Cinemark Holdings, Inc. (NYSE:CNK) Q4 2022 Earnings Call Transcript

Cinemark Holdings, Inc. (NYSE:CNK) Q4 2022 Earnings Call Transcript February 24, 2023

Operator: Greetings and welcome to the Cinemark Holdings Fourth Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Chanda Brashears, Senior Vice President of Investor Relations. Thank you. You may begin.

Chanda Brashears: Good morning everyone. I would like to welcome you to Cinemark Holdings, Inc.’s fourth quarter 2022 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 the statements or comments made on this conference call may constitute 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-K, and on the company’s website at ir.cinemark.com. In today’s prepared comments regarding comparisons, we will be referring back to the fourth quarter of 2019, unless otherwise indicated. As we typically do, we filed our 10-K this morning in conjunction with our earnings release. Please note that similar to last quarter, the filing represents a combined Cinemark Holdings and Cinemark USA filing.

While the difference is between the two sets of financials are minimal, I wanted to point out this change once again. With that, I would like to turn the call over to Sean Gamble.

Sean Gamble: Thank you, Chanda and good morning everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2022 results. As we recently turned the corner from 2022 to 2023, we thought it would be constructive to share some of our key observations from the past year. First, and perhaps most importantly, people still love going to the movies. Sustained consumer enthusiasm for moviegoing was validated time and again throughout 2022 across all genres of films, all segments of audiences, and all periods of the year. Last quarter, I highlighted a wide range of films that outperformed relative to pre-pandemic results, in many cases, setting new all-time records. Some examples include blockbusters like the Batman, Doctor Strange in the Multiverse of Madness and Top Gun: MAVERICK.

Family films like Sonic the Hedgehog 2 and Minions: The Rise Of Gru. Horror titles, such as the Black Phone and Smile. Adult skewing dramas like ELVIS and Where the Crawdads Sing. And specialty content, such as Everything Everywhere All at Once, the live captured BTS music concert Permission to Dance on stage; and multicultural films like RRR. In consumer passion to experience content in an immersive, larger-than-life theatrical setting has only been reinforced since our last call. Over the past three months, we’ve seen Black Panther: Wakanda Forever delivered the biggest November domestic box office opening ever with a $181 million launch. Global phenomenon, Avatar: The Way of Water pressed the $2.2 billion worldwide to become the third largest movie in history.

Family film, Puss in Boots: The Last Wish is well on its way to over $170 million of domestic box office, which is 14% higher than its first installment. Horror film, M3GAN, is quickly approaching $100 million of domestic box office. Adult drama, A Man Called Otto, has eclipsed $60 million following its initial platform release on December 30. And this past weekend, Ant-Man and the Wasp: Quantumania delivered the third largest February opening ever with its over $100 million domestic debut. Furthermore, we’ve continued to witness strong interest in specialty titles and events, such as Pathaan, which just had the largest North American opening of all time for a Bollywood film. The Chosen 3, which generated unprecedented demand from faith-based audiences selling out auditoriums across the country.

And filmed concerts, including Billie Eilish: Live at The O2 and BTS Yet To Come in cinemas which continue to generate overwhelming enthusiasm from music fans. The impressive performance of this expansive range of titles clearly demonstrates that consumers are as excited as ever to experience compelling movies and events in theaters. And if these examples over the past year aren’t proof enough, ongoing demand for Cinemark Movie Club, our monthly subscription program, further reinforces the point. After we fully reactivated Movie Club in July of last year, it quickly reverted back to growth and now surpasses 1.1 million members, well in excess of our 950,000 pre-pandemic membership base. Moreover, Movie Club members drove 22% of our domestic ticket sales in 2022, which is up a sizable 800 basis points compared to 2019.

Movie Club’s continued growth and positive impact on moviegoing is a testament to the many exceptional attributes of the program as well as sustained consumer enthusiasm for theatrical moviegoing. And that brings me to our second key observation from 2022, which is movies performed better when they are released theatrically, particularly when they have an exclusive window. A theatrical release enhances a film’s promotional impact and overall asset value. While this observation is not a new phenomenon, it has been reinforced with growing frequency by all of our traditional studio partners over the past year. Consistent with the relationship that has existed for decades with VHS, DVD, Pay TV, and Free TV. The movie studios are releasing theatrically with the window are not only generating lucrative box office proceeds, but also providing greater impact for their streaming platforms with regard to subscriber acquisition, retention and engagement in an increasingly competitive in-home environment.

And that is because when marketed sufficiently, a theatrical release increases consumer awareness of and interest to see movies and all forms of filmed entertainment by eventizing them and elevating their perceived quality. This perception leads to a greater sustained recognition, remembrance and longevity of theatrical titles. Furthermore, experiencing films in a shared cinematic environment develop stronger emotional bonds with stories and characters that helps build bigger brands, franchises, and cultural moments. It also satisfies the desires of filmmakers and talent who aspire to see their films on the big screen. Now that theaters are fully operational again and moviegoing is rebounded, our traditional studio partners are expressing intentions of returning to pre-pandemic levels of release volume with a few indicating they plan to scale up even further.

While our industry is still facing a near-term headwind from a reduction in films being released, which was a byproduct of the pandemic’s impact on the production cycle of movies, overall volume continues to improve. Last quarter, we mentioned 85 wide releases had been announced for 2023-to-date. As of today, that figure now exceeds 95 and is well on its way to reach our expectation of 100 to 105 wide releases for the full year. Although still short of the approximate 130 titles released annually prior to the pandemic, this improvement represents a meaningful 30% increase from 2022. A noteworthy addition to the 2023 film slate since our last call is Ben Affleck and Matt Damon’s upcoming movie Air that Amazon will release exclusively in theaters on April 5th.

Over the past year, we’ve indicated that a significant opportunity for our industry is the prospect of streaming companies releasing their more commercial films theatrically. To help build momentum in that direction, we’ve been testing limited releases with various streamers for several quarters, and we’re thrilled that Amazon has now elected to amplify their theatrical ambitions in a big way with Air, including the captivating ad they ran during the Super Bowl. We believe Amazon’s move could represent the start of a more substantive entry into theatrical exhibition by streaming companies. In light of this potential shift as well as the anticipated ramp-up of film production by our traditional studio partners, we remain highly optimistic about the continued recovery of film volume over the next couple of years.

The third key observation from 2022 that we’d like to share is Cinemark remains strong, stable, and resilient as a result of our consistent financial and operating discipline and ongoing focus on continuous improvement. 2022 marked a series of important results and milestones for our company that exemplify our outsized recovery relative to our industry and peers, our improved financial stability, and our advantaged market position. For the full year, we generated $336 million of adjusted EBITDA, which was up more than 320% versus 2021 and had an adjusted EBITDA margin of 13.7%. We also delivered positive free cash flow of $25 million even after paying down substantially all of our pandemic-related deferred rents. Achievement of these results required active planning, prioritizing and flexing throughout the year to effectively navigate a wide range of shifting content, supply chain, labor, and inflationary dynamics.

Fortunately, we benefited from a solid operating foundation and the many process improvements we have pursued since the onset of the pandemic with regard to workforce management, showtime planning, and overall cost controls. Those same enhanced operating disciplines, coupled with our sustained focus on guest service, sophisticated marketing capabilities, and varied promotional content and pricing strategies, yielded box office and attendance results that far outperformed industry benchmarks. Compared to 2019, our full year domestic box office recovery surpassed North American industry results by 500 basis points, with both our domestic and international market share up more than 100 basis points. Part of our box office strength was propelled by the tremendous continued success of Movie Club that I described a moment ago.

We also benefited from a significant uptick in consumer demand for premium amenities. Despite the inflationary environment we encountered during 2022, consumers continued to actively upgrade to premium large formats and D-BOX motion seats at levels well above pre-pandemic norms. We leaned into this trend through a series of new XD and D-Box campaigns that helped grow our 2022 domestic XD revenues by almost 6% versus 2019 and domestic D-Box revenues by almost 48%. Furthermore, even though PLFs only represent 5% of our screens, they accounted for 13.6% of our global box office, an increase of nearly 400 basis points from 2019. Akin to premium amenities, we also maximize food and beverage opportunities throughout the year maintaining our significant concession per patron growth trend.

Through a range of promotional, pricing, and category management strategies, we achieved an all-time high domestic per cap of $6.98, which was up more than 30% compared to 2019. Our international per cap also grew a sizable 65% in constant currency over the same time frame. Our outperforming results and industry-leading recovery are a direct result of the positive experiences we provide our guests, our ongoing financial and operating discipline and the perseverance, dedication, and skill of our ordinary Cinemark team. I’d be remiss if I didn’t take a moment to commend our entire global organization for all of their hard work, commitment, and resourcefulness to deliver these tremendous results and put us in an advantaged position to capitalize on future growth potential as our industry further recovers.

And that brings us to our final key observation from 2022, which is Cinemark maintains a strong competitive position with an abundance of opportunities ahead. As I just described, the disciplined approach by which we’ve managed Cinemark over the years, including the way we’ve prudently invested capital, actively focused on revenue and margin generation, and aggressively pursued process improvements, has provided us with a financial and operating position that is a strategic differentiator for our company. Moving forward, we intend to maintain our discipline as we focus on effectively navigating this fluid period of recovery, expanding our pipeline of content and audiences and evolving our company to ensure ongoing success within a dynamic media and entertainment landscape.

To that end, we are confident in the capabilities we’ve developed to quickly flex and adapt to shift in the marketplace, and we are highly optimistic about our ability to capture an outsized portion of our industry’s recovery and the myriad of growth and productivity opportunities that remain in our purview. Examples include continuing to strengthen the experience and value we provide our guests through premium amenities like XD, D-Box and laser projectors as well as enhanced concession offerings; increasing moviegoing frequency through our omnichannel marketing platforms, extensive consumer reach, highly impactful loyalty programs and data-driven promotions; expanding our strategic relationships with content creators, retail partners, in-home delivery services, and new e-commerce sales channels; scaling up our recently launched Snacks In A Tap online food and beverage ordering platform, while reducing friction in theater with improved floor designs; and planograms and driving meaningful additional efficiencies and cost savings through our ongoing workforce management, continuous improvement and sourcing initiatives.

These varied actions will strengthen our core business, grow new sources of revenue, further streamline the way we operate and enhance our ability to capture maximum box office and attendance upside as compelling content hits our screens. And we look forward to doing just that as we consider the promising array of diverse titles that lie ahead in 2023, which are primed to excite all audiences. From action films like Indiana Jones and the Dial of Destiny, Fast X, John Wick 4, and Mission: Impossible-Dead Reckoning Part One to family films like the Little Mermaid, Supervisor Brothers and Elemental, to superhero spectacles, including Guardians of the Galaxy 3, the Flash, Spider-Man: Across the Spider-Verse, and the Marvels, to suspenseful horror films like The Nun 2, Evil Dead Rise and Screen 6, to intriguing adult dramas such as Oppenheimer, Book Club: The Next Chapter and My Big Fat Greek Wedding 3.

The plentiful list of promising titles in 2023 goes on and on and extends across all genres and demographics. So, to summarize our key observations from 2022, the theatrical exhibition industry continues to follow a positive recovery trajectory with regard to consumer enthusiasm for moviegoing, the value of theatrical release provides studios and content volume. Within that backdrop, Cinemark is poised to excel on account of our advantaged financial position, sophisticated operating capabilities and sensational team, and we remain highly optimistic about our many opportunities ahead. Before I turn the call over to Melissa, I’d like to take a moment to personally acknowledge and thank our founder Lee Roy Mitchell, who announced his retirement from our Board of Directors last week.

Lee Roy has been a cornerstone not only for Cinemark, but the entire theatrical exhibition industry over his influential tenure of nearly four decades. Many of you have had the opportunity to meet Lee Roy over the years at various industry and investor events, and I’m sure you can attest to his captivating energy, engaging personality, and entrepreneurial spirit. He is a pioneer who consistently challenged the status quo, growing Cinemark from only a handful of theaters to the global leader in theatrical exhibition we are today. We are abundantly grateful to Lee Roy for his leadership and the tremendous value he has provided over the years, and we will all continue to work diligently to position the company that he and his wife, Tandy, founded for long-term success.

With that, Melissa will now provide further information about our fourth quarter results.

Melissa Thomas: Thank you, Sean. Good morning, everyone, and thank you for joining the call today. The Cinemark team once again demonstrated our ability to effectively flex and adapt in a dynamic environment throughout the fourth quarter. Despite a significant reduction in film volume and softer-than-expected performance for certain films in the quarter, Cinemark served 39.2 million guests worldwide and delivered solid fourth quarter results. Globally, we generated $599.7 million of revenue and $73.5 million of adjusted EBITDA, yielding an adjusted EBITDA margin of 12.3%, which remains healthy, particularly considering the impact of the reduced film volume on our attendance in the quarter and the relatively fixed nature of our cost base.

I would like to echo Sean in commending our global team for their hard work dedication and focus to deliver these results. Turning to our domestic segment, we welcomed 25.1 million patrons to our theaters during the fourth quarter and generated $251.1 million in admissions revenue. We continue to outperform the North America industry box office recovery in the quarter, outpacing the industry by more than 600 basis points versus the fourth quarter of 2019. Furthermore, our market share reached heightened levels in the quarter, increasing over 100 basis points relative to 4Q of 2019. Our outsized market share was primarily driven by our strong performance in alternative content, coupled with our ability to capture a greater share of the market due to the lower film volume.

Our average ticket price was $10, up 19% versus pre-pandemic levels, driven by strategic pricing actions and a favorable format mix, with a meaningful uptick in 3D and premium large formats in light of the content released in the quarter. For context, thanks in large part to Avatar and James Cameron’s commitment to visual technology, 10% of our tickets sold during the fourth quarter were in 3D compared with only 3% in the fourth quarter of 2019. With respect to premium large formats, 16% of the domestic box office was generated from XD and IMAX, an increase of over 500 basis points versus 4Q 2019. Our domestic concession revenue was $186.5 million in the quarter, with our concession per cap reaching an all-time high of $7.43, a 39% increase over the fourth quarter of 2019.

Higher incidence rates continue to be the primary driver of our per cap growth. Our team did a nice job capitalizing on the film slate in the quarter with notable success from limited time offers, as well as collectible vessels and other merchandise tied to movies and characters. Strategic and inflationary pricing actions also contributed to our per cap growth, albeit to a much lesser extent. Other revenue was $48.1 million and outpaced attendance recovery relative to fourth quarter of 2019 due to an increase in screen advertising revenue, higher transaction fees, and promotional income recovering at a faster rate than attendance. Overall, our domestic segment generated total revenue of $485.7 million and adjusted EBITDA of $59.5 million, resulting in a 12.3% adjusted EBITDA margin, despite the challenging operating environment.

Moving to our international segment. We served 14.1 million patrons. The fourth quarter has historically been our lowest attended quarter in Latin America due to seasonality. And in 2022, it was also adversely impacted by the World Cup. That said, relative to fourth quarter 2019, Cinemark continued to outperform the Latin American industry in the fourth quarter and gained market share. Our international segment generated $53.5 million of admission revenue, $39.2 million of concession revenue and $21.3 million of other revenue in the fourth quarter. Altogether, we delivered $114 million of total International revenue and $14 million of adjusted EBITDA, yielding a 12.3% adjusted EBITDA margin. Shifting to global expenses. Film rental and advertising expense was 56.9% of admission revenue, up 70 basis points from the fourth quarter of 2019, due primarily to a higher percentage of box office generated from blockbuster films during the quarter, partially offset by modifications in film rental terms.

The higher rate also reflects our ongoing marketing efforts to grow our customer base, increase visit frequency and strengthen loyalty. Our level of marketing investment continues to be guided by our box office expectations and the returns we are seeing. Concession costs as a percent of concession revenue were 17.9%, consistent with the fourth quarter 2019. While we continue to face supply chain constraints and inflationary pressure in some key categories, some of that pressure is now easing. And in the fourth quarter, we were successful in offsetting these headwinds through product alternatives, category management and strategic pricing actions. Our global salaries and wages were $95.7 million and decreased 6% compared with the fourth quarter of 2019, primarily due to lower attendance operating hours optimization and labor management efficiencies.

These factors were partially offset by higher average hourly wage rates, driven by labor market dynamics and government-mandated increases. We continue to leverage tools and data to drive our decisions with an emphasis on maximizing our overall profitability on a per theater per hour basis. Facility lease expense was $77.1 million in the fourth quarter and declined 7.8%, driven by lower attendance, which led to a reduction in percentage rent and common area maintenance costs. Utilities and other expense was $103.4 million and decreased 12% from the fourth quarter of 2019, driven primarily by variable costs that declined with attendance, partially offset by higher utility rates and increased mix of credit card transactions and the expansion of our gift card program.

G&A was $43.6 million or 6% lower than 4Q 2019 levels. Excluding the impact of share-based compensation, G&A was down 10%. Our G&A reflects our continued discipline around discretionary spending and staffing, which remain lower than 2019 levels, partially offset by a shift towards cloud-based software, higher professional fees, and wage and benefit inflation. Globally, we generated a net loss attributable to Cinemark Holdings, Inc. of $99.3 million in the fourth quarter, resulting in a loss per share of $0.82. We generated $63 million of free cash flow in the quarter and $25 million for the full year. Turning to the balance sheet, we ended the year with $675 million of cash. We continue to view our balance sheet as a strategic asset and a key differentiator.

We executed upon our capital allocation priorities and strengthened our balance sheet during the year, paying down $21 million of international debt and repaying substantially all of our remaining deferred rent obligations incurred over the course of the pandemic. Importantly, we were able to do so while continuing to invest in the long-term. For the full year, we invested $111 million in capital expenditures to enhance and maintain our theaters, with some spend initially planned for 2022 shifting into 2023 due to supply chain constraints. As we look to 2023, our capital allocation priorities remain focused on strengthening our balance sheet, which includes de-levering and strategically investing to position the company for long-term success.

With that, we expect to spend approximately $150 million in capital expenditures this year. This step-up relative to 2022 CapEx levels reflects our expectations around further box office and free cash flow recovery in 2023 as well as our balanced and disciplined approach to capital deployment. In summary, Cinemark remains well-positioned to fully capitalize on the industry’s recovery, given the strength of our balance sheet, prudent investments, and operational excellence. We will continue to focus on strategic initiatives that will benefit the company and our industry over the long-term, while aiming to maximize shareholder value. Operator, that concludes our prepared remarks, and we would now like to open up the line for questions.

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. Our first question has come from the line of David Karnovsky with JPMorgan. Please proceed with your question.

David Karnovsky: Hi, thank you. Sean, I guess, first on your market share, you noted some of your growth there was from alternative content, and we’ve seen strong continued contribution from programming like BTS or The Chosen. So, just wondering if you think your share gains you made in the quarter is sustainable or whether that might normalize out by Q2 as sort of the foam supply picks up?

Sean Gamble: Thanks for the question, David. Certainly, some of the influence of alternative content will fluctuate just based on the volume of content that’s out there. It’s an area that we particularly leaned into. We have, I’d say, some of the best technology in the business, particularly when it comes to live events. So, some of the live concerts, we have the ability to broadcast that across our entire circuit, which gives us an edge and also boost our share on things like some of the live events like the Coldplay concert and the BTS concert earlier in 2022. So, certainly has the potential to give us a piece. I would say any aggregate alternative content is still relatively small as a total percentage of box office. So, we still think there’s growth potential, and we’re hopeful that as more and more of these events find really solid success, it will lead to an increase in the volume of that.

So, it certainly can address. I think part of what we saw in the fourth quarter with alternative content in terms of why it really gave us a boost to our market share was unfortunately just a limited overall volume of content. We expect that, that’s going to continue to round out over the course of 2023. And because of that, alternative content will likely have a smaller influence in the total — our total share as well as just the total box office.

David Karnovsky: Okay. And then we’ve seen supply come over from streaming. But in some cases, that’s not always getting a wide release or full marketing push. And wondering if you think those are isolated cases or whether they’re sort of a new class of films that’s going to kind of earn some revenue in theatrical with limited P&A before moving over to streaming? And then I would just be interested to get your view on Puss in Boots. I think it’s earned around $50 million post its home release. Do you see that mainly as a function of it being a family film? Or do you think other genres can kind of do similar after it’s out on ESD? Thanks.

Sean Gamble: Sure. Well, look, with regard to content from the streaming company, this was mentioned in the prepared remarks, we have, for a long while, felt like that is a really sizable opportunity for the industry. And with all the benefits that we continue to hear from our traditional partners about how movies they’re releasing theatrically are providing greater benefits to their streaming platforms, we’ve thought for a while that it’s only a matter of time before the streaming companies get into theatrical in a much more significant way. Fortunately, we’re seeing Amazon continue to do that with their MGM products that they recently purchased, and we’re seeing it now with Air, their own homegrown film. We like to — we know in our discussions with Apple, they’re giving us similar types of commentary about intentions to do the same.

So, we do see that moving forward in a positive direction. Clearly, some of the learnings we’ve had testing releases in a smaller way. They just don’t drive the same level of value overall in terms of promotion, in terms of lift on the streaming platforms and just in terms of financial impact. So, I see that probably being lessened over time. And then second, I’m sorry, what was the second–

Melissa Thomas: Puss in Boots.

Sean Gamble: Puss in Boots — yes, Puss in boots, I think we’ve been really, really pleased with the holds on Push in Boots. It’s been a fantastic run. Our view of some of the main drivers of that is just really right now, it’s the lack of family content in the marketplace. And we think there’s been a big opportunity in January and February. But if you’re a family and you wanted to go to the theater, that’s really the only show in town for young audiences. So, we think that part of the value, I mean, number one, the reviews have been very positive, so that helps as well. It’s a quality film. But then on top of that, the fact that there’s a limited amount of alternatives and limited amount of choice has really helped to drive some of the success of Puss in Boots.

David Karnovsky: Okay.

Sean Gamble: Thanks David.

Operator: Thank you. Our next questions come from the line of Ben Swinburne with Morgan Stanley. Please proceed with your question.

Ben Swinburne: Hey good morning everyone. Sean, could you come back to the wide release outlook? I know it’s not really your role to forecast that over time per se, since it’s the studios. But anyone who’s been on media earnings calls this month has heard about the sort of return of theatrical as a priority. So, do you think — I guess, the question is, do you think the 100 to 105 for this year, is there upside to that? And maybe if not, because we’re sort of — we’re pretty far into 2023 now. Where do you think that goes over 2024, 2025? Can we get back to 130? Could we exceed 130? I’d love to get your thoughts because you obviously have more conversations in depth with distribution at the studio side than we do? And then I did have a follow-up from Melissa.

Sean Gamble: Sure. Thanks for the question, Ben. Let me start with the second part of your question there. I definitely think over time, there is the potential to get back to the 130 plus range of films we were seeing prior to the pandemic, both because of the indications we’re hearing from our traditional studio partners as well as what I was just speaking to a moment ago, the potential for streaming companies to get more significantly into the theatrical space. There’s also the potential for new entrants. There’s new studios coming into play. Beyond just the value that theatrical is providing to their streaming platforms and other distribution channels, we’ve said this on prior calls, the more dynamic flexible window, I actually think helps because it creates a better model for many of those mid-tier films that were starting to disappear prior to the pandemic.

We’ve seen many of those films work and generate some terrific results during the course of 2022. And with the studios having the knowledge that if for whatever reason they go for it and it doesn’t work, they can get into the home faster and still recoup any of their downside that bodes well for them taking more swings and putting more films out. So, we look at all that as really positive in terms of where things go. The all that and ramp up back to that level is really just the production cycle, right? It takes two to three-plus years to make movies that was disrupted by the pandemic. So, all the studios are having to kind of get back up to those levels, and it just takes some time. So — and it’s not a perfect assembly line process. There’s an art to it.

So, we’ll just have to see how that goes. Specific to 2023, we do think there is the potential to have some upside to that. We know that — you mentioned it yourself on some of the public calls. Studios are looking at some of the other films that they had originally been contemplating for streaming platforms and considering if those could be released theatrically instead. So, there’s the potential for that to grow higher. I think we’ll have to see. A lot of times, too, in addition to films that get slated late in the game, there are those platform releases that you just don’t know if they really connect like in Everything Everywhere All at Once, there are several examples where A Man called Otto like they can grow to be wide releases in success.

So, if there’s more of those with quality, it could certainly lead to something in excess of 100 to 105.

Ben Swinburne: Makes sense. And then, Melissa, just as we think about our 2023 forecast and the expectation of a larger box office, a broader slate, hopefully, a broader sort of audience coming back to the theaters. What would you highlight we think about either on expenses and sort of US margins, ATPs or per caps as we think 2023 is hopefully another step towards a normal year on the box office front, just to make sure we’re thinking about some of the major swing factors in your mind, if anything?

Melissa Thomas: Sure. Thanks for the question, Ben. So, I’d start off by saying, as it relates to 2023, we do anticipate margin expansion relative to 2022 as the box office further recovers, and we gain more leverage over our fixed cost base. Big picture on the revenue side, I think the key call out there would be we do believe we can modestly grow both our average ticket prices as well as concession per cap relative to full year 2022 levels. Albeit those growth rates may be tempered a bit from what we saw in 2022 and will vary quarter-to-quarter based on our film mix. On the expense side, our key — our expenses are comprised, as you know, both fixed and variable components. As you think about the box scaling, our biggest variable expenses are going to be film rental and advertising, salaries and wages, concession supplies, and then to some extent, facility was expense, but that’s particular related — particularly related to international.

It’s reasonable to assume that those expenses will scale up as attendance and box office continues to rebound, though that won’t necessarily be at the same rate. But overarchingly, we do expect to remain diligent in our cost control, and we’ll continue to pursue productivity initiatives with towards profitability and, of course, free cash flow generation.

Ben Swinburne: Great. Thank you both.

Sean Gamble: Thanks Ben.

Operator: Thank you. Our next questions come from the line of Robert Fishman with SVB MoffettNathanson. Please proceed with your question.

Robert Fishman: Hi, good morning. Two questions, please. First, Sean, I appreciate your comments around the return of the movie supply. I’m wondering if you can share learnings about the frequency of moviegoers and how that may be changed compared to the pre-pandemic from maybe your Movie Club members or just the broader moviegoing audience? And are there certain movie genres where you think streaming or windowing has had a bigger impact on theater attendance like family or dramas? And maybe is this an opportunity for growth given the pendulum shift on the streaming strategies that you’re talking about from the Hollywood studios? Thanks.

Sean Gamble: Thanks, Robert. Great questions. We have been looking at frequency of moviegoing behavior, both in general and of our Movie Club members. I’d say the one challenge we have just in looking at that in a comparable way is with volume down in 2022 almost 40% to where we were prior to the pandemic, it’s just — it’s hard to compare that directly because with more limited choice, there naturally will be more limited frequency. So, I would say we’re very encouraged by what we’re seeing in terms of Movie Club going behavior. I mentioned on the call, we continue to see overall subscribership grow, which we see as a real positive in terms of interest and sustained demand. However, frequency is down just a small but we — based on what we’ve seen, it’s down less than volume is down.

So, if anything, based on the volume of opportunities people have to select from, they’re over — I would say their overall frequency is up a touch even if in the aggregate frequency is down a little bit. But again, it comes back to fewer films being available to them. Specific to any impact on any type of particular genre, perhaps the one area we kind of call out that we’re watching just if nothing else be more animated content. We have seen perhaps a little bit of consumer confusion just based on some of the releasing strategies specific to animation that took place over the course of the pandemic. But even that is a little hard to fully say because there have been so few of those movies released in 2022 compared to pre-pandemic times. That part of that could also just be a response to less opportunity to go see those movies and people not being as much in the habit as a result of it.

On the flip side, we’ve seen some great examples of solid results. I mean you had Sonic the Hedgehog 2, although that wasn’t fully animated. The Bad Guys did really well. Minions: The Rise Of Gru had a record July opening. We just talked about Puss in Boots on the call. So, there’s a series of those. We’ve also seen how families on just overall non-animated films, their behavior has been more consistent with pre-pandemic levels. So, we’ll have to see how 2023 plays out. I mean we’re very encouraged about the lineup of animated films over the course of the year, and we think that could really love to see engage that over the course of the year. We think that could change the course of things based on a more sustained momentum of options.

Robert Fishman: That’s great. Thanks Sean. Melissa, any additional color you can provide to us about the CapEx levels beyond 2023? Like how should we think about normalized levels from here with the return of movie supply?

Melissa Thomas: Sure. So, from a CapEx perspective, it’s important to note that we do believe our CapEx years are behind us, and that we continue to benefit from our history of proactively maintaining and investing in our theaters prior to the pandemic. As you mentioned, for 2023, we are targeting $150 million of capital expenditures. So certainly, a step-up from the $111 million in 2022. As we think about long-term, I mean, naturally, as the box office continues to recover in 2024 and beyond, it’s reasonable to expect us to continue to step-up our capital expenditures. But again, we don’t expect to get back to those peak CapEx years.

Robert Fishman: Okay. Thank you, both.

Sean Gamble: Thanks Robert.

Operator: Thank you. Our next questions come from the line of Eric Handler with ROTH MKM. Please proceed with your question.

Eric Handler: Good morning. Thanks for the question. Sean, given the success that you’re having with premium amenities, I’m curious, as you think about your CapEx investments that are going on, why not add another next screen to existing theaters or accelerate the D-Box rollout? I’m just curious how you’re thinking about that.

Sean Gamble: So, great observation, Eric. Actually, we have been doing exactly that. We have — in all our new builds, we’re putting in XDs, and in many cases, we’re putting in to directly. We’ve been going back, and that’s been one of the areas of growth for XD over the course of 2022. And even to a certain degree, during the pandemic, we went back and we’re looking at where we could add second XDs just based on the profile of our auditoriums. Part of the — the only limiter there is — obviously, there’s an ROI assessment that we do, but also just the scale of the auditoriums. We need to make sure that there’s an auditorium that has the appropriate size and scale for an XD. But we’ve been doing that, and likewise with D-Box seats, we’ve found some great success in some of the different ways we’re installing D-Box. And we’ve been adding those considerably over the course of 2022, and we continue to — we plan to continue to do so in 2023, just given the demand.

Eric Handler: Great. And then I have a follow-up. So, with Movie Club, correct me if I’m wrong. I mean, you started Movie Club in 2017 at $8.99 a month. Now, it’s $9.99. Have you thought about price as maybe a lever with Movie Club just to keep up with inflationary pressures?

Sean Gamble: Absolutely. It’s something that we routinely look at. One of the things that we tried to maintain is just the appropriate parity between our general admission levels and our Movie Club levels to make sure that the right variance is there. So, it’s something that we’re going to continue to watch. I’d say, in general, the way we have approached pricing as we’ve been working through the pandemic and reigniting theatrical moviegoing is we’ve aimed to be a bit more moderated there. As we get — I’ve been trying to attract people back to our theaters in a more significant way. One of the things we were — we’ve been cautious about is not overdoing it with price. So, their experience when they come back to the theaters is one of feeling like they’re not getting an appropriate value.

It doesn’t mean we haven’t been taking up price appropriately in this environment. But something we use data to drive our decision-making, and we’re very careful about how we do that. So, we do that with overall pricing, and we certainly do it with Movie Club as well. So, it’s something that we’re going to continue to pay close attention to as we go forward.

Eric Handler: Thank you very much.

Sean Gamble: Thanks Eric.

Operator: Thank you. Our next questions come from the line of Eric Wold with B. Riley Securities. Please proceed with your question.

Eric Wold: Thanks. Good morning. Two questions. I guess, first one, kind of a follow-up on an earlier question around kind of expenses and kind of outlook, kind of taking it a little further, if we do in the coming years get back to a comparable number of releases in that 130-ish range, get back to a comparable level of attendance, how do we think about the push and pull or the kind of the offsets between the stronger guest monetization, assuming kind of per caps stay elevated along with an expectation that expenses are probably going to stay elevated? Can we get back to that 24% global adjusted EBITDA margin that you saw pre-pandemic at some points in the coming years on that kind of comparable level of attendance?

Melissa Thomas: Thanks, Eric. So clearly, our goal over the longer term is to get back to pre-pandemic adjusted EBITDA margin levels. But our ability to do so is going to depend upon a number of variables. So, the primary driver, as you know, is going to be the extent to which attendance and box office recover to historical levels, which is going to be a function of volume and the quality of films that are released. But the other key variables at play are whether tailwinds from market share, average ticket prices and per caps persist, how inflationary pressures evolve on the expense side and to what extent dividend income returns. So, those are really the key factors to keep in mind there. But it’s really too early. It’s difficult to quantify at what box office levels we could potentially — whether we could potentially return to pre-pandemic adjusted EBITDA margins. I think there’s too much in flux at this stage. But clearly, our goal.

Eric Wold: Got it. And then — I appreciate that. And then the second question, on Latin America, maybe talk about the current state of kind of the new build environment, kind of what you’re seeing with the pipeline firming up of discussions? I guess, same kind of thought process there. I mean, can we get back to that goal of 75 to 100 screens per year? Is that still the opportunity in your mind down in that region in the coming years? Has that maybe changed one way or another based on kind of what you’re seeing?

Sean Gamble: It’s interesting. We still — when we look at the entire region, we still see plenty of opportunity for growth as many of the markets are still highly underpenetrated with regard to the number of theaters that exist compared to the overall volume of people who reside there. So, we do think there is some potential for incremental new build activity over time. I’m not sure we would get back to a level of 75 to 100 screens like we had been operating at about five plus years ago. In the near-term, certainly just because of the overall expansion of malls and just the current — I would just say the current market environment right now, which is still recovering. So, we do have some new builds that were committed prior to the pandemic that we are continuing to move forward on.

We’re going to continue to monitor the environment. As you might recall, all of our theaters in the marketplace are connected to malls because that tends to be where people aggregate for activities on the weekends and there’s easier mass transit and they’re safer. So, some of that overall expansion will be affected just by how much mall development there is also in the coming years. So, I think we’re just going to have to see. But I would say in the short run, it’s probably unlikely that we’ll get back to those levels over the next three to four years.

Eric Wold: Helpful. Thank you both.

Sean Gamble: Thanks.

Operator: Thank you. Our next questions come from the line of Chad Beynon with Macquarie. Please proceed with your question.

Chad Beynon: Hi, good morning. Thanks for taking my question. I wanted to go back to Movie Club. You mentioned membership is over 1 million subscribers or people. And just given the ongoing evolution of loyalty, are there other ways to monetize this group, whether it’s partnerships with other consumer brands, branded credit cards or other things like that? Thanks.

Sean Gamble: Yes, it’s a great question, Chad. The short answer is, yes. Those are things that we’re looking at. I mean it depends on what we do. One of the ways we’re doing that is certainly working with our studio partners, right? It’s a great channel to promote films, particularly when people have credits that they’ve amassed, that they haven’t used and we have better familiarity with the types of movies that they like being very targeted in terms of showcasing what’s upcoming to them. Looking at third-party partnerships and things like that in terms of how we can do connections and things we’ve done certain things with like Costco, as an example, just new sales channels and ways to do to do that, we do a lot of things where companies may have different programs, employee-based rewards programs where they become good consumer acquisition opportunities where you may give away a free month of Movie Club to try to get some kind of access and sign up.

So, there’s a range of different ways that we can look to the program for broader opportunity, whether it be accessing new customers or just finding shared mutual benefits with a third party in terms of that. So, it’s an area that our team is continuing to work on and we think there’s upside.

Chad Beynon: That’s great. Thanks Sean. And then just given your outlook on the industry and your healthy balance sheet, obviously, it’s a unique time with the position you’re in and potentially some assets that are for sale or could be converted. Can you just kind of update us in terms of your appetite for looking outside your organic portfolio for assets that have been or could come up for sale?

Sean Gamble: Absolutely. Look, we keep a close watch on the marketplace and the different opportunities that may be out there or may ultimately become accessible. I’d say our general philosophy on that is still consistent where we tend to target high-quality assets that we have confidence can deliver solid assured returns over time. So, we’re kind of looking at everything through that lens. We’re not necessarily just looking to grow for growth’s sake. We tend to be pretty disciplined with regard to how we deploy our capital and seeking as we seek financially accretive investments. I’d say probably the only limiting factor to that is we think we’re in a position of advantage as we go forward and there may very well be some good opportunities.

We’re going to be mindful of not straining our balance sheet. Certainly, as we’re working to reinforce that coming out of the pandemic further. And the only other thing I would flag when it comes to any type of M&A is, clearly, where we are still, as our industry recovery, there’s a little bit of complexity when it comes to fully assessing margins and appropriate multiples and things of that sort. So, trying to get a reconciliation of expectations between parties just adds an additional layer of difficulty in trying to close deals, not to say that we don’t think there could be some potential that comes our way.

Chad Beynon: Great. Thank you very much. Appreciate it.

Sean Gamble: Thanks.

Operator: Thank you. Our next questions come from the line of Jim Goss with Barrington Research. Please proceed with your question.

Jim Goss: All right. Thank you. You have a slide of 2023 notable titles with a pretty significant gap in late August, September and October with the absence of such. I’m wondering if — given the discussion you had about alternative content and some of the options you might have, if this sort of advanced warning of challenge creates opportunities to plan and if there might be some things you might share with us in that regard?

Sean Gamble: Certainly, Jim. You’re right. When we look at the overall profile of the year, at least on paper now, it has some similarities to 2022 more volume, clearly, but there is a little bit of a lull when you get into that like late summer, early fall period. Not to say that’s too indifferent from pre-pandemic times. I mean that’s always a softer period of the year with kids going back to school in terms of the way studios program their films. But at the same time, what we’ve seen is movies do really well in that period. So, there’s opportunity there. What we suspect might happen is recognizing its studios will see that. I mean we recognize it, and there certainly is the potential for some shifting around of dates. So, if a studio wants to have a clear run of a title, they can put it in there and there will just be less competition.

So, we may wind up seeing some of the films right now that are in the summer, spring spread out a little bit more and take advantage of that period. And we could also still see, like you pointed out, some new films, if you’re thinking about where to date your title and you haven’t done that yet, be it alternative content or just a traditional film, I mean there’s a great opportunity within that window to do so right now. So, I think — my guess is we’ll start to see some of that fill out a bit more as the year progresses.

Jim Goss: Okay. Thank you. And you had a comment — an interesting comment about the dynamic window, if you will, sort of helping mid-tier films. And I’m wondering how much variability you’re seeing right now in the sort of normalized 30 to 45-day window? And also, how that might impact, say, this Amazon release or some of the other ones you might get from streamers where maybe you can get them to extend the window a little bit, so you have more of an impact to the extent you want it over time?

Sean Gamble: Sure. Well, I mean, obviously, there’s been a lot of experimentation with the window and different types of releases throughout the course of the pandemic. And for the most part, it seems like things are gelling around a 45-day window now, certainly for the more commercial films. I think part of that reason is, I think what everybody has been finding is you need a certain amount of run time to generate the full benefits that a theatrical release can provide a film. And that’s right around that kind of sweet spot of a starting place because it gives you enough time to get the value out of theatrical without losing that momentum as it goes into the home. Now, that can shift a bit depending on how well a film is performing.

I mean you look at a film like Top Gun: MAVERICK as an example as well as many of these Marvel films, Avatar, right, like those films have done exceptionally well, and they’ve run quite a bit longer than 45 days before going into the home. Even saw that with ELVIS as an example where it ran quite a bit longer. So, in success, that’s where some of that dynamic behavior comes into play. It can run longer. And if something doesn’t work, there’s that opportunity to get into the home faster and minimize downside. So, I think this is my take, it seems like that’s kind of that sweet spot is where everybody starts off and then it could skew a little bit from that. And I think that’s the same for the streaming companies. I mean, with Air, Amazon, I don’t think it’s been — I don’t think it’s public, and I’m not sure it’s even been fully decided on the window.

We know directionally that’s kind of the general place that they’re starting. And I think some of that, too, will be dependent on how well the film continues to hold, how well it opens. There’s obviously other dating decisions that get made in terms of some of the downstream targets for release. But that seems to be the direction that they’re heading with that film, and it’s certainly what they’re indicating with regard to what they’re telling us as well as what we’re hearing from some of the other streamers like an Apple.

Jim Goss: Okay. Thanks. One last one. The concession per cap getting to a record level. You noted it was driven by higher incident rates — incidence rates, primarily. I’m wondering if you might comment on the implication for the mix of offerings now and in the future and whether the supply chain constraints might have had any impact on that?

Melissa Thomas: Just in terms of our per cap performance in the quarter, Jim?

Jim Goss: Yes, and how that’s trending?

Melissa Thomas: Sure. So, as we think about per caps and what we saw in the quarter, we certainly saw a benefit both from higher incidence rates as well as strategic repricing. On the incidence rate side, a few things that I would call out there, the first favorable film mix in the quarter certainly benefited us, coupled with the success of the initiatives that we had in place tied to the fourth quarter film slate. That was the merchandising collectibles vessels I mentioned. In addition, supply chain constraints easing, did improve our ability to meet customer demand with fewer out of stock. So, we certainly did see a tailwind there. And then third, I would call out some activations of expanded hot foods and alcohol in certain locations leading into the quarter.

So, those are some of the key factors. As you think about the per caps going forward for concession, as I mentioned earlier, we do believe that we can continue to grow concession per cap in 2023 relative to full year 2022 levels, but that growth rate may be more tempered than what we saw in 2022. But tailwinds certainly on supply chain starting to ease there.

Jim Goss: Okay. Thank you very much.

Sean Gamble: Thanks Jim.

Operator: Thank you. Our next questions come from the line of Mike Hickey with The Benchmark Company. Please proceed with your question.

Mike Hickey: Thanks Sean, Melissa, Chanda. Good morning guys. Thanks for taking my questions. Just two questions for me. On the first question on the first quarter. It looks like the domestic market here, if you look at sort of just the top 10 films, which is obviously the majority of the market. It looks like quarter-to-date, domestic is tracking up 42% compared to 2022. Obviously, a lot of puts and takes on films and virus impact. But just curious, the momentum here you’re seeing in your business, if it’s within your expectations or if it’s exceeding your expectations? Obviously, we still have and John Wick here to close out the quarter. And also wondering if you’re seeing similar strength in concessions, despite the pinch on the consumer? And I have a follow-up.

Sean Gamble: Sure. Hi Mike, Yes, it’s interesting. 1Q, as I mentioned, it’s kind of the profile for the year earlier is another similar scenario to 2022 and that the year gets off to — or getting off to a little bit slower start from a total volume perspective, fortunately though, as you called out, the actual box office results have been quite favorable with significant growth year-over-year, despite the limited volume. Your question on expectations is certainly exceeded our expectations thus far in terms of the results with things the strong play through of Avatar, the continued run of Puss in Boots. M3GAN performed exceptionally well. A Man called Otto is doing a great to a great start. And as you pointed out, now we’re really starting to get into more of a steady stream of releases week-to-week.

So, we’re very encouraged about what we see looking ahead. So far, the year is off to a — we think, off to a better-than-expected start for sure. And as far as food and beverage sales go, similarly, it’s interesting as we haven’t seen any impact from inflation over the course of 2022 on sales. It hasn’t deterred people upgrading the premium amenities and it certainly hasn’t deterred people’s consumption of food and beverage, which continues to be going in a really strong direction. That’s continued on through the first quarter-to-date. So, it’s something that we’ve been — we’ve often wondered and just debated internally like will we see a bit more of a normalization at some stage, just in terms of consumer overwhelming — consumer consumption in the marketplace post pandemic.

But to-date, it seems like that has yet to slow within our space.

Mike Hickey: Nice. Thanks Sean. The second question here, kind of wide ranging, but you gave sort of your qualitative perspective on the box on 2023. I’m curious if you can any way to quantify that? I know that can be a challenge, obviously. And I guess within that question, when you look at 2022 and sort of the relationship of wide releases to where they’re at in 2019 as a percentage. That sort of came in pretty close to what the box office did versus 2019. And so, when you look at 2023 thinking about sort of 80% wide releases versus 2019, that would sort of imply a box office of sort of plus $9 billion, which I think is above most people’s expectations for the year. So, just curious, one, if you can kind of quantify your expectations for 2023, if you think there’s any substance to sort of the correlation of why the leases versus 2019 to the ultimate box office?

And then a last one, just curious your view on dynamic ticket pricing, Sean, if that can be incrementally positive to your ATP in 2023? Thank you.

Sean Gamble: Sure. As far as 2023 goes, obviously, we don’t give some box office, but we are certainly encouraged, our estimates suggest 2023 would be higher than 2022. Clearly, as you pointed out, just the relationship between volume and box office compared to 2019 saw that in 2022. I think most consensus has a box office around $8.5 billion for the year. And at least when we look at volume getting somewhere between 75% to 80% of 2019 levels or pre-pandemic levels, it would seem to support that. Clearly, with the first quarter getting off to a better-than-expected start like we talked about, we’re hopeful there could be some upside on that over the course of the year. But clearly, a big part of that will depend on just the overall quality of the titles that get released.

On paper, there’s a lot of promise in terms of the movies that are coming up, and hopefully, it will flow through in terms of just the overall quality at the end of the day. Pricing-wise, dynamic pricing, it’s an interesting thought. I’d say we have gone — we clearly have a wide range of varied price points across our days, across our weeks. We try to make sure we’ve got lots of accessible pricing options to make ourselves available to a wide range of consumers flexing things. We got a little bit of that going on here and there. It’s something we’re going to be careful about just all the moves we make, we use a lot of data to try to drive our decision-making on that and look at the responses of consumers. So, something that we’re going to continue to explore.

We’ll do it gingerly because we are very sensitive to adverse reaction from consumers, especially as we’re trying to continue to encourage them to come back to the movies with greater frequency. We do think there’s opportunity over time in that space for sure.

Mike Hickey: Nice. Thanks Sean.

Sean Gamble: Thanks Mike.

Operator: Thank you. Our next questions come from the line of Omar Mejias with Wells Fargo. Please proceed with your question.

Omar Mejias: Good morning guys. Thank you for taking my question. Maybe Sean, first, with regards to Latin America. In the recovery continues to lag the US there, can you give us an update on Latin America trends? And if you expect for that gap to narrow in 2023 as things stabilize down there? Then I have a follow-up. Thanks.

Sean Gamble: Sure. Thanks for the question, Omar. Actually, when we look at the data for LatAm, there was a while, there’s a decent period of time where Latin America was lagging the US in box office performance and re-openings of theaters. At this point, what we’re seeing is things have pretty well caught up. In terms of vaccination rates in many countries, they exceed the US moviegoing in general has been really strong. Some of that, you got to consider mix, certain titles as they always historically have, will fare a little bit better or worse their action harder family tends to overperform in the region relative to the US where things like Sci-Fi tend to skew a bit below. So, that can influence things. In the fourth quarter, the fourth quarter, historically in LatAm has been the — it’s the winter there, so that historically has been the slowest period of the year.

In the fourth quarter of this year, in particular, there was also the World Cup, which is always a big focal point for folks there. So, weekend events in the World Cup can affect moviegoing. And a lot of times, studios will also manage their release times around that. So, that dampens things a bit in the quarter. But when we look at the full year on the whole, we look at the results of LatAm being quite comparable to North America. And moviegoing, we’ve got plenty of phenomenal examples in the region of great success. Avatar, for instance, Avatar: The Way of Water, it’s the sixth biggest film ever in the region, and it’s significantly higher than the first installment. So, we look at LatAm as being in a relatively comparable place to the US now.

Omar Mejias: That was helpful color. Thank you. And Melissa, maybe with all the work you guys have been doing around improving operational efficiencies and lowering your cost structure and also the way you guys have been doing with dynamic pricing and per caps. Maybe can you unpack how are those actions sort of benefiting your margin structure? And maybe update us on any new initiatives you guys are working on for 2023? Thanks.

Melissa Thomas: So, the key items I would call out there, Omar, one of the biggest would be on our theater labor. So, the team has done a lot of work on optimizing our operating hours as well as driving efficiencies within our labor hours. So, that has been benefiting our cost structure. Now, that said, that’s been overshadowed by the wage rate pressure that we’ve experienced. Now, we do expect — while we expect some ongoing wage rate pressure, we don’t expect it to be at the same extent that we’ve seen over the past couple of years. But I would say theatrical labor is one of the biggest areas where we’ve seen some benefits on the cost side. And it’s an area where, as we go forward, similar to as we do across all our expense line items that we’re continuing to look and pursue additional productivity initiatives on to try to offset some of the pressures that we’ve been facing.

Again, strategic pricing is another area that helps offset some of those inflationary pressures for productivity improvements are certainly an area that we’re focused on. I think the other item that I would mention is just our ongoing discipline on G&A. Again, that one’s been overshadowed a bit by some of the dynamics with wage rate inflation as well as our shift to cloud-based software, but we’ve been controlling pretty tightly our discretionary spending and our staffing levels being below 2019. So, we continue to look to run the company in a very disciplined way from a cost structure standpoint.

Omar Mejias: Thank you.

Sean Gamble: Thanks Omar.

Operator: Thank you. There are no further questions at this time. I would now like to hand the call back over to Sean Gamble for any closing remarks.

Sean Gamble: All right. Well, thank you all for joining the call this morning. We appreciate you taking the time to meet with us. And we look forward to speaking with you again following our first quarter 2023 results. Have a great day.

Operator: This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.