Cinemark Holdings, Inc.
Q1 2017 Earnings Call Transcript

Published: 3 May 2017

[Operator:]

Good morning. My name is Withania and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Ms. Chanda Brashears, Vice President of Investor Relations.

[Chanda Brashears:]

Thank you, Withania, and good morning, everyone. At this time, I would like to welcome you to Cinemark Holdings, Inc.'s first quarter 2017 earnings release conference call hosted by Mark Zoradi, Chief Executive Officer, and Sean Gamble, Chief Financial Officer. I would like to remind the listeners that certain matters that are discussed by members of the management during this conference call may constitute forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause Cinemark's actual results to be differ materially from the expectations indicated or implied by such statements. Such risk factors are set forth and expressly qualified in their entirety in the company's filings with the SEC, including the most recently filed Annual Report on Form 10-K. The company undertakes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast may include certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release, within the company's most recently field Quarterly Report on Form 10-Q, and on the company's website, investors.cinemark.com. I would now like to turn the call over to Mark Zoradi.

[Mark Zoradi:]

Thank you, Chanda, and good morning, everyone. We appreciate you joining us for our 2017 first quarter results call. I'm incredibly pleased to report another record quarter for Cinemark's worldwide operation. This marks four consecutive years that we have set first quarter records. Notably, these are not records in one or two line items, but in each of our key performance metrics, including attendance, admissions revenue, average ticket price, concessions revenue, concessions per cap, and total revenue. Additionally, we reported first quarter records, with net income of $79.7 million and earnings per share of $0.68. Even more impressive, our first quarter adjusted EBITDA and adjusted EBITDA margin were both all-time highs at $212 million and 27.2% margin, respectively. This growth yielded an exceptional 100 basis points margin expansion. We're thrilled to continue to deliver robust adjusted EBITDA margins that consistently surpass other major exhibitors. Drilling down to the components of our record results, our international operations set first quarter records in all revenue categories as well as adjusted EBITDA. Our attendance declined modestly relative to prior year, as we are comparing against Brazil's highest attended film of all time with their locally produced title, The Ten Commandments. Domestically, the North America industry box office growth of approximately 4.5% bolstered our U.S. results, and Cinemark again outperformed the North America industry box office by roughly 100 basis points. Moreover, we achieved this over-performance despite 106 average screens being closed for Luxury Lounger conversion during the first quarter of 2017 versus 37 average screens closed in the first quarter of last year. This marks 29 out of the past 33 consecutive quarters of industry outperformance. Investors frequently ask how we're able to over-index the industry in such a consistent basis. The two overarching objectives that are integral to our results are, one, providing a high quality guest experience and, two, our primary and deliberate focus on growing attendance. We outlined several key initiatives last quarter that are fundamental to achieving these objectives and we'll provide an update on a few of these for you today. It's critical that we understand what is important to our guests and adapt to their preferences. Consumers continue to demonstrate that recliner seats are the amenity that is most appealing and influential in their decision-making process. As such, we have been aggressive in our Luxury Lounger recliner seat initiative to respond to this consumer demand. In the first quarter, we expanded our recliner footprint by 181 auditoriums and now have a total of 1,209 screens, comprising 27% of our domestic circuit that feature recliner seats. We remain on track to end the year with approximately 40% of our U.S. auditoriums featuring Luxury Loungers, which will represent approximately 80% increase from year-end 2016. Our domestic recliner initiative remains outstanding, driven by attendance growth of roughly 40% for theatres that have experienced more than six months of ramp up. While attendance has been holding at this heightened level to-date, we recognize that future conversions may impact this metric as we penetrate deeper into our circuit and convert more highly utilized auditoriums. Additionally, we have experienced incremental ticket pricing opportunities of around 5%, concession per cap growth of approximately 1.5 to 2 times that of a non-recline theatre and a significant shift to advance ticket sales with about half of our recliner locations transactions purchased online. This positive reception by our guests regarding our recliner initiative is reflected in our financial results and is a key driver of our industry-leading attendance and adjusted EBITDA margin. In terms of attendance, we strive to find the optimal balance between attendance and pricing to maximize box office revenue. In our experience, it is challenging to replace one lost attendee through incremental pricing. As such, we place greater emphasis on driving attendance as it has a more substantial impact on the generation of total box office revenue. In addition to maximizing box office, we have an equivalent focus on further monetizing our attendance into concession sales. We are focused on four key initiatives in order to drive concession revenue and continue our trend of 41 consecutive quarters of concession per cap growth. One

[Sean Gamble:]

Thank you, Mark, and good morning, everyone. As Mark already addressed, it was an outstanding quarter for our global company, with total revenues up 10.6% to $779.6 million, adjusted EBITDA growth of 14.7% to $211.9 million, and adjusted EBITDA margin expansion of 100 basis points to 27.2%. Strong film content coupled with our continued focus on enhancing the experience we provide to our guests drove a 4.5% year-over-year growth in domestic attendance during the first quarter that far outpaced the North American industry. Our average domestic ticket price of $7.66 increased 1.1%, driven by strategic price increases that were meaningfully offset by unfavorable 3D and ticket type mix. Collectively, our growth in attendance and ticket prices propelled our U.S. admissions revenues up 5.5% to a first quarter record of $356.2 million. By way of the ongoing concessions initiatives that Mark previously referenced, we were able to further capitalize on our first quarter's box office strength to grow our U.S. concessions per patron 5.8% to $4.37. This per cap increase lifted our total domestic concession revenues 10.5% to $203.4 million, which yielded another first quarter record. Conversely, domestic other revenues declined 6.3% as a result of non-repeating promotional benefits we realized from 3Q 2015 through 1Q 2016 that created a challenging benchmark. We have now fully lapped these promotional benefits and they will no longer create a drag on our year-over-year variance going forward. Overall, our U.S. operations delivered total revenues of $577.6 million and adjusted EBITDA of $164.7 million, which were all-time quarterly highs. Furthermore, we achieved our highest ever adjusted EBITDA margin of 28.5% that grew 190 basis points from the previous record we set in the first quarter of 2016. Internationally, attendance was relatively flat at 27.8 million patrons. As Mark already mentioned, this was a tremendous feat given the challenging comparison we faced in Brazil, considering last year's massive success of local film The Ten Commandments. International admissions revenues were $120.3 million, which grew 22.4% versus last year as reported and were up 11.1% in constant currency. Our reported average ticket price of $4.33 translated to a constant currency increase of 12% that was primarily driven by inflationary price increases and partially offset by ticket type mix similar to the U.S. International concessions revenues were $64.8 million, which increased 20.4% as reported and 10.2% in constant currency. Our reported concessions per patron was $2.33, which translated to a 10.9% increase in constant currency. Overall, total international revenues grew 23% to a first quarter record of $202 million as reported. Adjusted EBITDA was $47.2 million with an adjusted EBITDA margin of 23.4%. While foreign currency has created significant translation headwinds on our reported financials over the past few years, in the first quarter, these headwinds turned around and delivered an approximate 10% tailwind. While future currency fluctuations are obviously difficult to predict, if current rates continue to hold, we would expect a continued slight tailwind throughout the remainder of 2017. As a reminder, the vast majority of our international operating expenses are transacted in local currency, including film rental and facility lease expenses, so the impact of currency exchange is predominantly translation-based and not transaction oriented. Furthermore, our operations throughout South and Central America are largely self sustaining with regard to both operational cash requirements and organic growth needs. Shifting back to our worldwide consolidated results, first quarter film rental and advertising costs as a percentage of admissions revenues declined by 30 basis points year-over-year to 53.1% due to a reduced box office concentration of blockbuster films. Conversely, concession costs as a percentage of total concessions revenues increased by 60 basis points in comparison to the prior year. This increase was primarily due to the impact of expanded food and beverage offerings across our global circuit that carry slightly higher costs. And while the expanded offerings create a slight drag on our concessions margin rate, they continue to drive incremental purchase incidence and sizable growth in overall concessions revenues and income. Salaries and wages were relatively flat in the quarter at 10.8% of total revenue compared to the first quarter of 2016. Facility lease expenses and utilities and other costs, as a percent of total revenue, both declined slightly by 40 basis points and 20 basis points, respectively. These reductions were driven by the largely fixed nature of these costs relative to increased global attendance and revenue. Similarly, G&A for the quarter also declined by 50 basis points as a percentage of total revenue. Collectively, first quarter pre-tax income was $124.6 million compared to $92.5 million in 1Q of the prior year. Our first quarter's effective tax rate was 35.6% and net income attributable to Cinemark Holdings was $79.7 million or $0.68 per diluted share. With respect to our balance sheet, we ended the quarter with a cash balance of $584 million and a net debt position of $1.5 billion. Shifting attention to our U.S. footprint, we operated 337 theatres and 4,541 screens in 41 states and 102 DMAs at quarter-end. During the quarter, we closed two theatres and 18 screens that were either at or near the end of their lease term. We have signed commitments to open four theatres and 38 screens during 2017 and eight theatres representing 87 screens subsequent to 2017. We expect to spend approximately $86 million in CapEx for these 125 screens. We also anticipate closing around 10 to 20 additional screens during the remainder of 2017. Internationally, our Latin America circuit grew to 188 theatres and 1,353 screens across 15 countries. During the quarter, we expanded by one theatre and nine screens. As of quarter-end, we had signed commitments to open three new theatres and 25 screens during 2017, and four theatres representing 19 screens subsequent to 2017. We anticipate spending approximately $16 million in CapEx for these 44 screens. Considering the challenging political and economic environments within certain countries in which we operate across Latin America, we may experience a modest near-term impact on our growth efforts. That said, consistent with our prior comments, we continue to anticipate adding between 50 to 75 international screens during 2017, and we believe that long-term growth prospects across Latin America remain intact, even if they slow slightly in the short term. Regarding overall CapEx, we spent $91.2 million in the first quarter, including $16.8 million on new builds and $74.4 million on existing theatres with a concentration on recliner conversions. We continue to anticipate spending between $325 million to $350 million of CapEx during full year 2017, of which

[Operator:]

Your first question comes from the line of Julie Yue of JPMorgan.

[Julia Yue:]

Hi. Thank you. The international attendance this quarter is much stronger than we expected, as you guys mentioned, especially given such difficult comparison. Were there any regions or films in particular that contributed to these results?

[Mark Zoradi:]

I would say that the Hollywood film content, in particular, played a bit stronger than perhaps what we originally expect. It was fairly in line with the strength of content last year. So, if anything, I would say that was probably the biggest driver. Films like Beauty and the Beast, Logan and Moana skewed towards the family and kid's genre as well as kind of more the human actions genres, and that was similar to Deadpool, Batman v Superman and The Good Dinosaur of last year. So those are really the big drivers of attendance in the first quarter throughout Latin America.

[Julia Yue:]

Okay, got it. And then you mentioned in the prepared remarks that with some of the new recliner conversions, it might not be as productive as what you've seen thus far. At this point, are you seeing any differences in the initial results for the theatres that you're converting now or, I guess, in the past couple of quarters compared to the ones that you first converted?

[Mark Zoradi:]

Julia, no, I think mentioned in those comments that we're still seeing a 40% attendance lift for those that have been open for more than six months, because it takes somewhere in the three to nine months to ramp them up. But we've been – we continue to be so aggressive that we're not thinking necessarily that we'll see that level go forward. But, to-date, we've been very pleased and they've been all averaging that 40% attendance increase. But as we go deeper and deeper and get closer to the 40% range, we think that that could be mitigated somewhat, but be that – by saying that, I also want to emphasize that in no cases are we approving or going forward with recliners that aren't at least hitting or significantly exceeding our ROI and EBITDA margin.

[Julia Yue:]

Got it. Thank you very much.

[Mark Zoradi:]

Thanks, Julia.

[Operator:]

Our next question comes from the line of Eric Handler of MKM Partners.

[Eric O. Handler:]

Yes. Thank you very much. Two questions for you. First, Mark, when you look at your – the loyalty program, Connections, granted it's only been a year, but are you seeing any noticeable change through some of the push marketing programs you've instituted of Connections members going to the theatre more often than non-Connections member? Or what happens once someone becomes a Connection member? Is there any sort of uplift in attendance because of the connection you have to them? And secondly, when you think about mall development in Latin America, particularly Brazil, it's easy to see the slowdown because these mall projects take multiple years to plan then build. So, you had a pretty good indication probably 18 to 24 months ahead of time about the slowdown. I'm just curious, are you seeing any inklings of mall development projects beginning to accelerate at this point?

[Mark Zoradi:]

Okay, I'll take the Connections question and, Sean, you can take the mall question. Relative to Connections, you asked about a comparison to Connection members and non-Connection members. It's difficult to be able to compare to non-Connection members because we don't necessarily have that data in terms of how many times they're coming. And what we're looking at on Connections members is an engagement. So, are they coming to the theatre, are they buying concessions, are they sharing socially afterwards. We're seeing a very strong engagement connection relative to people who have signed up with Connections. Relative to are they coming to the theatres more at this time, I think it's a little early to be able to give you stats on that. But, as we are into this now for a second year, we've just now completed the first year. The first year was a tremendous ramp up along the way. So, what we were really measuring is engagement with people coming and experience either buying or sharing socially, and we will have data to be able to share with you in the coming quarters of attendance uplift.

[Sean Gamble:]

And then on the mall development front in Brazil, I would say that the pipeline still is there. So we still have a robust pipeline of projects. That said, the actual development still remains slow. We haven't yet seen indications of kind of an acceleration back up to some of the historic levels. I think, really, kind of what's going on is, there is still a desire to build more confidence about a turnaround and that hasn't fully happened yet. So, at the moment, it's still kind of slow-paced, but again, I'll just reiterate that the pipeline is still there. It's just not moving as briskly.

[Eric O. Handler:]

Thank you very much.

[Sean Gamble:]

You bet. Thanks, Eric.

[Operator:]

The next question comes from Robert Fishman of MoffettNathanson.

[Robert Fishman:]

Hi, good morning. I have one for Mark and one for Sean. Mark, while I understand you're unlikely to comment on the progress of specific terms of your negotiations with the studios on the window changes, can you at least help us think about whether you expect to see any resolution during 2017 and whether you're confident that you can reach an agreement that's actually incremental to your existing record-setting businesses?

[Mark Zoradi:]

Well, first, Robert, you're right. I'm very hesitant to put a timing on that because they are active discussions/negotiations. But, clearly, for us to conclude any of these negotiations/discussions, we will have to see that it is incremental to us. We're not looking to go backwards relative to our revenue and all the investments that we've made in these theatres. So that would be an issue that would be absolutely critical to us. So I don't anticipate that we would conclude any deal that wouldn't have that. Relative to timing, that is just very difficult to say because there's obviously a lot of exhibitors and there's a lot of studios and we're trying to deal with each studio uniquely and we need to; and each studio is trying to deal with each exhibitor uniquely. So it's also so important for the studios to get this right as it is for us. As I think you and I have discussed in the past, nearly 50% of a movie's revenue is now coming from worldwide box office. So the studios are appropriately very cautious and concerned about upsetting that applecart in order to look for incremental revenue in any kind of accelerated VOD window. And we're obviously in that same situation. So neither party wants to make a mistake here because the theatrical revenue has become so important over the last few years. Not that it wasn't before, but the percentages have gotten larger. So putting a timing on it is just really difficult at this stage.

[Robert Fishman:]

Okay. Fair enough. For Sean, just as a quick follow-up to the earlier question, I'm curious can you be more specific on the ROI for your recent recliner upgrades and how those have trended compared to the recliners that have opened in 2015? And then any additional color on how your non-recliner core screens have been performing compared to the U.S. industry? Thank you.

[Sean Gamble:]

Sure. I would say that we obviously – we target our 20% ROI as our kind of base hurdle rate. And to-date, the aggregate results have been well in excess of that. Obviously, many of the early conversions we performed were lower-hanging fruit that had off the chart results similar to what Mark said. However, as we look forward, we expect as we go deeper into our circuit that those returns will come down. We haven't seen huge indications of that yet. It's just an expectation we have. We haven't stated a specific ROI figure as we feel the landscape is still evolving and we don't feel that the current results necessarily represent a longer-term sustainable level. But consistent with our overall balanced and disciplined investment approach, we will continue to pursue this initiative to the extent we're confident we can deliver that base hurdle rate, but we're going to be careful when that confidence becomes less certain. It's the same reason why we haven't necessarily provided a definitive target on how far we're going because we're not exactly clear on where that endpoint is as of yet. And I'm sorry, Robert, you're kind of second question was...?

[Robert Fishman:]

Just about the non-recliners, yeah.

[Sean Gamble:]

Yeah. The non-recliner on our core circuit, that's obviously still over 70% of our circuit. I'd say when you look at that core circuit, we've seen that that tends to generally outperform the industry relative to other non-recline theatres. It's one of the things like the rest of our circuit that is kind of propelling our better than box office outperformance results.

[Robert Fishman:]

Great. Thank you both.

[Mark Zoradi:]

Thanks, Robert.

[Operator:]

Next up is David Miller of Loop Capital.

[David W. Miller:]

Yeah. Hey, guys. Congratulations on the stellar results. Just two housekeeping items for Sean. Sean, what was the free cash flow number in the quarter? I didn't hear you call it out in your prepared remarks and I don't see anything in the press release. And then, just more strategically, just sort of looking out over the next half year and maybe even to the next year and a half, if you're willing to, do you see anything in Brazil, either politically or economically or anything that's sensitive to interest rates and/or sensitive to currency. If you were to prognosticate on currency in any way, whether it's just topically, anything that we should be looking for over the next half year or year and a half. Appreciate it. Thanks very much.

[Sean Gamble:]

Sure. On the free cash flow, our first quarter's free cash flow was $59 million, which was up $39 million year-over-year versus first quarter of 2016. And then, as far as your question on Brazil goes and anything sensitive to interest rates, I'd just say, there are so many moving pieces in Brazil right now across the whole political landscape and kind of what's just ongoing with the efforts to turn around the economy and some of the historic lawsuits and investigations that are going on, I think there is a lot of other factors at play that could kind of influence that landscape perhaps even more than interest rates. So, that would certainly have some influence. I can't necessarily point to any specific things that I'd say are going to be highly sensitive on that or more highly sensitive on that than any of the other variables.

[David W. Miller:]

But if you were to prognosticate – go ahead, sorry.

[Mark Zoradi:]

David, as it relates to currency, we're very pleased with what's happened to the local currency in Brazil. It's recovered and as we look forward into coming quarters, we see a relatively stable currency for the balance of this year.

[David W. Miller:]

Okay, perfect. Thank you very much.

[Operator:]

Next, we have Michael Ng with Goldman Sachs.

[Michael Ng:]

Thanks for the additional disclosure on screens, net of recliner closures, in the press release. Based on my math, I think the U.S. admission revenue per screen, net of recliner screen closures, increased by 6.5% during the quarter. First, is that correct? And second, how should we think about the pacing of recliner screen closures and reopenings during the rest of 2017?

[Mark Zoradi:]

First of all, Mike, your calculation is correct. It is a 6.5% increase on actual operating screens. For the balance of this year, we're going to continue to see 100 or 100-plus screens that are going to be closed through the balance of this year because we're continuing in a very aggressive reclining effort, and so it's one that we manage. We never close an entire theatre. If a theatre's got 18 screens, many times, we'll close only six at a time. So it does make an effect, but it's not like we're closing the entire theatre, we're just closing portions of that particular theatre. But we continue to see 100 to slightly over 100 screens per quarter closed.

[Sean Gamble:]

I just want to add one comment that I think – as we've been ramping now, we started to get near those levels beginning in the second quarter of last year. So I think, at least from a comparison standpoint, it will be more comparable year-over-year in terms of the number of closed screens where at least as of the first quarter of last year, we're still around 37. So we had more of a disparity in the number of closed screens when you compare the two.

[Michael Ng:]

Okay, thanks.

[Mark Zoradi:]

Thanks, Mike.

[Michael Ng:]

And how much of the U.S. box office was generated online this quarter? And where do you think that should go or can go in the next several years?

[Mark Zoradi:]

Approximately 25% of our box office is sold – is purchased online, a much higher percentage for those screens that have been reclined and we have reserved seating. So as we continue to roll out additional reclined screens, we will see that percentage of online ticket sales continue to increase because we will be adding the reserve seats, we'll be reducing the seat count in those auditoriums by approximately 50%, and so consumers come pretty quickly to understand that if they want to get a seat on a Friday or Saturday night of their choosing that it's worthwhile to purchase those seats ahead of time and online. And that's a very positive fact for us and, of course, it helps us with our concessions growth as I pointed out in the prepared remarks.

[Sean Gamble:]

And just add to that, I'm not sure we have full direct line of sight to the full industry, but I would gather it's probably somewhere in that 20-ish percent or so range. A lot of it is driven by the reserved seating. So I think, as you see more of the industry move to reserved seating, that will drive that percentage up. Obviously, there's also a big component that is film related too. The higher demand films that yield the bigger opening weekends tend to push those percentages up.

[Michael Ng:]

Okay. And the last one for me; the other cash distributions from equity investments, beyond NCMI were better than I had expected. Was that the tax receivable or was there something else in the quarter? Thank you.

[Sean Gamble:]

We had a slight reduction of our NCM distribution this quarter because, actually, the tax distribution, I believe, is scheduled to happen next quarter. It didn't happen this quarter. The bigger driver of that was we actually had a distribution of about $5 million from DCIP in the first quarter. So that helped to offset – to slightly more than offset the reduced NCM distribution.

[Michael Ng:]

Great. Thanks so much.

[Sean Gamble:]

You're welcome. Thanks for the questions.

[Operator:]

Next question comes from Barton Crockett from FBR Capital Markets.

[Zack Silver:]

Hey, guys. This is Zack Silver on the line for Barton. Thank you very much for taking the question. The first one that I have is, are there any international versus North America comp issues that you would highlight for us in 2Q 2017 similar to that of The Ten Commandments comp in Brazil in 1Q 2017? And then, the second one is, you guys had some nice out-performance on a domestic box per screen basis versus the industry in the first quarter. I think IMAX that you guys are under-exposed to was weak in the first quarter, but is expected to be stronger in the balance of the year. So what can you tell us in terms of your expectations for outperformance, that kind of level that persist over the rest of 2017? Thanks.

[Mark Zoradi:]

Zack, relative to international films that we have line sight to, we don't see any outliers like The Ten Commandments for the balance of this year. So the answer to that is I don't think that's going to be big issue. And relative to the balance of the year on big movies, big tentpole movies, we think that we will participate very strongly in that increase, because we have so many of our screens with XD in which we're able to charge a premium for. On a worldwide basis, we have 226 XD screens that perform very strong on these big tentpole movies, and we're going to definitely see it beginning tomorrow night with the new Guardians movie and into this weekend. So, we do participate in IMAX, but for us, more importantly, is our commitment and depth of XD screens around the world.

[Zack Silver:]

Great. Thank you very much for the color.

[Sean Gamble:]

Thanks.

[Operator:]

Next up is Eric Wold of B. Riley.

[Eric Wold:]

Thanks. Good morning. Couple of questions. One

[Sean Gamble:]

I would say it may help a little bit on the edges, but it's really not a huge component. We use a lot of tracking data to try to understand what full opening weekend is going to be and what the performance they're expecting. And we use that information as kind of the main driver. We've seen at least from advanced tickets sales that it continues to grow, but it's not always the perfect predictor of what to fully anticipate for that opening weekend. So it's more from the kind of tracking services of what we believe overall box office is going to be and that's kind of what we use for staffing.

[Eric Wold:]

Okay. And then, second question, kind of in addition to the Connections loyalty membership numbers that you have or membership – members that you have, could you talk about your entire database including that and others where you've got customer info, emails that may not be loyalty members yet and kind of what you're currently doing know to target specific film releases with the studios, and is that thought of more as a kind of a friendly partnership with the studios? Everyone wants the overall tide to rise or is there some point in the future where those lists could be monetized more directly?

[Mark Zoradi:]

Eric, what we've actually done is we merged those two together. So that's one of the reasons that our Connection membership has increased so significantly is we've merged together those two different databases and invited basically upgrade – allowing all of our email subscribers to upgrade into a Connections membership. So, it's one of the key things and a very important component in our digital and personalized marketing effort is to get those two together and to merge them together and to engage all of those email subscribers into our Connections program. And I just wanted to add one piece of color to the last question as well. Relative to online ticket sales, as we go deeper and deeper in this, we will have technology in the theatres so that people can actually come directly to the ticket taker, bypass any box office attendee. So, as we go forward into the future, we will potentially see some cost savings there.

[Eric Wold:]

Perfect. Thanks, guys.

[Operator:]

Next up is Jim Goss of Barrington Research.

[James Charles Goss:]

Thanks. Q1 used to be the smallest quarter in box office. And that seems to be addressed fairly well recently. And I'm wondering if given your exposure, Mark and Sean, on both sides of the table here, do you think there is any potential solution to the late Q3, August and September period that might have some potential solution?

[Mark Zoradi:]

Well, one thing that we've been very pleased with, and both Sean and I experienced this on the studio side of the business, is we were expanding – we were part of the effort to expand big tentpole movies into 12 months of the year. I think the studios have effectively done that in the first quarter. For Disney to choose to put Beauty and the Beast on March 17, and then of course, what we've all seen that's happened in January and February, that's been pretty transformational to spreading out the business. Relative to August, I think we've also seen a pretty good expansion into August with a number of pictures. Sony is putting in The Dark Tower in July, you had Suicide Squad in July, and then you've got other movies that are now going into August. Probably the most difficult part of the year still remains that early September when kids are going back into school. So I don't see anything on the horizon for that first week or two in September. But I think that's always going to be the case whether it's going to be a week or two. August, I think has expanded pretty darn dramatically.

[James Charles Goss:]

Okay. And you opened up talking about the high-quality experience and focused on growing attention, and as you've outlined your expansion of your reseating initiative, are you – Cinemark has outperformed in attendance despite lagging in recliners up to this point. I'm wondering what you feel were the key drivers? Was it your more conservative pricing status or any other things that you think have helped over and above the addition of the amenities you're installing right now?

[Mark Zoradi:]

I'm not sure that we really lagged during 2017 or even latter part of 2016, because we got very aggressive beginning in the fourth quarter of 2015. So we ended 2016 with 23% of our circuit reclined. And so 2016 was a big growth year relative to recliners and was extremely important for us. So I'm not sure that those numbers would necessarily add up the way that you indicated them. Relative to 2017, you know what our growth pattern is. So you had a second part of the question?

[Sean Gamble:]

I was just going to – it was just kind of – just how is attendance kind of and box office outperformed even before we kind of got ramping up with our recliner effort, if we shift back a little bit further. I was going to say, Jim, I think the answer lies in – it kinds of boils down to our – we said this in the past and Mark mentioned it in the script, our kind of hyper-focus on attendance. You mentioned pricing, that's certainly a component of it. Another component of it is how we have historically invested more in maintaining the quality of our core circuit than our peers. We believe that those are key elements in keeping people coming back. So the pricing boils – is a factor of how do we maximize overall box office and that's a balance of pricing and attendance and then so too is the keeping those theatres in good shape so that you don't lose attendance because it's been our experience that when you let them dwindle, people stop coming. So it's kind of that overall philosophy on driving attendance and that kind of plays through to a variety of elements of the business.

[James Charles Goss:]

Okay. And one last thing. You talked about the Latin American growth potentially slowing somewhat in the short term. Do you have any added insights or definition as to how much and how long that process may take place?

[Mark Zoradi:]

Jim, I think in the remarks that Sean made he indicated that we are pretty confident that we're going to continue – that we will achieve 50 to 75 new screens in Latin America and we really firmly believe that. All indications are that we will do that. As we look forward, we're very bullish on Latin America. However, when countries like Brazil and Argentina have gone through significant recessions and political difficulties, it doesn't turn on a dime. So as we talk to both our teams down there and also to experts in the economic field, we believe that the turnaround is going to be somewhere in the next 12 to 36 months because mall development takes time and that's where almost all of the growth comes from. And so we think that if you're looking for a timeframe, I would say that those countries had probably hit their bottom and are on their way to recovery. We've seen it in Brazil with currency. We're starting to see it in Argentina with a reduction in the hyperinflation. And we are bullish, because we think that we're so well positioned down there from an operation and also from a financial standpoint, that over the next 12 to 36 months, as the mall development comes back, we will just continue to be able to drive that business in a very profitable way.

[James Charles Goss:]

All right. Thanks very much.

[Sean Gamble:]

Thanks, Jim.

[Operator:]

Next up we will have Matthew Harrigan with Wunderlich.

[Matthew J. Harrigan:]

Thank you. I guess two questions that echo somewhat back to the CinemaCon breakfast. Firstly, you said that you're pretty much teflonized against the declines in the mall traffic. I'd be curious if there's some sort of tipping point where that does kick in. But, even apart from that, would you say that this really has the effect of neutering any sort of long-term ramp pressure given how vital you are to U.S. malls and similarly in Brazil and could we even see possibly rents going down at some point in time? And then secondly, you talked about, I guess, your business and studio business everyone is looking at big data and you've got your opportunities there. But one of the things that would be really interesting in concert with what the studios and cable companies know is to kind of look at the Venn diagram on move attendance and VOD, both for the big movies a little girl goes to see Frozen six times. And then, also buys – or does VOD and then some of the smaller movies, people might just watch it at home versus in the theatre. But just in terms of the overlap between those two groups, in concert with your studio partners, have you done some work if someone like McKenzie (48

[Sean Gamble:]

Thanks, Matthew. I'll answer – this is Sean. I'll answer the first half and then I'll let Mark answer the second half of your question. Yeah, as far as the economic ups and downs influencing movie-going, we haven't seen that happen yet to-date. I suppose that could. It could always change, but all the way through the first quarter that we just closed, we haven't seen that be a big component of impacting attendance. It continues to be the volume and quality of content that is the driving force of what influences attendance. How those economic factors may influence rents? I think that it's probably unlikely we're going to see that have a big influence. There still is – certainly internationally, there's still is quite a bit of inflation across the region. So those types of factors are going to continue to have an influence on rents. So I think it's unlikely to go down. The other thing too is a lot of those contracts are pretty long-term contracts. So the ability to change those would only be when we're renewing them. But, again, I think the likelihood of rents going down are probably limited.

[Mark Zoradi:]

Matthew, relative to your second question about data collaboration, we are actively engaged with our studio partners on doing this. We're going to get better and better as we get more data and we're able to segment that. But there is a good correlation between moviegoers who come to the theatre to see a movie, who then like it and they clearly have a greater propensity to either rent it on VOD or purchase it on EST or on DVD. So we will be active in helping studios to do that. The other thing that we'll be every very active on is when someone comes to, you gave an example, an animated movie, clearly, we will then be able to get back to that person and that family household with notification and a marketing message for the next animated movie that's coming down the road. That's what all this data mining is about. It's both to increase attendance back at the theatre for similar genre movies, not unlike which happens on other businesses that you're involved with. And then secondarily, to utilize that data to help our studio partners sell downstream either rentals or sell-through.

[Matthew J. Harrigan:]

Thank, Mark. Thanks, Sean.

[Sean Gamble:]

Thanks, Matthew. Appreciate the questions.

[Operator:]

There are no further questions at this time.

[Mark Zoradi:]

Thank you all very much for joining us this morning. We look forward to speaking with you again following the second quarter. Bye now.

[Operator:]

This concludes today's conference call. You may now disconnect.