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Cinemark Holdings (CNK) Q2 2019 Earnings Call Transcript

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Cinemark Holdings (NYSE: CNK)
Q2 2019 Earnings Call
Aug 02, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day. My name is Shelby, and I'll be your conference operator today. At this time, I would like to welcome everyone to Cinemark's second-quarter earnings call. [Operator instructions] Thank you.

I would now like to turn the call over to Ms. Chanda Brashears, vice president of investor relations. Please go ahead, ma'am.

Chanda Brashears -- Vice President of Investor Relations

Thank you, Shelby, and good morning, everyone. At this time, I would like to welcome you to Cinemark Holdings Inc's. second-quarter 2019 earnings release conference call hosted by Mark Zoradi, chief executive officer; and Sean Gamble, chief financial officer and chief operating 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 the management team 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.

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A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures can be found in today's press release, within the company's quarterly filing on Form 10-Q or on the company's website, investors.cinemark.com. I would now like to turn the call over to Mark Zoradi.

Mark Zoradi -- Chief Executive Officer

Thank you, Chanda, and good morning, everyone. Thank you for joining us to discuss our 2019 second-quarter results. We're thrilled to report that during the second quarter, we delivered all-time quarterly highs in global revenue, net income, adjusted EBITDA and earnings per share. These achievements were propelled by the strength across our global circuit.

A few noteworthy highlights include: domestic year-over-year box-office results that surpassed the North America industry by over 300 basis points and extended our outperformance trend to 37 of the past 42 quarters; double-digit domestic food and beverage per cap growth of 11%, which produced another new all-time high per cap; a 17% increase in international attendance, which surged over 30 million patrons, our highest quarterly international attendance since we sold our Mexico operation in 2013; and a 49% increase in international adjusted EBITDA. We achieved all these results by capitalizing on the second-quarter strong film lineup, as well as continuing to execute our customer-oriented strategic initiatives. These initiatives center on the guest comprehensive entertainment experience which include: providing top-notch customer service and amenities; enhancing the quality and variety of our food and beverage offerings; and strengthening our targeted and personalized interaction with guests both within and beyond our physical theaters. To provide a better picture, let's dig into the status of several of our key initiatives, starting with Cinemark Movie Rewards.

During the second quarter, we completed the rollout of a modification to the structure of our domestic loyalty program. That modification involved enhancing and combining Movie Fan, our free loyalty tier, along with Movie Club, our paid subscription tier, under a singular Movie Rewards umbrella. Following this change, we have already seen a significant uptick in new enrollments to our free Movie Fan program, with nearly 725,000 new sign-ups during the second quarter, which extends our global loyalty outreach to over 10 million members for whom we are developing more personalized and unique guest experiences to support current and upcoming film content. Meanwhile, growth in results of our paid Movie Club tier continued to exceed our expectation.

Since our prior earnings call in May, Movie Club membership has grown in excess of 20% to a cumulative 800,000 members. This figure equates to more than 2,300 members per theater location. Program satisfaction remains exceptionally high and members continue to cite Movie Club's benefits, value and convenience as key drivers, which include: the ability to roll over unused movie credits; a 20% food and beverage discount; waived online fees; add-on tickets for companions, as well as the ability to share unused movie credits; and a straightforward monthly membership that doesn't require a long-term commitment. Since we launched Movie Club about a year and a half ago, we have sold over 24 million movie tickets through the program.

And during the second quarter alone, Movie Club represented 14% of our domestic box office, spanning all genres and sizes of film. In fact, we saw an uptick in movie credit redemptions during the quarter from 75% to 80%, which is attributable to the strong appeal of the second-quarter film slate, the seasonality of summer moviegoing and Movie Club's ease of use. A fundamental objective of Movie Club is to stimulate incremental theater visits for both frequent and occasional moviegoers, which we are witnessing in our ongoing industry box-office and attendance outperformance, the high sustained utilization of the program observed through credit redemption and the fact that 75% of our members report that they are attending our theaters more frequently since joining Movie Club. Importantly, this stat has held consistent since we launched the program.

Similarly, in addition to incremental trips to the theater, over half of our members report that they are visiting our concession stand more often and are purchasing more products during each visit. We see this behavior validated in the transactional basket size for members that are comparable to nonmembers even though Movie Club's 20% discount, as well as our ongoing domestic per cap growth that is up over 12% year to date. So we're thrilled with Movie Club's continued growth and overall results. When we evaluate our domestic circuit's ongoing box-office performance, sustained ticket price growth and all-time high food and beverage per caps, we see Movie Club along with other key strategic initiatives as a meaningful contributor to our success.

Another key success factor in our expansion and enhancement is our expansion and enhancement of food and beverage offerings, which has led to 50 consecutive quarters year over year in domestic per cap growth. While this quarter's results were super charged by a mix of film content that played right to the sweet spot of concession buyers, our team's many efforts to stimulate incremental consumption was the core driver of sustained growth. Examples of these efforts include: a continued focus on driving core popcorn, fountain drinks and candy volume; our expanded -- our expanding Pizza Hut partnership; new alcohol activations; growth in multicultural fair; new and increased volumes of merchandise; and strategic concession stand designs that encourage incremental impulse purchases and accelerate throughput, to just name a few. We are extremely pleased with the tremendous success our food and beverage and theater operation teams have delivered, and we're continuously experimenting with deploying new innovations to sustain this growth trend into the future.

Two more initiatives that are enhancing our guest experience and also driving growth are the investments we've made in Luxury Lounger recliner seats at our XD premium large-format auditoriums. Luxury Loungers are now featured in 58% of our total domestic theaters, which has the highest penetration among the major exhibitors. Our theaters that have been repositioned with recliner seats continue to yield sizable benefits and customer satisfaction, as evidenced by direct feedback from our guests, as well as the willingness to drive further to enjoy this amenity. Furthermore, we continue to realize sustained list and attendance, ticket pricing and concession purchases at these locations.

As we look forward to the rest of the year, we still anticipate approximately 60% of our domestic circuit will be reclined by year-end. Cinemark XD also continues to deliver outsized results, as guests upgrade to the ultimate premium moviegoing experience it provides with immersive sight and sound technology. In the second quarter, XD generated approximately 10% of our global box office on only 4% of the screens. Moreover, XD achieved a new record, generating more than $50 million in worldwide admission revenue during the second quarter.

XD remains the No. 1 exhibitor branded premium large-format in the world with 263 XD auditoriums across our global platform. Overall, our ongoing efforts to enhance our guest comprehensive entertainment experience were a key ingredient to this quarter's strong financial and operating performance. Before I turn the call over to Sean, I'd like to take just a moment to provide some additional context regarding the overall exhibition industry.

There has been quite a bit of negativity in the news regarding the North America industry's second-quarter box-office results on account of a slight decline from last year and some overinflated expectation. What seems to have been overlooked is the fact that Q2 delivered the second highest grossing quarter of all time with $3.2 billion in box office, and a big reason for the modest decline is because 2Q of last year generated the highest grossing quarter of all time with $3.3 billion in box office. Furthermore, while certain films may have disappointed relative to lofty expectations, others overperformed and delivered stronger results than anticipated. We've seen this time and again that film performance is -- predominantly boils down to the quality and timing of each individual film.

That phenomenon clearly played out this quarter in Latin America. After several quarters of challenging content mix that didn't resonate well with Latin audiences, as well as other places in the world, the second quarter experienced tremendous attendance growth across the region. In fact, Avengers: Endgame became the highest grossing film of all time in Latin America, similar to the rest of the globe, and Toy Story 4 became the highest grossing animated film of all time. Second-quarter growth throughout Latin America underscores the notion that box office more closely correlates to film content than economic or political cycles.

As for the remainder of 2019, we remain enthusiastic about the upcoming film lineup. The third quarter kicked off with a bang as Spider-Man: Far From Home and The Lion King have both delivered over $1 billion in global box office. We've also had strong openings from last weekend's Once Upon a Time in Hollywood and Hobbs & Shaw last night, and we look forward to the much anticipated sequel to It, still to come. We expect third-quarter Hollywood content will also perform well in Latin America, which will be -- which will further benefit from part two of the Brazilian local title Nada a Perder.

In the second quarter last year, part one of Nada a Perder generated over 12 million in attendance, with similar results anticipated for part two. The fourth-quarter slate also looks promising, with Frozen 2, Star Wars: The Rise of Skywalker, Jumanji 2, Ford v. Ferrari, A Beautiful Day in the Neighborhood and Joker, just to highlight a few. I'd like to remind you that both Frozen 2 and Jumanji 2 will not be released this year in our key Latin American territories.

Instead, they're scheduled for January of 2020 to take advantage of school holidays consistent with historical release patterns. So again, considering the exacerbated media coverage regarding the box office this year, we thought it would be helpful to provide that slight drill down into the second, third and fourth quarters. That said, we continue to encourage you to take a longer-term view when analyzing box office and attendance trends as it can be easy to misinterpret the big picture when only focusing on specific films, weekends, quarters or even individual years. North America industry attendance has held steady at approximately 1.3 billion patrons per year, going all the way back to 2010.

And that's during mass adoption of over-the-top streaming services in the home for the past seven and a half years and excludes the full benefit that the industry is starting to realize from its many recent investments in recliner seats, new food and beverage concepts, subscription services and advanced data and marketing tools. Cinemark operates and excels within this stable industry, and we believe some of our key distinguishing factors are our overall financial strength, our operating and investment discipline, the consistency of our results and an ongoing focus on creating long-term shareholder value. Our front-line theater teams around the world are dedicated to providing our guests a truly memorable moviegoing experience in the highest quality out-of-home environment which will generate loyal patrons and continue to deliver consistent results. That concludes my prepared remarks.

I'll now turn the call over to Sean to address a more detailed discussion of our second-quarter financial performance. Sean?

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

Thank you, Mark. Good morning, everyone. Before diving into the details of our second quarter's financial results, I'd like to remind you once again, that as of January 1, 2019, we have fully lapped our transition to ASC 606's revenue recognition accounting standards that took place over the course of 2018. And as discussed last quarter, beginning this year, we implemented accounting pronouncement ASC 842 which impacts lease accounting.

Associated with the adoption of ASC 842, we recorded a new operating lease right-of-use asset and a corresponding right of lease liability of approximately $1.5 billion each. Additionally, a small subset of capital leases have now been converted to operating leases according to the new standards. The transition to ASC 842 has zero impact on net cash flow and minimal impact on net income. However, it does create a slight nonoperational drag on our adjusted EBITDA and operating cash flow metrics.

Additional information about these changes can be found in the footnotes of our 10-Q or in the 8-K we filed on May 7, 2019, in tandem with our first-quarter earnings release. It's important to emphasize that ASC 842 is purely an accounting presentation change, which is largely intended to reflect all lease obligations on the balance sheet. It does not impact cash rent payments, obligations to landlords or any other underlying business or operating fundamentals. Shifting now to our second-quarter financials.

As Mark described, during the quarter, our global company generated all-time quarterly records in total revenues of $957.8 million and consolidated adjusted EBITDA of $244.7 million. Furthermore, our adjusted EBITDA margin reached a second-quarter high of 25.6% even though it was reduced by 60 basis points as a result of the ASC 842 accounting presentation changes. In the U.S., admissions revenues of $407 million were relatively in line with last year's record-setting result and declined by only 0.5%. As Mark already mentioned, this result surpassed the North American industry box office by over 300 basis points and was driven by outperformance in both attendance, which declined 1% to 50.1 million patrons; as well as ticket price, which increased 0.5% to $8.12.

While a higher mix of child tickets and reduced 3D associated with this year's heightened volume of family films created a drag on our average ticket price, overall ATP growth came from strategic increases in core prices, as well as incremental opportunities from recliner conversions. Despite the modest attendance decline during the quarter, total domestic concession revenues grew 10.1% to $274.9 million. This growth can be attributed to our ongoing actions and promotions that are geared toward stimulating incremental consumption, as well as the slate of films that worked particularly well with the most active concession consumers. Collectively, these factors drove concessions per patron up 11.4% versus 2Q '18 to another new all-time high of $5.49.

Similarly, domestic other revenues also grew and were up 21% versus last year, predominantly as a result of increases in promotional and transactional-related income. Overall, our U.S. circuit delivered all-time highs in both total revenues of $743 million and adjusted EBITDA of $195.3 million with an adjusted EBITDA margin of 26.3%. Internationally, admissions revenues were $114.1 million, which increased 14.1% versus last year as reported and 36.2% in constant currency.

International attendance grew 16.7% to 30.1 million patrons, spurred by the favorable film content drivers that Mark addressed earlier. Our reported average ticket price of $3.79 translated to a constant-currency increase of 16.5% that resulted primarily from inflationary price growth, as well as an anomaly that lowered last year's overall average pricing associated with the local title Nada a Perder. International concessions revenues were $70.4 million, which increased 26.4% as reported and 48.1% in constant currency. Our as reported international concessions per patron was $2.34 and grew 26.9% in constant currency as a result of inflation, our strategic food and beverage initiatives and a similar impact that Nada a Perder had on last year's per cap results.

International other revenues were $30.3 million, which increased 24.7% as reported and 52.3% in constant currency. This increase was largely driven by favorable growth in screen advertising and promotional income. Overall, total international revenues grew 19.3% to $214.8 million as reported. Adjusted EBITDA increased 49% to $49.4 million, and our adjusted EBITDA margin was up 460 basis points to 23%.

As expected, foreign currency translation remained a headwind in the second quarter, leading to an approximate 17% drag on our reported financials. And while future currency fluctuations are difficult to predict, if current rates continue to hold, we would expect percentage headwind in the mid-single-digit range for the second half of the year. As a reminder, the vast majority of our international operating expenses are transacted in local currency, including film rental and facility lease payment expenses. So the impact of currency exchange is predominantly translation-based and not transaction-oriented.

Shifting back to our worldwide consolidated results. Second-quarter film rental and advertising costs as a percentage of admissions revenues increased slightly by 20 basis points to 56.6% in comparison to the prior year. Likewise, concession cost as a percentage of total concessions revenues increased by 150 basis points, predominantly as a result of product mix associated with expanded food offerings, as well as merchandise opportunities that benefited from the second quarter's enhanced character-driven lineup of films. As mentioned on prior calls, while these newer offerings tend to create a slight drag on our concessions margin rate, they continue to drive sizable growth in overall concessions revenues and income.

Salaries and wages were 11.4% of total revenues and increased slightly by 10 basis points compared to the second quarter of 2018, predominantly driven by wage inflation and incremental hours to support our varied concessions initiatives. Facility lease expenses as a percentage of total revenues increased by 20 basis points primarily due to new theaters and a $5.7 million year-over-year presentation change associated with the adoption of ASC 842. Conversely, utilities and other costs as a percentage of total revenues declined by 20 basis points as did G&A. Collectively, second-quarter pre-tax income was $140 million.

Our second quarter's effective tax rate was 27.3%, and net income attributable to Cinemark Holdings Inc. was $101 million or $0.86 per diluted share. With respect to our balance sheet, we ended the quarter with a cash balance of $511 million and a net debt position of $1.4 billion. Our net debt improved by $107 million versus prior year as a result of reclassifying certain capital lease obligations to operating lease obligations connected to the new lease accounting guidelines.

Turning attention to our U.S. footprint. We operated 344 theaters and 4,630 screens in 41 states and 102 DMAs at quarter end. During the quarter, we opened two theaters and 24 screens, acquired two theaters and 30 screens and closed two theaters with 20 screens.

We have signed commitments to open two theaters and 24 screens during the remainder of 2019 and nine theaters representing 102 screens subsequent to 2019. We expect to spend approximately $90 million in capex associated with these 126 screens. Internationally, we operated 205 theaters and 1,456 screens in 15 countries across Latin America. As of quarter end, we have signed commitments to open six new theaters and 49 screens during the remainder of 2019 and eight theaters representing 60 screens subsequent to 2019.

We anticipate spending approximately $62 million in capex for these 109 screens. Consistent with our prior comments, we continue to view Latin America as a long-term growth opportunity, and we anticipate adding, on average, 50 to 75 international screens per year in the near term. Regarding overall capex, we spent $57.6 million in the second quarter including $14.2 million on new builds and $43.4 million on existing theaters that was predominantly associated with recliner conversions and other revenue-generating investments. For the full year, we continue to anticipate spending between $300 million to $325 million of capex, of which approximately a third is designated for new builds both domestically and internationally, another third is for core maintenance including certain expenditures to satisfy varied regulatory requirements, and the remaining third is budgeted for cash flow generating projects that include additional Luxury Lounger theater conversions and varied food and beverage initiatives that meet our balanced and disciplined investment thresholds.

We continue to expect annual depreciation and amortization will remain roughly in line with 2018 at approximately $260 million to $270 million as incremental growth associated with new capital expenditures is largely offset by the impact of ASC 842. In closing, we are thrilled with the many all-time high record results we generated during the second quarter. Furthermore, we are highly encouraged by the continued progress of our strategic initiatives that helped deliver this record performance along with the sustained pipeline of promising film content ahead. We remain focused on making prudent investments to position ourselves for ongoing success and to deliver long-term shareholder value while maintaining the financial health of our company.

Shelby, that concludes our prepared remarks, and we would now like to open up the lines for questions.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from Eric Handler of MKM Partners.

Eric Handler -- MKM Partners -- Analyst

Thank you very much, and good morning. Two questions for you, guys. First, with alcohol sales, what percentage of your theaters now sell alcohol? And where can that go to over the next couple of years? And I'll have a follow-up after.

Mark Zoradi -- Chief Executive Officer

Eric, thanks for the question. Eric, we're just under 50% now, about 45%. By year-end, we'll be at about 50% of our theaters offering alcohol, some beer, wine and frozen others with a full bar. We'll continue to grow that.

It's not going to -- there's not a real steep addition to that because there are certain parts of the country that we operate in where we won't -- we'll likely not to add alcohol, for example, in most of Utah, parts of Idaho where we won't. Other places have very restrictive alcohol policies like the state of Washington. Some places, alcohol licenses are just prohibitively expensive, for example, some of the East Coast states. So we'll be at 50% by the end of the year, and we'll continue to grow that in a modest way going forward.

Eric Handler -- MKM Partners -- Analyst

Great. And now that you're increasing your free -- the Movie Fan tier of customers, and you got good growth there, you're up to 800,000 subs for Movie Club, can you talk about some of your push marketing initiatives, and how that's been changing over the last couple of years, and what you're capable of doing now with going through big data?

Mark Zoradi -- Chief Executive Officer

Well, let me start with Movie Fan which you asked about first. Movie Fan, we think, has got tremendous growth opportunities since we just really relaunched this with our new format. We think over the next two, three, four quarters, that we'll see that number continue to grow significantly, domestically as well, as we'll continue to add loyalty programs throughout Latin America. Some countries have them, some don't right now.

From a Movie Club standpoint, we have been very aggressive in marketing, acquiring a lot of our subs from our existing members in our loyalty program but also reaching beyond our walled garden with promotions, with everyone from Coca-Cola Company to AT&T, to Amazon, to Costco. So there is a strong marketing group on our team dedicated to loyalty who will continue to market Movie Club. The way that we design Movie Club in the beginning was to appeal to a very, very broad audience of moviegoers. So most moviegoers in the United States go somewhere between six and 12 times a year.

Obviously, there's some people that don't go at all. But if you're a moviegoer, that's your general -- that's the big audience. And so we designed Movie Club to really be able to attract those people, make it very economically viable for them and the best value. And I think that's why we've seen this consistent growth in Movie Club.

And we think we still have a quite a runway to go on that.

Eric Handler -- MKM Partners -- Analyst

Great. Thank you very much.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

Thanks, Eric.

Operator

Your next question comes from Alexia Quadrani of JP Morgan.

Alexia Quadrani -- J.P. Morgan -- Analyst

Thank you so much. Just two questions. First, just looking at the outperformance in the quarter. Any sense how much was sort of driven by the strategic initiative that you went through versus really just the type of film that may have played better at given where you're located -- where your theaters are located? And then the second question, I just wanted to thank you for the commentary you gave around the overall health of the box office and the concerns around the second-quarter industry performance.

I guess staying on that topic, I would love to hear if you think that there's some truth in what people are saying about maybe just too many sequels and maybe comedy's just really very, very hard to make work.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

Thanks for the questions, Alexia. This is Sean. I'll take the first question, and Mark will do the second. Regarding our outperformance, I would say it's hard to precisely segregate how much came from each action we're doing, but I can tell you that we certainly see benefit continuing to be derived from our recliner performance.

We look at our recliner -- reclined theaters and our recently reclined theaters, we definitely saw some sizable outperformance relative to the industry for those theaters. Obviously, our ticket pricing also was higher than the industry on a whole, so we got some lift there. The content mix definitely did also help us. There's a lot of favorable family content which does well across our circuit.

And then we also have the benefits of Movie Club, which, as Mark mentioned in his prepared remarks, we continue to see stimulating moviegoing. So those are what we look at when we kind of drill into it as some of the driving forces of what led to our outperformance. I would say, the only other thing that we derived a small ticket benefit from is we had fewer close screens for reclining this year relative to last year when we were in a more active reclining mode.

Mark Zoradi -- Chief Executive Officer

Alexia, relative to your question on the box office and sequels, I would say no. I don't think there's too many sequels. I think it's a matter of what does the audience want and what are they willing to -- get out of their home and go pay their $10 to $12 to $13 to go see. And in the second quarter, there was really a mix of that.

Clearly, you had Avengers as dominating the second quarter and probably Toy Story 4, but those were highly satisfying movies. And Avengers was not only the massive box-office success but also a critical success and an audience pleaser, and the same goes with Toy Story 4. And then there was Yesterday, which was really a fresh new movie that performed very well. And as we look -- as we're looking at the quarter that we're in right now, you have Once Upon a Time in Hollywood, which has come out and done -- and has had a really good start; and then of course, Lion King, which is a CGI sequel follow-up to the original hit from the '90s, again, extremely audience satisfying.

So I think what the studios are trying to do is to try and look and say, what are people wanting to go see and what are they willing to generate the desire to leave the home and go out? And that's what they're providing. And whether that's a new movie or whether it's a sequel, I don't think that really matters. You look into the fourth quarter, boy, you got Ford v. Ferrari, A Beautiful Day in the Neighborhood, along with the sequel to Frozen.

So a couple of new and a couple of sequels.

Alexia Quadrani -- J.P. Morgan -- Analyst

Thank you very much.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

Thanks, Alexia.

Operator

Your next question comes from Eric Wold with B. Riley.

Eric Wold -- B. Riley FBR -- Analyst

Thank you. Good morning. I'll avoid any asking any questions on domestic. As you all know, the industry is going nowhere.

So might as well go elsewhere.

Mark Zoradi -- Chief Executive Officer

By the way, we appreciate your comments, Eric, and what you've written.

Eric Wold -- B. Riley FBR -- Analyst

So a couple of points on Latin America. You've obviously had weakness there in attendance for some time. Last year, you had the World Cup and the Brazil trucker strike in the second quarter. So I don't want to dwell too much on one quarter doing extremely well.

But are you starting to see anything in attendance or spending patterns down that would indicate that it was more just than an easy comp in Q2 as much as you're starting to see a pivot toward stronger trends in the region?

Mark Zoradi -- Chief Executive Officer

Eric, I think it's both things, as you said. I mean clearly, we had the trucker strike last year, so that was good relative to comparison. But the more important thing is that the movies just lined up well. There was a strong content of a family based product.

Toy Story did incredibly well in the United States. But you know what? It was the biggest animated movie of all time in Latin America. And in Argentina, not only the biggest animated movie, it was the biggest movie of all time, live action or animated. So when you have movies that really line up well with the desires of the people, that's the kind of thing you get.

And then of course, Aladdin did very well there as well, and Avengers did very well. So you had action/adventure and you had strong family content, and that's what we're really seeing going into the third quarter as well. So I think it's very much content-driven that drove the box office in Latin America.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

And I'll just add to what Mark said. When we've kind of dug into some of the prior years, we've just seen softness in some of those core categories that really played to the live audiences in family and horror. Those clearly came back this year. The other thing too, in particular to last year, a lot of the films that helped drive the U.S.

box office and created this disconnect for Latin audiences, they just didn't resonate with Latin audiences. They were just -- they were very kind of U.S.-oriented or just non-Latin oriented and that kind of propelled it, whereas we've seen more of the types of mix that really speaks to that audience. So just to reinforce what Mark said, it boils down heavily to the playability of the film content in that market. And then there's the ebbs and flows of local content, too, where we saw Nada a Perder in the second quarter of last year.

We got the benefit of that coming back in the third quarter of this year. So that's also going to be something that's going to really help prop up the region as we turn into this quarter.

Eric Wold -- B. Riley FBR -- Analyst

OK. And I know it's difficult down there given the variety of countries you operate in, but what are your thoughts on in Movie Club-like offering down there, some kind of heightened loyalty program? Is that something you think would work in that region?

Mark Zoradi -- Chief Executive Officer

Eric, we actually have a version of a Movie Club program currently up and running in Argentina. It's doing very well. And we are actively looking at doing other forms of a Movie Club subscription offer in our major territories down there. One thing that I learned a long time ago in the international business is there's a lot of right ways to do it.

So we're going to take the concept of Movie Club, and Argentina created their own version of it which is right for Argentina. And Brazil will adapt it at a little bit to make it right for Brazil as well. So we're already active and up and running in Argentina, and Brazil is not far behind.

Operator

Your next question comes from Jim Goss of Barrington Research.

Jim Goss -- Barrington Research -- Analyst

Good morning. First, I try not to say this very often but I thought those were impressive results especially in the context of challenging comps and the FX headwinds you're dealing with. But I would ask with the -- you addressed a little of one of my questions of the average attendance per year, I think, tends to be about three to four people, but you said in terms of moviegoers, more like six or 12. And since you're stimulating incremental attendance, I'm wondering where you think that six to 12 can head from the experience you've had.

And do you think you're fairly far along capturing the audience you think you got for the Movie Club itself?

Mark Zoradi -- Chief Executive Officer

Jim, I'll take the second part of the question first. I think we're probably at the very most in the middle innings. I think we still have a long ways to go with Movie Club. I mean we've continued to see strength literally each and every week and each and every month to grow it, and we've got significant marketing and promotional opportunities to continue to do so.

And we really have aimed at the big, broad audience of American moviegoers with the concept of Movie Club. So I think we still have a way to go.And your first question was --

Jim Goss -- Barrington Research -- Analyst

The average moviegoer.

Mark Zoradi -- Chief Executive Officer

Yeah, average moviegoer. Yeah, I think we can continue to grow it. I mean we're seeing in the research that Movie Club members are telling us over and over again, we do regular research that they're going to the movies more often since becoming a Movie Club member. And we're seeing also that Movie Club members are going to upwards of three times more than non-Movie Club members.

So every time we can get a Movie Club member and somebody has credits on their phone that they pre-paid for, and they can get their tickets with no online fees, and they can bring a friend with them, if that friend's not a member and they get there and they can get a 20% discount, we're just -- we've made it frictionless for the audience. So we think that the incrementality of additional ticket sales were seen specifically between members and nonmembers and members reporting that they're in fact going more since becoming Movie Club members.

Jim Goss -- Barrington Research -- Analyst

OK. And I'm also wondering on the concession per patron gains you've made, what are the key drivers, U.S. and international? And you were just talking about that a little bit, the impact of the Movie Club 20% discount on these metrics?

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

I'll take that. When you kind of break apart -- at least this quarter's growth in per cap, I'll speak to domestic, I'll concentrate on that, but it's basically directionally the same, Jim. We look at about -- about half of the per cap growth came from volume this quarter. About 35%, we kind of look at, came from new categories and distribution techniques, a lot of those new instance driving initiatives that we're pursuing and about 15% came from price.

A lot of the volume, and let's say even some of the support from the initiatives-based lift, was helped by what we talked about earlier on just the mix of content. That mix was really played well to concession buying, particularly with regard to merchandise. So we were able to lean into that heavily. So those are the things that have been kind of driving that both domestically, internationally.

We think this quarter is particularly boosted by just how well the content laid out. But as you've seen, we've had a pretty long track record of growing that per cap growth. Our CAGR has generally been in the 5% to 6% growth range, and that's something that while it's a tough hurdle, we'd like to think that that's probably a bit more of a sustainable range.

Jim Goss -- Barrington Research -- Analyst

OK. And lastly, screen advertising in Latin America. You talked about that in the past that you're developing your own program. I wonder where you stand in that, judging by the comments you just made.

And to what degree are you able to involve competitors in terms of the numbers of relationships or number of screens?

Mark Zoradi -- Chief Executive Officer

Jim, relative -- our screen advertising company in Latin America is called Flix. It actually has been very successful. We're continuing to add independent theaters change as affiliates. We are the No.

1 screen advertising company from south of Mexico down, because we don't operate Mexico obviously. We also have gained Cinepolis as an affiliate in some of our southern continent countries. So the fact that we have not only Cinemark, where we're the dominant exhibitor in Argentina and Brazil and very strong in Chile, we've also added quite a few affiliates so that we are the No. 1 screen advertising company in Latin America.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

I'll just add, a big driver of that other revenue growth, it's about 52% in constant currency for international is the effect of, what Mark just talked about, bringing those third parties into the Flix network where that gets reported in that line.

Operator

Your next question comes from Alan Gould of Loop Capital.

Alan Gould -- Loop Capital -- Analyst

Thank you for taking the question. I've got a few. First, on free cash flow and capex. CapEx is down 29% the first half of the year, yet the free -- the capex guidance has not changed, which implies capex is sort of close to what it was second half last year.

Just want to confirm that that is as back-end loaded this year as that implies.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

On the capex, yeah, we still think that is the case. In some of our new builds, which that's -- those are heavy capex consumers, some of those have kind of shifted. It's something we continue to look at. There is the possibility for that to drift on the low end of that scale, perhaps a bit lower.

But at the time -- for the time being, we're still optimistic that most of those are going to fall in-year. But yeah, we just kind of look at things, it's definitely drifting toward the lower end of that range at the moment.

Alan Gould -- Loop Capital -- Analyst

OK. And secondly, Regal has now opened or is about to open a movie club in the U.S. Do you think that has a big impact on you?

Mark Zoradi -- Chief Executive Officer

I mean look, anytime there's -- Regal's a good competitor, and we've had Movie Club in the marketplace for -- since December of 2017. It was the first exhibitor-sponsored subscription program. And there are some markets in which we compete head-to-head with Regal, not as many as AMC does. The Regal program is much more in line and similar to the AMC program than it is to Movie Club.

So anytime you have a competitor come out with a big marketing plan, of course, it's going to affect you a little bit, but I don't think it's going to be dramatic for the two reasons. One, it's a different program. It's really centered on the mega heavy moviegoer, those that are going three and four times a month. We're focused on the more general frequent moviegoers who go six to 12 times a year.

So I don't think it will have a big impact on us, but of course, it will have a slight impact in a couple of markets that we compete with.

Alan Gould -- Loop Capital -- Analyst

OK. And my last question, Mark, I appreciate your industry comments. I know the strong -- the 4Q, looks like it has a strong lineup. But I'm just wondering, what do you think the impact of Disney launching its OTT service and what looks like the release of some of Netflix's larger firms in the fourth quarter will have on you and the industry in 4Q?

Mark Zoradi -- Chief Executive Officer

Alan, the one thing that we have seen over and over again is that people who watch a lot of television at home, whether it's streaming or network television, those people also are people who actually leave the house and enjoy out-of-home entertainment the most. So we think that Disney doing their Disney+ can be complementary to us. It's clearly what we see in the research. And so from a Netflix standpoint, really this is business as usual for Netflix.

They've got a couple of more high-profile films this year. But Netflix bread and butter is serialized television. And so we're not concerned about that because at the end of the day, people want to get out of their house and enjoy a social environment in which to see movies, and we've seen it very consistently. As mentioned, during all the streaming that's happened over the last five, six, seven years, whether it was Hulu, Amazon, Netflix, we've had a relatively consistent amount of attendance overall in the business.

So with all the improvements that we've made, and certainly our competitors have made in improving the moviegoing experience, we think that we're going to continue to operate in a relatively stable business. And Disney is going to be, I think, actually a good partner in continuing to promote the theatrical moviegoing experience. They have been the most consistent supplier for us, and they continue to tell us that that's going to continue into the future. It certainly is, as we look forward to years 2020, '21.

They've announced that they're going to have a Star Wars or an Avatar in each corresponding year, there's going to be a couple of Pixars, there's going to be Disney live action. So I think Disney is very, very much committed to the theatrical business and now they're getting into the direct-to-home business as well.

Operator

Your next question comes from Meghan Durkin of Credit Suisse.

Meghan Durkin -- Credit Suisse -- Analyst

Hi. Good morning. I have two questions for Mark. I appreciate your comments on Regal's new plan.

Can you just remind us maybe what you saw in the Movie Club subscriber trends when AMC launched in 2Q '18?

Mark Zoradi -- Chief Executive Officer

That's a good point. Yeah. OK.

Meghan Durkin -- Credit Suisse -- Analyst

And then I'll just get in my questions now. Can you talk a little bit about the impact you could see on the business long term from CEOs maybe releasing fewer movies over time? I think investors seem to be worried that Disney's cutting Fox out, but in that others that could reduce their output. So do you have any visibility on 2020 and how many films there will be in the market and over time where that will go?

Mark Zoradi -- Chief Executive Officer

OK. Megan, let me take the first one relative to effect on Movie Club when A-List came out. Actually, the data shows that we continue to grow right through the introduction of A-List. And I think one of the reasons why, goes back to, that it really is designed for a different moviegoing audience.

A-List or Unlimited are designed specifically for that mega moviegoer who wants to go two and a half to four each and every month, and that's a relatively small segment of the audience. The majority of people, like I said, go six to 12 times a year. And so we did not see a downturn in our growth pattern when A-List came up. So that tells us that we -- I don't think we're going to see it with Regal's plan as well.

Relative to the number of movies that are made, this is not a numbers game. I had the good fortune of -- I was at Disney when we were making 20 and 24 movies a year across all these multiple different labels, and we cut that. It was really either strategy to cut down the numbers of movies but concentrate on making really big high-profile movies. And we all seen what Disney and Alan Horn and the Iger team have been able to put forward.

So this is not a numbers quantity game. This is a quality game, and we continue to see that. And as we look to 2020, we think it's a good strong lineup. It's hard to call and put a box office to it at this point, but Pixar has announced two really strong movies, Onward and Soul.

Marvel's come out with Black Widow and Eternal. Disney's got three big live action movies plus an untitled Disney animation. And then you have Wonder Woman coming from Warner Brothers, and Fast and Furious from Universal, and Minions from Universal and the next Bond and the next Top Gun and Conjuring and Birds of Prey. So we're seeing here relatively early in 2020 and are optimistic.

The one thing that you just never know is you never know what that big breakout is going to be. Sitting in our chair, none of us would've called Black Panther to do $700 million and nor would have anyone called It to be the breakout hit that it was or even Wonder Woman to be the breakout hit that it was. So we have a pretty good insight into the ones that are coming, and we're optimistic about others because there's always one or two surprises. It just is the movie business.

Operator

Your next question comes from Robert Fishman of MoffettNathanson.

Robert Fishman -- MoffettNathanson -- Analyst

Good morning. I have one for Mark and one for Sean. Mark, any updated thoughts on implementing dynamic or variable ticket pricing initiatives at your theaters? Or are you just solely focused on the Movie Club at the moment?

Mark Zoradi -- Chief Executive Officer

We're looking at that. I can't tell you that -- I can't give you any plans for it, but we're looking at it. And it all depends on how you define dynamic pricing. Right now we have a very steep variable pricing model.

So that if you go on Friday and Saturday night, usually there's a little bump in the Friday and Saturday night price off of what it would have been on Sunday through Wednesday. So you could call that some form of dynamic pricing. We currently do it. And then obviously during the week, we also price lower on Tuesdays.

We give student discounts, we give senior citizen discounts. So there's a pretty steep variable pricing mode in order to get those who are price-conscious, the ability to get in and see the movie either on a Tuesday or earlier in the day. And if you want to come Friday or Saturday night, currently, you're already paying a little bit of a premium. And as we go forward, we will continue to look at more directly dynamic pricing.

But I'm not in a position to talk about or to announce anything forthcoming.

Robert Fishman -- MoffettNathanson -- Analyst

OK. Fair enough. And for Sean, can you talk about whether you're seeing any improvements on the new screen development in Brazil specifically?

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

Can you just clarify, Rob, what you said in development?

Robert Fishman -- MoffettNathanson -- Analyst

Sorry. So just in terms of the development pipeline in Brazil, how the economic backdrop is potentially improving.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

Sure. Sure. I would say, we still have a healthy backlog of projects. And again, as you know, those are all tied to malls.

So it's really what's the backlog of mall development in the region. So that still exists. I wouldn't say we've seen a meaningful change thus far, driven by the economy in terms of those projects starting to ramp up significantly. So I think there's still a degree of developers in waiting mode just to kind of see how the health of the economy ultimately plays out.

So the projects are there, but I'd say it's still somewhat stalled just in terms of the development, particularly within Brazil.

Operator

Your next question comes from Ben Swinburne of Morgan Stanley.

Ben Swinburne -- Morgan Stanley -- Analyst

Thanks. Good morning. Hey, Mark, I was wondering if you guys have done -- I mean I'm sure you have, but if you want to share any data on kind of cohort analysis of the Movie Club trends since you've launched it? In other words, when you look at some of these KPIs that you guys focus on, like incremental visits or incremental attendance per member and basket size lift, what do those trend lines look like over the 18 months as you track people who come in the system? I'm just wondering if this selection bias that's sort of, those with the highest propensity to go more, joins first. Or if anything, maybe it's the opposite because you're getting better at it and better at marketing? Just any you can share there as we look at the sort of impact of this on your overall attendance continuing to grow? I would be interested in any insights that you could share.

Mark Zoradi -- Chief Executive Officer

Ben, let me do two things. One, and you didn't really ask about this and I'm not going to give you a specific number, but I do want to say I think one of the real standouts for Movie Club, and I think it's because of the rollover aspect where you never lose the benefit of it, so if you don't use it for a month or two, they build up. So their -- our sustainability has been very, very high with a very low churn rate, lower than what you would expect for this kind of program. We're not disclosing that exact amount but you can just take it that it's significantly on the low side.

Relative to a metric that I think is also very important in the whole concept is people join the club for a variety of reasons. Some people, because of the rollover; some people because they don't want to pay online ticket fees; but some people, because they want the concession discount. And when we researched Movie Club, we researched 10%, 15%, 20%, 25%. And at the 20%, that's when it became a needle-mover, and that's when people -- it really became important to them.

So that's what we did. We knew we were taking a risk, but what we found is that the basket size of a Movie Club member versus a non-Movie Club member is about the same. So that means, by definition, Movie Club members are spending 20% more because they're getting the 20% discount. And then the thing that's really made it payoff is that the number of people that are going to the concession stand has increased.

So we have a higher incident rate with Movie Club members. So net-net, it has turned out to be a positive not only on attendance but net-net a 20% discount has turned out to be positive on food and bev as well. So I think those, kind of, are couple of the things you are looking for that are really critical in the success and why we're so enthusiastic about what can come in the future as well.

Ben Swinburne -- Morgan Stanley -- Analyst

That makes sense. And just following up into your industry comments, Mark, I know you said it's not a numbers game and appreciate that. But I couldn't help but notice an interview with John Stankey this week where he talked about actually taking Warner Brothers output up to 30 films potentially a year. I didn't know if that sounded familiar to you, who know a lot more about their plans that we do.

I'd just be curious if everyone's been talking about Disney potentially shrinking Fox, but there's also been a big change at Warner's with a new CEO. I'm curious if you have any insights you maybe want to share there. And then I have to ask at least if you have any plans to distribute The Irishman in the -- later this year since that's obviously, as you have mentioned, a high-profile film that wanted some distribution.

Mark Zoradi -- Chief Executive Officer

I really can't speak about Warner Brothers' strategy because I don't have any particular insight there. I think the only thing that they have said is Warner Brothers has said that because they've got a lot of outlet and outlets -- that focusing on content and additional content for their multiple outlets is important to them. And by the way, Disney's doing the same thing. They may only be making 10 or 12 or 13 or 15 titles for theatrical, but they're going to increase their output for Disney+ the same way that Disney used to do direct to videos and direct to DVDs and direct to the Disney channel.

Disney is actually going to be increasing their output, it's just among various channels. So I think that in some ways, that's consistent. It's just how you add it up. As it relates to The Irishman, we would welcome to play The Irishman.

And we've stated that very congenial way multiple times to Netflix. The only issue, it comes down to, that Netflix is one potential supplier of theatrical motion pictures. And so the only thing we ask is that they play from a window standpoint consistent with our major suppliers, whether that be Disney or Warner Bros. AT&T or Comcast Universal.

So to the extent that they're willing to do that, we welcome them at all of our theaters.

Operator

[Operator instructions] Your next question comes from Chad Beynon of Macquarie.

Chad Beynon -- Macquarie Research -- Analyst

Good morning. Thanks for taking my question. Mark, Sean, clearly your strategy is industry-leading given the results that you continue to disclose here on a quarterly basis. And your loyalty program, as you've touched on today, appears to be working really well.

So does this make you think differently about M&A in the U.S. given your performance, the potential uplift you could have on other screens and in your current balance sheet, which might provide some capital to some theaters that haven't been able to roll out strategic initiatives like you have? Or is that just harder given that the boxes won't have your original DNA? Thanks.

Mark Zoradi -- Chief Executive Officer

Chad, we are literally every month open to M&A. Historically, we have been very disciplined buyers relative to M&A. And so to the extent that a family circuit came on the market -- or obviously, we're in contact with these people before they ever come on the market. And it can be purchased at a price that we're willing to pay, we're more than willing to do it.

But we don't see the strategic value of just rolling up if we have to pay a price that is at or above our current multiple. So we're very open to it not only in the United States but also in Latin America, and we've done some small acquisitions. But I don't think our strategy is going to change relative to being very disciplined buyers relative to the value of it. Sean, you may want to add something on that?

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

The only other thing I would add is along the same lines that Mark has told you, we also tend to prefer kind of quality assets. We find that rather than taking like a distressed asset and trying to apply some of our stuff to it, the challenge you get is you'll never know how deep those problems go and they can become a huge distraction to the larger portion of the business. So when we go after M&A, it's got to be a strategic fit. It's got to be financially accretive, and we generally are looking for things that are good assets.

So we continue to look for that. But I wouldn't say we materially are changing our view on M&A because of these types of programs. If anything, to the extent we do some, we did a small tuck-in this past quarter, and we'll apply those to it and we just like to think that it'll add some added benefit to it.

Chad Beynon -- Macquarie Research -- Analyst

And then my follow-up, more short term. Just wanted to drill into the potential impact from Nada a Perder for the third quarter, which I believe is coming out in two weeks here. Can you see any advanced ticket purchasing? I don't know if that's readily available in that market. Just trying to understand the pressure on pricing for the third quarter and in international and potentially the pressure on margins because I believe in 2Q '18, there were a number of other things going on but there is definitely massive pressure on pricing and that kind of went down into the margin line as well.

Mark Zoradi -- Chief Executive Officer

I'll pick this up, and Sean may add some detail to it. This is a great opportunity for us. But along with that great opportunity, these tickets, many of them are actually purchased by the church entity for their members. And in doing so, they're buying them in big bulk group purchases.

So there is some lowering of price because they're being bought in such big quantities. And then also, when many of those people come, we see that the per caps weren't quite as high as per caps of normal moviegoers. So although the previous one did 12 million admissions, and we expect this one to be very successful as well, I don't know if it's going to be 12 million admissions, but we think it will be very successful especially in Brazil and also Argentina. There will be some lowering of the average ticket price on all those people.

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

And I would just -- just to give some context, obviously last year, we saw -- in constant currency, we saw price be a year-over-year modest negative as was concession per patron, largely driven by Nada. We think this current film could perform at similar levels to the prior film and we'll see. I'd say the other thing that, though, will help offset that is when we just look at the Hollywood content this year versus last year. We believe it has stronger potential.

So while Nada will clearly create a bit of a drag on certain metrics like pricing and concession, it may not be as steep as last year because of the overall performance we propped up by the Hollywood content. And keep in mind too, from a margin standpoint, while it creates a drag on those metrics, it adds a tremendous amount of attendance into the mix, which is very beneficial to the overall margins of the company.

Mark Zoradi -- Chief Executive Officer

The lineup for the third quarter for Latin America is strong: Spider-Man, Lion King, Hobbs & Shaw, It 2. So we're optimistic about the third quarter in Latin America.

Chad Beynon -- Macquarie Research -- Analyst

Okay. Thank you very much, and congrats on a great quarter here.

Mark Zoradi -- Chief Executive Officer

Thank you.

Operator

We have no other questions in queue. I'd like to turn the call back over to the speaker for closing remarks.

Mark Zoradi -- Chief Executive Officer

Thank you all very much, for joining us this morning, and look forward to speaking with you again during our third-quarter earnings call. Thanks again. Bye now.

Operator

[Operator signoff]

Duration: 68 minutes

Call participants:

Chanda Brashears -- Vice President of Investor Relations

Mark Zoradi -- Chief Executive Officer

Sean Gamble -- Chief Financial Officer and Chief Operating Officer

Eric Handler -- MKM Partners -- Analyst

Alexia Quadrani -- J.P. Morgan -- Analyst

Eric Wold -- B. Riley FBR -- Analyst

Jim Goss -- Barrington Research -- Analyst

Alan Gould -- Loop Capital -- Analyst

Meghan Durkin -- Credit Suisse -- Analyst

Robert Fishman -- MoffettNathanson -- Analyst

Ben Swinburne -- Morgan Stanley -- Analyst

Chad Beynon -- Macquarie Research -- Analyst

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