Figuring that the COVID-19 crisis will calm by the summer, Cinemark CFO and COO Sean Gamble today told investors and financial analysts in a special conference call today that the chain is looking to “ramp up” by July 1 with employees coming back roughly two weeks prior in late June. That said, openings could be “state by state, county by county” per Gamble “scaled by demand” with possible reduced hours and days of the week.
That said Gamble cautioned that it could take three months before the circuit is experiencing normal levels of business.
“We won’t be everything back day 1, but dip our toe approach,” said Gamble.
Cinemark CEO and Board Director Mark Zoradi added there will be two weeks of “showing library product, high profile library product” as the chain expects a slow flow of attendance. The big blast off anticipated here is the weekend of July 17-19 which is when Warner Bros. Christopher Nolan’s Tenet is blasting off.
Gamble said that profitability for the circuit can be achieved “on occupancy levels of 20% to 30%”, so should social distancing local ordinances be in effect, “we can execute that successfully and profitability.”
“Our lowest attended month had occupancy levels of 10% and we still operated profitability,” said Gamble.
The late June period will be used to begin marketing again to consumers, particularly the chain’s 12M addressable consumers.
Asked about the possibility of buying up some assets with its cash, including a $250 million debt sale, Zoradi said it’s no plans for that right now. Financials “security is more important than growth,” he said – it’s “what got us to this strength of position is that we were relatively conservative and didn’t chase multiples beyond what we were unable to do.”
“As debt starts to settle and when the COVID crisis starts to decline, and we get confirmation of when theaters can re-open, we will certainly consider them,” said Zoradi, “There’s going to be time and opportunity to consider that at a later date.
The caution, said Zoradi and Gamble, reflects prudent financial planning – preparing for a best-case July opening while also being ready for the worst in terms of a cash cushion. Cinemark entered the crisis in a strong financial position without the significant debt that is crippling larger rival AMC Entertainment. No one on the call mentioned AMC by name but the highly-leveraged chain that analysts say has about enough cash to last through June loomed over the conversation. Many believe it will have to file for bankruptcy, an eventuality that majority shareholder Wanda Group of China today dismissed as “rumors.”
Meanwhile, Gamble said, Cinemark’s bond offering was oversubscribed. That means more investors wanted in than there were notes to sell – a sign of confidence in the company’s prospects.
It also tapped nearly $100 million of a revolving loan facility to have access to that cash if needed. The company is actively exploring government help from the CARES Act but thought it safe to amass its own nest egg since “there’s uncertainty about the volume of companies that will seek that, the timing and what the requirements are,” Gamble said.
Zoradi said rents are the biggest fixed costs, making up about 45% of the monthly ‘cash burn’ rate and it’s in talks with its varied group of landlords for relief. Discussions range from a 90-day grace period, starting to pay when theaters reopen, waiting until 2021 or just extending leases and tacking what’s owed onto the back end.
As far as theater closures due to the COVID-19 crisis, the CEO mentioned that there weren’t any plans “beyond what we already planned.” Meaning, every year, there’s a handful of leases that expire that the circuit considers renewing or not, but, no, there aren’t any planned closings due to the economic distress from the coronavirus.
In regards to ticket pricing in the face of safety local and state ordinances that could be in place, Zoradi said “we’ll charge less when we start to get people back with high profile library product. We’ll be able to make deals with studio partners prior to the big tentpoles coming.”
“I don’t anticipate we’ll charge more for tentpole pictures,” said the Cinemark boss, should social distancing guidelines be enforced.
Zoradi also emphasized that given how 60% of the chain’s auditoriums have recliners, there’s already a degree of social distancing in place at the chain. He envisioned two possibilities in regards to spacing moviegoers, in which Cinemark would sell every other seat, or suspend reserved seating for a period of time, selling only 50% of the seats.
“We will let the consumer know that they’re walking into a highly clean, highly sanitized” environment said Zoradi. Asked whether the chain will take temperatures of moviegoers as they enter the multiplex, Zoradi said there’s “No decision to do that, it’s not to say it’s part of the plan, but we don’t anticipate that.” Word is that in China, the plan is to take moviegoers’ temperatures, and Disney boss Bob Iger has floated that idea when the conglom’s theme parks re-open.
Asked about how anxious the majors are for theaters to re-open, and the whole issue of some big pics like Universal/Dreamworks Animation’s Trolls World Tour going to PVOD, Zoradi said that with theatrical repping 54% of movie’s revenues, studios are “very anxious” like exhibition to return to form. Most of the majors have delayed their big pics, and Zoradi didn’t seem to be threatened by Uni’s decision to take Trolls World Tour into homes.
“Universal came out very clearly and made the decision when we were closing our theaters. They felt like they spent so much in marketing money and putting commitments like McDonald’s, that they had no choice. We don’t see any systemic change from all major studios when it comes to their major motion pictures because theatrical is so important to them.