karnovsky: Thank you.

Operator: Thank you. Next question comes from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Ben Swinburne: Good morning. Two questions, really around some debates I think on your business and the stock. Your market shares have gained, have persisted now for a while coming out of the pandemic, which as you know, and I guess one question I’d be curious to hear about is just the role that your loyalty programs you think play in driving share. I mean, I thought the slide in the deck that you have is interesting. You’ve got a million plus people in Movie Club, but 20 million plus in a rewards program. I guess the question is, do these have a measurable tangible benefit to your share and returns that you could share with us? And then secondly is around kind of capital allocation. I know leverage ticked up as expected. I’m just wondering Sean, if you could talk about how you guys look at M&A.

How do you think about valuing assets out there relative to your own stock? How do you think about deploying capital and M&A relative to resuming the dividend? I think it would be helpful to hear your approach to those trade-offs as you guys move through this year. Thank you.

Sean Gamble: Excellent. Well thanks for the questions, Ben. To start with market share we certainly believe that our loyalty programs play a part in supporting our market share. It’s difficult to fully slice that up in terms of how much of that is attributable just to the loyalty programs versus to some of our showtime planning efforts as well as just the marketing actions we do in general to try to stimulate demand and coming to cinema. There’s a whole series of things and just the overall service and experience that we try to provide in terms of our elevated levels of maintenance and just the overall experience we create. So it’s tough to say that but, given that Movie Club now consistently represents about 25% of our box office and those moviegoers tend to be our most satisfied moviegoers.

I mean they wind up having a strong affinity to coming to our theaters. So it certainly is a component we believe of what we’re seeing in the uptick in our share and we continue to look at ways that we can continue to pack value in that and utilize the data in that communication channel we have to create value for those guests because we see them over indexing in their degree of frequency in their level of coming to cinema and again their overall satisfaction with regard to the experience they’re having. Specific to M&A, look M&A is certainly one of the prongs of potential growth we think about as we consider optimizing our footprint and growing overall. We do continue to target high quality assets that we believe can deliver solid short returns over time.

So we evaluate everything through that lens. We’re not just looking to grow for growth’s sake we believe we’ve had a lot of success in being disciplined and balanced with regard to deploying capital and targeting those kinds of investments that really do have a high probability of success. So again we’ve done well in that regard. I’d say in this marketplace right now what we’re seeing is there still is a little bit of distortion out there. It’s a little bit complicated just due to a range of things. Clearly where the debt markets are right now interest rates and costs of borrowing. Expectations of sellers still are off in certain cases in terms of expectations of what their margins really are and what multiples should be. There’s also that added layer of any particular type of company we might look at what is the level of incremental investment that may need to go back into that business to get those assets in the right shape depending on what levels of deferred maintenance there may have been over the past several years.

That also just plays into the calculus of all that. So it’s something that we certainly look at all opportunities in the marketplace. We’re optimistic that some of those opportunities could shake out over the next year or so based on the environment we’re in. But we’re going to continue to be very disciplined and balanced in our approach towards that.

Melissa Thomas: And in terms of our near term capital allocation priorities I mentioned as we stated on the call that those two remain centered around strengthening balance sheet and making those right investments to position us well for the long-term. Ultimately our decisions as Sean mentioned are returned, driven by returns. In terms of the dividend though we do believe our approach is prudent right now maintaining conservatism around our cash given the box office headwinds this year coupled with the back end waiting of the box office which we do believe may pressure our net leverage ratio in the near term. All that said, though dividend’s significant aspect of our capital allocation strategy prior to the pandemic and will remain a key consideration for us going forward.

Ben Swinburne: Great. Thank you both.

Sean Gamble: Thank you.

Operator: Thank you. Next question comes from the line of Robert Fishman with MoffettNathanson. Please go ahead.

Robert Fishman: Hi, good morning. One for Sean and then one for Melissa. Sean, maybe taking a different angle on the CinemaCon takeaways. I’m wondering how you characterize CinemaCon’s relationship with your studio partners more as it relates to the recent or maybe even upcoming renewals around windowing strategies and do you see an opportunity to improve film rental splits going forward? Maybe let’s start there and I’ll come back with my other one.

Sean Gamble: Sure. Well, I’d say overarchingly our relationships are very positive with our studio partners. Specific to windows that there’s clearly been quite a bit of evolution in the window throughout the pandemic and following up on the pandemic. I think with a lot of experimentation there was clearly quite a bit of learning that an exclusive window definitely is something that creates more value for these film assets, particularly for the studios. It’s the best way to fully gain that revenue opportunity in the theatrical space. It helps to create that bigger cultural moment. It helps to create more lift in downstream impact on all those subsequent channels. That has clearly been tested and learned again and it is something we’re seeing now by and large in the practice of windows.

I would say one of the changes which we actually view as a net positive while the window reduced a bit coming out of the pandemic and has become more dynamic what that has led to in our view is something that improves the risk equation for the studios. So in success a movie can run long and they can extract more value out of the window whereas if a movie they go for it and the movie just doesn’t work they’ve got an opportunity to get into the home quicker and manage their downside, which net net is a good thing especially as we’re looking for more volume to come back through. So it’s one of the things we look to as a positive that plays into that resurgence of volume. The reality is when movies aren’t working generally we’re moving on to the other films that are working stronger to begin with.

So it works collectively both ways. We think that we can lead to the studios taking more risks on films like the mid-tier films and the romantic comedies and the raw and cheap comedy. Some of the stuff that we haven’t seen as much of as of late because that was a tougher financial decision prior to the pandemic. So we’re very positive on that. I would say over the course of discussions there has been economic consideration that has been factored into the equation with regard to some of the evolution of windows. So I think more on the go-forward it’s just back to kind of that typical back and forth from any supplier-customer relationship in terms of the splits. I wouldn’t say there’s any heightened degree of pressure or ease relative to the norm.

It’s that traditional relationship where sometimes one party is a little bit stronger and in other programs others and things just kind of end in flow and in the aggregate the overall film rental rates tend to stay relatively stable.

Robert Fishman: Great. Thank you, Sean. Melissa, if I can do a little bit more detailed follow up on CapEx. Spending levels have hovered around 100 million, 150 million range. You mentioned guidance again for this year coming out of the pandemic. But back in 2019 you were at an elevated 300 million level. I understand that that included the core maintenance spend in that 80 million range. But there was more significant spending levels around the new bills that you’ve already touched on and these cash flow generating projects. So I’m just maybe a long way of asking should we expect to see more investment in cash flow generating projects or anything else in the pipeline to get back to more of an elevated level in 2025 and beyond even if it remains below 2019 levels?

Melissa Thomas: Thanks for the question, Robert. We do believe our history of proactively maintaining and investing in our theaters is a key differentiator for the company. As you think about CapEx beyond 2024 I would expect us to maintain again a balance and discipline approach to our capital expenditures but to ramp our CapEx levels up as the box office rebounds. While our peak CapEx years are behind us from where I sit today what I would say is we expect to grow to around $200 million to $250 million annualized on a normalized basis. So that will be contingent upon obviously the ROI generating opportunities that are available to us but that $200 million to $250 million annually is where we think CapEx should shake out relative to that kind of 300 plus range that you saw at our peak years in the pandemic and remember that included kind of that heavy push for recliner penetration that’s behind us largely at this stage.

We would still expect around $80 million to $100 million of that spend to be earmarked towards maintenance CapEx to maintain a high quality circuit. The remainder dedicated towards new bills and other theater enhancements including laser projector conversions.

Robert Fishman: Great, thank you both.

Sean Gamble: Thanks Robert.

Operator: Thank you. Next question comes from the line of Omar Mejias with Wells Fargo. Please go ahead.

Omar Mejias: Good morning guys. Thank you for taking my question. Sean maybe on the market share performance it was very impressive during the quarter especially as the [Indiscernible] was in particularly favorable for your demographics. So the extent you can, can you part style the impact from Dune 2 and PLF performance versus continued organic share gains? And maybe second for me you recently extended your Summer Movie Club Clubhouse program in response to strong consumer demand. Can you talk about the benefits of programs like this and any other opportunities that you have to maximize capacity utilization across your circuit during off peak periods? Thank you.

Sean Gamble: Sure, thanks for the questions Omar. Specific to share, obviously we were very pleased with our results in the first quarter. And actually there were, we benefited in particular from a handful of outperforming titles. So films like Kung Fu Panda 4, Godzilla X, Kong, New Empire and Bob Marley, One Love those films, those films skewed very much in our favor during the course of the quarter and I think were some of the drivers of our share. They more than offset I would say some of the headwinds. Dune 2 by the way was our biggest film of the quarter but given it’s a heavy sci-fi film which often doesn’t skew as much in our circuit. Our share was a bit lower on that specific title, but collectively all these other films definitely helped to drive that.

I’d say another benefit in that it was a overall reduced box office environment due to the strikes. We also weren’t coming up against capacity issues. Sometimes in those higher box office periods you can only sell as many seats as you have so that can also sometimes lead to a dampening of share but we didn’t have any of those issues over the course of the quarter which allowed us to really fully maximize the upside potential on all of these titles. Your programs, it’s interesting you mentioned the Summer Movie Clubhouse and we think it’s a great program. Really the goal of that program is to try to get younger families and younger audiences into the habit of movie going by giving them a very accessible price point on some legacy films. It really is a program that runs for a number of weeks.

It’s one day a week in the morning so it’s an early morning type of opportunity, so it can help with to a certain degree filling out that kind of maybe slower period on an early Wednesday morning. But I’d say that program in particular is really more designed towards trying to stimulate movie goers of the future versus fill in other periods of lower capacity. We do run a number of other types of programs of bringing back repertory content, fan favorites and things of that sort that we look to kind of sprinkle in to lower periods of volume and certain days of the week as a way to try to get a lift in during the course of the weekdays in particular in slower periods of business. So there are efforts like that that we do pursue to try to do that.

Omar Mejias: Great, thank you.

Sean Gamble: Thanks Omar, appreciate it.

Operator: Thank you. Next question comes from the line of Chad Penan [ph] with McQuarrie. Please go ahead.

Unidentified Analyst: Hey, good morning. This is Aaron [ph] on for Chad. Thanks for taking our question. One more for you around CinemaCon. Was there anything you saw from a tech standpoint that you believe could enhance or change the experience for your movie goers or help you from a productivity standpoint?

Sean Gamble: Think about that. There’s all kinds of evolutions that are constantly happening in terms of new introductions of technology both from productivity standpoint as well as from presentation standpoint. Obviously, Barco recently announced their new HDR kind of light steering projection capability. It’s something that we’ve been talking to them about and working with them on for actually a number of years. So that’s kind of out there and that something that has the potential, it’s a new even heightened level of laser projection. Laser projection in and of itself takes the quality of light on screen to a new level. It actually has productivity elements baked into it as well because it doesn’t consume as much energy. You don’t have to change the bulbs as much.