Cinemark Holdings, Inc. (CNK) Q1 2013 Earnings Report, Transcript and Summary

Good morning. My name is Felicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to Cinemark's Q1 Earnings Call. [Operator Instructions] Thank you. I would now like to hand the conference over to Ms. Chanda Brashears with Investor Relations. Ma'am, you may begin.

Thank you, Felicia. Good morning, everyone. At this time, I would like to welcome you to Cinemark Holdings Inc.'s First Quarter 2013 Earnings Release Conference Call hosted by our Chief Executive Officer, Tim Warner; and our Chief Financial Officer, Robert Copple. 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 statements. Such risk factors are set forth in the company's SEC filings. I would now like to turn the call over to Tim Warner.

Thank you, Chanda. Good morning, everyone, and thank you for joining us for our first quarter 2013 results. This morning, I will provide an overview of Cinemark and the North American industry's first quarter box office performance, highlight the upcoming film slate and provide an update on a few of our strategic initiatives. Robert will provide additional commentary on our financial results and capital structure, and we will then conduct our customary question-and-answer session. Cinemark worldwide admission revenues substantially outperformed the North American industry box office by nearly 600 basis points. Signifying the competitive advantage of our diversified assets, our worldwide box office has now outperformed the North American industry box office for 15 out of the past 16 consecutive quarters on a currency adjusted basis. We had a very good quarter, generating total revenues of $547.8 million. As expected, the Q1 2013 North American box office industry generated only a portion of the robust 23.5% gain generated in Q1 of 2012, but still demonstrated a significant overall growth for the 2-year period. Our operations group worked hard to create efficiencies during the quarter. And as a result, we were able to maintain our industry-leading margins, producing a 21.2% adjusted EBITDA margin. We are excited about the remainder of the 2013 film slate, especially after previewing some of the additional footage at CinemaCon a few weeks ago. We are particularly enthusiastic about the 36 3D wide release titles that have been announced to date, which underscores the importance distributors continue to place on releasing major titles in 3D. Cinemark is well positioned to benefit from the impressive 3D film slate, as 51% of our domestic screens and 40% of our Latin American screens are RealD 3D capable. The second quarter's highlight so far has been the much-anticipated release of Iron Man 3 in 3D this past weekend, grossing an impressive $175.3 million in its initial weekend, achieving the second biggest domestic opening of all time. Notably, Iron Man 3 grossed $195.3 million in 42 international markets in its initial weekend and exceeded the international box office performance of The Avengers and also triumphed as the biggest opening weekend of all time in Latin America. We are looking forward to the release of The Great Gatsby in 3D next weekend, as well as other 3D titles, including Star Trek Into Darkness, Man of Steel, World War Z, Monsters University and Epic. We are also anticipating the second quarter release of Fast and Furious 6, The Hangover 3, After Earth, The Heat and White House Down. The third quarter film slate also consists of strong 3D film lineup, including Despicable Me 2, Pacific Rim, Turbo, R.I.P.D., The Wolverine, Smurfs 2, 300: Rise of an Empire, Planes and Cloudy with a Chance of Meatballs 2. Other third quarter films include The Lone Ranger, which is receiving increased industry buzz and 2 Guns. The 3D momentum continues in the fourth quarter with Thor: The Dark World, Frozen, Walking with Dinosaurs and the anxiously awaited second film of The Hobbit trilogy, The Desolation of Smaug. In the fourth quarter, we will also have the highly anticipated second film of The Hunger Games series, Catching Fire, as well as Ender's Game, Anchorman 2, Jack Ryan and The Secret Life of Walter Mitty. Our XD screens perform very well on the market and studio recognition and promotion continues to expand. Our studio partners featured our XD premium large format in online social and mobile media. As you recall, we discussed the national advertising campaign for A Good Day to Die Hard, which featured our XD premium large format. Since then, our XD screens have been promoted in national television advertising by 2 additional studios for all Olympus Has Fallen and G.I. Joe: Retaliation. Universal will also feature our XD premium large-format on the national television advertising for Fast & Furious 6. The studio recognition of our XD screens also extends internationally. Disney promoted our XD screens in their television advertising and all of their in-theater marketing materials for Iron Man 3 throughout Brazil. Iron Man 3 played especially well on our XD screens in Brazil and generated approximately 12% of our box office on only 4% of our total screens in Brazil. Though our XD screens comprise approximately 1.9% of our domestic screen count, they generated more than 5% of our first quarter domestic box office. At quarter end, we had 120 XD screens worldwide: 75 domestic and 45 international. We anticipate 150 to 160 XD screens in operation worldwide by the end of 2013. We currently have completed international VPF agreements with 4 of the 6 major studios. Now that we have signed the fourth agreement and anticipate the fifth agreement to be signed soon, we are accelerating our digital conversion internationally and expect to be fully digital by early next year. As of March 31, we were 43% digital in Latin America. We continue to bring premium alternative content to our patrons and have recently negotiated with UEFA, the Union of European Football Associations and we'll be presenting the league's championship soccer match live in 3D in select theaters throughout Brazil. We were thrilled to bring the championship game to our patrons, given the high demand and popularity of the sport and are confident it will look remarkable on the big screen. We continue to expand our ability to directly connect with our customers via Cinemark app, e-mail and social media. Today, more than 2.2 million Cinemark apps have been downloaded. CineMode is the feature of our Cinemark app that dims phone screens and silences phones to address texting and other cell phone distractions during the movie, with more than 1 million user since its initiation late last year. The studios are excited about improving the patron experience with CineMode, and we are proud to announce our first studio promotion. For the 2 weeks leading up to the Star Trek release, patrons that earn a CineMode reward will receive a collector's limited-edition Star Trek mini poster courtesy of Paramount. We are in the final stages with the Department of Justice on the Rave acquisition. The required paperwork is nearly complete, and we anticipate the transaction to close in the next couple of weeks. We continue to progress on the sale of our Mexican subsidiary. We are currently in discussion with COFECO, the Mexican antitrust department. It remains difficult to gauge the timing of the completion of the process, and our best estimate for completion continues to be some time in the third quarter. Robert will now discuss the company's financial performance for the first quarter and provide an overview of our capital structure.

Good morning, and thank you, again, for joining us. Our total worldwide revenues for the first quarter were $547.8 million. Worldwide admissions revenues were $349.4 million, a decrease of 6.5%, which is approximately half of the decline experienced by the North American industry. Worldwide adjusted EBITDA was $116.3 million for the quarter, resulting in an industry-leading adjusted EBITDA margin of 21.2%. Our U.S. segment's total revenues for the quarter were $363.6 million. Admissions revenues for our U.S. segment declined 12% for the quarter, outperforming the North American industry box office estimates. Attendance for the quarter was 34.7 million patrons, a reduction of 12.8%. Our average ticket price rose 0.9% to $6.76, which was impacted by the reduction of premium product mix during the quarter. Our premium product as a percentage of our domestic box office was 19.2% this quarter, compared to 22.4% in the same period last year. Domestic concession per patron increased 3% to $3.40. The increase was primarily due to incremental sales per patron and price increases. Concession revenues were $118 million. Despite lower attendance, our theater managers did a great job of managing costs. Our U.S. segment generated adjusted EBITDA of $80.1 million, delivering a 22% margin. Our international segment had a strong quarter, offsetting the more challenging domestic comparison, reiterating the strength of our diverse worldwide theater circuit. Our international total revenues increased 8.5% to $184.2 million. Admission revenues were $114.8 million for the quarter, an increase of 7.1%, compared to the estimated North American industry box office decline of more than 12%. In constant dollars, admissions revenues increased 16%. Attendance increased 4.6% to 22.7 million patrons and average ticket price was $5.06, an increase of 2.4%. In constant dollars, the average ticket price improved 10.7%. Our Q1 international concession revenues increased 12.2% to $54.4 million versus the year-ago period. Concession per patron was $2.40, an increase of 7.1% in U.S. dollars and 14.3% in constant dollars. Our Latin American segment generated adjusted EBITDA of $36.2 million for the quarter. Consolidated film rental and advertising costs improved 80 basis points to 51.5% of admission revenues. Concession supplies were 16.2% of concession revenues, a slight increase of 30 basis points due to higher cost. General and administrative expenses increased to $37.8 million, primarily due to increased compensation expense and increased professional fees associated with the Rave acquisition. Total income before income taxes was $43.7 million versus $70.8 million in Q1 of 2012. Net income attributable to Cinemark Holdings Inc. was approximately $32.6 million or $0.28 per diluted share. Our Q1 effective tax rate was 24.3%. The reduction below our average 38% to 40% tax rate is primarily due to the impact of adjustments associated with the anticipated sale of our Mexican subsidiary. Our balance sheet remains the strongest and least levered in the industry, with a cash balance of $724.3 million, of which $240 million will be used for the Rave acquisition. Our net debt position is approximately $1.04 billion, the net leverage ratio of 1.8x adjusted EBITDA. Pursuant to the NCM common unit adjustment agreement, Cinemark received an additional 588,024 common units of NCM during the quarter with the current value of approximately $9.9 million. We now own a total of nearly 18.7 million units. At quarter end, our U.S. circuit consisted of 298 theaters and 3,916 screens in 39 states. We have signed commitments to open 10 theaters with 119 screens for the remainder of 2013 and 6 theaters with 74 screens subsequent to 2013. We expect to incur approximately $119 million in CapEx for these additional 193 screens. Our total Latin American circuit, at March 31, included 169 theaters and 1,343 screens. During the quarter, we opened 2 theaters and 19 screens. We presently have signed commitments to open 12 new theaters with 76 screens for the remainder of 2013 and 3 theaters with 23 screens subsequent to 2013. Estimated CapEx to develop these additional 99 international screens is approximately $88 million. Our commitment to maintaining quality assets and increasing shareholder value through accretive organic growth continues. During Q1, we invested $36.9 million on capital expenditures, including $15.9 million on new construction and an additional $21 million on maintenance, which includes the addition of digital projectors and the expansion of our XD premium large-format screens discussed earlier. We are projecting 2013 CapEx to be within the $325 million to $350 million range. As discussed last quarter, CapEx is elevated for 2013, with the robust new build pipeline, estimated that we will open between 200 and 215 new screens worldwide this year, as well as the Latin American digitization and XD conversions. We continue to focus on growth and opportunity throughout South and Central America. These countries have significantly less screens per capita than U.S. or Canada, and there is great potential for organic growth and opportunity for acquisitions in the future. We will remain committed to increasing shareholder value via this tremendous growth engine. Operator, that concludes our prepared remarks. Please open up the lines for questions.

[Operator Instructions] Your first question comes from the line of Barton Crockett with Lazard Capital.

I think the Latin American outperformance is really pretty remarkable this quarter, I mean, on a per screen basis, up about 11% or so versus the U.S. down about 12%. So the massive kind of variance. So I was wondering if you could explain what you think is going on this quarter? Was it anything particularly unusual with the film mix or the comparisons? Or is it just the strong kind of secular story taking hold there?

Well, Robert can also weigh in, but last year in the U.S. first quarter, Hunger Games was especially strong in the U.S., where in Latin America it was sort of on an unknown entity and what happens like this year's franchisers, and I'll go back to Twilight, as they become more exposed to the Latin American audience towards the end of the franchise, Twilight was huge. And Catching Fire, for example, will probably outperform Hunger Games because it'll be a much better known entity, and that had a good impact. And then plus there is also some very good local products, which plays into the Latin American market. And that's dispersed, some time it's in Brazil or it could be even in Peru or Chile or Colombia. But as we develop our platform in Latin America, there has been increased production activity of local products.

I mean, the local product definitely helped a lot.

Okay. I mean, how much of it do you think was attributable to The Hunger Games kind of variance? And how much of it was just strong movies down there?

Yes. I don't know we've broken that out. I mean, clearly, Hunger Games had a lot to do with it in that it was so significant last year in the U.S. and then Latin America, it really did not perform. So that, obviously, helped us a lot I think in comparatives. But again, I mean, overall, Latin America continues to just perform in the existing theaters as well as our new builds. And fortunately, local product is picking up. I mean, we're getting films not just in Brazil, which, historically, is kind of our mainstay but in a few other countries as well, I think in Peru and Chile as well. But -- so it's a bit of a mix. But, I mean, definitely, Hunger Games made a difference.

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

One for Tim and then maybe a couple of Robert. Tim, coming out of CinemaCon and in light of the Iron Man 3 public negotiations, how would you characterize Cinemark's relationships with the studios today? Would you say it's better, worse or the same compared to 2 years ago with the premium VOD test?

Well, we've always had great relationships with the studios, and Disney has been one of our strongest relationship because of how their type of product plays off in our circuit not only here but also in Latin America. And from time to time, we're obviously talking to all the studios about a wide variety of business issues. Probably, the only thing that was unique about this discussion is somehow it became more public. But our relationship with all the studios remains strong, including Disney, and we have a great relationship with them.

Okay. And for Robert, so for your international screen guidance for the full year, can you give us a sense of how that should roll out during the year? And maybe how we should think about next year's international screen count given the strong pipeline that you guys have outlined?

Yes. When we look at international, it's reasonably spread throughout the rest of the year. I mean, it's a little heavier in Q3 and Q4. Again, we're thinking somewhere overall for our international screen growth to be in the 100 to 125 screens, and I'd say we'll have a little bit more -- kind of similar in Q2 to what we saw in Q1 openings and then Q3 and 4 would kind of be split with the remainder. On the U.S. side, also similarly, we're looking at ballpark 125 screens. That's much more weighted towards the back end of the year, especially Q4, very heavily weighted towards Q4. As far as next year, again, we feel like we can maintain this run rate in international somewhere in the 125-plus screen count, and always hard to say until we have better visibility on the projects as far as when they'll fall. But for the moment, I'd assume even into next year that it'd be somewhat evenly throughout the year.

Great. And just a thing on Latin America, moving to Flix Media. While we understand it's early in the process, can you think about -- help us think about the potential revenue and profit opportunity for this year and as you see that playing out over the next couple of years?

Robert, we haven't really given any specifics on Flix and it is one that we're excited about. It continues to generate great upside for us. A matter of fact, this quarter, we just added our first outside party as an affiliate that we're booking advertising along with Cinemark, and so we're -- it's a test for us to understand how that works. And as far as the impact of it, we're not looking at it as a major revenue change at this point as much as just, again, getting our feet wet into how the design on the programs and really grow the business. And so I think it will continue to add bottom line to us. It's done great and our group there is really building up a fantastic team. But we see this again as a good 3, 4 year kind of growth company and as well as we saw it spreading into Argentina and Chile and other countries.

Your next question comes from the line of Townsend Buckles with JPMorgan. Townsend Buckles - JP Morgan Chase & Co, Research Division: Robert, in Latin America seeing your earnings roughly 5 [ph] for the quarter despite the nice revenue gains you had, any particular operating headwinds you're seeing down there, such as employee costs that we should keep in mind going forward?

Yes. Not necessarily. I mean, employee costs definitely go up as -- in Latin America more so higher than the U.S. but then we try to raise prices to keep up with it. We had a few charges that just came through this quarter that weren't overly unique, but we felt like kind of pushed our numbers down a little bit compared to what we would've liked to see in the EBITDA go. And so a lot of it is just staying focused on both maintaining -- or really creating efficiencies at the operating level on existing theaters while we're going through this growth mode. And we think we have everybody there, but, definitely, was a little off I'd say in Q1 with keeping our expenses in line with where we like them to be. Townsend Buckles - JP Morgan Chase & Co, Research Division: And any update you can give on Q2 box office trends in Latin America? You mentioned the record Iron Man open. Are you seeing business up at this point or at least stronger than the U.S.?

Overall, I mean, definitely if you look at the quarter to date, it varies a little bit by country. But I mean, it started off reasonably good. But I mean, definitely, there's comps and everything that make a tough comps in Latin America as well. Townsend Buckles - JP Morgan Chase & Co, Research Division: Okay. And just lastly, you mentioned acquisition opportunities in Latin America. Are you seeing a pickup in activity there where we could maybe see something later this year?

What we're really thinking is going to happen is as the industry builds out in Latin America along with us -- we've talked before that we've tended to focus on major markets, and we're looking at secondary markets as well. But, obviously, some other people have jumped into those a little quicker than we have. We think that actually will create great opportunities longer term for us to be able to get back into maybe as a way to take some of those markets by acquiring some of these newer chains they're developing those markets, so that you'll have better product really that you'll be buying. But I don't think that's going to happen necessarily in the real short term. I mean, we do constantly look throughout the U.S. and Latin America for opportunities and try to create those and so there's always the potential that one will come up, but we see those as probably being a little longer term.

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

A couple of them. First, with CineMode, I know it's still pretty early, but have you had any impact you've been able to notice on concession sales? And do you have any expectations ultimately in dollars or margins? Or is this totally shut-off-the-cellphone type of initiative?

No. It's -- what it is, is a initiative really to connect more directly with our customers on their smartphones and to create a connection between us and the studios and sort of the entertainment world, and also to reward them for good behavior in turning off their phones or texting, but also reward them for being a great customer of Cinemark. But it's not intended to be a profit-making thing. It's more the -- to have that direct connection with their customers. And we find that the -- we've always had a fairly world with direct e-mail type of program, which has helped drive our concession increases and through direct couponing, and now we're trying to transfer some of that over to the CineMode. But we think it's sort of the wave of the future to have this here direct connectivity with the customer.

And Tim, some have suggested in the -- if they can't beat them, join them. Setting up separate cell phone sections in the back of the theater or something like that where they can annoy each other and not the rest of the patrons. Have you thought of doing something like that?

Well, I mean, actually we've had a board member recently bring that idea up too and it's not that we hadn't thought of it. And at some point, I don't know if we -- I don't think we'd do it in back of the theater. We might run a test in just like one screen or something. But I think, in general, that we've spent so much effort to try to get the customers to behave properly that I don't know if we want to start allowing it. And then too with alternative entertainment, that's the other thing that we do have a lot of direct communication with the screen or talking going on in the theater. And so there's 2 different types of experiences.

And Jim, it's kind of interesting. I mean, I think our experience is -- was that you're seeing a lot of cell phone usage a year or 2 years ago, but the industry really been a lot of focus on it and I think we're seeing less of it now. I think people are -- have actually reacted to the advertisements and the push to not use your cell phone during the movie. And really, we're seeing better behavior patterns now, so you kind of hate to suddenly open up and go backwards.

Yes, okay. And separately, in terms of Latin America, you have some parallel strategies, it seems, in Brazil, Argentina, Chile, some other markets. On what do you, capital allocations decisions hinge?

Fortunately, Latin America is -- could generate sufficient cash flow to fund most anything that we're doing right now, I mean, as far as our new builds in all the countries that's being funded by free cash flow in each country. The digitization for the most part can be absorbed as well in a short period of time by each of the countries. So from a capital allocation, overall in the company, the biggest time we would look at some special use of our cash would be if we were to do an acquisition and we would be very open to funding that either with excess cash that we might have either down there or up here or a borrowing if it made sense, if it was a large enough acquisition. When we bought our Argentina subsidiary, we did borrow or actually we assumed some debt. And so we're open to that type of financing as well. But, really, we just look at where the best use of our capital is based on returns and opportunities.

So with organic growth, each market is essentially self sufficient. So they have incentive to create what they do and they're creating their own opportunities?

Absolutely, Jim. They're -- each of these countries has cash flowed for a long time. And fortunately, while we have a lot of great growth opportunities, they're generating sufficient cash flow to fund those opportunities.

Your next question comes from the line of Eric Handler with MKM partners.

Two questions here, actually. Looking at sort of like the 3D attach rates, it looks like in North America, the 3D attached rates are a little bit down on a year-over-year basis. Just curious what trends you're seeing right now in Latin America. And then also, I believe you said your ticket prices in Latin America on a constant dollar basis were up 10% which seems like an unusually high number. Can you sort of talk about some of the factors that drove that level of growth?

Yes. With respect to Latin America and the ticket price, it is primarily just staying on the raise, keep up both with inflation and normal ticket price changes and that will also vary a little bit based on relative premium product mix. But we did see some very strong increases, both in concession revenue and box revenue through increases in our price. And Eric, I'm not sure I understood your first question. You had asked about Latin America.

The attach rates for 3D, it looks like...

Okay. I got you, I got you. I missed the 3D part. We see 3D as actually being very -- I mean, in our mind, still a growing part of the industry. If you look over the last year and it varies by quarter based, obviously, on product, but it seems to be running around ballpark 20%, give or take. But I also think this quarter is pretty exciting, with all the product that's coming out right now. Matter of fact, we're gonna see Gatsby coming out this week, which I think will be an exciting alternative.

And I think that takes 3D to -- it'll be a little bit like the Life of Pi. It's actually spectacular and takes 3D into another dimension and then, of course, we got Star Trek on and on in 3D. So I mean, it's going to be -- 3D I think is very sustainable and continues to grow in the industry.

But when you're seeing, let's, say U.S. for a live action film around 45%, 50% and a bit lower for animated films now, where is that in Latin America? How much higher?

What we see in Latin America, one of the issues you have there is as we mentioned, we only have 43% digital, which is mostly 3D. And so you don't actually quite have the same penetration both from us, and we're probably ahead of nearly all of our competitors in digital rollout. And so 3D has done extremely well and performed easily up to, I'd say, the levels in the U.S. if not even outperformed the U.S. on many movies. But we feel like there is even still more room as you digitize all of Latin America because you just literally have a supply issue in terms of seat availability.

Your next question comes from the line of Ben Mogil with Stifel. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: So the first one is actually a follow-up on Eric's question, where Eric was talking about the ticket pricing in Latin America and I want to sort of flip over the concessions which were x currency, like 14%, again, a very strong number. How much longer -- like, I mean, one, what is the inflation rate as you sort of see on a blended average in the markets you operate in Latin America sort of on a weighted basis? And I mean, how much longer do you think you can get CPP? And I mean, I get that, obviously, the ticket price is probably a mix shift issue. But on CPP, is there a mix shift? I mean, how much longer can you kind of post that kind of growth rate?

Well, first off, I'll start with the concessions in Latin America. So the thing is, when we went into Mexico is that a lot of times, when you're introducing the experience, it just sort of tends to grow because they might not have had extensive concessions in theaters prior to the modern theaters being built. An example of this was in Argentina. In our first theater we built in Argentina, the existing theaters in Argentina did not even have concession stands. And one of the big debates that we were having down there is whether you should put a concession stand in a theater. And so as we've built out the modern theaters and the modern concession stands with the concession stands mixed in that, it's sort of the customer sort of -- not the you're training the customer or the customer's adapting to that being part of the experience. And so it tends to start out at one level and then tends to grow. And so that's part of the process. And then as far as pricing, a lot of that just follows inflation, and there is some actual price increase. But there's also inflationary price increase that just gets passed on to the system, whether it be in ticket pricing or in our concession pricing. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Robert, a follow-on to that or Tim as well. When you look at your fixed costs in the market in Latin America, do you have a sense of what they were x currency on a growth basis and on a percentage basis? And again may be looking on a per screen to sort of normalize a little bit?

Offhand, Ben, I don't know I have that in front of me. I mean, if we looked at relative percentage of rent, what we would consider, most of our fixed costs, they stayed reasonably in line with where they've been in the past. I mean, our rent varies a little bit because we have more percentage rent in Latin America than what we do in the U.S. And so it will move with stronger quarters up and lesser quarters down. But I think as a general percentage, most -- everything stayed generally in shape. We did have, as I said, a few items that we just didn't see the efficiencies that we had hoped to in. But they're somewhat identifiable by us and we've -- there's things we're working on. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then flipping over to domestic, I think it looks like you underperformed against the benchmark by about 30 bps. So not a huge number, but sort of a trend we've seen now over the last sort of 4, 5 quarters. Is there something domestically -- is this -- are you seeing people build against you? Or are you seeing people build -- I mean, you seem to be building as actively as anyone else in the market. Is there anything on the domestic front that you think has sort of flipped where you guys used to be pretty big outperformers domestically to that no longer being the case?

And, I guess, it's perspective. I mean, when I look at -- our understanding is, when we've looked at sources was that box office, domestically, for the calendar quarter was off somewhere in the 12.3%, 12.2%, 12.3% range, somewhere in there. We're showing that we were off box office 12%, so we felt like we actually outperformed slightly. When we look at per screen, we're slightly -- box office per screen, I think we're at 12.6%. So you can say 12.6% or so versus 12.3%. But, again, I don't -- it's hard. When you start getting into per screen a little different question whether it's 12.3% or worse. So actually, Ben, we felt like we outperformed slightly, not significantly, not the way we'd love to beat it. But based on our historic growth and outperformance we've had in the past, we still felt strongly that being able to beat the box was beneficial. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then lastly, just on capital return, I want to thank you for that Robert for the sort of the calendar and versus the per screen. Flipping over to capital return, obviously, you've got a heavy CapEx schedule ahead of you, which I think we all appreciate what the value is there. When you look at capital return, I mean, you've got still significant liquidity. You've got some -- you've got lots of NCM shares, which were given to you over the years for acquisitions so -- were you have a much higher cost base in the original sort of creation, if you will, of NCM. Do you have a sense of maybe a target leverage ratio? Do you have a sense even if we sort of look into '14 of -- where your CapEx becomes more normalized? What kind of sort of share of free cash flow you want to be returning? I'm sort of curious your thoughts around capital return.

Obviously, we remain committed to our organic growth as well as acquisition opportunities, and that's our primary focus in terms of use of capital. We also realize that we generate a fair amount of free cash flow, and we watch our dividend. When we get into '14, a little more difficult. I mean, as you said it, hopefully the CapEx starts normalizing as we get over the Latin American digital expansion. And at that point, I'm sure our board will review policies. As far as overall leverage ratios, we've been very fortunate growing our EBITDA substantially, which has really helped our leverage ratio come down and then we make the basic payments on our debt as we go and that helps as well. But we don't necessary have a target. I'd say, at this point, that we're trying to be at -- whether it's 2 or 3 or 4. If we have acquisitions just as we had with Rave, we're very open to borrowing. On Rave, we borrowed probably a little over 80% of the purchase price. And so if we have something that's large enough to warrant a borrowing, we're very open to it, and specially with today's rates on debt. But as far as capital payout, it's something we'll explore more, I was -- the board will, I assume, as we move into next year and, again, a lot of it will just depend on alternative uses to grow the company.

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

You probably answered already, but can you talk a little bit about how fast you can redeploy some of the Mexican proceeds? And are you willing to take on some debt in the interim to kind of bridge -- if you wanted to reinvest before that? And also, on Mexico, how will that SKU some of your cost metrics once that is out of the business?

As far as redeploying capital, we definitely could. If there were to be a large acquisition in the interim that made sense to us, definitely, we would be very open to borrowing. And so I don't think we'll have any limitations because of waiting for the proceeds. With respect to skewing our numbers, clearly, Mexico has been very productive for us over the years. It's -- the EBITDA margins actually were some of the highest in Latin America that we had. And so it will have an impact as Mexico goes away from us. Now the flip side is, over the last few years, we -- Mexico has been relatively flat as we've been able to grow the rest of our business and so it has been a drag on our overall growth numbers just as pulling down percentages. So I think on that side of the business, it will help us out. Again, as far as this operating metrics, it might pull us down just slightly.

Your next question comes from the Chad Beynon with Macquarie.

I just had one follow-up on the international margin side of things, particularly as you open the robust pipeline that you outlined today and in Las Vegas. I guess, my question is around the initial margins for properties out of the gate in Latin America compared to some of the margins at more of your mature properties in the area. And as you roll out this pipeline, if we should start to see kind of that mix impact kind of your blended margins. Any color there would be helpful.

When we invest our money, we go for a 20% return on our capital, and that's the same in Latin America as it is here in the U.S. And to date, our Latin properties have performed on a very similar level as the U.S. and then they continue to grow. And so we don't see any real deterioration in those margins.

Yes. The one thing I'd say, Chad, is as we do open more theaters, we tend to have more upfront cost in Latin America than what we have in the U.S. of opening theaters. And so with the 125 theaters, when you look at those as a percentage of our total screen base, obviously, it's higher than the same 125 would be in the U.S. And so there could be a little margin pressure from openings. That -- as Tim said, I mean, we look for a 20% ROI, 20% margins, and we feel like we hit those very quickly. But when we're first opening, that first quarter can have some impact and might pull it down some. I mean, it's not going to be real significant, but it will put a little pressure on us.

Your next question comes from the line of Eric Wold with B. Riley.

Just one question which has got 4 parts to it, but it's pretty quick. On the Latin American market, I know you talked about you're getting close on the studio deals. I guess, if something gets finalized down there, how quickly do you expect your 300 theaters to become fully digital at that market? And will the go forward projector purchases be then acquired through the network or you continue to purchase those on your own? And I -- first of all, but just...

No. Well, I mean, we are funding the -- our own rollout in Latin America for digital. And like we said on our call, we have 4 signed agreements and the fifth is pretty much all agreed to, but it just hasn't been executed yet at this point. Our expectation is, it's going to be executed in the next couple of weeks. But on an ongoing basis, of course, we've done the same way. And as part of the contracts, there's some funding of additional ones as we continue to roll out.

And that -- and as far as the timing of completing that, we initially had a goal of finishing by the end of this year, with the contracts taking a little bit longer than we had hoped, as well as trying to work with some of the special tax provisions that are now becoming available in some of the foreign countries. We think that this is going to bleed a little bit into early next year, the first quarter. We don't think it's -- it will be real significant, but where we had hoped to be 100% digitized by year end. We probably won't quite hit that mark, though we think we'll be by the end of the first quarter of next year.

Okay. And once -- I guess, kind of on a -- somewhat kind of pro forma basis, I guess, once you're fully digital and all of these agreements are in place, and everything's kind of flowing normally. What should we think about in terms of a kind of a normalized benefit to the film rent line from those VPS flowing through?

We haven't run that through yet, Eric. And probably, as we start getting a little later in to the year and we see really what our VPF run rate is because that's what it will determine it, we'll be able to give a better picture of what that will look like.

Okay. And then just lastly, what would be the optimal sort of the mix for [indiscernible] somewhat less.

Eric, I'm sorry, you broke up just a little there.

What will be the optimal 3D screen?

Oh, I'd say we hope to have, in Latin America...

50 percentage.

Yes, pretty much 50% both in Latin America and the U.S. And really, as more film comes out, we're very open to increasing that.

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

It doesn't feel like there's yet been a Clash of the Titans experience down Latin America, where people have gotten disillusioned with 3D and we saw Paramount of G.I. Joe. I mean, hopefully, Star Trek I think is done only about 30% of its receipts internationally. Hopefully, that will change. But have you ever seen any movies where there's been some real resistance or people just kind of reflexively love the format? And I guess, flowing out of that, the alternative entertainment doesn't seem like it's going to be that big a deal stateside. But down there it, really feels like it could be on a different level. And given the operating levers that's inherent in your business, is that something that you really think could uptick the Latin results pretty significantly as that business develops out?

Well, first off, to your 3D questions and to Robert's earlier comments is, because of I guess the lack of premium screens in 3D, with -- well received in Latin America and 3D tends to outperform the U.S. and Latin America. And we're finding that our XD screens are the premium experience. And also in Latin America, we have the VIP screens and the VIP experience. So there is a great market for the premium experience in Latin America, and 3D is part of that and I think it continues to grow. Regarding alternative content, I mean, in the U.S., we're in the process of putting the DCDC network in place. And I think that the business models for alternative content has some expansion possibilities in the U.S. But those models, to the point you're making, still haven't developed. But we're hoping that they will develop. In Latin America, where you have such a strong leadership position, we think that we can take the lead in developing alternative content in Latin America. And I think for the out-of-home experience, it has great potential. Obviously, we're excited, and we've been doing a lot of testing with it. And we're excited about the European football championship, which we think has a significant potential. And we've done some testing on the last World Cup in 3D, both here and in Latin America, and it was very well received. So we do think there's a strong potential down there for alternative content.

I would now like to hand the conference back to management for any further remarks.

Well, thank you very much for joining us this morning. We look forward to speaking to you again following our 2013 second quarter. Thank you.

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