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

Cinemark Holdings, Inc. (NYSE:CNK) Q4 2023 Earnings Call Transcript February 16, 2024

Cinemark Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to the Cinemark Holdings Fourth Quarter 2023 Earnings Call and Webcast. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Chanda Brashears, Senior Vice President, Investor Relations. Please go ahead.

Chanda Brashears: Good morning, everyone. I would like to welcome you to Cinemark Holdings, Inc.’s fourth quarter and full year 2023 earnings release conference call, hosted by Sean Gamble, President and Chief Executive Officer, and Melissa Thomas, Chief Financial Officer. Before we begin, I would like to remind everyone that statements or comments made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company’s plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company’s actual results may materially differ from forward-looking projections due to a variety of factors.

Information concerning the factors that could cause results to differ materially is contained in the company’s most recently filed annual report on Form 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. With that, I would now like to turn the call over to Sean Gamble.

Sean Gamble: Thank you, Chanda, and good morning, everyone. We appreciate you joining us today for our fourth quarter and full year 2023 earnings call. 2023 represented another year of meaningful post-pandemic progression for our industry and our company. And I thought I’d start today’s call by providing a summary of the significant achievements we made advancing our key priorities throughout the year. First and foremost, we continued to effectively navigate the fluid dynamics of our industry’s ongoing recovery, putting an emphasis on near-term revenue and margin generation, strengthening our balance sheet, and actively maneuvering through varied fluctuations in film release volume as well as inflationary cost pressures. Once again, I’m pleased to share that our phenomenal Cinemark team produced sensational results across all of these focal points.

For the full year 2023, we entertained 210 million guests worldwide and generated $3.1 billion of revenue, that was up 25% year-over-year and included our highest concession sales of all time, which were 3% higher than 2019. Our adjusted EBITDA grew 77% from 2022 to $594 million, with a 19.4% margin rate that represented 570 basis points of margin expansion. Moreover, during the year, we delivered our second highest quarterly adjusted EBITDA in the history of our company in 2Q, and our highest third quarter adjusted EBITDA in 3Q. In total, our 2023 adjusted EBITDA recovered to within 20% of 2019 on 25% less attendance, a clear sign that our many ongoing strategic growth and productivity initiatives are delivering significant impact. Furthermore, our strong operating results yielded free cash flow of $295 million, with positive full year net cash generation of $175 million after paying down more than $100 million of COVID-related debt.

In addition to outstanding operational execution and sound financial discipline throughout the year, these tremendous results also benefited from our continued drive to expand content and build audiences through marketing actions, loyalty programs, pursuit of new content sources, and heightened guest service standards. Throughout 2023, we strengthened and took full advantage of our extensive marketing and communication reach, amassing more than 8 billion media impressions, increasing web and app traffic over 30%, doubling audience engagement on social media, and growing our global addressable customer base to nearly 30 million consumers, while enhancing personalization. We also continued to advance our global loyalty programs, increasing membership by nearly 20% in the U.S. and by more than 45% in Latin America.

Furthermore, Movie Club, our paid U.S. subscription tier, grew 13% during the year to over 1.2 million members, as moviegoers continued to highly value and embrace the meaningful benefits included in this program. During the year, Movie Club drove 24% of our domestic box office and our data continues to demonstrate that the program stimulates increased moviegoing frequency and food and beverage consumption. In tandem with our marketing and loyalty actions, we continued to actively collaborate with our traditional studio partners to drive the successful releases of their films, while also working closely with Amazon, Apple and an increasing number of non-traditional content creators to help establish and grow their foothold within theaters. To that end, we were thrilled to see North American industry box office grow to $9.1 billion in 2023, driven by a diverse array of studio hits, including Barbie, Super Mario Bros., Spider-Man: Across the Spider-Verse, Guardians of the Galaxy 3, and Oppenheimer, to name just a few.

Furthermore, Amazon and Apple collectively generated almost $0.5 billion of domestic box office last year, which was also a highly encouraging sign considering they are still in the early stages of their theatrical distribution expansion. Also encouraging was 2023’s wide range of record-breaking international concert and faith-based films that approached $0.75 billion of North American box office and included the remarkable successes of Taylor Swift: The Eras Tour and Sound of Freedom. For Cinemark, non-traditional content accounted for 14% of our U.S. admissions revenues during the year as we worked aggressively to pursue these supplemental box office opportunities and maximize their overall revenue potential. Of course, as we focus on growing the number of guests we bring into our theaters, it’s essential that we provide them an exceptional entertainment experience when they join us.

As such, we spent a considerable amount of effort in 2023, further enhancing and executing our guest service protocols, as well as sustaining our industry-leading 99.97% screen up time to avoid viewing disruptions. We also continued to advance our company-wide rebranding initiative, modernizing our messaging strategy and overall aesthetics to strengthen the differentiated experience we provide our audiences. Altogether, our collective efforts to delight our guests and grow our audiences earned us guest satisfaction scores over 95%, help sustain our market share gains that continued to exceed our pre-pandemic results by more than 100 basis points, and delivered box office results that surpassed industry recovery relative to 2019 by 700 basis points domestically and 600 basis points internationally.

Combined with the effective navigation of our industry’s ongoing recovery and the benefits we gained from our focus on expanding content and building audiences, another key contributor to our 2023 results is all the work we’ve pursued over the past few years to evolve Cinemark for future success. This work includes further enhancing the immersive cinematic experiences we provide our guests, growing new and diversified revenue streams, driving productivity gains, and optimizing our circuit. Impact derived from actions in all of these areas provided substantial upside in 2023, and during the year, we continued to advance new and existing initiatives to drive even further growth and market leadership going forward. While staying disciplined with overall capital management, we leaned further into premium amenities during 2023, which continued to resonate exceptionally well with the growing range of moviegoers.

To start, recliners continue to be a significant driver of box office outperformance. And with nearly 70% of our U.S. circuit reclined, we remain the most penetrated major exhibitor featuring this highly sought after amenity. Over the course of the year, we also grew our D-BOX motion seat footprint by 16%, generating all-time high D-BOX admission revenues that were up 87% compared to 2019. Similarly, we delivered record high XD revenues that increased 13% versus 2019, as XD remains the number one exhibitor branded premium large format in the world. And we continue to enhance our unmatched presentation quality, extending Barco laser projectors to nearly 15% of our theaters worldwide as we progress toward converting our entire global circuit to laser technology over time.

We also continue to drive significant growth and enhancement of our concessions offerings during 2023, as evidenced by our all-time high food and beverage sales and per caps. In addition to expanding the variety of selections we provide consumers, including new menu options and movie-themed merchandise, we further improved distribution as well. For example, we introduced new space management layouts across a range of our theaters that increase product assortments and speed of service, driving incremental purchase incidents. We also continued to advance our mobile ordering platform and realized a 32% year-over-year increase in online concession sales. Furthermore, we became the first major U.S. exhibitor to partner with all three of the largest third-party delivery platforms, DoorDash, Uber Eats and Grubhub, as we aim to further extend the reach of our concession sales beyond our theaters.

Pricing sophistication is another area we continue to actively develop as we aim to maximize attendance, box office and concession sales, while leaving our guests feeling satisfied with the overall value they received. To strengthen our assessment and calibration of consumer elasticity at a theater-by-theater level in the midst of evolving macroeconomic and competitive developments, we’ve been increasing the number of resources, tools and data-driven insights we use. The process improvements we have made to-date are already helping us finetune our pricing strategies with enhanced results, which we expect will continue ramping up as we further develop these capabilities. Likewise, the continuous improvement productivity-related initiatives we’ve been pursuing are also yielding sizable bottom-line benefits.

Examples include our ongoing actions to enhance operating hour windows, showtime scheduling, training efficiency, procurement strategies, and overall labor practices. For instance, as a direct result of our varied workforce management projects, we managed to hold salaries and wages growth to only 8% in 2023, despite a 22% year-over-year increase in attendance, ongoing wage rate pressures and staggered fluctuations in volume throughout the year. Finally, we took a variety of steps during 2023 to further optimize our circuit. In addition to expanding premium amenities, as I’ve previously mentioned, we also added four new theaters through a management deal with EPR Properties, our largest landlord, we closed 10 low-performing theaters that will provide bottom-line improvement going forward, and we opportunistically exited our non-strategic business in Ecuador, where we were a distant third player after receiving an attractive unsolicited offer.

At the same time, seeing a growing number of opportunities on the horizon, we reactivated our new build development pipeline and added a new family entertainment center concept to our array of theater designs with plans to open two of these new concepts by the end of this year. So, in summary, 2023 was a highly successful year for Cinemark, with the significant results we delivered amidst another period of fluid market dynamics, the growth we derive from expanding new sources of content and building audiences and the further advances we made to position our company for future success. It was also a meaningful year for theatrical exhibition as a whole as positive indicators pertaining to the key fundamentals that drive our industry, specifically consumer trends and product flow, were further reinforced.

Sustained consumer enthusiasm for shared larger-than-life cinematic experiences was validated again and again throughout 2023, as more films were released, more records were achieved and North American box office grew 21% year-over-year. Action, family, horror, spectacle, adult drama, romcom, concerts, faith-based, foreign films, 2023 was propelled by a diverse range of content across all demographics of moviegoers during all times of the year. In fact, as we’ve examined our Cinemark data, we’ve observed that audience mix over the past two years, film by film as well as overall mirrors pre-pandemic patterns. During 2023, film volume grew to 110 wide releases and reached 85% of pre-pandemic levels, up from 65% in 2022. This favorable growth in film product is the result of studio efforts to rebuild their slates back to historic levels of output after having measured and publicly referenced the enhanced benefits that a theatrical release provides their film assets and their companies.

These benefits include elevating promotional impact that increases awareness, interest in recall, strengthening performance on downstream distribution channels, including streaming platforms, boosting overall financial results and library value, and satiating consumer and talent demand to see these films on the big screen. And while six months of work stoppage associated with the Hollywood strikes will likely cause a dip in wide releases to approximately 95 titles in 2024, an estimated 75% of pre-pandemic levels, we expect film volume in 2025 will quickly spring back to the recovery glide path it’s been on over the past two years, notching another step closer to pre-pandemic levels based on current production activity and expressed plans at the major studios.

This expectation is further supported by Amazon’s and Apple’s stated ambitions to continue scaling their theatrical film slates as well as the encouraging trends we’ve recently witnessed in non-traditional content growth. As film volume rebounds once again, Cinemark remains in the most advantaged position to capitalize on that upside on account of our solid foundation and the myriad of actions we continue to pursue to further strengthen our company. So, as we consider the fundamental drivers of our industry, our current market position and the many opportunities before us, we remain highly optimistic about the future of our industry and particularly our company. I’ll now turn the call over to Melissa, who will provide additional information on our fourth quarter results.

Melissa?

Melissa Thomas: Thank you, Sean. Good morning, everyone, and thank you for joining the call today. We were thrilled to deliver strong operating and financial results for the fourth quarter and full year, while further strengthening our balance sheet. We are incredibly proud of the focus and execution our global team exhibited as we capitalized on the box office and remained nimble in this dynamic environment. During the fourth quarter, we served more than 40 million guests globally, an increase of 4% year-over-year and grew total revenue 7% to $638.9 million. With the uptick in attendance, our strong operating discipline and the ongoing execution of our strategic initiatives, we delivered $79.6 million of adjusted EBITDA in the quarter, up more than 8% year-over-year, and we expanded our adjusted EBITDA margin by 20 basis points to 12.5%.

Moving to the results for our domestic segment. We welcomed 26.2 million guests across our U.S. circuit during the fourth quarter, an increase of 4% year-over-year. We grew our admissions revenue 7% to $267.5 million and surpassed the North American industry’s box office growth by 140 basis points, driven by our strong market share in the quarter. Our market share benefited from the higher mix of family and horror content, which resonated particularly well in our circuit, coupled with the successful execution of our strategic initiatives, as Sean discussed. Our average ticket price grew 2% year-over-year, reaching an all-time high of $10.21 in the quarter, driven primarily by the elevated ticket pricing and box office success of Taylor Swift: The Eras Tour concert film, in addition to strategic pricing initiatives.

Together, these tailwinds were able to overcome the difficult comparison from the fourth quarter of 2022, where ticket prices were bolstered by outsized 3D format mix from Avatar: The Way of Water. Domestic concession revenue was $200.9 million, an increase of 8% year-over-year. Our concession per cap grew 3% and reached a record high of $7.67 for the quarter, primarily driven by strategic pricing initiatives and product mix, with particular success from merchandise sold for the Taylor Swift: The Eras Tour concert film in the quarter. Our teams continue to find new and innovative ways to drive incidents and improve the monetization of the attendance in our theaters, whether it be through the introduction of new concessions and movie-themed merchandise offerings, modifying the flow of concession traffic within our theaters or promoting mobile ordering, among other initiatives.

Other revenue grew 5% year-over-year to $50.4 million, largely due to the attendance growth during the quarter. Altogether, our domestic segment delivered total revenue of $518.8 million, an increase of 7% year-over-year and generated $68.5 million of adjusted EBITDA, an increase of 15% versus the fourth quarter of 2022. Domestically, we expanded our adjusted EBITDA margin by 90 basis points to 13.2%. Turning to our International segment. We entertained 14.4 million guests during the fourth quarter, an increase of 2% year-over-year. While the fourth quarter is typically a seasonally low attended quarter in Latin America, we outpaced the attendance growth for the broader Latin American industry by 600 basis points in the quarter. We delivered $54.9 million of admissions revenue, $42.1 million of concession revenue and $23.1 million of other revenue.

In total, our international revenue increased 5% to $120.1 million, and we delivered $11.1 million of adjusted EBITDA, yielding a 9.2% adjusted EBITDA margin. Our international adjusted EBITDA margin was impacted by two meaningful headwinds in the fourth quarter. The expiration of pandemic-related temporary rent relief and the sharp devaluation in the Argentinian peso. While inflation has been outpacing FX devaluation over the past few years, that was not the case in the fourth quarter of 2023, given the abruptness and magnitude of Argentina’s devaluation following economic measures implemented by their new administration. We expect these factors to continue to be headwinds in 2024. That said, we have long-tenured and highly-experienced local teams that are extremely well versed in navigating complex economic and political landscape such as this.

Moving to global expenses. Film rental and advertising expense was 53.6% of admissions revenue, a 330 basis points reduction from 4Q of 2022, predominantly driven by the lower concentration of blockbusters and overall film mix during the quarter. Concession costs as a percent of concession revenue were 19.5% in the fourth quarter, up 160 basis points year-over-year, primarily due to inflationary pressures, higher shrink and product mix, particularly elevated merchandise sales in the quarter, which have a higher overall cost associated with them. Strategic price increases partially offset these impacts. Global salaries and wages were $96.9 million, an increase of 1% year-over-year. As a percent of revenue, salaries and wages declined 80 basis points due to benefits realized from our ongoing focus on our labor productivity, coupled with higher attendance, which drove operating leverage in the quarter.

This leverage was partially offset by wage rate pressure and the expansion of operating hours. Facility lease expense was $78.8 million, up 2% year-over-year, primarily due to the expiration of pandemic-related temporary relief that benefited the prior-year period, partially offset by the theater closure, as Sean mentioned. As a percent of total revenue, facility lease expense decreased 60 basis points. Utilities and other expense was $113.3 million, up 10% year-over-year, primarily due to an increase in our variable costs such as utilities, credit card fees and repairs and maintenance, driven by the growth in attendance, expanded operating hours and inflationary pressures. Higher gift card commissions due to stronger gift card sales through third-party channels in the quarter, also contributed to the increase.

As a percent of total revenue, utilities and other increased 50 basis points. G&A was $54.1 million, an increase of 24% year-over-year, driven by higher incentive and stock-based compensation and, to a lesser extent, incremental headcount to support business recovery and our strategic initiatives, as well as wage and benefit inflation. Globally, we generated a net loss attributable to Cinemark Holdings, Inc. of $18 million in the fourth quarter, resulting in diluted loss per share of $0.15. For the full year, we generated net income of $188.2 million and diluted earnings per share of $1.34. Turning to the balance sheet. We remain highly focused on strengthening our financial position, while continuing to make investments to position the company well for long-term success.

We made significant progress in this regard throughout 2023. We generated $295 million of free cash flow during the year, $49 million of which was generated in the fourth quarter, and we ended the year with nearly $850 million of cash on the balance sheet. All the while, we reduced our debt by over $100 million and invested roughly $150 million of capital into our global circuit, $60 million in the fourth quarter alone. Notably, we were pleased to end the year with our net leverage ratio within our target range of 2 times to 3 times. Looking forward to 2024, our capital allocation priorities remained balanced and disciplined, as we prioritize addressing our 2025 maturities and investing in the long term, while managing through content volume headwinds this year.

To that end, we currently intend to redeem the remaining $150 million of 8.75% notes with cash on hand in May of this year when they step down to par. Additionally, we expect to spend approximately $150 million in capital expenditures during 2024. Although film volume and box office are expected to decline year-over-year due to the Hollywood strikes, we intend to hold our capital expenditures flat given our optimism regarding the industry’s recovery and our objective to capitalize on that recovery. That said, in 2024, we expect to prioritize more of our capital deployment towards long-term strategic opportunities, including new builds and other ROI-generating initiatives, mainly premium amenities. In closing, while we expect 2024 to represent a near-term setback in our recovery trajectory, we are highly encouraged regarding the exhibition industry’s recovery in 2025 and beyond.

We remain laser-focused on further advancing our strategic initiatives, and we believe we are well positioned to capitalize on the anticipated recovery and maximize shareholder value over the long term. Operator, that concludes our prepared remarks, and we would now like to open up the line for questions.

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Q&A Session

Operator: Certainly. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Eric Handler from ROTH MKM. Your line is now live.

Eric Handler: Good morning. Thanks for the question. Wonder if you could talk a little bit about your free cash flow. Your conversion from adjusted EBITDA for the year was 50%, which going back to 2007 is a record number. Is that a good barometer going forward, or was there anything unusual there that sort of elevated that percentage?

Melissa Thomas: Hi, Eric, thanks for the question. We were certainly pleased with our free cash flow conversion rate this year and optimistic about the possibilities over the longer term as our business recovered. But it’s important to bear in mind that this year’s free cash flow conversion rate was bolstered by moderated CapEx levels, which we would expect to ramp up as industry box office resumes its recovery though we do believe our peak CapEx years are behind us. The other key factors to consider going forward include, of course, our debt levels and corresponding interest payments as well as any working capital dynamics.

Eric Handler: Great. Thank you. And one of the things you mentioned, Sean, in your commentary was, I think, two concepts to open in 2024 for sort of new concepts. What exactly is that? Is that within your existing footprint?

Sean Gamble: Yes, thanks for the question. That’s basically a new format of one of our theaters, that at least the way we’re looking at it with the family entertainment center. So, an extension of theaters that has a little bit larger-scale gaming in it as well as some bowling concepts and a little bit larger bar restaurant facility. We’ve had some really positive experience with that in a joint venture that we currently have for a single venue. And we’ve seen how well these types of concepts have performed both during the pandemic and since. So, we look at that as a really positive opportunity for diversification, for growth. It can also provide opportunities both from a new build perspective, as well as also remodels of existing theaters where we may have a large theater that doesn’t quite need all of the auditoriums that we have.

So, the two that I referenced include one new build that we have currently underway in El Paso, Texas, as well as a remodel that we have underway of our Merriam, Kansas City theater.

Eric Handler: Thank you.

Sean Gamble: Thanks, Eric. Appreciate the questions.

Operator: Thank you. Next question today is coming from David Karnovsky from JPMorgan. Your line is now live.

David Karnovsky: Hi, thank you. Sean, thanks for the view on ’24 supply. I know you spoke to ’25 in that level being back to the recovery path you had been on. So, to be clear, does this mean you expect kind of the ’25 wide release volume to be above ’23, and maybe you could talk to some of the factors driving that? And then for Melissa, just wanted to see if you could provide any early expectations on average ticket prices or per cap levels in the coming year? Thanks.

Sean Gamble: Sure. Thanks for the question, David. Yes, I mean, just to quickly answer your question on ’25, we do anticipate, based on the information we have at hand right now that it would notch further forward from 2023’s volume level approaching pre-pandemic levels. We saw a nice trajectory of progress from ’22 to ’23. As mentioned, unfortunately, that was disrupted by a disruption in supply chain production due to the Hollywood strikes. But based on all of our conversations with our studio partners with regard to what they have currently in process from production as well as their ongoing plans, coupled with what we know is happening at Apple and Amazon as well as with some of this additional non-traditional content, we remain positive and optimistic about that spring back in recovery. So that’s really the drivers of why we think ’25 will just quickly bounce back to that recovery path we’ve been on.

Melissa Thomas: And then, David, in terms of your question around expectations on ATP and per cap, on the average ticket price side, we do anticipate modest growth in our domestic average ticket prices for full year 2024, though that may fluctuate quarter-to-quarter based on film mix. Just a couple of points on some of the key catalysts we see for that. We do think there’s still additional opportunity on the strategic pricing front as we continue to leverage data and analytics to find that optimal price point that maximizes our overall attendance in box office. Of course, film mix also does play a role in our ticket prices going forward. But net-net, we do think modest growth there. The one thing I would keep in mind just from a modeling perspective is that Q1 and Q4 of 2023 are certainly going to be tougher comparisons given the outsized 3D mix due to the carryover of Avatar: The Way of Water from Q1 of 2023 and then Taylor Swift: The Eras Tour concert film in Q4 of last year.

And then, on the F&B per cap side, there, we do expect to see moderate growth on per caps year-over-year. Some of the key drivers there, we do intend to continue to lean into various initiatives that we have to maximize food and beverage incidents. So that includes creating a frictionless experience through mobile ordering platform, our self-serve capabilities, as well as modifying the flow of concession traffic, and we also expect proactive category management as well as leaning into movie-themed merchandise and scaling third-party delivery to be potential growth drivers for us. And then certainly, on the pricing side, we continue to evaluate opportunities there to make sure that we’re finding that right balance to maximize that per cap opportunity, while at the same time, sustaining our historically high incidence rates.

David Karnovsky: Thank you.

Sean Gamble: Thanks, David.

Operator: Thank you. Next question today is coming from Ben Swinburne from Morgan Stanley. Your line is now live.

Ben Swinburne: Thanks. Good morning. Sean, just back on your 95 film expectation for ’24, I’m just curious if you’re assuming more are added between now and the end of the year. We’ve seen, at least we’ve noticed a number of films, still smaller films, but a number of films added to the slate even in the last month. So, I was just curious what you’re assuming in that 95, if you don’t mind sharing.

Sean Gamble: Sure. Well, I think it’s a great observation that you have. We do tend to see films continue to be added through the year. In some ways, that actually was a little bit elevated in the fourth quarter when several films moved out as a result of the Hollywood strikes. We saw a number of smaller films get dated that previously weren’t — some weren’t even on the radar prior to that. So, as we sit right now, we have line of sight to about 90 titles. So, we’re assuming another five or so get added above and beyond that. So that’s kind of generally in line with what we’ve seen in the past. That may be tempered a little bit in 2024, just simply because of the effect of the Hollywood strikes on production cycle. The only other thing that I would flag is the way this year is — the calendar is lined up, there is definitely a concentration of larger films toward the end of the year, again, a byproduct of the strikes on production.

So, there is a chance. I’m just saying there’s — we have no line of sight to any risk right at this moment of anything fluctuating. But if the normal course of making movies, if something doesn’t come together, there’s a situation where something could slide out. So, I’m just flagging that because it’s a little bit more heavily loaded at year-end than we’ve seen over the last couple of years. But there’s the potential for additional films to pop in like we saw in ’23, and that’s where we sit right now.

Ben Swinburne: Okay. That makes sense. And what do you guys looking for to resume the dividend? I know it’s a Board decision, but as we track the business this year, got a lot of cash on the balance sheet. Can you just talk about the things you are waiting to see to bring that back?

Melissa Thomas: I’ll take that one, Ben. So, with respect to the dividend, reinstating the dividend does remain a key consideration for both management and the Board. However, the timing of any reinstatement is predicated upon our ability to sustain our net leverage ratio within our target range of 2 times to 3 times. Keep in mind that our leverage ratio is highly dependent upon the box office and our free cash flow generation, which are both expected to face headwinds from reduced content volume this year. So that may put some near-term pressure on our net leverage ratio. We do, though, remain in active conversations with our Board regarding our capital allocation priorities, and that includes potential timing of reinstating the dividend.

Ben Swinburne: Okay. And then I just want to ask, Melissa, I don’t know if there’s any way to size Argentina for us since you called it out as something for us to think about in ’24?

Melissa Thomas: Yeah. So, on the Argentina front, I mean, they’re certainly contending with sharp devaluation following the economic measures implemented in December with further devaluation projected this year. If we look at and of what bank projections are saying in terms of FX devaluation for Argentina, could be as high as 80% year-over-year. That said, we’ve got to keep in mind that Argentina is a highly inflationary environment. So, we do expect that inflation could provide some offset to that FX devaluation in the country. It’s just unclear to what extend at this time and whether our pricing can keep up with the rate of inflation. But what I would say there is, it’s a highly fluid situation. Our teams continue to closely monitor it and lean hard to kind of navigate through some of this.

We have some long-tenured teammate — team members that are at — in our international countries. So, we feel good about our position there. But it’s really highly fluid. So, it’s hard to pinpoint at this stage.

Operator: Thank you. Next question is coming from Mike Hickey from Benchmark. Your line is now live.

Mike Hickey: Hey, Sean, Melissa, Chanda, congratulations, guys, on 2023 and your fourth quarter. Great job. Just curious, Sean, on the product volume question on ’25 getting back here to sort of pre-pandemic levels. Just curious what sort of boost you’re thinking getting from ’24 films that were delayed because of the labor strikes in the ’25. I guess the question being, do you feel like your studio partners at this point structurally are sort of ready to provide you the volume of films that they had pre-pandemic? And then, on ’25, are you including incremental films from streamers? Obviously, that business looks like it’s scaling. And I guess you would think over time, streaming plus your traditional studio partners would give you a volume of product that was above pre-pandemic.

Curious when we hit that inflection point, Sean. And then, the second question would be on your domestic network. It looks like your theater count has contracted about 10% versus where you were pre pandemic. It looks like most of that is just sort of thoughtful optimization from you and your team. So obviously, that would be accretive. But as we move forward here, do you think you’re getting in a better position to sort of base and build your domestic network? And I get the new concept you’re trying with, that looks interesting. Curious also, if that’s an M&A opportunity if you’re successful there. Thanks, guys.

Sean Gamble: All right. Thanks, Mike. Let me start with the first question. So, just touching a little bit more on 2025 estimates volume, prior to the strikes, the whole industry was still in the recovery mode, rebuilding the whole production pipeline of films that was affected by COVID. And at that time, we were anticipating perhaps in ’25, ’26 would be the time that we could see things get back to pre-pandemic levels, again, based on how things were progressing at that point. As a result of the strikes, clearly, that created over six months of work stoppage and delayed things. There were some movements out of ’24 into ’25. And as we sit here today, and what we’re going on is just largely the discussions, the ongoing conversations we’re having with our studio partners.

2025, while there’s certainly the potential it could get back there to pre-pandemic levels, I’d say we’re probably looking at that maybe more of a 2026 phenomenon. Apple and Amazon are certainly building to your question on that, they’ve been adding. We know that Amazon has publicly stated that they are working towards a slate of eight to 12 films a year. They may get there in 2025. I think we’ll have to see how that just comes together, but I know that’s a directional target that we understand at least that they’re working towards. And Apple’s building as well. So, can’t fully call it now. It’s kind of why we’ve tried to give a sense where we see things coming in somewhere between 2023 and 2020 in pre-pandemic levels as we sit here today. But we’re optimistic.