Cinemark Holdings, Inc. (CNK) Q3 2013 Earnings Report, Transcript and Summary

Good morning. My name is Felicia and I will be your conference operator today. At this time, I would like to welcome everyone to Cinemark's Q3 2013 Earnings Call. [Operator Instructions] I would now like to hand the conference over to Miss Chanda Brashears. 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 Third Quarter 2013 Earnings Release Conference Call hosted by Tim Warner, our Chief Executive Officer; and Robert Copple, our Chief Financial Officer. 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. The company undertakes no obligation to publicly update or revise any forward-looking statements. Today's call and webcast may include non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable financial measures, calculated and presented in accordance with GAAP, can be found in today's press release or on the company's website, investors.cinemark.com. I would now like to turn the call over to Tim.

Good morning, everyone. Thank you for joining us for our third quarter 2013 results call. This morning, I'll provide an overview of Cinemark's third quarter box office performance, as well as the North American industry, highlight the upcoming film slate and provide an update on a few of our strategic initiatives. After my remarks, Robert will provide additional commentary on our financial results and capital structure, and then we'll conduct our customary custom and answer session. After setting an all-time record for attendance, admission revenues and adjusted EBITDA of Q2 of this year, we exceeded each of these metrics and set new records in the third quarter. Our worldwide admissions revenues were $479.6 million, an increase of 19.2% over the prior year, over indexing the North American industry box office by more than 1,270 basis points, or 1,600 basis points on a constant currency basis. Due to the strength and diversity of our global footprint encompassing 506 theaters and 5,794 screens, we have outperformed the North American industry in 17 out of the past 18 consecutive quarters on a currency adjusted basis. We also generated record worldwide total revenues of $757.6 million, a growth of 19.6%. Our operation teams continue to leverage the increase in attendance while maintaining their focus on cost control, achieving our company's highest adjusted EBITDA of $190.2 million. Our industry leading adjusted EBITDA margin was also record-breaking for us at 25.1%, a 170 basis point growth from a year-ago period. The robust third quarter North American industry box office generated roughly $2.9 billion in revenue, a 6.5% increase over the third quarter of last year. The foundation of the third quarter's box office was the outperformance of several mid-tier films, such as We Are The Millers, The Conjuring, The Butler, in addition to the success of tentpole sequels, such as Despicable Me 2 and Grown-Ups 2. The summer box office produced record admission revenues, driven by attendance at a 4-year high, reiterating the strength of the theatrical exhibition industry. Strong film products continued to draw people to the movies for the exceptional out-of-home experience that theaters consistently provide. Cinemark focuses on a superior experience with market-adaptive theaters, using a wide variety of platforms including XD, VIP, NextGen, CineArts and Movie Bistro. The first of our Movie Bistro test locations is now opening and serving an enhanced dining menu with fresh wraps, hot sandwiches, burgers, gourmet pizzas, as well as a variety of beverage options including beer, wine and specialty cocktails that can be enjoyed in the comfort of our auditorium's luxury seats. We are very pleased with the results and looking forward to the second test location opening this coming weekend. Additionally, we'll be rolling out our Cinemark premier concept with luxury seating and amenities in both our Playa Vista and Towson locations next year. The fourth quarter faces a challenging comp, as Q4 of 2012 was up nearly 16% for the North American industry, with the success of blockbusters such as Skyfall, Twilight, Hobbit, as well as breakout films including Lincoln, Argo and Les Mis. The fourth quarter is down approximately 3.7% to date. Gravity demonstrated great strength at the box office driven by the 3D success of the film. We commend Warner Bros. and director Alfonso Cuarón on the picture that delivered incredible 3D cinematography. Additionally, their efforts in marketing the film in 3D obviously resonated with the patrons and translated to success at the box office. In our opinion, films with an integral focus on 3D technology such as Gravity, Great Gatsby and Life of Pi, highlights the 3D experience and contribute to the continued demand in incremental box office. We are enthusiastic for The Hobbit later this year in both 3D and high frame rate, as Peter Jackson is again utilizing 3D technology to enhance his ability to convey the story. This upcoming weekend, we are looking forward to the release of Thor: The Dark World in 3D, and the continued rollout of 12 Years a Slave. Leading into the Thanksgiving holiday, the highly anticipated second film off The Hunger Games' franchise, Catching Fire, is scheduled for release and is already producing considerable advance ticket sales amongst eager fans. The weekend after Thanksgiving, Disney releases Frozen, which is an animated film loosely based on Hans Christian Anderson's, The Snow Queen. We then have the second film of The Hobbit series, The Desolation of Smaug, which Warner Bros. has approved us to play in high frame rate on essentially all our 3D-compatible screens worldwide. The Christmas break has a diverse lineup, including The Secret Life of Walter Mitty, Walking with Dinosaurs, Anchorman 2, The Wolf of Wall Street, Saving Mr. Banks and American Hustle. There was still a little premature for great visibility, as 2014 comes late as some big sequels and several new films we're already excited about and including Hunger Games: Mocking Jay, Part 1, The Hobbit: There and Back Again, Transformers 4, Amazing Spiderman 2, Fast and Furious 7, How To Train Your Dragon 2 and Captain America: The Winter Soldier. Other films include Maleficent and Interstellar. Our XD presence continues to be the #1 private premium large-format in the world, ending the quarter with a total of 141 XD screens globally, 90 domestically and 51 internationally. We anticipate opening an additional 10 to 15 XD screens by the end of the year, increasing our total to 150 to 160 XD screens worldwide. Recognizing our XD screen's exceptional patron experience and contribution to the box office, the studios provide forms of XD marketing, including national television, advertising for major releases. Some recent examples include Gravity, Captain Phillips, Ender's Game, as well as the upcoming films such as Thor, Hunger Games, Hobbit and Walter Mitty. Approximately 22.2% of our worldwide box office we generated in premium ticket sales this quarter, a slight reduction from a year-ago period. Our immediate company initiative in Latin America, Flix Media, continues to develop and build momentum. We already have one revenue share affiliate in Brazil and we'll incorporate others in the first stage of our expansion plan. We're also expanding Flix into Argentina and incorporated the business model and best practices learned today. We consider Flix Media could be in its infancy with substantial growth and development opportunities over the next 3 to 5 years. We envision alternative content, on line ticketing and loyalty among other areas as part of our long-term strategy for Flix Media to increase shareholder value. We are now 63% digital in Latin America, and on track to be 100% digital by the end of the year, with the exception of Brazil, which was delayed to early 2014 to benefit from the importation tax credits. With respect to Digital Cinema Distribution Coalition, DCDC, the initiative has now reached over 1,200 theaters and 17,000 screens, progressing towards a nationwide network to seamlessly connect all theaters. We hope to eventually to be able to extend the digital satellite distribution network worldwide. As well as Cinemark is approximately 50% transitioned to DCDC and expects to be 100% transitioned early next year. Cinemark is committed to environmental responsibility and sustainability through various channels including solar energy, recycling, energy efficiency, waste reduction and water conservation. We have installed solar panels, generate our own electricity at 5 theaters, and we'll have an additional 2 theaters with solar power within the next couple of weeks, generating nearly 2.4 million kilowatt-hours annually, enough electricity to power 200 homes for a year. We continue to evaluate additional projects and locations as part of our sustainability initiative. We're also awaiting leadership in energy and environmental design, LEED, certification for 2 locations and are considering LEED applications for an additional 4 to 5 locations. On the heels of the 20th anniversary of our first Latin America theater opening, we are excited to have signed a lease agreement that will expand our international operations into Bolivia, increasing our Latin American presence into 14 countries. Our theater will be located in the Ventura Mall in Santa Cruz, Bolivia, with a population of 2.7 million in the greater area. We've been working on this deal for quite some time and are anxious for its opening scheduled for next month. We continue to await the appellate review regarding the divestiture of our 290 screens in Mexico and expect a ruling in the upcoming weeks. In summary, we generated another record-setting quarter with a -- with our diversified portfolio of assets throughout the United States and Latin America. Our stable domestic operations fund our annual dividend, which has recently increased to $1 per annum, resulting in a yield of approximately 3%. Our Latin American gross story, including our media company initiative Flix, further differentiates us from our industry peers worldwide and enhances our shareholder value. Robert will now discuss the company's financial performance with the third quarter and provide an overview of our capital structure.

Good morning, everyone. As Tim mentioned, the third quarter was record breaking for Cinemark in regards to worldwide revenues, adjusted EBITDA and adjusted EBITDA margin. Our total worldwide revenues for the third quarter increased 19.6% to $757.6 million. Worldwide admissions revenues was $479.6 million, an increase of 19.2%. Our worldwide adjusted EBITDA was $190.2 million for the quarter, resulting in a robust adjusted EBITDA margin of 25.1%. The third quarter was our first full quarter operating Rave cinemas. On August 16, we completed the divestiture of 52 screens as required by the DOJ. We've been extremely pleased with the transition and commend our SWAT, an acronym for special workforce and training team members and our new Rave employees for the successful integration of these theaters into the Cinemark family. Our U.S. segment's total revenues for the quarter grew 27.3% to $525.8 million, driven by the successful film slate and first full quarter of operations of the acquired Rave theaters. Admission revenues for our U.S. segment increased 27.4% to $337.9 million for the quarter. Our admissions revenues substantially outperformed the North American industry box office estimate of 6.5% growth. On a per screen basis, our domestic theater's box office increased 13%, doubling the performance of the North American industry box office. Our U.S. attendance for the quarter was a record 50.6 million patrons, an increase of 22.8%. Average ticket price was 3.7% to $6.68, primarily due to price increases and pricing at acquired theaters. U.S. concession revenues were $171.1 million, an increase of 26.2%. We increased our domestic concession per patron growing 2.7% to $3.38, marking our 27th consecutive quarter of concession per cap increases, thus, nearly 7 years of consistent quarterly increases. The increase was primarily due to incremental sales and price increases during the quarter. We are continuing to pursue additional concession revenue enhancements through our introduction of Movie Bistro and expanded menu items offered in the Rave theaters we acquired. Our U.S. segment generated adjusted EBITDA of $132.8 million, the highest quarterly amount in our company's history. We congratulate our theater teams for their execution in controlling cost and leveraging the increase in attendance and revenues, which propelled our adjusted EBITDA margin to 25.3%, a 240 basis point increase. As a reminder, the Rave assets we acquired had a historic adjusted EBITDA margin below 20%, which will have a greater impact on our adjusted EBITDA margin during more challenging box office periods. The strength of our international segment's third quarter was muted by an FX headwind of approximately 11.3% and a challenging comparison. In Q3 of 2012, our international segment outperformed the U.S. industry box office by 1,250 basis points. Our international total revenues for this quarter increased 5.1% to $231.8 million. Admissions revenues increased to $141.7 million, fueled by attendance growth of 6.7%. In constant currency, admission revenues increased 14.9%. Our international segment's average ticket price was $4.66. In constant currency, the average ticket price improved approximately 7.7%. Our international concession revenue increased 10.4% to $71.2 million versus the same period last year. Concession per patron maintained its robust growth trend at $2.34 for the third quarter, an increase of 3.5% in U.S. dollars and 13.3% in constant currency, primarily due to incremental sales and price increases. Despite currency headwinds, our Latin American segment achieved an all-time quarterly record for adjusted EBITDA of $57.4 million, returning a 24.7% margin, a 30 basis point improvement from the year-ago period. We commend our Latin American operations teams for managing attendance growth and maintaining cost control discipline, especially during such an aggressive new-build initiative in the digital conversion. Consolidated film rental and advertising cost was essentially flat to the same period last year at 53.1% of admission revenues. Concession supplies were 16.1% of concession revenues, an improvement of 40 basis points due to improvements in our international segment. Total income before income taxes was $124.1 million, compared to pre-tax income of $77.4 million in Q3 of 2012. Net income attributable to Cinemark Holdings, Inc. increased 68.8% for the quarter to approximately $80 million, or $0.69 per diluted share. Our third quarter effective tax rate was 35%. Cinemark continues to have the strongest and least-levered balance sheet in the industry with a cash balance of $479.8 million. Our net debt position is approximately $1.35 billion and a net leverage ratio of 2.1x adjusted EBITDA. At quarter end, our U.S. circuit consisted of 331 theaters and 4,413 screens in 40 states in 99 DMAs. During the quarter, we built 3 theaters with 35 screens and divested of 4 theaters with 56 screens. We have signed commitments to open 7 theaters with 80 screens for the remainder of 2013, and 12 theaters with 140 screens subsequent to 2013. We expect to incur approximately $129 million in CapEx for these additional 220 screens. Our total Latin American circuit at September 30 consisted of 175 theaters and 1,381 screens. During the quarter, we opened 3 theaters and 21 screens. We presently have signed commitments to open 8 new theaters, representing 48 screens for the remainder of 2013, and 11 theaters representing 69 screens subsequent to 2013. Our estimated CapEx to develop these additional 117 international screens is approximately $89 million. We remain committed to our strategy to reinvest in the company. During Q3, we invested $69.1 million on capital expenditures, including $42.7 million on new construction and an additional $26.4 million on maintenance CapEx, which includes the Latin American digital conversion cost and the expansion of our XD premium large format screens discussed earlier. We expect 2013 CapEx to be approximately $300 million, versus the initial guidance of $350 million at the beginning of the year. The reduction is the result of the shift of the digitalization in Brazil to 2014 and the new-build projects that we'll now open next year. We remain committed to organic growth and accretive acquisitions as we believe these are the most productive use of our capital. We see new-build opportunities throughout South and Central America of 100 to 125 screens for each of the next 3 to 5 years and we'll continue to evaluate prospects for acquisition opportunities in Latin America and the U.S. Recognizing the increased cash generation resulting from our successful expansion strategy, our board increased our dividend 19% last quarter to $0.25 per quarter, or $1 annually. The true value of Cinemark continues to be our diversified portfolio of assets, offering shareholders the unique opportunity for a strong dividend yield with simultaneous growth. Operator, that concludes our prepared remarks. Please open up the lines for questions.

[Operator Instructions] Your first question comes from the line of Robert Fishman with MoffettNathanson.

One for Tim, and one for Robert. Tim, would you like to comment on Netflix's move to try and push up the windows in some theatrical releases? And would you consider playing any movies that are shown on Netflix's streaming service either day in date or earlier than the current standard windowing strategy?

I think, obviously, the comment was probably self-serving to Netflix. I don't think it would be good for the overall industry. The -- from the studio perspective or from the creative perspective or from the exhibitor's perspective, I think there's always been a strong support for the theatrical window. And I think that support will continue. Obviously, Cinemark is a big supporter of the theatrical window and we don't see any arguments that it should be a day in date window.

Okay. And one for Robert. Can you help us think about if you're able to better leverage the tight cost controls in Latin America in a stronger box office environment compared to a weaker one? Or should it be irrelevant of the strength of the box office there?

Well, I mean, the strength of the box office is definitely going to drive our margins. So this quarter, we're able to improve them compared to last year and we did clearly have a better quarter this year than last year, so we're able to leverage that. Considering everything we're doing in Latin America, with expansion, digitization, a lot of initiatives going on at once, we always get concerned that it's hard to stay focused and we felt like our teams did that. But just like the U.S., whenever you have better box office performance, you have that ability to leverage your fixed cost and potentially increase margins.

Your next question comes from the line of Barton Crockett with FBR Capital Markets. Barton E. Crockett - FBR Capital Markets & Co., Research Division: I wanted to understand a little bit better this 13% per screen admissions growth in the U.S. Normalizing for the Rave transaction, what was the actual performance per screen? Because I imagine that kind of increased the average there?

Barton, it helped some. It -- that wasn't the driver. If we exclude Rave, it's not that different. So I mean, the -- again, when you're getting into per screen average, I mean we were just performing extremely well on our existing domestic circuit. Barton E. Crockett - FBR Capital Markets & Co., Research Division: I mean, that's pretty explosive. I mean, you guys have had quarters when you've outperformed the industry, but not one in memory that's, that degree of outperformance. Was there anything that particularly contributed to that this quarter?

Well, we think that, obviously, we're obviously very focused on providing the great experience at the customer level. And sometimes products can play out a little differently in different sections of the country. But obviously, we've think -- there's a whole combination of things that -- but I think the primary factor is our focus on -- or trying to execute it at the theatrical level and there's a lot of different factors. And last year we -- the industry was down last year versus this quarter this year. And so we just had a great quarter. Barton E. Crockett - FBR Capital Markets & Co., Research Division: Okay. And then but on the flip side of it, looking at Latin America, I mean you guys have normally constant currency, had pretty healthy outperformance in Latin America per screen versus the U.S. but we didn't really see that this quarter, it was slightly better than the U.S. What's happening there? I mean, is there any fall-off from the macro situation in Brazil? Or any explanation you can give for kind of the lack of outperformance in Latin America this quarter?

Really, I think, Barton, its more of just a pure comp issue. If you look at last year, our U.S. group performed similarly to the U.S. box office last year. I mean, we just had a significant outperformance for the quarter. As I kind of mentioned, we're up 1,250 bps last year compared to the U.S. So the U.S. -- I mean, perspective wise, the U.S. was down 7%, Latin America was up 5.5% last year. So on a comparative basis, we -- if you put it for the 2 years, we still did, we think, extremely well. And arguably, the international had outperformed for that entire period of time. I think it's just the comparative you are coming off of versus really anything particular in LatAm. Barton E. Crockett - FBR Capital Markets & Co., Research Division: And given that the comps aren't an issue in LatAm, can -- any visibility into how you see the comp in the fourth quarter or the trend so far in October?

I mean, I think that Gravity performed great on a worldwide basis. And it's anticipated that Thor is going to perform great on a worldwide basis. And so it's a -- you're always comparing one quarter to the next. We tend to -- which I know, the industry tends to do, but we tend to look at on a more of a -- on an annualized basis. And we think that 2013 is going to be a very good year for the industry, whether it's internationally or domestically.

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

First of all, Robert, you talked about lower CapEx this year, just versus because of some timing issues. How would -- how do you think is going to impact CapEx for next year? Is it going to be $50 million higher than you originally expected and just pushes out into next year? And then secondly, with regards to Latin America, since you're doing the installs on your own, how does the virtual programming -- the virtual print fees flow through your income statement?

Sure. As far as this shift in CapEx, some of it definitely will just be a pure movement, and that's primarily the digitization in Brazil, which primarily will occur next year. And so that's -- -- don't have a number yet, but that makes up a big part of the $50 million. The remainder is still a little bit of a question because it just -- they are projects that are scheduled to open by the end of this year and looks like they'll move into early next year. The key to that clearly become how many projects do we end up signing for next year? So still open, dows the whole $50 million move or does part of that move, but definitely a decent piece of that will increase our original expectations we had for next year. Again, not overly concerning to us because we had planned on spending that money this year and its just a timing issue. On the VPFs, they flow into our costs. We recover the VPFs from the studios just as a DCIP does. But in our case, since they go on our own income statement, while they're not technically part of film rental, we net them against film rentals simply because it's coming from the studio from a presentation point of view. And so over time, that will impact our international film rental. It's still a little bit early to see the level of impact just simply because we're still digitizing.

Okay. And then just one last follow-up. When you look at -- you gave us sort of your gross screen additions for the fourth quarter. On a net basis, where do you believe you end up the year at in terms of global screens?

I think on the net basis, probably domestically somewhere around 4,480 or so ballpark. And then internationally, probably around, I'll say without Mexico, is probably around 1,425, I mean, give or take.

Your next question comes from the line of Townsend Buckles with JP Morgan. Townsend Buckles - JP Morgan Chase & Co, Research Division: On your U.S. film rent in the quarter, which is lower despite the box office strength, was that just a more favorable mix of movies with deeper performance in the slate or any other more structural benefits there?

No. It was that. Townsend Buckles - JP Morgan Chase & Co, Research Division: Okay. And then Robert, on your 100 to 125 screen growth outlook in Latin America for the next few years, can you say at this point whether you see next year as any, I don't know, stronger or lower on that range in terms of your confidence, or too early to tell at this point the pipeline of mall openings?

It's still a little bit early, Townsend. We feel like we'll be in that 100 to 125 range. Obviously that's what we're gunning for. But it is a little early. We're still looking at projects. We feel like, as we look further out the pipeline, we feel really good. The timing of some of the projects is our biggest question. But we should be close. Townsend Buckles - JP Morgan Chase & Co, Research Division: And do you see those weighted to the second half of the year again, like you're seeing this year, or more spread out?

Yes, a little tougher. It's still a little bit early to -- we are scheduling a lot of that right now and I don't have a real clear picture on timing of some, because it -- a little bit like this year is we're seeing some of them move. I'll be able to really give you a much better guidance next quarter on it.

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

I was hoping you could go into the new concepts for your running and concessions in those theaters. What are you seeing as the kind of average concession per cap and the concession margins on those new concepts? And then also, I was hoping you can go into the other income, is a little bit larger than we typically see. Is that a function of the M&A?

Sure. So let me address the other income person and then I'll go back to concession. Other income primarily is a function of the increase in attendance that we saw. We benefit from advertising and promotional benefits as our attendance increases. And then in that additionally, we have a number of other items where there's games and things like that. And overall, just attendance drove more of that than everything. On concession, it's still a little early for us to really I'd say measure and start providing I think meaningful data on the impact. The positive, clearly, we see is that as we're rolling out concepts like Movie Bistro, not only does it change the dynamic in that theater itself because it's obviously much more heavily weighted towards concession, but we also learn about certain items that might be very popular in that venue that maybe we can add to what we call our hotspots in our other theaters where we add -- where we've added the capability to provide an expanded offering of items, like hot wings and those type of things to -- in our big and our normal theaters. The Rave theaters also provide us a great input in that a number of those theaters had a bar and restaurant or -- and again, not heavy restaurants but kind of a lighter fare. But we're learning a great deal, really, right now and as we go into next year about how those concepts work with -- and again, where it might make sense to expand that on a broader basis. Tim, you want to...

Yes, and a lot of the concepts, whether it's VIP concepts or Movie Bistros, are really market-adaptive concepts and the same with CineArts, it's sort of a market-by-market evaluation.

And where do you guys stand on Superticket? I believe Anchorman is playing around that concept again.

Yes, no, we've done some tests with the studios to try to help them with their downloads or sales to CineMode concepts. We haven't done the Superticket. It's been with different type of promotion with the studios. But obviously, we have an ongoing relationship with all the studios and we work very closely with them and -- on various marketing initiatives. But there is definitely, I think, whether it's us, Regal, AMC or -- all the studios they're saying is they -- how can we work together to try to solve some of their problems and also maybe help ourselves in the process?

Your next question comes from the line of Ben Swinburne with Morgan Stanley.

This is Ryan Fiftal on for Ben. First, I have a follow-up question on the earlier question on film windows. I think Netflix's has made the broader point that TV viewing has become increasingly flexible, increasingly on-demand, multiple devices, in and out of the home, while there's been arguably less change for how films are consumed. So I'm just wondering what you -- how you think about the risk to the industry of TV potentially gaining share of total hours of entertainment consumption as TV everywhere really expands over the next couple of years?

Yes, well, I mean, I think first off, even the head of Netflix sort of backed off on his statement, I would make that point of clarification. But in the overall discussion, I think that from the studio and the creative -- the creative community, if you talk to any of the directors, and a lot of them come out over the years from a -- that they make their films to be seen on the big screens. Now they know it's going to roll out in all types of different platforms. And then the other challenge that the studios have faced is that as things go into that, their in-home environment and multiple platform, it scatters and trying to maintain a price point on that has been a real challenge for the studios. Not because the #1 window that's working for the studios right now and also for the creative community is the theatrical window. And so they are very, very concerned about maintaining that window, because as things go into that in-home environment, it's been a real challenge for them to control any price points. But I mean, I think the in-home environment, does, the point you're making, continues to scatter, is going to be seen on a lot of multiple platforms and -- but right now, the studio has made a lot of progress with the digital download as to how they can regain some of the control over the in-home platform.

Okay. And then -- I was wondering, on another note, can you give any update on Fathom? Any more color on initiatives that are going on air or maybe broadly, any opportunities that you're particularly excited about on non-film content?

Right now, we're still in the processes. I think, Kerry Dannel [ph] and his call of trying to finalize the details on the purchase of it. And so we've been much more focused on that. And then the opportunities and expansion, we do obviously think that it will fit better with it being theater-owned and align ourselves a little better in the opportunities that could be out there. But right now, we're really more focused on closing the transaction.

Your next question comes from the line of Ben Mogil with Stifel. Benjamin E. Mogil - Stifel, Nicolaus & Co., Inc., Research Division: Just going back on domestic performance, was your sort of top 5 or top 7 films dramatically different than your competitors, dramatically from what the industry showed or what you relative -- if you were sort of overweighting any genre related the rest of the group?

No. I mean, I think the -- we all play the same product. Now different product plays differently in various areas of the country. But there is a wide variety of product in the marketplace and we all play the same product basically. But there were some great DG [ph], but also there's a great oracle that played really well. And we think, again, that we -- there's a lot of things that go into the performance of any company and Cinemark is very focused at the theater level. And the product -- there was a great slate of wide variety of product, which probably helped everybody. And they appeal to a real broad audience. And did Cinemark benefit from that? Yes we did, but I would assume our other competitors also got some benefit out of it.

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

Two questions. One, I guess first on Mexico. I know you're still working to the process there. But since you were first approached to sell those assets, let's think the assumption that this is not approved in kind of the appeals process going back and forth, are you still resigned to exiting Mexico through some fashion of finding other buyer divestiture or is it something that you would kind of consider holding onto it if that was the only option?

Well, one, we're waiting for the ruling. But we've obviously operated in Mexico for the last 20 years. We're very comfortable in operating. We feel we've got great assets in Mexico. And if the sale isn't approved we just continue to grow and expand our operations in Mexico. We've got a great team down there. We're very familiar with the country. And like I said, that's, in fact, one of the longest countries we've been in and still feel that that's a great asset. And then also we continue to expand to other countries in Latin America like we just announced going into Bolivia and we'll continue to look at all the markets in Latin America.

Okay. And the last question, I know it's early with Flix Media down there, but what have you seen so far in terms of local versus national kind of ad demand mix versus what we have here with NCMI and how would do you expect that to evolve over time.

Historically, Latin America screen advertising has always been a very strong component, even probably stronger than the U.S. Now NCMI has sort of revolutionize how the U.S. sees screen advertising. But the actual screen advertising, just outright advertising, has always been a sort of an integral component of Latin America. And so, really, it's just sort of a digitizing and expanding the overall concept of the -- via Flix Media to bring it into the, I guess, to perform on the same level or a similar level the NCMI. And then also, we see other components in the model in Latin America more like what Ellis is doing in Canada with his media aspect.

I mean, I think the exciting part, Eric, is that we're able to professionalize it with digitization which is still rolling out in many countries, where we're a little bit ahead of our competitors even on that. But the idea is to bring in -- is to create the national presence in all of these that -- similar to what NCMI has done. As we do that, we think, to your point, even though the advertising is reasonably developed in these countries and are at least recognized, let's say, we'll be able to expand it more because, one, it will be easier to do the digital distribution and projection of it. But then secondly, you can go after bigger accounts because you'll be able to provide really just a huge marketing platform.

Yes. Because right now, the cinema advertising has been cinema advertising to where there hasn't been a network that's created the scalability, something like NCM has done so that they can go out and compete as the network for a broad range of advertising with other advertising networks. And so the concept behind Flix Media is to create that scalability. And to Robert's point, to really professionalize the process.

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

I had 2 questions. Firstly, I know Pantelion is mostly geared towards the U.S. I mean, obviously, they had a nice hit with Instructions Not Included. But as you get to a tipping point in Latin box office, are you seeing a lot more local indigenous production, because it's something that conceptually or it helps your numbers out a lot over period of time. And then secondly, sort of related to the theater versus TV thing, and the advent of 4K and all that, are you going to market the faster frame rate on The Hobbit, fairly aggressively again. I mean, obviously last year that we kind of died with a whimper, in terms of the consumer perception, but in that longer term there are a lot of things you can do with crisper 3D and all of that, if you can get more attention on that -- on the frame rate?

Yes. First off in Latin America as the theatrical platform gets expanded, it does help local production. And local production varies from quarter-to-quarter, year-to-year, whether it's Brazil, Mexico or Argentina, Chile, Peru, it can show up in any one year in any of these countries that there's a real strong local production. But -- and then also to your point, on the movie you mentioned, without interruptions, that was a -- the studios are also looking at the U.S. market for Spanish-language or themed product is also getting traction in the U.S. market. So we think that's all good for us. On the high frame rate, Cinemark is the only circuit that all their -- I think, that all their -- all our 3D screens have been approved by Warner Bros. as having the technology and all the right components to play on any screen. And that was true the last time around and is true this time around. And as we said in our call, that all our 3D high frame rate screens have been approved by Warner Bros. to show The Hobbit in the high frame rates. I think that you're going to see Jackson and then also you're going to see James Cameron then continue experimenting with the technology and advancing the technology. And then you'll start to see other directors also sort of pick up on that technology, so -- because it does really help in the action sequences. They will get better with it just like they've done with 3D. And I think it's just part of an evolving technological story, which is a great for our industry.

I was just curious -- I wasn't aware of Jackson and all that on the faster frame rates, but it seems it would be really interesting on the 3D animated projects as well, which get a lot of pop down in Brazil, huge outperformance. Does anyone have any plans to do the 3D animated projects at the faster frame rate?

I'm not aware of any. But again, as the technology develops. And it usually takes more of the technical directors sort of developing the process and then the more creative directors will adapt to the technology. And with Jackson and Cameron, they're probably 2 of the top technical -- they're very creative directors but they're also great technical directors. And so -- I mean, I think that all these years, technologies -- and including 3D, will just continue to evolve.

Your next question comes from the line of Chad Beynon with Macquarie.

One more on the Latin American CapEx, if I may, for you Robert. Could you comment broadly on the areas where these 19 theaters in the pipeline will be, in general, if they're in locations where demand is simply exceeding the existing supply or if these are actually coming into new regions where it will kind of be a new product? Just trying to get a sense of where ticketing concession pricing could come in when the pipeline opens up.

Yes, I mean, the reason we feel like we have a nice runway is that when we look at overall throughout Latin America and nearly every country down there, it's just purely under screen. To your point, in some cases, we'll be building theaters in markets that clearly have existing theaters. But that particular part of the market, that -- these are huge cities. And so there's areas within each of the cities, whether it's São Paulo or Buenos Aires or Santiago, that might not have a theater positioned correctly. So some of them are those. Some of them are going into new markets. We added different, like -- in Brazil, Salvador and Recife and some of those that are just heavily under-screened, where you have millions of people and just made 3 major theaters in the market. And so, yes, there's just incredible opportunity in some of these largest city still. And as we talked out at CinemaCon -- I think it was last year, we're as also looking at smaller markets. The biggest thing we've seen throughout Latin America this year and especially Brazil, is growth in these smaller mid-markets which have not been our primary focus. And so we've -- we're putting much more emphasis on that. And again those are very generally green opportunities that are just significantly under-screened. The mix, I don't know it changes the numbers a lot. I mean, just as we've had this year, we've got growth in Chile. We've got growth in Columbia, some in Peru, we've got by far the bigger piece is Brazil, but it's really located throughout, we have Central America. We actually have some projects in Ecuador we're looking at. So it's pretty broad perspective-wise. But ought to be consistent, I think, with most of our past our history of growth.

Well, and I think what happens a lot, because Brazil gets so much coverage that Latin America sort of becomes a Brazil story, but the real story down there is that all of these countries are doing very well. And is your broad expansion of the social classes and the economics in that is fairly broad stories throughout all these countries. And so the point Robert's making, really, it's all the countries are sort of rising. And we're building in all of them.

Okay. And then one more, if I may. Regarding concession per cap in the U.S., another good results, particularly up against a tough comp. Slate aside, did you see anything abnormal in September with volumes given that we saw a little bit of a drop off in the casual dining sector when the government decided to take the month off or was it kind of steady as she goes at your theaters?

Yes, with us it's -- ours is a lot of film product related. And it's obviously the third quarter -- or I mean the third quarter was a great quarter for the industry. And so it's -- the people show up and they tend to buy in a similar fashion.

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

DCDC, I believe you mentioned would be pretty much implemented by spring. I'm wondering how quickly you expect this will have an impact. What type of events and will it dovetail with Fathom or will it be a separate slate as well?

Yes, I mean, I should back off on -- when we say DCDC will be implemented, it will be implemented in AMC, Regal and Cinemark and deployed. And I think also they signed up National Amusements and they signed up Southern Theaters and they're in process of signing up other theaters if we go forward. And so although the 3 major exhibitors in the U.S. will be deployed via DCDC concept, there'll probably be another year or 2 that they'll roll out to all the rest of the exhibitors and so I should make that clarification. And the 2 business really have nothing to do with, as a fact, with each other. Fathom will be a -- DCDC is just an industry utility that -- to connect the industry, where Fathom will be an entity that we're purchasing from NCM, the 3 major companies and we're going to try to being focused on extending -- or expanding the availability of alternative content. There's already some business model there. Obviously we're going to be working on developing and we'll have the platform to expand it. But we'll just have to see where that goes.

With DCDC will -- so if you want to do sporting events, it would seem like the rights fees negotiations might be the bigger sticking point...

Well. Yes, and again, you can't think of DCDC as a company that's going to bring any -- it's strictly a platform that content providers go over. And so like all film can go over it, all live events can go over it. But its not an entity in itself that goes out and solicits its content. It's strictly a service company or an industry utility to deliver content to the theatrical platform.

Okay. With the success of Gravity, are you viewing 3D as a niche product, or a potentially broad product? Has this shifted your attitude at all?

No. I mean, we've always been big believers in 3D. And we think that if the studios are going to make the money to -- or spend the money to make the films in 3D, that they should aggressively market them in 3D and that we should work with them to market them at 3D. Not every film, I think, should be 3D. But that ones they decide that should be seen in 3D, they should. And we need to work together as an industry to market it and make the public aware of it. And then ultimately, the public makes the choice as to whether they want to see it in 3D or they want to see it in 2D. And obviously on Gravity, the vast majority of people chose to see it in 3D. And I think that Warner did a great job of getting out the message that, that's a way to see the movie. And I think that exhibitors tried to -- because that was the preference of the audience, try to book it as much as they could on their 3D screens. The good news for Cinemark is that we're about 50%, 55% 3D capable. And so we have a great platform to meet that demand.

Okay. And then just a couple of details. Facility lease expense had a bump this quarter. Is that a decent run rate at this stage? Or is it a little bit more as you have slid in some issues? And on the other income level that was brought up before, that was higher. There's nothing nonrecurring in that number, is that correct? And given the variability, is there an explanation for just why it bounces around quite so much?

So hopefully I hit all these. Jim, the first one was with respect to rent. The primary change in our rental expense, it was a lot of items, following just normal changes in attendance. But by far, the big increase you're seeing the full quarter of Rave. And so I think because we operated it throughout this full quarter, these are anything that lends itself to being more fixed oriented such as rent, is probably a pretty reasonable run rate. On-screen average, on, I guess, other income, and again, it -- other income will vary somewhat with attendance because of our contracts are designed around it. And it's -- as well as just the nature of even the items, again, if you're looking at games or other -- just attendance-driven concepts that create other income, better attendances are going to drive that number up and down. And so I think that's primarily just what you saw in this quarter. And what we would expect to see in the slower quarter that comes back down, it doesn't necessarily hold. I think having G and PG movies help some of the items because, again, some of what we offer, whether it's even food product oh and/or games when there's good kids movies, there's good -- there's a lot of buyers. And so the product itself will influence that a little bit.

I think that was our last question.

I think that's the last question. I want to thank you for joining us and we look forward to our next earnings call for the fourth quarter. Thank you.

Thank you.

Thank you for participating in today's conference call. You may now disconnect.