Cinemark Holdings, Inc. (CNK) Q2 2012 Earnings Report, Transcript and Summary

Good morning. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Cinemark Second Quarter Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Ms. Chanda Brashears. You may begin your conference.

Thank you, and good morning, everyone. In accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, certain matters that are discussed by members of management during this call may constitute forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause Cinemark's actual performance to be materially different from the performance indicated or implied by such statement. Such risk factors are set forth in the company's SEC filings. I would now like to turn the call over to our CEO, Tim Warner, who is joined this morning by our CFO, Robert Copple. Tim?

Thank you, Chandra. Good morning, everyone. We appreciate you joining us on the call today. Before we discuss our second quarter results, I'd like to say a few words related to the tragedy that occurred on July 20 in Aurora, Colorado. We'd like to thank and acknowledge the endeavors of all those who acted with immense strength and bravery in assisting the victims, including patrons or employees, the police department, the emergency first responders and the area hospitals that treated the victims. We are also grateful for the governmental leadership, including the Governor, the Chief of Staff, the Mayor of Aurora, the Chief of Police and the many charitable and business organizations providing assistance. Under the leadership of NATO, our industry's trade association, the theater industry has collaborated to help the victims and their families as have our studio partners. Out of respect for the victims and their families, we will not be addressing any details regarding the tragedy or our specific efforts. Thank you again for the outpouring of support and concern for the entire community. Our thoughts and prayers remain with the victims, their families and loved ones, our employees and the entire Aurora community as they grieve and continue to heal. I will now provide a brief overview of our 2012 second quarter operating results, followed by a discussion of the overall industry box office performance, the upcoming film slate and an update on a few of our current initiatives. Following my comments, Robert will share additional financial details from our Q2 results, after which we will address questions. We continue to benefit from our unique and geographically diverse footprint of over 5,200 screens located throughout 39 states and 13 Latin American countries as we posted worldwide Q2 revenue of $649.6 million, adjusted EBITDA of $157 million and an adjusted EBITDA margin of 24.2%. Our results were driven by another quarter of strong domestic industry performance, coupled with the continued growth of our Latin American business. This quarter's box office was led by the Avengers, which grossed over $600 million, the second highest domestic grossing film of all time in its initial run. We also had a diverse genre of strong films complementing the Avengers' performance, including the sequels, Madagascar 3 and Men in Black 3, the twist on the fairytale, Snow White and the Huntsman, Brave, Best Exotic Marigold Hotel, Ted, Magic Mike and the carryover of the new franchise, The Hunger Games, all of which nearly propelled the quarter to the record level of domestic box office set in Q2 of 2011. This strong film lineup, coupled with a worldwide footprint, allowed us to increase worldwide admission revenues 3% to $418.1 million. Last year, North American box office was up 4.5% in Q2, while Cinemark's domestic box office increased 8.2%. Despite the higher hurdle to clear, our U.S. theaters performed in line with the industry this quarter, down approximately 1.4%. Our Latin American operations outperformed North American industry box office in the second quarter, with admission revenues of $130.9 million, up 14.2% versus the same period last year, driven by same store attendance growth and screen additions. This quarter's top films played extremely well in our premium XD large format auditoriums. Our XD screens' performance accounted for 4.3% of our total U.S. admission revenues. Our domestic premium 3D and XD large format attendance increased 34% over the prior year, representing 27.9% of our domestic admission revenues. As of June 30, we had 92 total XD auditoriums, 61 in our domestic theaters and 31 in our international circuit. We intend to expand our XD footprint by adding 20 to 25 auditoriums during the remainder of the year. Year-to-date through July 31, the U.S. industry box office was up approximately 6%. This past weekend, Batman: The Dark Knight Rises led the box office for the third week with a projected weekend gross of $36.4 million and a cumulative domestic gross to date of $354.6 million. Total Recall opened at $26 million. We are looking forward to the remaining third quarter film slate, including this week's release of The Bourne Legacy, The Campaign, Hope Springs, followed by the Expendables 2 and Finding Nemo in 3D. The fourth quarter includes Wreck-It Ralph in 3D, Skyfall, the newest James Bond film, and the final sequel of the Twilight series, Twilight Saga: Breaking Dawn Part 2. Thanksgiving weekend titles include the Rise of the Guardians in 3D and Life of Pi in 3D. In mid-December, the first of the newly announced trilogy, The Hobbit: An Unexpected Journey in 3D, will hit the big screen. The Hobbit was filmed and will be projected in 48 frames per second, double the usual speed. When we wrap up the year with the re-release of Monsters Inc. in 3D and the Tom Cruise, starring as Jack Reacher, the first installment of Arthur Lee Childs' popular crime series, and the Great Gatsby in 3D at Christmas, which we think will expand the audience of 3D viewers. In summary, our diverse geographical footprint has continued to provide us a distinct opportunity for continued growth and strength in operating results. We remain positive about the remainder of 2012's film slate. I'll now turn over the call to Robert, who will provide in-depth analysis of our Q2 financial results. Robert?

Good morning, and thanks again for joining us today. Our second quarter total revenues increased 4.7% to $649.6 million. Worldwide admissions revenues grew 3% to $418.1 million and worldwide concession revenues were $201.4 million, a 6.4% increase from Q2 of 2011. Adjusted EBITDA was $157 million, a 4.8% increase over Q2 of 2011. Our total domestic revenues were $441.2 million, flat to Q2 of 2011. Admissions revenues were $287.2 million, a decline of 1.4%, resulting from lower attendance and partially offset by a 3% increase in our average ticket price to $6.84. The increase in price was primarily a result of the mix of 3D and XD tickets sold. Our U.S. concession revenues were $141.8 million, an increase of 1.4%. Concessions per patron were $3.38, an increase of 6%, primarily driven by incremental sales. Our domestic adjusted EBITDA was $103.4 million, a decrease of 6%. Our international segments attendance increased 20.7% for the quarter. Total revenues in Latin America were $208.4 million, an increase of 16.6% versus the same period last year. International admission revenues were $130.9 million, an increase of 14.2%, 27.6% in constant currency. Average ticket price decreased by 5.4% to $4.88 compared to the prior-year quarter, primarily driven by currency translation impacts. Average ticket price increased approximately 6% in constant currency. International concession revenues were $59.6 million, an increase of 20.6%. Our International concessions per patron remained flat to prior year at $2.23. However, our concession per patron increased 10.8% in constant currency. Our International adjusted EBITDA increased 34.7% to $53.6 million, an increase despite facing a blended FX headwind of approximately 16%. For the quarter, consolidated worldwide film rentals decreased 40 basis points to 54.4% of admissions revenues. In the U.S., we experienced an increase of 50 basis points due to the significant amount of box office generated by tentpole films. This increase was offset by a decrease in our international film and advertising of 190 basis points. Concession supplies were 15.8% of concession revenues, a slight increase of 20 basis points compared to the same period the prior year. Interest expense was $31.4 million, an increase of 5.4% due to our refinancing in June of 2011. The refinancing has been reflected in our last 4 quarters of operations. Accordingly, interest expense in future quarters should generally be comparable to the prior periods. Total income before taxes was $83 million, a 29.1% increase compared to the same period last year. Net income attributable to Cinemark Holdings Inc. was $51.6 million, $0.45 per diluted share, up from $0.35 in Q2 of 2011. Our effective tax rate for the quarter was 37.2%. Our balance sheet remains strong with a net debt position of $1.04 billion and a net leverage ratio of 1.8x adjusted EBITDA as of June 30. At quarter end, our U.S. operations were comprised of 300 theaters and 3,925 screens in 39 states. During the quarter, we added 2 theaters with 30 screens. There were no closures during the quarter. We currently have signed commitments to open 2 new theaters and an additional 27 screens during the remainder of 2012 and 11 theaters with 132 screens subsequent to 2012. We expect to incur approximately $105 million in CapEx to develop these additional 159 screens. Internationally, our circuit consisted of 161 theaters and 1,282 screens as of June 30. During the quarter, we closed 4 screens in an underperforming theater to maximize operating efficiencies. We currently have signed agreements to open 9 new theaters with 64 screens for the remainder of 2012 and 5 new theaters with 35 screens subsequent to 2012. We estimate that we will incur approximately $80 million in CapEx to develop these additional 99 international screens. We continue to reinvest in our circuit to maintain the highest quality theaters for our patrons. During Q2, we invested $46.6 million on capital expenditures, including $23.7 million on new theater construction and $22.9 million on maintenance CapEx, which includes the addition of 5 XD large format screens and continued international digital projector rollout. We remain comfortable with our guidance of $225 million to $250 million in total CapEx expenditures for 2012, which includes both newbuild and maintenance. We continue to concentrate on maximizing the performance of both our domestic and international operations. Despite the slight decrease in U.S. attendance, we were able to create efficiencies in our operations, allowing us to continue to maintain our industry-leading adjusted EBITDA margin. That concludes our prepared remarks. To reiterate...

To reiterate Tim's request at the beginning of the call, we ask you to please refrain from questions regarding the tragic incident in Aurora or our specific efforts out of respect to the victims, their families and loved ones, our employees and the entire Aurora community. We thank you in advance for the sensitivity to this matter. Operator, please open up the line.

[Operator Instructions] Your first question comes from the line of Eric Handler with MKM Partners.

Just 2 things on international. First, with the currency headwinds that you're facing in Brazil right now, is this having any impact at all on new theater development? And then secondly, when I look at the third quarter release slate in Latin America, is there anything we need to be aware of in terms of some comp issues or anything along those lines?

Eric, with respect to the headwinds, I mean, we faced, over the last 16 years we've been down there, times when the currency is helpful and times where it goes the other way and what we find is over the long-term, it averages out and we have a great business down there. So we continue to stay focused on our expansion plans. The currency headwinds are not impacting that. Brazil still is the country that we have the largest amount of new theater development going on over the next 12 months and we'll continue to have that even going in the future because of the great opportunities down there. And so the headwinds, obviously, we prefer not to have them, but they'll happen. They'll turn later and it's just that you have to be in for the long haul and we've done very well and as our numbers show even with those, we did well this quarter. And then on your other question, film slate was nothing in particular, it's -- this quarter, we actually in Brazil have Rio that we're up against, it impacted us a little bit there primarily in Brazil. Next quarter, though I'm not saying anything unusual, I think, in terms of special film product, I think we'll face similar issues that we do in the U.S. where it's going to be, we think, another good quarter. However, clearly, last year was a record quarter overall in the U.S. and then with the Olympics and everything else impacting us this quarter clearly is showing the heat a little bit.

Your next question comes from the line of Barton Crockett with Lazard Capital Markets.

I noticed in the Q that you were talking about a nearly 22% increase in other revenue in Latin America really tied to advertising. I was wondering if you could talk about what's going on down there with pre-movie advertising and also update us how far are you along in the digital projector rollout there and in coming to a virtual print fee agreement with the studios down there?

Okay. Yes, first off on the advertising, I think we said in previous calls that we were launching our version of the MCM model here in Brazil and it's called Flix and that is proving very successful within its initial stages. Once we developed a model in Brazil, it's our intent to roll it out in some of the other countries. And then regarding the digital rollout, we're about 37% of our screens are digital and -- or it's 39% at this time and we continue to work with the studios. We've signed some agreements but we don't have all the VPF agreements finalized and I apologize. I know we've said we were getting very close on VPF agreements and like so we have some of that signed and we're hoping to finish the others in the next few months, so -- and get the digital rollout started.

Okay. Just to follow up on the advertising down there, do you -- are you working in collaboration with other theaters down there or is it really just your own thing?

Well, right now, it's just our theaters as we develop the model, but it's our intent it would bring in other theaters again on the similar model that NCM uses here in the U.S.

Okay. And then one final question. Could you update us on where you see acquisition opportunities? That's been something you've been eyeballing, you and Regal, over the next 18 months or so, any developments there?

Right, there's -- we continue to look for both -- opportunities both in Latin America and then also of course here in the U.S. and there is a fairly good M&A environment in the U.S. now trying to reach agreement on price and values is always a challenge between the seller and the buyer but we continue to be optimistic that there will be M&A activities available to us.

Your next question comes from the line of James Marsh with Piper Jaffray.

Yes, just a follow-up on the acquisition comment. Do you have different criteria across your markets as you look at potential M&A? Obviously, Brazil, you've got large percentage of ownership there. You potentially have some regulatory issues in Peru. You're kind of under screened there, and the U.S. has different growth profiles. I mean, how do you reconcile all the different M&A opportunities as you look at them?

Well, first off, they have to be high-quality, what we call sustainable assets [indiscernible] modern theaters that would be the type that we would build or operate, and so that's probably the first qualification. In Brazil, we do still see some M&A activities. You're right to point out that in certain markets, that would be a regulatory issue such as Sao Paolo, but then in other markets in Brazil, it wouldn't be that big of an issue. Peru, you're right that Peru has really developed for us. We continue to develop organically, but there is some possible M&A activity in Peru with some assets that would be attractive to us. Now here in the U.S., still the same criteria that we've always followed. I think when you look at the type of acquisitions that Cinemark has done over the years, the Century theaters was a really high-quality circuit. The 4 Muvico Theaters that we purchased were really high quality and so our focus will be on that quality of theaters.

Okay. And then, Robert, could you follow up on the 190-basis point reduction in film rental cost internationally? Is there any particular drivers there and should we expect those to be sustainable over time?

There's a couple of things influencing that. I mean, one, I think we've remained focused on trying to manage our cost and clearly something to be careful of is, as you see if you go back over a 4-quarter period, our film rental will vary quarter-to-quarter. Generally, it has to do with how a film does. Latin America is slightly different and that it doesn't necessarily always follow the U.S. pattern of big tentpole, but or going up with big tentpole that you see in the U.S. I think over a 4-quarter period, it tends to average back out and so I don't necessarily want to suggest that this benefit we saw this quarter will stay there. It will be -- we would have projected it to be slightly better. Some of the reason is as we do VPF agreements, those are looked at as part of a film benefit and so as we receive VPF payments back from the studios, the way we record it even though it really has nothing directly to do with the film because it is part of our overall program, those will be applied against film rentals. So it should bring down film rental and we don't have a long run number yet, but it will impact it some.

Your next question comes from the line of Anthony DiClemente with Barclays.

If my math is correct and correct me if I'm wrong, in the U.S., I think you just modestly underperformed the industry on admissions per screen. Do we have that right? And if so, I'm just wondering if there's anything anomalous in the quarter that may have contributed to that? I have a follow-up please.

Sure. Anthony, we feel like our U.S. assets did extremely well. While we added screens and not everybody has done that, we think if you look at the overall numbers in the U.S., various groups both Latin and throughout North America have added screens as we have. So we think our numbers are reasonably in line. I mean, one thing not to lose sight of is if you went back over the last, even, let's say, 4 years, we've increased -- just looking at this quarter, our box office has grown 23%, while the industry grew at 13%. So we're always trying to outperform. We're always trying to keep our numbers going up, but we also face some higher hurdles we've set for ourselves, but I think we're generally in line with what the industry did.

Got it, Robert. And then turning to your balance sheet and your leverage is down quite a bit. You've got a lot of cash on the balance sheet. You don't have many things in common with Google and Apple, but apart from that, you've got a lot of cash, which is great. Understanding that you have M&A opportunities or what Tim said earlier, I'm just wondering if you could talk about if it's possible for you to pursue those M&A opportunities while at the same time possibly growing your dividend with that balance sheet and leverage ratio where it is.

Well, first, [indiscernible] Google's cash balance, some of those, that would be good, Anthony. Our focus is still as we've had in the past is going to be growing the company both through organic as well as acquisition opportunities. And so looking where our leverage is and our cash balance, today, that will be our -- remain our primary focus. We do want -- we realize that we are a strong cash flow business and continue to be. We feel like we pay a favorable dividend, but -- and our board will continuously review the dividend policy, but I think at least in the perceivable this year, and I'm not suggesting it changes next year, but at least where we're at right now, I think we probably stay in line with our policies. Again, our board hasn't met yet to review where our dividend's at and so obviously, they couldn't make adjustments if they see it's appropriate.

Okay. Fair enough and then last one for me and maybe this is for Tim, wondering what you've been hearing from your studios around windowing. It feels and it sounds like we haven't heard as much around like an early premium pay-per-view window from the distributors. Feels like that noise has died down a little bit. And so just wondering is it safe to say that, that buzz has passed through around this premium pay-TV window? Are there still examples of that, that you hear about testing and maybe for the franchise or blockbuster films or not? And that's it from me.

We -- as you know, you point out, the noise has really died down a lot on premium VoD and I think the studios have gotten some traction with the downloads of their product and they've seen at least the in-home revenues stabilize or some small growth, and so they think they have come up with a pattern that is -- they've at least stabilized growth in the in-home market. Windows is always part of the discussion in our industry. I mean, I can't say they never come back, but I think that with the success that the studios have or having, the number one window for their performance has been the theatrical window both domestically and internationally, and so they realize that. We realize that. I think there's a common goal to protect that window and any adjustments in the window I think will always be around its potential impact on the theatrical window.

Your next question comes from the line of Robert Fishman with Nomura.

In Latin America, can you help us break out how much of the quarter revenue or average ticket price was driven by premium, either 3D or XD?

The increase there was similar to what we saw in the U.S. I think the percentage actually was slightly higher. I don't necessarily have that right in front of me, but again, in the U.S., I think we gave the number of about 27%. I think actually it was slightly higher than that in Latin America. We continue to see strong patronage in both 3D and XD down there, but the overall relative growth, I think, was similar this quarter as it was last quarter. Again, as we roll out more 3D down there, I think that we'll continue to benefit.

Okay. And any update on expanding your IMAX relationship in Latin America or do you still have that preference to stick to the XD branded screens?

Well, clearly we like XD. We also understand where IMAX is a strong brand and, as you know, we have IMAXs in the U.S. and so we continue to talk and work with IMAX, but we're rolling out our XD brand throughout Latin America. We continue to increase the number of screens down there and we feel it's again performed very favorably. But obviously, we'll look at what all our options are.

And last one if I may. Are there more screens that you do plan on closing for cost efficiency purposes in Latin America? And any other more cost initiatives that you have planned, maybe learnings from the U.S. theaters from a staffing or any other perspective?

Sure. Two things, the -- when we close screens that tends to be opportunistic, it's usually where we'll find that we feel like if we can gain some net efficiency by reducing screens at a theater and fortunately, in Latin America, generally, where we're at in malls, we can have that opportunity because many times, the landlord would like the space back to use for alternative purposes. Clearly, those 2 things have to line up. We generally just don't close a screen and retain it as part of the theater, but that has worked, I think, favorably for us. We do continue to put focus on throughout Latin America because we have been in a fairly strong growth mode and will continue to be, but we want to make sure that we're also applying, as you said, the lessons we've applied over the last few years in the United States to increase our margins and become more efficient. We're trying to make sure all those are being passed down to Latin America. I think you actually saw some of that this quarter as well, where you saw a fair amount of margin improvement in Latin America and we put more emphasis on controlling labor cost and other cost that we incur down there, so continue to do that. And even as we roll out digital and become fully digitized, that will also provide us some opportunities over the next couple of years.

Your next question comes from the line of David Miller with Caris & Company. David W. Miller - Caris & Company, Inc., Research Division: A couple of questions for Rob. Rob, what was the free cash flow number in the quarter? I just don't see it in the press release. And then also without prognosticating too much on CapEx for next year and newbuilds for next year or the year after, I'm trying to figure out when depreciation kind of hits a plateau. When do you think this growth, when do you digest this growth and allow depreciation to plateau in order to realize additional leverage on the P&L?

With respect to free cash flow, I think if I look at the way most people find it, which would kind of be mapped before dividends, I think we're at about $32 million this quarter. I think year-to-date on that basis is somewhere around $82 million or so. With respect to building, this year, not necessarily total CapEx, but let's just look at building itself and then I'll kind of jump back to the actual CapEx kind of number. We feel like Latin America still has a great runway in front of us and so that building somewhere between 90 to 150 screens per year is very reasonable and hopefully on the higher than the lower side during that period. I think the U.S., we're this year, if you look at our total building program, newbuilds, I think, is in the neighborhood of about 60 screens and then we had one acquisition of 16 screens earlier this year. That's probably, we think, reasonable. Sometimes, it will be a little higher, sometimes a little less, but let's say, somewhere between around 75 new screens. So I think that's still a reasonable run rate in the foreseeable future. Overall CapEx, I think, comes down slightly simply because again, especially on the maintenance side, we're still very focused on the international rollout and XD rollout and over the next few years, those will slow down a little bit, but 2013 still be a pretty big CapEx year.

Your next question comes from the line of Townsend Buckles with JPMorgan. Townsend Buckles - JP Morgan Chase & Co, Research Division: A few on Latin America. Nice to see a return of core attendance growth there. Could you give some more color on whether these gains were broad-based or more specific to certain markets?

They were actually fairly broad-based. Obviously, not every market did perform the same. I think if I look -- I think all but one country had same-store box office growth and the one country was a very small country that we didn't see that. Attendance varied though. Same-store attendance varied. I mean all of them grew overall, but again, same-store box office kind of was up everywhere. Same-store attendance varies a little bit and again, some of that has to do with relative film product. But if I look across our overall number of countries down there, we actually have felt very good for a number of quarters now we're -- some might slow down a little bit, some are picking up. This particular quarter, most everything was up though. Townsend Buckles - JP Morgan Chase & Co, Research Division: Great. And can you talk about how you're seeing performance at this point in the third quarter?

Overall, the U.S. industry is, as we know, is slightly off for the quarter, looking at box office reports, a number of issues there and Olympics definitely are impacting it. I think as we look at international, international in some countries is really starting off well, but I also think they'll face similar issues throughout the quarter that it's -- they'll -- again, Olympics is facing them as well as just overall product and so I wouldn't necessarily see it being that different.

I think, I mean, I would add, this is Tim speaking, that last year was just the -- a record quarter for the entire industry, for the history of the industry. Q3 was last year, so I think that we'll have a very good quarter this year when you put it in a historical perspective and we remain optimistic about the overall year because Q4 stacks up the other way and looks very promising. Townsend Buckles - JP Morgan Chase & Co, Research Division: Got it. And just finally Robert, to follow up on your comments about your screen growth outlook, looking into next year in the pace of retail development down in Latin America, any changes you're seeing there? It sounds like you reiterated your long-term guidance, so should we think about 100-plus new screens next year as a good number?

Yes, that would definitely remain our goal. We feel like from everything we're seeing that, that opportunity still exists and again, we're adding projects now and clearly, we always have something to go between years, but I do feel like that the opportunities we're seeing, the mall development, as you're saying, throughout Latin America is very promising for us.

Your next question comes from the line of Matthew Harrigan with Wunderlich Securities.

Firstly, now that most people acceded to the primes of the theatrical window on the economics and the marketing side, are you seeing more efforts actually work at the studios using your databases to facilitate ultraviolet and some of the other potential screening and locker products? And then secondly, this question is a little bit academic. I know you're not going to start telling us all exactly how much the business is worth. But when you look at Latin America, I mean 82%, I think, of the box office from Ice Age was international. You got unbelievable growth runway down there, but at the same time, you have political risk and some of the markets is up a little bit with film, your evaluation parameters down there in the capital markets, particularly growth adjusted. Your relative to the government bond rates are very different -- I know it's my job to do evaluation, but when you toss things around, what do you -- how do you think about valuing a Brazilian business that belongs to a U.S. company?

I mean, I'll take the first part of it. I'll let Robert get in on the last part of it. The studios, when you refer to ultraviolet or digital download services and that, the studios ideally would like to move away from the DVD and go to the digital downloads, so that the consumer and the in-home experience can watch it as to how they choose. Also, they get a lot more protection from a copyright standpoint via the digital download than they do by selling the DVD. And so I can see those services and the studios' attempt to go more direct to the end consumer expanding and with that, Robert can address the Brazil question.

But do you feel that you have a role in that in terms of somewhat responsibility maybe to apply it to the theater?

No, no, we could definitely have a role with that, and as we introduce a lot of our mobile devices into our theaters and because I think that we can be helpful to them with our customer base, which is over 255 million people last year in the trailing 12 months, to help drive those consumers to the digital download. And I can see us as well as other exhibitors playing the role as we work with exhibitors to try to help them solve their in-home entertainment problems.

And then you're right, it's a bit of a question on Latin America as far as how would you look at value. I mean, we clearly look at our company as a worldwide company and so we haven't really separated out either what Latin America as a whole or any individual company would be worth. We think the great growth prospects that offers us is what we'll continue to concentrate and we see it as an integral part of our overall company. If I -- I'm not trying to put a value on it as much as -- I mean, clearly, as you said, it's a much higher growth business down there, which compared to the U.S. so we -- normally, when you're evaluating something that the relative potential for growth on top of really, we think, generally favorable economics down there. When you look at how Latin America is doing as a whole compared to what the U.S., so the long-term opportunities for the economies on top of really the long-term stability that it's at. I mean if I look at relative FX rates, yes, we're facing some headwind right now. But I can go back, we faced that before and then it turns on us, so I think that's just timing issues. So we do think that's an incredibly valuable asset we have in our portfolio, but we really haven't tried to put an exact number on it or anything.

Your next question comes from the line of Ben Mogil with Stifel, Nicolaus. Benjamin Mogil - Stifel, Nicolaus & Co., Inc., Research Division: So it's just really a two-part question. When you look at 3D, domestically, we've now seen 3D sort of for 3 years in a row fall each year. But more importantly, we've seen sort of now every last couple of years, it sort of start off stronger in May and June and then kind of pirouetted as the year goes through. So curious on what your thoughts are on what's happening there? And then sort of as an adjunct to that, we've also seen where IMAX competes against standard 3D on the live-action films, them ticket increasingly higher share of the domestic ball sort of premium markets. So I'm curious given your sort of underway position on IMAX, how you sort of juxtapose or sort of deal with all these issues?

Well, I mean I'll take the 3D piece, Ben, and we see our percentage of revenues growing from the 3D and the XD format as we highlighted during this past quarter. Also, I think when you see the results on Avengers, being the second-highest grossing film of all time, the -- it's going to drive a lot of the creative community in the studios that a lot of the big tentpole pictures aren't going to be released in a format other than 3D and our percentages on 3D continue to be very, very strong, and so we see 3D as a big part of our future. Also, I think the 48 frames we talked about in The Hobbit is the next evolution in 3D, which will continue to expand the format. And we talked a little bit about it in our introductory remarks about the Great Gatsby, which that you wouldn't think of as a 3D potential, but when you see the footage that we've seen at CinemaCon on 3D, the absolute steps in 3D and the whole presentation was absolutely spectacular. And I noted on some other calls, the footage on Life of Pi almost remind me of the early footage we've seen on Avatar, and so 3D is both an evolving process but it's also an expanding process as being a percentage of the overall box office performance. And regarding our XD, we're convinced that our XD theaters perform every well as bit as good when they're play head to head with IMAX because we also operate IMAX, but the other thing we like about XD and we made this before is that it's a totally different business model than IMAX is that each week, we can pick the biggest film of the week and put it in our XD format. And throughout the year, that -- so say we perform about the same as they do when the film's in IMAX, we have the upside of showing the films that are not in IMAX that is the biggest film that week and so when you compare it on a year-to-year or an overall year, our XD theaters perform extremely well.

Your next question comes from the line of Joe Hovorka with Raymond James. Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division: Just quick 2 questions, one is there an end date for new VPF agreements internationally like there is domestically?

Yes, I don't know that there's a end date. I mean, we're clearly in our negotiations, so we're not real concerned about any specific date at this point. We're hesitant to give timing since it's taking longer than we had hoped it to, but with respect to when we're able to complete our agreements, we're very comfortable and confident that, that will be done and no issues from the studios with respect to cut-offs or anything. Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division: Okay. And how many of your -- or I think you said 39% of your screens are digital internationally. Are they all under VPF agreements right now or no?

Yes, well, they are in that we've worked out -- yes, they're verbal agreements, I mean, we've worked out with the studios as we rolled those out because they're also all 3D enabled as we show 3D film on there that we do receive some VPFs, but again, we're memorializing those as well as getting really the long-term contract into place. Joseph D. Hovorka - Raymond James & Associates, Inc., Research Division: Okay. So all 39% of those screens are in that lowered film rent that you're seeing internationally because of the net of the VPF agreements?

Yes. And again, those aren't necessarily the clean long-term. The terms could change in all those, but they are -- the VPF is flowing through.

Your next question comes from the line of Tony Wible with Janney.

I was hoping we could dig in a little bit to the advertising. On the international list that you guys saw, how sustainable is that benefit? And what kind of growth rate do you guys look at as an international advertising push? And then flipping over looking at the U.S., I think the NCM contributions were the lowest I've ever seen and have been down, I think, year-over-year for the last couple of quarters. What's driving the disparity there?

We've always had a very strong advertising revenues from our international company and advertising was probably more common place in Latin America than it was ever in the U.S. prior to NCM. But what we like about Flix is it's bringing the international marketplace into the digital age from an advertising standpoint and we're trying to sort of duplicate or modify the NCM model to adapt it to Latin America. Now in Brazil, we've gotten very strong results and we're going to expand that in Brazil. So with our strong presence in a lot of the Latin American countries, it gives us the ability to roll out that model and it will include other exhibitors in the marketplace, but we see a lot of potential in that format throughout all of Latin America.

Is there something where we could interpret that you feel comfortable you could sustain like a 20% growth rate?

Tony, it's a little bit early to kind of estimate where the growth rate will be. I mean what we've done right now is we've put the assets in place, really developing the business. We do think there's great potential in it and as Tim mentioned in the earlier comments, we look to bring in other companies and to other exhibitors, but we're just really kind of getting our feet wet and making sure we understand it. So it's kind of hard for us to project what kind of growth rate it could achieve. Obviously, we think that it's the right move and we'll achieve growth or we wouldn't have gone down that path, but I don't know I have any estimates yet on where it can go. You also asked about NCM and the dividend from NCM. We do feel like NCM's business is doing extremely well. We think in the future, the dividends might be more comparable hopefully to what we've seen in the past. This particular quarter was awesome, which again, we report the -- in our quarter, we picked up the previous quarter of NCM and so that data is out there. And as far as what drove that, I mean, again, I'd have to tell you to go look at NCM's numbers, but I think in general, it had more to do with some of the refinancing and things that affect free cash flow that's pushed over to us versus anything having to do with their business in particular.

Your next question comes from the line of Jim Goss with Barrington Research.

Some elements of this might have been touched on a bit, but I was just wondering as you look at your facility space and given your focus on a high-quality facility space, are there many theaters that would require significant changes or possibly replacement at this stage as the contracts come up for renewals and what sort of renewal activity do you expect to have over the next couple of quarters and maybe even into next year?

Jim, good question. As you look at our history, we really haven't closed that many theaters. We do have some situations where we might be rebuilding it in a market. One of those who's coming up is Napa, California, where we had an incredibly old facility and we'll be opening a new facility later this year, but that tends to be where our closures are. We're able to generally renegotiate builds or they still have long-term opportunities in them. I think if you go back over the last few years, we've probably closed, I don't know, 10 to 25 screens a year domestically and I think that would be consistent with where we go forward. We do definitely have theaters up for renewal every year, but again, if I look at net closures, it's probably somewhere in the range I just gave you.

And when you do have the contracts come up for renewals, so then it's just a matter of determining the rate at which you extend the lease?

Yes. I mean, clearly, we're looking for the opportunity to maintain our profitability at the theater and so when it's renewed, we're looking at a number of items, I mean, what's the location, will it be sustainable if we renew it and really, generally, what's the investment to be made in it. Now we do tend to keep our -- we spend a fair amount on maintenance and so when we're going into a theater situation most of the time we feel pretty confident that if we think -- if it's been doing well, we're going to obviously try to renew it and look at making sure that the facility itself is able to sustain itself from an operational point of view and that it's clean and obviously, everything is up-to-date in it.

Okay. And then a couple of XD questions. Are you getting to the stage where domestically and internationally, you're getting marketing efficiencies as that brand grows? And if a movie is in 3D, is it always in 3D and XD? And what is the price differential usually between the XD theaters between a 2D and a 3D title?

First off, for the XD auditorium, it would be the biggest film that week would be in the XD auditorium and that could be a 2D or a 3D. [indiscernible]

But if it's a movie in 3D? Okay.

Yes, and so but then in general, our average upcharge for XD auditoriums are like in the $3-plus range and then if it was in 2D -- I mean, it was in 3D, you would add another $2 and so it would be like a $5 upcharge if it was in XD 3D, so...

And sir, we have no further questions in the queue at this time.

Well, thank you, everybody. And we look forward to reporting our third quarter results, so thank you very much for joining us today.

This does conclude today's conference call. Thank you, again, for your participation. You may now disconnect.