Cinemark Holdings, Inc. (CNK) Q3 2014 Earnings Report, Transcript and Summary

Good morning, my name is Marissa, and I'll be your conference operator today. At this time, I would like to welcome everyone to Cinemark's Q3 2014 Earnings Call. [Operator Instructions] Thank you, Ms. Brashears, you may begin the conference.

Thank you, Marissa, and good morning, everyone. At this time, I would like to welcome you to Cinemark Holding Inc.'s Third Quarter 2014 Earnings Release Conference Call hosted by Tim Warner, Chief Executive Officer; and Sean Gamble, 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 risk, 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 and on our company's website, investors.cinemark.com. I would now like to call -- turn the call over to Tim Warner.

Good morning, everyone, and thank you for joining us for our third quarter 2014 results call. I would first like to formally welcome Sean Gamble, Cinemark's new CFO, to his first official earnings call. Regarding Regal's announcement exploring strategic alternatives for their company, we can appreciate there may be a lot of interest in Cinemark's reaction to the news. Cinemark has most respect for Regal's management team and their contribution to our industry. As such, we will not be speculating on their motivation nor the potential outcome of their review. Like any other acquisition opportunities, Cinemark will evaluate what the announcement means to our company as well as the industry, but have no position at this point in time. We also understand that there may be numerous questions regarding the lawsuit filed by the Department of Justice to enjoin the transaction between NCM and Screen Vision. As a founding member of NCM, we are confident that the NCM management team will take all necessary and appropriate steps in this matter. We will not comment on this active litigation and appreciate your patience and understanding in refraining from asking questions regarding this litigation. The third quarter faced a challenging comp and was impacted by box office underperformance in July. The shift of Fast and Furious 7 into 2015, as well as the lack of family film product resulted in an industry decline of approximately 13%. Despite Cinemark's Q3 2013 domestic per screen outperformance of the industry by 650 basis points, our domestic admission revenues declined 14% for Q3 of 2014, which we are especially proud of and attribute to our focus on driving attendance above all else. Without our 650 basis-point hurdle from the prior year, our per screen average would have exceeded the industry performance by 320 basis points, reiterating the strength and success of our market-adaptive approach. Cinemark's diverse worldwide platform is structured and designed to focus on theater productivity and bottom line results. Our strategic market approach was especially beneficial this quarter, given the challenging box office environment, as we are a content-driven business. Our total worldwide operations generated $141.7 million in adjusted EBITDA, with the continued industry-leading adjusted EBITDA margin of 21.9%. We congratulate our entire team for their diligence in structuring the company and their consistent operational discipline, which delivers these outstanding margins. Our international operations outperformed the North American industry and decreased 11.9% on a currency-adjusted basis, which is impressive given the hurdles of the disposition of our Mexican assets and a 9% foreign exchange headwind; and the impacts of the World Cup with both Brazil and Argentina, competing in the semifinals. Argentina celebrated a strong local film this quarter, Relatos Salvajes, which was the biggest local film in the last 30 years. However, the film's performance was not enough to overcome 4 strong local films in the third quarter of last year. Turning back to the domestic industry, the recent success in October of Gone Girl, Annabelle and Fury made up for some of the ground lost in July. Year-to-date through the past weekend, the North American industry has declined approximately 3.9%. The fourth quarter is off to a strong start with the aforementioned films, driving a record October for the industry and is currently up 14.1%. We're looking forward to the opening of Big Hero 6 and Interstellar this upcoming weekend. Other films we are optimistic about for the remainder of the quarter include The Hunger Games, Mockingjay Part 1; The Penguins of Madagascar in 3D; Horrible Bosses 2; Exodus in 3D; Hobbit: The Battle of the Five Armies in 3D; Night At The Museum 3; Into the Woods; and Unbroken. We continue to be enthusiastic about the diverse and blockbuster-driven film slate next year, as well as how many of these films should translate well in our Latin American markets, including Cinderella from Disney; Fast & Furious 7, which had its recently released trailer viewed more than 100 million on Facebook in the first 48 hours; Fifty Shades of Grey; Avengers in 3D; Jurassic World in 3D; Inside Out from Pixar Disney in 3D; Minions in 3D; the 24th James Bond film; The Hunger Games -- the final Hunger Games in the series; The Good Dinosaur from Pixar Disney in 3D; Star Wars: Episode VII in 3D; and Mission Impossible 5. What is very encouraging about the 2015 lineup is our studio partners are scheduling films during the shoulder seasons, as well as providing adequate spacing in between films, which creates an opportunity for the films to play to their full theatrical potential. We're also thrilled with the studios' commitment to theatrical releases, announcing their movie dates years in advance. Marvel most recently announced movies into 2019, that's 5 years into the future. Between Marvel and Warner Brothers, there are 29 superhero films to be released in the next 6 years, including Black Panther and Captain Marvel, featuring a super heroine. We continue to capitalize on our XD brand worldwide with a total of 169 screens, 111 domestically and 58 internationally, with the intent of opening an additional 5 to 10 XD screens by the end of the year. We maintain a consistent premium product percentage with the ability to show the biggest 2D or 3D film each week on our XD screens. We do not negotiate XD film selections months in advance and utilize the top-performing film expectations each week to book our XD screens. Our third quarter worldwide premium product percentage was 25.4% of our total admission revenues, versus 22.2% for the prior year quarter. Of that, our XD screens generated nearly 6% of our total admission revenues in the third quarter on 3% of our worldwide screen count. Our optimism on the potential of alternative content continues, especially given the recent success of One Direction: Where We Are. We delivered big numbers both in the U.S. and in Latin American industries. The film was distributed through Fathom in the U.S., where it grossed nearly $3 million. In our Latin American countries, it was booked directly through Flix Media and grossed approximately $2 million. We also exclusively live-streamed the 2014 Riot Games League of Legends World Championship from South Korea in 3 test markets, with multiple sold-out auditoriums. This is especially impressive considering the games, since they played live, played in the middle of the night into the wee hours of morning in the U.S. This one-of-a-kind viewing party allowed fans to watch the gaming event on our big screens in a communal environment with premium snacks. We're also thrilled that our film department was able to negotiate an exclusive Star Wars marathon in Latin America, distributed by Fox and Disney in anticipation of the seventh film's release next year. Based on the success of the Star Wars Marathons in Brazil and Argentina, we hope to roll out the content to other Latin American countries. Again, we do not view alternative content as replacing studio film product but as accretive to the industry. Our investment approach to each market continues to be very adaptive, while staying concentrated on returning 20% EBITDA margins and 20% cash-on-cash pretax ROI. Given the opportunity, we prefer to build new theaters in each market. However, there are certain locations and lease structures where it's more advantageous for us to remodel with premium offerings to maximize utilization of our entire circuit. We continue with our market-adaptive approach and consistently evaluate both our North American and Latin American markets for building new theaters with premium offering opportunities in addition to our luxury loungers, including Reserve, VIP, Movie Bistro, NextGen concepts, in order to maximize shareholder value. Before I conclude my remarks, I'd like to reiterate that both our management team and our Board remain committed to reinvesting in the company. We continue to increase shareholder value through our Latin American market's significant growth opportunity, including correlating ancillary revenue potential, combined with our domestic market strong cash flow, which funds our $1 annual dividend, yielding approximately 3%. Cinemark's strategy to use technology to take cost out of the system and enhance the customer experience with market-adaptive platforms increases utilization across our entire circuit, enabling us to lead the industry in both EBITDA and bottom line results. Sean will now provide more details on the company's financial performance for the third quarter, as well as an overview of our capital structure and information on organic expansion plans.

Thank you, Tim. Good morning, everyone. If I haven't had the opportunity to meet you already, I look forward to doing so in the coming months. Tim already addressed our individual domestic and international box office performance relative to the North American industry in his prepared remarks. On a worldwide basis, our per-screen average marginally trailed the industry by half a percentage point, adjusted for currency fluctuations. A commendable result given the significant 650 basis point domestic industry outperformance we delivered in the third quarter of last year. And while we narrowly missed this quarter, we are proud to have delivered 21 out of 23 consecutive quarters of industry box office outperformance. Diving into the details. Our total worldwide revenues were $646.9 million for the third quarter, of which, worldwide admissions revenues were $402.9 million. Worldwide adjusted EBITDA was $141.7 million, resulting in an adjusted EBITDA margin of 21.9%. As Tim previously highlighted, our disciplined investment approach combined with our operating team's focus on controlling cost, allowed us to sustain our industry-leading adjusted EBITDA margin in excess of 20%, despite the attendance pressures this quarter. In the U.S., total third quarter attendance was 42.8 million patrons, which generated admissions revenues of $290.5 million, a 14% reduction versus last year. The attendance decline was partially offset by 1.6% increase in average ticket price, resulting in an ATP of $6.79. Our domestic concession revenues were $155.3 million, with the concession per patron of $3.63, a sizable 7.4% increase over last year. We've now delivered an impressive 31 consecutive quarters of domestic concession per cap growth through our combo deals, coupons via social media, and new product offerings that provide a more diverse appeal, such as upscale finger foods, adult beverages, and health-conscious options. Total U.S. revenues for the quarter were $416.5 [ph] million within an adjusted EBITDA of $99.5 million and an adjusted EBITDA margin of 21.6%. Outside the U.S., our International segment faced a number of hurdles beyond film products, which Tim already described. Despite those hurdles, our International Box Office outperformed the North American industry on a currency-adjusted basis and delivered $112.4 million in admissions revenues in the third quarter. Attendance for the quarter was 23.4 million patrons and our average ticket price was $4.80. In constant-currency, the average ticket price grew 15%. International concessions also had a strong quarter with revenues of $55.8 million. Concessions per patron were $2.38, a 14.5% year-over-year increase in constant currency. Overall, our international segment generated adjusted EBITDA of $42.2 million, representing a robust 22.7% adjusted EBITDA margin. Shifting back to our combined global company financials. Consolidated worldwide film rentals and advertising cost as a percentage of admission revenues, increased 40 basis points from third quarter 2013 to 53.5%. This increase was mostly driven by a concentration of box office revenues from higher-grossing films this quarter. Conversely, concession expenses improved 20 basis points to 15.9% of concession revenues. Overall, our team effectively managed the variable components of our operating costs in response to reduction in attendance this quarter. Salaries and wages were down 7.2%, facility lease expenses declined 5.3%, and utilities and other costs decreased 6.3%. In a similar manner, our third quarter G&A declined 15.5% to $35.8 million due to reduced incentive compensation expense, the impact of foreign exchange, the sale of our Mexican subsidiary in November of last year, and decreased professional fees. Collectively, total third quarter income before income taxes was $64.1 million, compared to pretax income of $124.1 million in Q3 of 2013. Net income attributable to Cinemark Holdings Inc. was $38.1 million or $0.33 per diluted share. And our third quarter's effective tax rate was 39.9%. With respect to the balance sheet, we ended the quarter with a cash balance of $546.7 million and a net debt position of $1.3 billion, representing a net leverage ratio of 2.2x adjusted EBITDA. Turning attention to the growth of our overall circuit, our U.S. footprint expanded to 333 theaters and 4,473 screens in 40 states and 100 DMAs at quarter end. We built 3 theaters with 37 screens and closed 2 theaters with 20 screens, during the quarter. We have signed commitments to open 3 theaters with 31 screens during the remainder of 2014 and 10 theaters with 112 screens subsequent to 2014. We expect to spend approximately $92 million in CapEx associated with these additional 143 screens. Our international circuit grew to 157 theaters and 1,156 screens in 13 Latin American countries with a presence in 13 of the top 15 largest metropolitan areas, as of September 30. During the quarter, we opened 1 theater and 4 screens and closed 1 screen. As of quarter end, we had signed commitments to open 2 new theaters and 20 screens during the remainder of 2014, and 12 theaters representing 75 screens subsequent to 2014. Our estimated CapEx to develop these additional 95 international screens is approximately $70 million. With regard to our overall CapEx spend for 2014, we are still targeting approximately $275 million to $300 million, which includes the cost of the digital rollout in Latin America completed in April. Marissa, that concludes our prepared remarks. And we now like to open up the lines for questions.

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

I wondered if you could sort of break down the U.S. per cap concession spending increase a little bit? That 7.4% growth was the highest you guys have achieved since your IPO in 2007. So how much of that was, let's say, alcohol sales versus some other new initiatives?

We continue to expand our value couponing and the use of social media and our app and our e-mail -- connection to the customer. If you go back through 2014, you'll see we had in the first quarter, 5.3%; second quarter, 4.9%; and third quarter, 7.4%. And so we've been making significant progress in the connection with the customer. A lot of it is driven by just that connection and up-selling the customer. There's some minor price increase in that. But -- and then, we also have expanded offerings. Alcohol isn't a significant portion of our sales. We have it in a small number of our theaters, but it is not a big part of our circuit.

Do you think alcohol sales -- I mean, it looks like AMC's doing quite well there, Regal is doing quite well. Is this something that could be a lot more prevalent in your circuit?

Well, we continue to evaluate and add alcohol sales where it makes sense. We're also very cognizant of -- that a lot of our markets and a lot of our theaters are very family-oriented and that -- we continue to evolve, and we evaluate that on a market-by-market basis.

Okay. And then one last follow-up for you guys. In terms of your international screen growth, it seems like you're on pace to do 70 new screens this year. So probably don't get to that 100-screen level again. Is there anything going on there that we should be thinking about?

Not really, Eric. There's -- like it does every year, we're shooting for the 100 screens. However, mall development and construction delays can move some projects from the fourth quarter into the first quarter of next year. Obviously we're trying to make it 100 screens this year, but some of those projects might move into the first quarter of next year. But that simply is a usual type of construction delays due to mall development.

Your next question comes from the line of David Miller with Topeka Capital Markets.

Just a couple of questions. You guys sold your Mexican circuit about 1 year ago, if memory serves. What commitment do you have, if any, to kind of get back in the region in a scaled manner? And would you kind of acquire your way in or kind of home grow it? Any details on that or thoughts on that would be great. And then I have a follow up.

Sure. Obviously, we think very highly of the market in Mexico, and seeing the opportunity to exit as simply opportunistic. But we continue to believe in the Mexican market. There's 2 strong local exhibitors there now with Cinemex and Cinepolis. And I don't know if there was an opportunity to reenter the market, either by acquisition or to come in with some market-adaptive approach that might be a little different than our approach that we've had in the past, but right now we have no immediate plans to reenter Mexico.

Okay. Then on the NCM Screen Vision situation, I know there's so much, only so much you can say. You're sort of hamstrung by the process and hamstrung by your attorneys, I would assume. But in your view, is there anything that can be tweaked? Can the deal pass muster with the DOJ if you tweak certain things? And what, in your view, can be tweaked, if anything? I appreciate it.

Well, and I hope you also appreciate that I'm not an attorney or I don't represent either NCM or the DOJ. So we'll let them -- it's really a public company, NCM is. And the entire issue is between them and the DOJ.

Next question comes from the line of Townsend Buckles with JPMorgan. Townsend Buckles - JP Morgan Chase & Co, Research Division: Can you give us an update on how you're sizing the opportunity or need to maybe step up your luxury offerings, like reseatings in U.S.? Regal commented on losing some share to others being more aggressive. Is that something you're seeing as well? And any plans you have at this point for reseatings next year?

We have a number of, what I'd call, premium concepts in the marketplace. And it's VIPs, Reserve, NextGen, Cinemark Bistro. When you look at our circuit right now, that comprises about 6% of our circuit. If you throw in the XD screens and IMAX screens that we operate, that would be about 9% of our circuit. We can see that growing over the next 2 to 3 years to be about 15% of our circuit are premium concepts. But, yes, we are looking at our market. As we said in our call, that we're constantly evaluating each market on an individual basis to see where it might make sense. We really view the recliners as -- or that model impacting as somewhat as a new theater being built in a marketplace. And when we build a new theater or if AMC builds a new theater or competition builds a new theater, it obviously, if you're close to those theaters, it obviously impacts you. A big portion of Cinemark is -- roughly about 90% of it is in what you call noncompetitive zones. But you might still be somewhat impacted on the periphery. Townsend Buckles - JP Morgan Chase & Co, Research Division: Do you feel like the added competition is impacting your market share at all in some of your markets?

Yes. We see impacts, I don't think it's a lot different than the historical impacts of people building in markets. When you go back to even to say to 2006, and you just see whether it's a new theater being built or a recliner being reconverted, or to reposition the marketplace, it really gets in to where these are located, as to how much impact they have on you. But then on a historical basis, we're sort of seeing a similar type of impact going on in the industry, whether it's recliner or new theaters or food concepts coming into the marketplace. They sort of have the same type of historical impact on the market. Townsend Buckles - JP Morgan Chase & Co, Research Division: And just a follow-up on Latin America newbuild outlook. Do you think, Tim, that 100 or more screens is achievable next year? Do you feel any better about that target given you've seen some projects shift out this year? Or is mall development just pushing further out and maybe 75 is a better assumption going forward?

No. In fact, Sean and I just got back from Brazil and Argentina and Chile this past week. We had a great visit. We visited a lot with our local team and went around and seen a lot of the market in development. No, I mean, I fully anticipate that we're -- our goal is for 100 screens again next year.

Your next question comes from the line of Barton Crockett with FBR Capital Markets. Barton E. Crockett - FBR Capital Markets & Co., Research Division: I understand and, of course, respect your inability to talk very directly about what Regal has put out there. But I wanted to ask some questions kind of around the edges, to help us kind of evaluate the situation. And 1 of the things kind of around the edges is, could you tell us what you see as your maximum kind of leverage capacity. If there was a tremendous acquisition out there, how comfortable would you be willing to go in kind of a stretch scenario to lever up and do a deal? And then, secondarily, is there any reason, you think, for more consolidation at the very largest chains to combat potential studio consolidation? Fox, WB? It isn't happening now, but it could have happened, it could come back. Is there any need to get bigger to fight that, do you think, strategically?

Well, first off, on your first question, Cinemark is the least levered and also has probably the strongest cash balance sheet. And we've often told the market that we want to be in a strong market position in case opportunities do present themselves. And so we think we put the company in a position to take advantage of any opportunities that we would be deemed would increase our shareholder value. So from that standpoint, we think we're -- of the exhibition companies, we're in one of the strongest positions. Regarding studio consolidation, we don't see that as a threat. One, I don't know if it happens; but also, we think that they would still put out a similar number of films and you'd have a similar type of platform in the marketplace. But again, I mean, I don't see that happening on a wide or broad basis. Because you have very, very strong companies that own, on a much broader basis, the various studios that make films.

And just to add 1 point on the leverage comment. We wouldn't be opposed to further levering up for the right strategic move. We have levered up in the past. However, it's really been more growth in our EBITDA, rather than any type of intentional delevering effort, that has put us where we are. And as Tim kind of alluded to, we are comfortable with our current position and the flexibility it affords us. Barton E. Crockett - FBR Capital Markets & Co., Research Division: If you were to put a number on that leverage, max scenario for a great deal, I mean, could you go up to 4x, 5x?

Well, obviously, you could. But whether -- again, Cinemark would, you can sort of look at the kind of strategic acquisitions that we've done. I mean, I think, when you look at our track record and acquisitions, we've done some of the best, both from a strategic standpoint and an accretive standpoint, some of the best acquisitions of any of the circuits. And so to us, it has to be a high-quality platform with very sustainable cash flow. And we think that is in -- from our position would be in the long-term interest of our shareholders. But the good thing about Cinemark, we're well-positioned to make those types of decisions and to move in the marketplace where we see the right opportunities. Barton E. Crockett - FBR Capital Markets & Co., Research Division: And if I could just switch gears a little bit. Now that the World Cup is over in Latin America, is theater attendance trends do you think kind of at a normal cadence at this point?

Well, we think we came back [indiscernible] the World Cup -- it even surprised us how well we came through the World Cup. So -- and we tried to tell the market early on that we felt on a -- over the entire year that the World Cup would be sort of a non-event [ph] just like the past World Cups. But we actually came through the quarters that the World Cup had the potential to impact that we actually came through them fairly well. And we think that Latin America, we continue to be really strong believers because when we talk about the product next year coming into the marketplace, the advantage that Latin America has, one, we think the Hollywood products are going to be very adaptive, but there's also the potential for really strong local product to come along, which could even more enhance the performance of Latin America.

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

You guys had such a great concession number inside the U.S. But when I look at the slate, it looks like there was kind of a dearth of family films, certainly animated films. Do you feel like that even held back the concession number? In other words, do you think it could have been higher, if not for the slate the way it is? And then secondly, you mentioned the pacing inside the U.S., which we all track pretty closely. But could you give us what you think the Latin America pacing is quarter to date, year-over-year?

The -- we think a lot of our concession product is driven more by our customer connection and couponing and product mix. And film does vary a little bit to impact that. So -- but obviously, when you look back, and I know, we had a strong quarter this quarter. But when I cited those figures for the last 2 previous quarters, we also had strong concession growth. So we think our reaching out to the customer and also being very conservative in our pricing and trying to upsell the customer rather than just make it a price increases, warrant it. And it's working very, very well for us. Now regarding the, as to how they're spreading them out in the U.S. versus Latin America, a lot of these big pictures will break on a global basis, but sometimes they will adjust around different markets if there is a big national holiday. And so, like a film that might be breaking around the 4th of July here, might vary a little bit in Latin America, because they're trying to adapt to their holidays. But some of these big films, they tend to just break on a global basis all at once.

Did you have a year-over-year growth for the quarter to date in Latin America offhand?

I'll let Sean take that one since he is the numbers guy.

You're talking about growth in box office or are you talking about growth...

Yes. So either -- you can pick Brazil, Argentina, which have the greater weighting? Or if you just kind of give us some sense, because it's obviously the markets that are a little more difficult to track given the number of erroneous data sources out there.

I think what we've seen overall, and I hear you on that. Based on our local teams, it's been fairly -- it varies country by country. In terms of the performance this past quarter, in the aggregate, I think we would say that we've seen our international circuit perform fairly in line with the local industries where they are.

And one thing, when we were down there, that as we went around that sort of surprised me was that Annabelle really performed well in these markets.

Your next question comes from the line of Ben Mogil with Stifel, Nicolaus. Benjamin E. Mogil - Stifel, Nicolaus & Company, Incorporated, Research Division: Sort of like Barton I'm sort of play it close to the edge but not over the edge. The last couple of M&A deals that you guys have done, I've seen a lot of DOJ interest and scrutiny that actually, as you obviously know, forced some rejiggering around the original deal. And now we sort of see the Screen Vision, [indiscernible] again, the Screen Vision-NCM merger. On a higher level, are you seeing the DOJ take a much greater interest in your industry than they have in the past?

No. I mean, historically, the DOJ has always paid close attention to our industry for some reason. And it really sort of amazes me in today's environment because you'll see some huge mergers in that or potential mergers or buys taking place throughout various industries. But for some reason, and probably, goes back to the Fairmont [ph] [indiscernible], they've always paid fairly close attention to our industry. Benjamin E. Mogil - Stifel, Nicolaus & Company, Incorporated, Research Division: And maybe as a follow-up to that, when you -- are there certain geographic clusters at Regal that are attractive to you?

Yes. I mean, Regal is a very attractive company. And the management team at Regal has done a great job building their company. They got really solid margins, to where it's a very attractive company. And we have some overlap with them, obviously. And to answer your question, do they have some markets that would be attractive to us? Yes, they do.

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

I have one for Tim, and one for Sean, if I can. One of the areas of differentiation for Cinemark, Tim, has been your focus on Latin America, but we've also seen you have tuck-in acquisitions in the U.S., like Rave. Can you just update us on your philosophy, overall philosophy, focusing on U.S. deals versus Latin America acquisitions going forward?

It's not a real different philosophy. We have the same philosophy. One, it has to meet our investment [indiscernible] criteria. Also, it has to be, especially in today's environment, high-quality assets and we feel that the cash flow is very sustainable. And so, it's the same philosophy, whether we would be buying in the U.S. or in Latin American. And just to give you some examples of that, with the Century or the 4 Muvico or the Rave transaction we did, were really high-quality assets in the U.S. But if you looked at our type of assets we bought in Latin America -- I don't know if you've ever been to Argentina, but if you went to the Hoyts acquisition in Argentina, you would see it's a really, really high-quality asset.

I just had a quick follow-up there. Are there Latin American opportunities that we should start to think about over the next coming years?

Well, I don't know if there's any specific opportunities, but as we've been building in Latin America these last 20 years, others, both on a small basis or more on a country basis, they've also been building up their assets. And so you do have some good modern platforms in Latin America that would be very attractive to us. Whether they come to market or not is another story. But we do think we're -- when we first entered Latin America, there wasn't a lot of opportunity for M&A activities because of the quality of the existing platforms. But over this past 20 years, there's some really high-quality assets in these countries that would make very attractive acquisitions.

And for Sean, I understand you've only had a limited amount of time to settle in to the new role. Can you just discuss generally your thoughts around capital returns and how that'll play into your thinking as CFO? Whether you have any preference for dividends or buybacks? Or if you could foresee a time where Cinemark could look to do both?

Sure. Thanks for the question, Robert. Look, I'd say one of the many things that attracted me to Cinemark is the company's financial strength, particularly the strong balance sheet that, I think, gives us the ability to act quickly on attractive opportunities when they come up. I'd say, I share the same general belief with the rest of the management team here that really the best way to position the company for long-term success and long-term -- and to build long-term shareholder value is really to reinvest that capital in strategic opportunities that meet the 20-20 kind of a hurdle that Tim described earlier. Really any alternative use of capital, it's ultimately a Board decision. And I can say it is something I know is routinely evaluated.

Your next question comes from Ryan Fiftal with Morgan Stanley.

Just wanted to follow up on the non-film content initiatives. Have you guys had or seen any progress on getting really high-profile non-film content into your theaters? I'm thinking things like sports or major TV premieres or something along those lines? And what's the nature of the conversation you're having with those rights owners? And is there any pushback you're getting for bringing that into your distribution?

No. Thanks for the question. And we do see, obviously, with [indiscernible], along with Regal and AMC, Fathom in the U.S. and hiring a new CEO and a separate management team to really focus on growing the alternative content in the U.S. We see that as a lot of opportunity. And now in the U.S., not that we didn't have some technical ability in the past, but we have a great technology platform. And John Rubey, who is the CEO of Fathom, is out there engaging on a very, very broad basis, all the kind of content that you're talking about. And we have seen some progress. And like even this [indiscernible] test that we did on the League of Legends games to stream it live, to show what kind of results we could get on that type of activity. Also, we've done the test on the World Cup in Latin America. We've done the test on the British Soccer Premium League live into the theaters with NBCUniversal. And so we continue to build the business model. Now that we've got the technology in place, we got to continue to work on the business model. We also -- just even in tennis, we ran a live presentation of Wimbledon into our theaters. And then our Doctor Who event with the BBC grossed over $2 million. And then with pay-per-view boxing, we've had very great, great success with that. So it continues to expand. Probably, one of the most encouraging thing is -- I'm going to -- Fathom is really doing very, very well in the U.S. But when you can see our -- the kind of numbers we did on the One Direction event in Latin America, which we do through our Flix Media platform, and Doctor Who we also played in Latin America, we're achieving probably as good or better results on premium content or alternative content in Latin America as we are on our U.S. screens. And another small example of this is our classic film series, which we developed in the U.S. And it continues to do very well in the U.S. But again, referring back to my visit with Sean and -- to Brazil, and Argentina and Chile, where we've expanded the Classic Series. The Classic Series of classic films are actually doing better in Latin America than we do in the U.S. on the Classic Series. And so we see this as just a question of time as we build the business model. And it holds out a lot of promise for us to -- for access to our screens.

Great. And then maybe one for Sean as well. I believe you came over from the studio side of the house. So I was wondering maybe you could give some thoughts, insights into how you think the studios are thinking about the theatrical window, the sanctity of it, and whether there's any appetite over at the studios to try to revive things that could potentially encroach on the window like either early AST [ph] Or premium VOD or anything along those lines?

Sure. Thanks for the question. The studios are constantly focused on maximizing their profitability. And I think some of their recent issues have been mostly with the clients in the Home Entertainment space, not necessarily with the theatrical space. As I'm sure you know, globally, the exhibition industry is a $36 billion business industry, so -- and it's been growing. I think that the good news is, for the studios, is that the electronic sell-through and subscription video-on-demand, even though there may be small relative to physical, they become significant enough that the total decline for the Home Entertainment space has really been slowing. And I think one of the latest articles released by DG [ph] said that year-to-date, the Home Entertainment space is down less than 1% year-over-year. So I think if that trend continues, with what we've seen, you could actually potentially see growth in that space, somewhere in the near future. So really that has lessened, I think, some of the drive to experiment with the theatrical window, which I think the studios still view collectively as the best way to eventize [ph] the launch of their films, build recognizable brands and ultimately maximize the revenues they can derive from their collective downstream windows. So at least for the moment, I think we're seeing things perhaps lessening, and I could expect that, that might continue for a little while.

Your next question comes from Jim Goss with Barrington Research.

I've got a couple also. First, as you've been talking about the Latin American markets, are there any added acquisition hurdles in dealing with any of your target countries, as an outsider?

They have the same DOJ-type of review in these markets. But since the markets are less-developed than the U.S. market, there's probably not as big a hurdle, but every country would have sort of a similar process as our DOJ process.

Okay. And Tim, when you look at the brand you've established over 2 decades of dealing in most of these countries, is it a very narrowly defined brand? Or do you -- are you trying also to create, say, a core brand and a premium brand? I know you've talked in the past about some of the markets being different dynamically in terms of whether they're in an urban cores, suburbs or that sort of thing, and difference in attendance per screen, ticket prices. But are you attacking it in a brand basis in the bigger countries, like Brazil and Argentina in particular?

Yes. No, I mean, on a brand base, we -- I mean, right from when we first entered Latin America, we focused on the Cinemark brand. And the brand is, by far, the strongest theatrical brand in all our Latin American countries. And in fact, in Brazil, the brand is so strong that if it's a modern theater, it's referred to as a Cinemark, whether it's our theater or not. And so Cinemark is a very strong brand. We are bringing in different concepts under Cinemark, and like we have like 29 VIP platforms internationally, which would be what you're talking about. It's for a more upscale client and upscale markets. And it's throughout Latin America.

Yes, I really meant sort of what does the brand image convey? Is it at a narrow focus or can you broaden it?

Well, it's -- I mean, I think the VIP concept in Latin America is almost a requirement for certain markets and certain theaters. And so -- and that's the recliner lounges, adult beverages, upscale finger foods, sort of a luxury lounge. So that's what the VIP concept is.

Okay. In another area, I was at the Time Warner meeting recently, where they were creating a lot of focus and stepping up their involvement with their DC Comics brand, and especially starting with the Batman v Superman and some other things that are coming on. I'm wondering how you view that from the theatrical industry, it obviously -- they're influenced by Marvel's success. And is it a really exciting development to have another something on that scale?

I mean it's all good news. I mean, especially these are announcements that are starting to announce movies, their platform 5 years out. That's great, great news for exhibition.

Last thing, are there -- just on a housekeeping basis, with this 650 basis point comp you had to deal with in this quarter, are there any upcoming quarters in which we should think about especially large positive or negative comps either domestically or internationally?

No. I mean, in general, like we pointed out, we tend to outperform the industry and have 21 out of the last 23 quarters. But there's no really big hurdles like that, I don't think.

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

This is a little conjectural, but you've always had always new competition in the home. But your next year, Christmas 2015, I think Oculus Rift is really talking up Virtual Reality capabilities for movies; and Sony, Project Morpheus. Do you think that that's something that chips away or do you think that that's very much an enthusiast product on the home side? I mean, you refer to League of Legends as [indiscernible] there's more possibility of the theater becoming kind of your local location-based entertainment destination even beyond what you're doing right now on the digital distribution of movies and some special events?

Well, thank you for the questions. Regarding the in-home market, anything -- I mean, my perspective has always been that anything that goes into the home competes with the in-home. And so if you're now watching the CBS channel, you're watching HBO, or you're watching something on Netflix or -- so anything that goes in the home competes with the in-home platform and doesn't necessarily compete with the theatrical platform. Regarding the gaming industry, we think that's a big potential upside for alternative content. And we're very focused on trying to work with various aspects of this business to bring that gaming fan base into the theaters to where they can have a communal experience. And I think the results we've seen on League of Legends, which was just really watching the championships over in Korea. And the kind of turnouts we got, it was very, very encouraging.

Your final question will come from Eric Wold with B. Riley.

Just kind of going back on the M&A. Back on the second quarter call, you took a little bit more of a positive tone and outlook on the potential for M&A. I'm assuming globally and domestically and abroad. Can you maybe give us your updated thoughts on a couple of things. One, kind of how has that process progressed as you gone through the weak summer? Has that helped bring anyone to the table? Or do you get a sense that a lot of sellers are kind of really optimistic on next year and may wait till they get to maybe the middle part or end of next year to where they think they can get a better valuation? And then secondly, kind of on Regal but on kind of the periphery as well, do you think that if they're in the sale process, they may not be as involved in acquisitions themselves? And if that is the case, would that help you to possibly get a little more aggressive out there with maybe one less bidder in the market?

Yes, well, thank you. Regarding Regal, I mean, I really can't comment on how they might view potential M&As as they go through the process. That's really their company's business. But probably the reason that there's maybe optimism in the marketplace about potential M&A activity is because as you look forward over the next 2 or 3 years in the exhibition business, everybody feels pretty good about it. And if you are a seller, you're probably thinking, hey, this is a good time to come to the market, because there's a lot of potential that a buyer would see, sort of potential upside to it. And so that's what I think might be driving the decisions now. And again, if you're seller, you're probably thinking, well, do I try to get some of that upside before I come to the market or do I go to the market on the basis that there is an upside for the potential buyer? And various groups will have different motivations. But it's a great time for our industry on a broad basis, and I think that the future looks really, really bright.

There are no further questions at this time. I would now like to turn the conference back over to presenters, for any closing remarks.

Well, thank you for joining us on our call. And we look forward to our fourth quarter call. Thank you.

This concludes today's conference. You may now disconnect.